UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended September 30, 1999March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to _________________
Commission File Number: 0-20671
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
_______________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 75-2533518
_______________________________________________________________________________________________________________________________
(State or other jurisdiction(I.R.S.jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
8080 North Central Expressway, Dallas, Texas 75206-1857
_____________________________________________________________________________________________________________________________________
(Address of principal executive offices)(Zip Code)
214/891-8294
_____________________________________________________________________________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ _____----- -----
4,142,942 shares of common stock outstanding at September 30, 1999.May 15, 2000.
The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Assets and Liabilities
(Unaudited)
Assets
Assets
December 31, 1998 September 30, 1999 March 31, 2000
----------------- --------------
Cash and cash equivalents $ 2,573,144 $ 6,535,8235,086,040 $13,230,600
Accounts receivable 361,374 242,842
Accounts receivable-brokerage -0- 5,355224,283 179,732
Investments at marketfair value, cost of
$36,828,731$34,457,935 and $36,220,712 39,251,507 41,909,633
Organizational costs, net of accumulated
amortization 83,820 -0-$36,180,473 41,346,302 68,173,271
Other assets 52,880 72,37368,497 61,361
----------- -----------
$42,322,725 $48,766,026$46,725,122 $81,644,964
=========== ===========
Liabilities and Net Assets
Liabilities:
Accounts payable - related parties $ 218,079111,708 $ 1,643,1682,188,410
Accounts payable - trade 214,100 37,685affiliate 213,390 1,985,181
Dividends payable 414,845 1,484,137465,718 -0-
----------- -----------
847,024 3,164,990790,816 4,173,591
----------- -----------
Net Assets:
Common stock, $1 par value; 20,000,000
shares authorized; 4,342,942 issued,
4,143,448
and 4,142,942 outstanding 4,342,942 4,342,942
Additional paid-in capital 36,258,896 36,258,896
Treasury stock at cost, 199,494200,000 shares at
December 31, 19981999 and 200,000 shares
at September 30, 1999 (1,661,439) (1,665,219)March 31, 2000 (1,665,220) (1,665,220)
Undistributed net investment income 2,535,302 6,664,4176,997,688 38,534,755
Net assets, equivalent to $11.09 and
$18.70 per share on the shares
outstanding on December 31, 1999 and
March 31, 2000, respectively 45,934,306 77,471,373
----------- -----------
Net assets 41,475,701 45,601,036
----------- -----------
$42,322,725 $48,766,026$46,725,122 $81,644,964
=========== ===========
Net asset value per share $10.01 $11.01
====== ======$ 11.09 $ 18.70
=========== ===========
See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1998March 31,
1999 1998 19992000
----------- ------------ ----------- ------------
Investment Income:
Interest $ 571,179494,545 $ 145,033 $ 1,755,956 $ 960,521365,529
Dividends 7,994 26,301 7,994 341,198236,164 29,874
Other investment income 22,500 (27,361) 413,488 (27,064)(9,328) 76,250
---------- ----------- ----------- ----------- ------------
Total investment income 601,673 143,973 2,177,438 1,274,655721,381 471,653
---------- ----------- ----------- ----------- ------------
Expenses:
Amortization 31,433 0 93,275 83,820 -0-
Bank charges 6,088 6,575 15,862 17,2665,330 8,734
Directors' fees 11,500 15,500 50,000 43,50014,000 14,000
Legal and professional 13,876 40,077 71,538 91,15328,315 63,893
Management fees 170,261 229,104 627,979 674,956210,462 347,506
Taxes -0- (878)
Other 27,852 41,494 128,607 179,95440,389 50,292
---------- ----------- ----------- ----------- ------------
Total expenses 261,010 332,750 987,261 1,090,649382,316 483,547
---------- ----------- ----------- ----------- ------------
Net investment income 340,663 (188,777) 1,190,177 184,006339,065 (11,894)
Realized gain on investments 0 5,430,972 2,504,583 9,255,363-0- 6,444,540
Unrealized gain (loss) on investments (9,763,815) (4,008,753) (5,264,079) 3,266,135
----------- ----------- -----------6,084,720 25,104,421
---------- -----------
Net increase (decrease) in net assets
resulting from operations $(9,423,152) $1,233,442 $(1,569,319) $12,705,504
===========$6,423,785 $31,537,067
========== =========== ===========
See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Changes in Net Assets
(Unaudited)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1998March 31,
1999 1998 19992000
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from operations
Investment income - net $ 340,663339,065 $ (188,777) $ 1,190,177 $ 184,006(11,894)
Realized gain on investment 0 5,430,972 2,504,583 9,255,363investments -0- 6,444,540
Unrealized gain (loss) on investments (9,763,815) (4,008,753) (5,264,079) 3,266,135
----------- -----------6,084,720 25,104,421
----------- -----------
Net increase (decrease) in net assets
resulting from operations (9,423,152) 1,233,442 (1,569,319) 12,705,5046,423,785 31,537,067
Distributions to shareholders (424,763) (5,178,677) (3,739,378) (8,576,389)(331,935) -0-
Cost of shares repurchased (24,405) 0 (866,860) (3,780) ----------- ------------0-
----------- -----------
