RENN Fund, Inc. - Quarter Report: 2004 September (Form 10-Q)

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 the quarterly period ended September 30, 2004

o 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)

TX	75-2533518
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

8080 N. Central Expressway, Suite 210, LB-59, Dallas, TX	75206
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 214-891-8294

None

(Former name, former address and former fiscal year

if changed since last report)

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 o No þ.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer £ Accelerated filer £ Non-accelerated filer S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ.

As of December 15, 2006, the issuer had 4,463,967 shares of common stock outstanding.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

INDEX

		Page Number

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Statements of Assets and Liabilities as of September 30, 2004 and December 31, 2003	3

	Schedules of Investments as of September 30, 2004 and December 31, 2003	4

	Statements of Operations for the three months and nine months ended September 30, 2004 and 2003	16

	Statements of Change in Net Assets for the nine months ended September 30, 2004 and 2003	18

	Statements of Cash Flows for the nine months ended September 30, 2004 and 2003	19

	Notes to Financial Statements	20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Submission of Matters to a Vote of Security Holders	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Assets and Liabilities

(Unaudited)

ASSETS

	September 30, 2004			December 31, 2003

Cash and cash equivalents	$	38,059,256		$	35,255,687
Investments at fair value, cost of $37,410,450
and $33,747,037 at September 30, 2004 and
December 31, 2003, respectively		58,517,777			62,455,944
Accounts receivable - settlement with affiliate		3,775,872			3,775,872
Interest and dividends receivable		53,358			233,201
Prepaid and other assets		2,900			145,307

	$	100,409,163		$	101,866,011

LIABILITIES AND NET ASSETS

Liabilities:
Due to broker	$	26,998,768		$	27,000,416
Accounts payable		44,330			57,273
Accounts payable - affiliate		1,380,602			1,703,398
Accounts payable - dividends		-			3,698,960

		28,423,700			32,460,047

Commitments and contingencies

Net assets:
Common stock, $1 par value; authorized
20,000,000 shares; 4,561,618 issued;
4,351,718 shares outstanding		4,561,618			4,561,618
Additional paid-in-capital		35,586,559			37,058,788
Treasury stock at cost, 209,900 shares		(1,734,967	)		(1,734,967	)
Distributable earnings		12,464,926			811,618
Net unrealized appreciation of investments		21,107,327			28,708,907

Net assets, equivalent to $16.54 and $15.95
per share at September 30, 2004 and
December 31, 2003, respectively		71,985,463			69,405,964

	$	100,409,163		$	101,866,011

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments

(unaudited)

				September 30, 2004
	Interest			Due				Fair		% of Net
	Rate			Date		Cost		Value		Investments
Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

CaminoSoft Corp.
Promissory notes (4)		7.00	%		07/19/06	$	250,000	$	250,000		0.43	%

Digital Learning Management Corp. -
Convertible debenture (2)		7.00			02/27/11		1,000,000		1,000,000		1.71

iLinc Communications, Inc. -
Convertible redeemable note (2)		12.00			03/29/12		500,000		500,000		0.85

Gasco Energy, Inc. -
Convertible debenture (2)		8.00			10/15/08		625,000		3,541,668		6.05

Integrated Security Systems, Inc. -
Promissory notes (4)		8.00			09/30/04		525,000		525,000		0.90
Promissory notes (4)		7.00			10/01/04		200,000		200,000		0.34

Simtek Corporation -
Convertible debenture		7.50			06/28/09		1,000,000		1,955,128		3.34
						$	4,100,000	$	7,971,796		13.62	%

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

(unaudited)

				September 30, 2004
	Interest			Due				Fair		% of Net
	Rate			Date		Cost		Value		Investments
Other Portfolio Investments -
Convertible Debentures and
Promissory Notes

Interpool, Inc. -
Convertible debenture (2)		9.25	%		12/27/22	$	375,000	$	375,000		0.64	%
						$	375,000	$	375,000		0.64	%

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

(unaudited)

			September 30, 2004
					Fair		% of Net
	Shares		Cost		Value		Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