Total increase (decrease) (9,872,320) (3,945,235) (6,175,557) 4,125,3356,088,070 31,537,067
Net assets
Beginning of period 48,194,123 49,546,271 44,497,360 41,475,701 ----------- -----------45,934,306
----------- -----------
End of period $38,321,803 $45,601,036 $38,321,803 $45,601,036$47,563,771 $77,471,373
=========== =========== =========== ==========
See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
September 30, 1999March 31, 2000
1. Organization and Business Purpose
Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a Texas
Corporation,corporation, was incorporatedformed on January 20, 1994,1994. The Fund offered to sell shares
in the Fund until closing of the offering on December 31, 1994. The
Prospectus of the Fund required minimum aggregate capital contributions by
shareholders of not less than $2,500,000 and had no operations
prior to June 24, 1994.allowed for maximum capital
contributions of $100,000,000. The Fund seeks to achieve current income and
capital appreciation potential by investing primarily in convertible
debentureunregistered equity
investments and convertible preferred stock investmentsissues of small and medium size companies which
are in need of capital and which the FundRenaissance Capital Group, Inc. ("Investment
Advisor") believes offeroffers the opportunity for growth. The Fund is a
non-diversified closed-end investment company and has elected to be treated
as a business development company under the Investment Company Act of 1940,
as amended ("1940 Act").
2. Significant Accounting Policies
A. Federal Income Taxes - The Fund intends to electhas elected the special income tax
treatment available to "regulated investment companies" under Subchapter
M of the Internal Revenue Code ("IRC") in order to be relieved of federal
income tax on that part of its net investment income and realized capital
gains that it pays out to its shareholders. The Fund's policy is to
comply with the requirements of the Internal Revenue CodeIRC that are applicable to regulated
investment companiescompanies. Such requirements include, but are not limited to
certain qualifying income tests, asset diversification tests and
distribution of substantially all of the Fund's taxable investment income
to its shareholders. It is the intent of management to distribute all of
its taxable investment income and long term capital gains within the
defined period under the IRC to its shareholders.qualify as a regulated investment
company. Therefore, no federal income tax provision is required.included in the
accompanying financial statements.
B. Distributions to Shareholders - Dividends to shareholders are recorded on
the ex-dividend date. The Fund declared no dividends during the quarter
ended March 31, 2000. On April 7, 2000, the Fund declared a $1.25 capital gain dividend which wasof
$1.54 per share payable August 31, 1999June 9, 2000 to shareholdersholders of record as of August
10, 1999.at May 26,
2000. The ex-dividend date was August 6, 1999. This dividend was
from gains made on the sale of part of the Fund's common stock position in
JAKKS Pacific, Inc. and the closing of the purchase of TAVA Technologies,
Inc. by Real Software, Inc. for $8.00 per share.is May 24, 2000.
C. Management Estimates - The financial statements have been prepared in
conformity with generally accepted accounting principles. The
preparation of the accompanying financial statements requires estimates
and assumptions made by management of the Fund as to the valuation of
investments that affecteffect the reported
amounts of assets and liabilities as ofdisclosures in the date of the statements of
financial
condition and income and expenses for the period.statements. Actual results could differ significantly from thosethese estimates.
D. Financial Instruments - In accordance with the reporting requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," the Company calculates the fair
value of its financial instruments and includes this additional
information in the notes to the financial statements when the fair value
is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no
additional disclosure is made.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2000
3. Organization Expenses
In connection with the offering of its shares, the Fund paid Renaissance
Capital Group, Inc. (the "Investment Adviser") organizational expenses of
$623,544. Such expenses wereare deferred and amortized on a straight-line
basis over a five-year period. These expenses were fully amortized in a
prior period.
4. Investment Advisory Agreement
The Investment AdviserAdvisor for the Fund is registered as an investment adviseradvisor
under the Investment AdvisersAdvisors Act of 1940. Pursuant to an Investment
Advisory Agreement, the Investment AdviserAdvisor performs certain services,
including certain management, investment advisory and administrative services
necessary for the operation of the Fund. The Investment AdviserAdvisor receives a
fee equal to .4375% (1.75% annually) of the Net
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1999
4. Investment Advisory Agreement (continued)
Assets each quarter. The
Fund accrued a liability of $229,104$347,506 for such operational management fees
performed during the quarter ended September 30,
1999.March 31, 2000.
In addition, the Fund has agreed to pay the Investment AdviserAdvisor an incentive
fee equal to 20% of any net realized capital gains after allowance for any
unrealized capital loss of the Fund. This management incentive fee is
calculated on a quarterly basis. In the thirdfirst quarter, the Fund realized
capital gains of $6,788,716$8,055,674.79 on the sale of 90,0002,846,154 shares of JAKKS Pacific,
Inc. common stockSimtek
Corporation, and the saleredemption of the fund's entire investment in TAVA
Technologies,Optical Security Group, Inc.
convertible debenture. The gain is shown on the accompanying statement of
operations net of the $1,357,744$1,611,135 management incentive fee payable to the
Investment Adviser.Advisor.
Finally, the Investment Advisor is reimbursed for administrative expenses
paid by the Investment Advisor on behalf of the Fund. Such reimbursement was
$17,180 for the quarter ending March 31, 2000, and is included in general and
administrative expenses in the accompanying statement of operations.
5. Capital Share Transactions
As of September 30, 1999March 31, 2000 there were 20,000,000 shares of $1 par value capital
stock authorized, 4,342,942 shares issued, 4,142,942 shares outstanding, and
additional paid-in capital aggregating $38,936,619. Year-to-date transactions inThere are no capital
stock are as follows:
Shares Amount
Balance December 31, 1998 4,143,448 $38,940,399
Shares repurchased (506) (3,780)
--------- -----------
Balance September 30, 1999 4,142,942 $38,936,619
transactions during the current year.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2000
6. Related Party Transactions
The Investment Adviser is reimbursed by the Fund for certain administrative
expenses under the Investment Advisory Agreement. Such expenses were
$25,513 for the quarter ended September 30, 1999.
7. Temporary Investments
Temporary investments are currently held in a money market fund made up of
U.S. Treasury obligations and in U. S. Government and Agency obligations
having slightly higher yields and maturity dates of three months or less.
These investments qualify for investment as permitted in Section 55(a) (1)
through (5) of the 1940 Act.
8. Investments
The Fund invests primarily in convertible securities and equity investments
of companies that qualify as Eligible Portfolio Companies as defined in
Section 2(a)(46) of the 1940 Act or in securities that otherwise qualify for
investment as permitted in Section 55(a)(1) through (5). Under the
provisions of the 1940 Act at least 70% of the Fund's assets, as defined
under the 1940 Act, must be invested in Eligible Portfolio Companies. In the
event the Fund has less than 70% of its assets in eligible portfolio
investments, then it will be prohibited from making non-eligible investments
until such time as the percentage of eligible investments again exceeds the
70% threshold. These stocksinvestments are carried
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1999
8. Investments (continued)
onin the Statementstatements of Assetsassets and
Liabilitiesliabilities as of September 30, 1999March 31, 2000 at fair value, as determined in good faith
by the Investment Adviser. SomeAdvisor. The convertible debt securities held by the Fund
are unregisteredgenerally have maturities between five and their value does not
necessarily represent the amounts that may be realized from their immediate
sale or disposition. Some investments held by the Fundseven years and are convertible
into the common stock of the issuer at a set conversion price.price at the
discretion of the Fund. The common stock acquired upon exercise of the conversion featureunderlying these securities is
generally unregistered and is thinly to moderately traded, but is not otherwise
restricted. The Fund
generally may register and sell such securities at any time with
the Fund paying the costs of registration, althoughregistration. Interest on the convertible
securities are generally payable monthly. The convertible debt securities
generally contain embedded call options giving the issuer the right to call
the underlying issue. In these instances, the Fund has the right of
redemption or conversion. The embedded call option will generally not vest
until certain conditions are achieved by the issuer. Such conditions may
require that minimum thresholds be entitledmet relating to demand
registrationsunderlying market prices,
liquidity, and other registration rights which vary from investment to
investment. The preferred stock positions often have call options, usually
commencing three years subsequent to issuance, at prices specified in the
stock purchase agreements, and typically have a dividend right.factors.
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Bentley Pharmaceuticals, Inc.
12%Common Stock $ 1,536,029 $ 7,785,900 $ 7,708,040
CEREUS Technology Partners, Inc.
Common Stock 512,500 1,819,375 1,660,212
Warrants to purchase 4,000 shares -0- 794,375 746,713
Communications World Intl., Inc.
8% Convertible Debenture 744,800 1,040,000 1,029,600
Common Stock 791,229 1,635,300 1,618,947250,000 687,500 646,250
Warrants to purchase 100,000 shares 2,000 352,500 281,350
Dexterity Surgical, Inc.
9% Convertible Debenture 1,500,000 1,500,000 1,500,0002,062,500 1,888,750
8% Convertible Preferred Stock 1,000,000 890,626 890,6261,000,000 1,000,000
Common Stock 500,000 148,438 146,954635,000 357,500 336,051
Display Technologies, Inc.
8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000
5.25% Convertible Preferred Stock 500,000 500,000 500,000
Common Stock 878,189 764,969 757,3201,049,741 915,798 906,640
Warrants to purchase 105,000126,000 shares -0- -0- -0- Warrants to purchase 15,000 shares -0- -0- -0-
The Dwyer Group, Inc.