CaminoSoft Corp. -
Common stock		1,750,000	$	4,000,000	$	857,500		1.47	%
Common stock (2)		1,539,414		1,150,000		754,313		1.29
Common stock (2)		250,000		125,000		122,500		0.21

eOriginal, Inc. -
Series A, preferred stock (1)(3)		10,680		4,692,207		387,671		0.66
Series B, preferred stock (1)(3)		25,646		620,329		1,052,420		1.80
Series C, preferred stock (1)(3)		28,929		699,734		1,186,660		2.03
Series New C, preferred stock (1)(3)		22,319		360,000		204,803		0.35
Series D, preferred stock (1)(3)		16,057		500,000		500,000		0.85

Gaming & Entertainment Group, Inc.-
Common stock		500,000		500,000		227,500		0.39

Gasco Energy, Inc. -
Common stock		500,000		625,000		1,700,000		2.90

Global Axcess Corporation -
Common stock (2)		4,766,666		1,261,667		1,573,000		2.69

Integrated Security Systems, Inc. -
Common stock (2)		27,074,179		5,568,058		11,100,413		18.97
Series D, preferred stock (2)		187,500		150,000		92,250		0.16

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

(unaudited)

			September 30, 2004
					Fair		% of Net
	Shares		Cost		Value		Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Inyx, Inc. -
Common stock (2)		300,000		300,000		315,000		0.54

Laserscope -
Common stock		600,000		750,000		12,162,000		20.79

Poore Brothers, Inc. -
Common stock (2)		1,686,357		1,748,170		4,637,482		7.92

PracticeXpert, Inc. -
Common stock (2)		4,166,667		500,000		500,000		0.85

Simtek Corp. -
Common stock		1,000,000		195,000		610,000		1.04
Common stock - private placement (2)		550,661		500,000		335,903		0.57

ThermoView Industries, Inc. -
Common stock		234,951		563,060		91,631		0.16
Miscellaneous Securities				-		453,013		0.77
			$	24,808,225	$	38,864,059		66.41	%

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

(unaudited)

			September 30, 2004
					Fair		% of Net
	Shares		Cost		Value		Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

AdStar, Inc. -
Common stock (2)		269,231	$	350,000	$	374,231		0.64	%

Bovie Medical Corporation -
Common stock (2)		300,000		525,000		726,000		1.24

Capital Senior Living Corp -
Common stock		57,100		146,335		274,080		0.47

Cybex International, Inc. -
Common stock (2)		145,000		478,500		536,500		0.92

Dave & Busters, Inc. -
Common stock		100,000		653,259		1,898,000		3.24

iLinc Communications, Inc. -
Common stock		48,266		27,033		24,133		0.04

Flamel Technologies, S.A. -
Common stock		25,000		131,868		366,750		0.63

Franklin Covey -
Common stock		207,876		293,251		388,728		0.67

Gasco Energy, Inc. -
Common stock		750,000		639,105		2,550,000		4.36

i2 Telecom International, Inc.
Convertible preferred stock		500		500,000		500,000		0.86

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

(unaudited)

			September 30, 2004
					Fair		% of Net
	Shares		Cost		Value		Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Intrusion, Inc. -
Convertible preferred stock		159,033		500,000		375,954		0.64

Medical Action Industries, Inc. -
Common stock		25,000		292,329		415,750		0.71

Precis, Inc. -
Common stock		200,700		1,372,417		602,100		1.03

Stonepath Group, Inc. -
Common stock		131,240		246,000		119,428		0.20

Tarantella, Inc. -
Common stock		917,048		1,186,541		1,283,868		2.20

US Home Systems, Inc. -
Common stock		110,000		535,587		763,400		1.30

Vaso Active Pharmaceuticals, Inc. -
Common stock		150,000		250,000		108,000		0.18

				8,127,225		11,306,922		19.33	%
			$	37,410,450	$	58,517,777		100.00	%

Allocation of Investments -
Restricted Shares, Unrestricted Shares,
and Other Securities

Restricted Securities (2)			$	15,156,395	$	26,484,260		45.26	%
Unrestricted Securities			$	14,406,785	$	27,273,950		46.61	%
Other Securities (5)			$	7,847,270	$	4,759,567		8.13	%

(1)	Valued at fair value as determined by the Investment Adviser (Note 6).