Common Stock 1,966,632 1,687,500 1,670,625
eOriginal, Inc.
5% Convertible Preferred Stock 1,738,700 1,738,700 1,738,700
Warrants to purchase 659 shares 165 165 165
Fortune Natural Resources Corp.
12% Convertible Debenture 350,000 464,437 459,793
Grand Adventures Tour & Travel
Publishing Corp.
10% Convertible Debenture 350,000 350,000 350,000
Integrated Security Systems, Inc.
Promissory Note 115,000 115,000 115,000
Convertible Promissory Note 375,000 375,000 375,000
9% Convertible Debenture 2,084,101 2,084,101 2,084,101
Common Stock 215,899 184,831 182,983
Warrants to purchase 689,299 shares 3,750 3,750 3,750
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1999
8.-0-
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2000
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
The Dwyer Group, Inc.
Common Stock 1,966,631 1,940,625 1,921,219
eOriginal, Inc.
5% Convertible Preferred Stock,
Series B-3 107,280 107,280 107,280
5% Convertible Preferred Stock,
Series B-1 392,700 392,700 392,700
5% Convertible Preferred Stock,
Series A 1,500,000 1,500,000 1,500,000
Warrants to purchase 659 shares 165 165 165
Fortune Natural Resources Corp.
Common Stock 545,500 909,146 841,094
Warrants to purchase 200,000 shares -0- -0- -0-
Grand Adventures Tour & Travel
Publishing Corp.
10% Convertible Debenture 350,000 666,667 576,667
Common Stock 130,089 227,500 225,225
Integrated Security Systems, Inc.
Promissory Notes 490,000 520,601 496,265
9% Convertible Debenture 2,084,101 2,254,170 2,133,955
9% Convertible Preferred Stock 150,000 133,605 133,605
Common Stock 215,899 233,517 231,182
Warrants to purchase 814,299 shares 3,750 20,071 19,092
Interscience Computer Corporation
8% Promissory Note 500,000 500,000 500,000
Common Stock 4,000,000 1,312,500 1,299,3754,625,000 17,156,250 16,744,062
Warrants to purchase 500,000 shares -0- -0- -0-
Warrants to purchase 250,000 shares -0- 62,500 8,750
Intile Designs, Inc.
Common Stock 500,000 31,250 31,250500,000
JAKKS Pacific, Inc.
Common Stock 3,738,125 17,383,688 17,209,850
NewCare Health Corporation
8.5% Convertible Debenture 2,500,000 2,500,000 250,000
Options -0- -0- -0-
Optical Security Group, Inc.3,324,126 12,644,670 12,518,223
Laserscope
8% Convertible Debenture 500,000 500,000 500,0001,500,000 2,362,560 2,170,806
Medical Action Industries, Inc.
Common Stock 555,392 580,000 574,200
Play by Play Toys & Novelties, Inc.
8% Convertible Debenture 2,500,000 2,500,000 2,500,000
Poore Brothers, Inc.
9% Convertible Debenture 1,718,094 2,147,618 2,018,761859,047 1,610,713 1,514,070
Common Stock 154,628 229,079 165,3341,104,123 2,010,580 1,839,945
Warrants to purchase 25,00085,000 shares -0- 6,250 5,87544,375 41,713
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2000
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
RailAmerica, Inc.
6% Convertible Debenture 500,000 500,000 500,000
Warrants to purchase 15,000 shares -0- -0- -0-
Simtek Corporation
9% Convertible Debenture 750,000 750,000 750,000Common Stock 195,000 2,281,300 2,094,422
SiVault, Inc.
Common Stock 350,000 350,000 350,000
ThermoView Industries, Inc.
10% Convertible Preferred Stock 250,000 150,000 150,000
Common Stock 250,000 156,250 96,874500,000 131,250 73,375
Voice It Worldwide, Inc.
8% Convertible Debenture 2,450,000 2,450,000Investment 3,496,400 2,459,400 750,000
Common Stock 1,046,400 440,672 -0-
Warrants----------- ----------- ----------
$36,180,473 $72,062,593 $68,173,271
Generally, pursuant to purchase 500,000 shares -0- -0- -0-
---------- ---------- ----------
36,220,712 46,852,624 41,909,633
========== ========== ==========
procedures established by the Investment Advisor, the
fair value of each investment will be initially based upon its original cost to
the Fund. Costs will be the primary factor used to determine fair value until
significant developments affecting the investee company provide a basis for use
in an appraisal valuation. The fair value of debt securities and preferred
securities convertible into common stock is the sum of (a) the value of such
securities without regard to the conversion feature, and (b) the value, if any,
of the conversion feature. The fair value of debt securities without regard to
conversion features is determined on the basis of the terms of the debt
security, the interest yield and the financial condition of the issuer. The
fair value of preferred securities without regard to conversion features is
determined on the basis of the terms of the preferred security, its dividend,
and its liquidation and redemption rights. The fair value of the conversion
features of a security, if any, are based on fair values as of this date less an
allowance, as appropriate, for costs of registration, if any, and selling
expenses. Publicly traded securities, or securities that are convertible into
publicly traded securities, are valued at the last sale price, or at the average
closing bid and asked price, as of the valuation date. While these valuations
are believed to represent fair value, these values do not necessarily reflect
amounts which may be ultimately realized upon disposition of such securities.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(1) Material Changes in Financial Condition
The following portfolio transactions are noted for the quarter ended September
30, 1999March 31,
2000 (portfolio companies are herein referred to as the "Company"):
Display Technologies,Bentley Pharmaceuticals, Inc. (DTEK)(BNT) In the thirdfirst quarter ended March 31,
2000, the Company called all of 1999,its outstanding 12% Convertible Senior
Subordinated Debentures due February 13, 2006. Upon notice of the call, the
Fund invested an additional $500,000 intohad the Company by purchasing 5,000 shares of
the Company's Series A Cumulative Convertible Preferred Stock (the "Preferred").
The Preferred pays dividends at a rate of 5.25% per year from July 30, 1999,
the date the Preferred was issued, which are payable quarterly on the last day
of March, June, September, and December of each year commencing on the first
such dividend payment following the issuance. The Preferred is convertibleoption to convert its debentures into common stock of the Company
at thea rate of $3.50$2.50 per share subjector to downward
adjustments inhave the event the Company issues, sells, distributes, or otherwise
transfers sharesdebentures redeemed at a value equal
to 105% of par plus accrued interest, which equaled $1,050 per $1,000 worth of
debentures plus accrued interest. The Fund chose to convert all of its
common stock, other than the resultdebentures, having a principal amount of exercise of
options, warrants, or conversion rights outstanding on the original issuance
date, for a consideration per share less than the conversion price in effect
immediately prior to such issuance. The Preferred has a liquidation preference
equal to 100% of the dollar amount invested by the Fund, has voting rights equal
to the number of whole$800,000, into 320,000 shares of common
stock, into whichincreasing the Preferred is
convertible at the conversion price then in effect, and further entitles the
Preferred Shareholders to vote as a single class. The Preferred shall be
redeemed on the fifth anniversary dateFund's total ownership of issuance or in the event of a
"default" as defined in the Certificate of Designation of Series A Preferred
Stock. Finally, the preferred will automatically be converted into the
Company'sBentley common stock at the then prevailing conversion price if the closing
price for the Company's common stock for a period of twenty consecutive trading
days following the second anniversary of the original issuance date exceeds
200% of the conversion price then in effect.
As additional consideration for the Fund's agreement to invest in the
Preferred, the Fund received warrants to purchase 15,000 shares of the Company's
common stock at $3.50 on or before July 30, 2004.
In addition to the Fund's investment in the Series A Cumulative Convertible
Preferred Stock and warrants of the Company,865,100
shares.
Renaissance US Growth and Income Trust PLC ("RUSGIT") also converted its
remaining debentures in the Company into shares of common stock pursuant to the
redemption provisions of the Convertible Debenture and Loan Agreements.
CEREUS Technology Partners, Inc. (CEUS) In the first quarter of 2000, the
Fund invested $500,000$512,500 into the Series A Cumulative
Convertible Preferred Stock102,500 shares of CEREUS common stock and also
received warrants to purchase 15,000102,500 shares of the Company's common stock. The
common stock position is unregistered and restricted from transfer pursuant to
Rule 144 of the Securities Act of 1933. The warrants are exercisable at $10.00
per share on or before February 2003 and are subject to a call provision
allowing the Company to call the warrants at any time following the date of
issuance if the Company's common stock is bid at a 100% premium to the exercised
price of the warrant for twenty consecutive business days. The warrant call
provision will not take effect until after one year from the February 2000
issuance date unless a registration statement covering the shares of common
stock underlying the warrants is then in effect. The Fund does have piggyback
registration rights with regard to both the common stock and the warrants.
Also in the first quarter of 2000, RUSGIT purchased 102,500 shares of CEREUS
common stock and 102,500 warrants to purchase the Company's common stock under
the same terms and conditions as the Fund's investment.
Dexterity Surgical, Inc. (DEXT) In the first quarter of 2000, the Fund had
the conversion price on its convertible debenture reduced from $1.60 per share
to $1.00 per share and also agreed to take payment of interest owing on the
debentures in common stock of the Company at a rate of $1.00 per share. The
total shares received for the interest was 135,000 shares, and represents
interest the Company is obligated to pay from February 1, 2000 through January
31, 2001.