(2)	Restricted securities - securities that are not fully registered and freely tradable.

(3)	Securities in a privately owned company.

(4)	Securities that have no provision allowing conversion into a security for which there is a public market.

(5)	Includes Miscellaneous Securities, securities of privately owned companies, securities with no conversion feature, and securities for which there is no market.

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

						December 31, 2003
	Interest			Due				Fair		% of Net
	Rate			Date		Cost		Value		Investments

Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

Dexterity Surgical, Inc. -
Convertible debenture (2)		9.00	%		12/19/04	$	1,316,282	$	375,000		0.60	%

iLinc Communications, Inc. -
Convertible redeemable note (2)		12.00			03/29/12		500,000		500,000		0.80

Gasco Energy, Inc. -
Convertible debenture (2)		8.00			10/15/08		625,000		1,333,334		2.13

Integrated Security Systems, Inc. -
Promissory notes (4)		8.00			09/30/04		525,000		525,000		0.84
Promissory notes (4)		7.00			10/01/04		200,000		200,000		0.32

Simtek Corporation -
Convertible debenture		7.50			06/28/09		1,000,000		3,846,155		6.16
						$	4,166,282	$	6,779,489		10.85	%

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)


						December 31, 2003
	Interest			Due				Fair		% of Net
	Rate			Date		Cost		Value		Investments
Other Portfolio Investments -
Convertible Debentures and
Promissory Notes

Interpool, Inc. -
Convertible debenture (2)		9.25	%		12/27/22	$	375,000	$	375,000		0.60	%
						$	375,000	$	375,000		0.60	%

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

			December 31, 2003
					Fair		% of Net
	Shares		Cost		Value		Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

Bentley Pharmaceuticals, Inc. -
Common stock		63,450	$	79,313	$	843,885		1.22	%

CaminoSoft Corp. -
Common stock		1,750,000		4,000,000		647,500		1.04
Common stock (2)		1,539,414		1,150,000		569,583		0.91
Common stock (2)		250,000		125,000		92,500		0.15

eOriginal, Inc. -
Series A, preferred stock (1)(3)		10,680		4,692,207		770,383		1.23
Series B, preferred stock (1)(3)		25,646		620,329		1,849,928		2.96
Series C, preferred stock (1)(3)		28,929		699,734		2,085,893		3.34
Series New C, preferred stock (1)(3)		22,319		360,000		360,000		0.58

Fortune Natural Resources Corp. -
Common stock		1,262,394		500,500		138,863		0.22

Gasco Energy, Inc. -
Common stock		250,000		250,000		320,000		0.51

Global Axcess Corporation -
Common stock (2)		1,400,000		350,000		504,000		0.81

Integrated Security Systems, Inc. -
Common stock (2)		24,164,301		4,973,166		8,940,791		14.32
Series D, preferred stock (2)		187,500		150,000		83,250		0.13

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

			December 31, 2003
					Fair		% of Net
	Shares		Cost		Value		Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Inyx, Inc. -
Common stock (2)		300,000		300,000		414,000		0.66

Laserscope -
Common stock		1,200,000		1,500,000		18,708,000		29.96

Poore Brothers, Inc. -
Common stock (2)		1,686,357		1,748,170		5,716,750		9.15

Simtek Corp. -
Common stock		1,000,000		195,000		1,200,000		1.92
Common stock - private placement (2)		550,661		500,000		660,793		1.06

ThermoView Industries, Inc. -
Common stock		234,951		563,060		148,019		0.24
				-		898,497		1.44
Miscellaneous Securities			$	22,756,479	$	44,952,635		71.98	%

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

			December 31, 2003
					Fair		% of Net
	Shares		Cost		Value		Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

AdStar, Inc. -
Common stock (2)		269,231	$	350,000	$	538,462		0.86	%

Blue Rhino Corp. -
Common stock		40,000		476,999		555,600		0.89

Capital Senior Living Corp -
Common stock		57,100		146,335		335,748		0.54

CNE Group, Inc. -
Common stock (2)		125,000		250,000		66,250		0.11

Dave & Busters, Inc. -
Common stock		100,000		653,259		1,268,000		2.03

iLinc Communications, Inc. -
Common stock		48,266		27,033		43,439		0.07

Flamel Technologies, S.A. -
Common stock		50,000		360,143		1,339,500		2.14

Franklin Covey -
Common stock		207,876		293,251		582,053		0.93

Gasco Energy, Inc. -
Common stock		750,000		639,105		960,000		1.54

I-Flow Corporation -
Common stock		50,000		117,043		696,000		1.11

Inet Technologies, Inc. -
Common stock		46,600		237,275		559,200		0.90

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

			December 31, 2003
					Fair		% of Net
	Shares		Cost		Value		Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Medical Action Industries, Inc. -
Common stock		25,000		292,329		467,750		0.75

Precis, Inc. -
Common stock		200,700		1,372,417		778,716		1.25

Stonepath Group, Inc. -
Common stock		281,240		448,500		635,602		1.02

US Home Systems, Inc. -
Common stock		110,000		535,587		1,221,000		1.95

Vaso Active Pharmaceuticals, Inc. -
Common stock		50,000		250,000		301,500		0.48

				6,449,276		10,348,820		16.57	%
			$	33,747,037	$	62,455,944		100.00	%

Allocation of Investments -
Restricted Shares, Unrestricted Shares,
and Other Securities

Restricted Securities(2)			$	12,712,618	$	20,169,713		32.29	%
Unrestricted Securities			$	13,937,149	$	35,596,530		57.00	%
Other Securities (5)			$	7,097,270	$	6,689,701		10.71	%

(1)	Valued at fair value as determined by the Investment Adviser (Note 6).

(2)	Restricted securities - securities that are not fully registered and freely tradable.

(3)	Securities in a privately owned company.

(4)	Securities that have no provision allowing conversion into a security for which there is a public market.

(5)	Includes Miscellaneous Securities, securities of privately owned companies, securities with no conversion feature, and securities for which there is no market.

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Operations

(Unaudited)

	Three Months Ended September 30,
Income:	2004			2003 (restated)
Interest income	$	95,997		$	134,212
Dividend income		48,848			46,706
Other income		9,920			2,423

		154,765			183,341
Expenses:
General and administrative		67,844			71,164
Interest expense		27,428			20,979
Legal and professional fees		117,150			21,879
Management fee to affiliate		316,320			309,478

		528,742			423,500

Net investment loss		(373,977	)		(240,159	)
Realized and unrealized gain (loss)
on investments:
Net change in unrealized appreciation
of investments		(6,313,300	)		11,978,390
Net realized gain on investments		258,022			3,974,597

Net gain (loss) on investments		(6,055,278	)		15,952,987

Net income (loss)	$	(6,429,255	)	$	15,712,828

Net income (loss) per share	$	(1.48	)	$	3.61

Weighted average shares outstanding		4,351,718			4,351,718

See accompanying notes to financial statements.

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Operations

(Unaudited)

	Nine Months Ended September 30,
Income:	2004			2003 (restated)
Interest income	$	266,998		$	573,324
Dividend income		100,652			1,207,936
Other income		43,510			3,976

		411,160			1,785,236
Expenses:
General and administrative		278,208			264,344
Interest expense		55,455			59,423
Legal and professional fees		474,880			102,393
Management fee to affiliate		1,074,847			730,297

		1,883,390			1,156,457

Net investment income (loss)		(1,472,230	)		628,779
Realized and unrealized gain (loss)
on investments:
Net change in unrealized appreciation
of investments		(7,601,580	)		19,610,175
Net realized gain on investments		12,958,824			4,955,896

Net gain on investments		5,357,244			24,566,071

Net income	$	3,885,014		$	25,194,850

Net income per share	$	0.89		$	5.79

Weighted average shares outstanding		4,351,718			4,351,718

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Changes in Net Assets

(Unaudited)

	Nine Months Ended September 30,
	2004			2003 (restated)
From operations:
Net investment income (loss)	$	(1,472,230	)	$	628,779
Net realized gain on investments		12,958,824			4,955,896
Net change in unrealized
appreciation on investments		(7,601,580	)		19,610,175