RUSGIT also had the conversion price on its convertible debenture reduced
from $1.60 to $1.00 per share and also agreed to take payment of interest in
shares of the Company's common stock under the same terms and conditions as the
Fund.Fund's agreement.
eOriginal, Inc. (Private) In the secondfirst quarter the Company raised
sufficient equity capital allowing it to forceof 2000, the Fund invested an
additional $107,280 to convert its $219,250
Bridge Loan plus $19,450 in accrued interest intopurchase 447 shares of the Company's Series B-1
Preferred Stock.
In addition to the conversion of the Fund's Bridge Note into Series B-1
Preferred, the Bridge Note and accrued interest of RUSGIT was converted into
Series B-1 Preferred Stock of the Company.
Grand Adventures Tour and Travel Publishing Corp. (GATT) In the third
quarter, the Fund invested $350,000 into the Convertible Debentures of the
Company. The Debentures accrue interest at 10% payable quarterly and mature
on the fourth anniversary of the date of the initial closing. The Debentures
are convertible into the Company's common stock at $2.65 per share for any
portion of the debentures the Fund converts on or before September 21, 2000.
For any portion of the debentures converted after September 21, 2000, the Fund's
conversion price is $2.50 per share. The debentures are redeemable by the
Company at any time after the later of one year from the date of the initial
closing or the first day after which, at the close of the trading on the ten
preceding days, the per share "bid" price is at least $7. The Debentures offer
its holders demand and piggyback registration rights, with demand rights only
being available if a majority of holders of Debentures file the requisite
registration statement, and also contain some standard anti-dilution provisions.
In addition to the Fund's investment in the Convertible Debentures of the
Company, RUSGIT also invested $400,000 in the Company's Convertible Debentures
under the same terms and conditions as the Fund's investment.
Integrated Security Systems, Inc. (IZZI) In the third quarter, the Fund
advanced $115,000 to the Company pursuant to a 9% Promissory Note. The
principal balance and all accrued unpaid interest on the Note is due and payable
on or before May 12, 2000 and the Note is secured by the assets of the Company
and its subsidiaries, which security is subordinated to the Company's credit
facility with the Frost National Bank.
Subsequent to September 30, 1999, the Fund advanced an additional $150,000
to the Company to purchase 7,500 shares of its Series DB-3
Cumulative Convertible Preferred Stock (the "Preferred"). The Preferred
accrues dividends
cumulatively at a rate of 9% to be paid at four equal quarterly installments on
December 31, March 31, June 30, and September 30, beginning with December 31,
1999, and entitles the holderFund to a 5% cumulative dividend as well as voting privileges equal to one vote for each
share of common stock into which the Preferred is convertible. The Preferred
converts into common stock at a rate $0.80 per share, is redeemable by the
Company at its option at any time on or after November 15, 2004,rights and carries a
liquidation preference equal to 100% of the dollar amount invested by the Fund.
As additional considerationThe Preferred also contains anti-dilution provisions, provides for automatic
conversion into the Company's common stock in the event of a qualified initial
public offering, and may be redeemed by the Company at any time after December
31, 2000 in an amount equal to 125% of the Fund's liquidation preference. The
Preferred is convertible into the Company's common stock at $240 per share.
In addition to the Fund's investment in the Preferred, Stock,RUSGIT also invested
an additional $107,040 to purchase 446 shares of the Company's Series B-3
Cumulative Convertible Preferred Stock. With the exception of the dollar amount
invested, the investment was made under identical terms and conditions as the
Fund's investment.
Fortune Natural Resources Corporation (FPXA) In February 2000, the Fund
agreed to convert all of its convertible debentures, having a cost basis of
$350,000, into 1,061,728 shares of the Company's common stock. As additional
consideration for the Fund's willingness to convert, it received warrantsone year's
worth of future interest payments on the debentures paid in common stock of the
Company at $0.75 per share, giving the Fund an additional 56,000 shares.
Finally, the Fund agreed to convert interest that had accrued on the debentures
in January 2000 into common stock of the Company at a rate of $0.75 per share
giving the Fund an additional 4,666 shares of common stock.
Also in February 2000, the Fund agreed to invest an additional $150,000 to
purchase 125,000200,000 shares of the Company's common stock at $1.00$0.75 per share on or before October 11, 2004.
RUSGIT also invested $115,000 pursuant to a 9% Promissory Note inand as
additional consideration the third
quarter. In addition, RUSGIT purchased $150,000 of the Company's Series D
Cumulative Convertible Preferred Stock andFund received warrants to purchase 125,000
shares. All200,000 shares
of thesethe Company's common stock on or before February 2003. Warrants on 100,000
shares are exercisable at $1.50 per share while warrants on the second tranche
of shares are exercisable at $2.25 per share. These positions are all
unregistered securities and are restricted from transfer pursuant to Rule 144
of the Securities Act of 1933.
RUSGIT also participated in the debenture conversion and further invested an
additional $150,000 to purchase 200,000 shares of the Company's common stock and
200,000 warrants. The conversion as well as the new investments were made by RUSGIT under
the sameidentical terms and conditions as the Fund's conversion and investments.
Integrated Security Systems, Inc. (IZZI) In January 2000, the Fund agreed
not to convert or receive scheduled principal repayments on the debenture
obligations due from the Company for the period December 1999 through March
2000.
RUSGIT also agreed not to convert or receive scheduled principal repayments
on the debenture obligations of the Company from December 1999 through March
2000 under identical terms and conditions as the Fund's agreement.
CaminoSoft Corporation (aka Interscience Computer Corp.) (IEIC) In the
thirdfirst quarter of 2000, the Fund advancedexercised its 250,000 share warrant by paying
the Company $500,000 pursuant to an 8% Promissory Note which matures October 31,
2000. The Note is secured by the assets of the Company and is subordinated only
to the Company's senior lender. As additional consideration$125,000 in exchange for advancing the
Company money, the Fund received warrants to purchase 250,000 shares of IEIC
common at $0.50 per share on or before July 3, 2001.
JAKKS Pacific, Inc. (JAKK)stock. In
the third quarter,February 2000, the Fund sold 90,000
shares of common stock resultingparticipated in proceeds of $2,770,018.44, or $30.78 per
share, representing a gain of $2,252,518.44. At September 30, 1999, the Fund
still owned 463,565 shares having a cost basis of $3,738,125.13. Also in the
third quarter, the Fund converted its entire preferred stock investment having
a cost basis of $3,000,000 into 335,195private placement by purchasing an
additional 250,000 shares of the Company's common stock a ratefor $500,000. The
shares are unregistered and are restricted from transfer pursuant to Rule 144 of
$8.95 per share.
NewCare Health Corp. (NWCAQ) In the third quarter, the Fund took
additional reserves on itsSecurities Exchange Act of 1933.
At December 31, 1999, RUSGIT did not have an investment in the Company, reducing its valuation to
$250,000 at September 30, 1999. The Company is in bankruptcy.
Play By Play Toys & Novelties, Inc. (PBYP)Company.
Subsequent to September 30,
1999, the Company closed on a refinance of its senior lending facility and
simultaneously restructuredyear end, RUSGIT participated in the termsCompany's February 2000
private placement by investing $1,000,000 to purchase 500,000 shares of the
Fund's Convertible Debentures. As
a resultCompany's common stock. With the exception of the refinancing,amount invested, RUSGIT's
investment was made under identical terms and conditions as the Fund's
investment in the private placement.
Laserscope (LSCP) Effective February 11, 2000, the Fund amended itsinvested $1,000,000
in 8% Convertible Debentures so that
interest now accrues at 10.5% and the maturity of the Debentures is now
December 31, 2000. In addition, the Fund was granted security interests in all
the assets of the Company, maturing February 11, 2007, and its subsidiaries and had the conversion price on
the Debentures reset to equal the lesser of (a) $16.00 per share and (b) the
greater of (i) $6.00 per share and (ii) the average closing price of the common
stock for the trading days included in the thirty day period beginning on the
date following the date of the closing of the refinance. Further, a second
reset will occur if the Debentures are not redeemed in full on or before
December 31, 2000. As consideration for the restructuring of the Fund's
Debentures, the Fund agreed to waive the Company's default position and
restructure covenants contained in the Debentures.
Poore Brothers, Inc. (SNAK) Subsequent to September 30, 1999, the Company
changed its trading symbol from POOR to SNAK.
RailAmerica, Inc. (RAIL) In the quarter ended September 30, 1999, the
Fund invested $500,000 in Convertible Debentures of RailAmerica, Inc. The
Debentures bear interest at 6%, are due and payable on or before July 31, 2004,
and are
convertible into the Company's common stock at $10$1.25 per share, which
conversionshare. The debentures
have mandatory monthly principal repayments beginning February 11, 2002 and
continuing on the first day of each successive month thereafter prior to
maturity, and are secured by substantially all of the assets of the Company.
The debentures may be redeemed by the Company at 101% of par if certain price
and volume thresholds are met, as defined, and other conditions are met relating
to the market for the Company's shares including, but not limited to, a full
registration of the underlying shares. The redemption right is subject to certainthe
Fund's right to convert the debentures into the Company's common stock. The
debentures have standard anti-dilution provisions. The Company
may, at its option, redeemprovisions and also contain a one-time
adjustment to the outstanding principal amount of the Debentures
in whole or in partconversion price if the Company fails to meet its budgeted
pretax income level for the year ending December 31, 2000, and the closing bid
price per share of the common stock as reported
ondefined is below the NASDAQ National Market is above 200%Fund's conversion price in
effect at the time of the conversion price for ten
consecutive trading days, subject to adjustment as set forth in the Convertible
Debenture Agreement. As additional consideration for the Fund's investment, the
Company granted the Fund warrants to purchase 15,000 shares of the Company's
common stock at $10.50 per share on or before August 5, 2004.automatic reset.
In addition to the Fund's investment in the Company, RUSGIT also invested
$500,000$1,500,000 into the subordinated8% Convertible Debentures of the Company, and also received warrants to
purchase 15,000 shares of the Company's common stock, which investments wereinvestment
was made under the sameidentical terms and conditions as the Fund's investment.
Voice It Worldwide,Medical Action Industries, Inc. (MEMOQ)(MDCI) In the thirdfirst quarter of 2000, the
Fund purchased an additional 56,200 shares of the Company's common stock on the
open market for $202,268, or $3.60 per share.
RUSGIT also purchased an additional 56,200 shares of the Company's common
stock on the open market in the first quarter of 2000 for $202,268, or $3.60 per
share.
Simtek Corporation (SRAM) In the first quarter of 2000, the Fund converted
its entire $750,000 debenture position into 3,846,154 shares of the Company's
common stock. Also in the first quarter, the Fund took
additional reserves onsold 2,846,154 shares of the
Company's common stock pursuant to Rule 144 of the Securities Act of 1933 and
realized proceeds of $8,565,675, representing a gain to the Fund before
incentive fees of $8,010,675.
RUSGIT also converted its investmentsentire debenture position into 3,846,154 shares of
the Company's common stock in the first quarter of 2000, and also sold 2,846,154
shares in the open market realizing identical proceeds and gains as the Fund.
Voice-It Worldwide Inc. (Liquidating) Effective January 19, 2000, the
Bankruptcy Court approved a joint liquidation plan for the Company, which
liquidation is proceeding. We cannot say when the liquidation and reduceddissolution
will be complete, but we expect it to occur sometime this year. We are also
unable to quantify the amount of recovery to the Fund at this time, but we are
following the matter closely and at this time we estimate the recovery to be at
least $750,000, the fair value of all itsthe Voice It investments on the Fund's
portfolio at March 31, 2000. We will continue to $750,000 at September 30, 1999. The Company is in
bankruptcy.closely monitor the situation
and reassess the value of the Fund's position as events warrant.
(2) Material Changes in Operations
The Fund had a netNet investment loss of $188,777income decreased $350,959 for the quarter ended September 30, 1999,March 31,
2000 in comparison to net investment income of $340,663 booked by
the Fund in the third quarterthree months ended September 30, 1998, a decrease of $529,440.March 31, 1999. This reported
decrease is primarily attributable to a reserve taken of prior accrued
income on the Voice It Worldwide, Inc. and the NewCare Health, Inc. portfolio
investments along with a conversion of debt instrumentsinvestments to common
stock resulting in a decrease of current income.income, along with an increase in
operating expenses resulting from appreciation in portfolio assets. During the
thirdfirst quarter, the Fund experienced $4,008,753$25,104,421 of unrealized lossesgains resulting
from a decreasean increase in the fair value of its investments.
Pending investment in portfolio investments, funds are invested in temporary
cash accounts and in government securities. At March 31, 2000, all of these
funds were held either in a money market fund made up of U.S. Treasury
obligations or in triple-A rated obligations backed by the full faith and credit
of the U.S. Government.
During the quarter ended September 30, 1999,March 31, 2000, the Registrant paid capital gains
dividendsdividend
distributions to shareholders in the amount of $302,896, which represent$497,307. On April 7, 2000, the
Fund declared a dividend of $1.54 per share payable from the previous quarter.June 9, 2000 to holders of
record at May 26, 2000. The Registrant also accrued a
capital gains dividend payable to shareholders in the amount of $5,178,677, of
which $3,694,540 has been paid to shareholders, and $1,484,137ex-dividend date is being used to
purchase Fund shares pursuant to the Dividend Reinvestment Plan.
(2)May 24, 2000.
(3) Year 2000
Many computer software systems in use today cannot process date-related
information fromIn prior years, the Company discussed the nature and after January 1, 2000. The Investment Advisor has taken
steps to review and modify its computer systems as necessary and is prepared for
the Year 2000. In addition, the Fund has inquiredprogress of its major service
providers as well asplans
to become Year 2000 ready. In late 1999, the Company completed its portfolio companies to determine if they areremediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in the
process of reviewing theirmission critical
information technology and non-information technology systems with the same goals. The majority of all
providers and portfolio companies have represented that they are either taking
the necessary steps to be prepared or are currently prepared for the Year 2000.
Should any of the computerbelieves those
systems employed by the major service providers, or
companies in which the Fund has an investment, fail to process this type of
information properly, that could have a negative impact on the Fund's operations
and the services provided to the Fund's stockholders. It is anticipated that
the Fund will incur no material expenses relatedsuccessfully responded to the Year 2000 issues.date change. The Company
expensed approximately $3,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Fund
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
NovemberMay 15, 19992000 /S/
__________________________________________________--------------------------------------------------
Russell Cleveland, President and Chairman
NovemberMay 15, 19992000 /S/
__________________________________________________--------------------------------------------------
Barbe Butschek, Corp. Secretary and Treasurer