Net income		3,885,014			25,194,850

From distributions to stockholders:
Common stock dividends declared
from realized capital gains		(1,305,515	)		(1,305,517	)

Total increase in net assets		2,579,499			23,889,333

Net assets:
Beginning of period		69,405,964			46,103,648

End of period	$	71,985,463		$	69,992,981

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2004			2003 (restated)

Cash flows from operating activities:
Net income	$	3,885,014		$	25,194,850
Adjustments to reconcile net income to
net cash provided by operating activities:
Net change in unrealized appreciation on investments		7,601,580			(19,610,175	)
Net realized gain on investments		(12,958,824	)		(4,955,896	)
(Increase) decrease in interest and
dividends receivable		179,843			(179,564	)
(Increase) decrease in accounts receivable-
settlement with affiliate		-			(1,128,621	)
(Increase) decrease in prepaid and
other assets		142,407			(28,784	)
Decrease in accounts payable		(12,943	)		(5,705	)
Increase (decrease) in accounts payable-
affiliate		(322,796	)		1,015,778
Increase (decrease) in due to broker		(1,648	)		17,940,871
Purchase of investments		(8,276,323	)		(5,271,906	)
Proceeds from sale of investments		17,571,734			11,588,246

Net cash provided by operating activities		7,808,044			24,559,094
Cash flows from financing activities:
Cash dividends paid		(5,004,475	)		(1,305,516	)

Net increase in cash and cash equivalents		2,803,569			23,253,578
Cash and cash equivalents at beginning
of the period		35,255,687			10,968,001

Cash and cash equivalents at end of period	$	38,059,256		$	34,221,579
Cash paid during the period
Interest	$	55,455		$	59,422

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note 1-

Organization and Business Purpose

Renaissance Capital Growth & Income Fund III, Inc. (the “Fund”), a Texas corporation, was formed on January 20, 1994. The Fund seeks to achieve current income and capital appreciation potential by investing primarily in unregistered equity investments and convertible issues of small and medium size companies which are in need of capital and which RENN Capital Group, Inc. (the “Investment Adviser”), believes offer the opportunity for growth. The Fund is a non-diversified closed-end fund and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (“1940 Act”).

Note 2 -

Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the accompanying unaudited interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, which reflect all adjustments which, in the opinion of management, are necessary to present fairly the results for the interim periods. We have omitted certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to those rules and regulations, although we believe that the disclosures we have made are adequate to make the information presented not misleading. You should read these unaudited interim financial statements in conjunction with our audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2003.

The results of operations for the interim periods are not necessarily indicative of the results we expect for the full year.

Valuation of Investments

Portfolio investments are stated at quoted market or fair value as determined by the Investment Adviser (Note 6). The securities held by the Fund are primarily unregistered and their value does not necessarily represent the amounts that may be realized from their immediate sale or disposition.

Other

The Fund records security transactions on the trade date. Dividend income is recorded on the record date. Interest income is recorded as earned on the accrual basis.

Cash and Cash Equivalents

The Fund considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Federal Income Taxes

The Fund has elected the special income tax treatment available to “regulated investment companies” (“RIC”) 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 IRC that are applicable to regulated investment companies. 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 comply with all IRC requirements as they pertain to the RIC and to distribute all of the Fund’s taxable investment income and long-term capital gains within the defined period under the IRC to qualify as a RIC. Failure to qualify as a RIC would subject the Fund to federal income tax as if the Fund were an ordinary corporation, which could result in a substantial reduction in the Fund’s net assets as well as the amount of income available for distribution to shareholders.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note 2 -

Summary of Significant Accounting Policies, continued

Net Income Per Share

Net income per share is based on the weighted average of shares outstanding of 4,351,718 during the period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Actual results could differ from these estimates.

Note 3 -

Due to Broker

The Fund conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with these brokers. Due to broker represents a margin loan payable to one of these brokers, which is secured by investments in securities maintained with the lending broker as collateral for the margin loan. Cash and cash equivalents related to the margin loan payable are held by the lending broker as additional collateral for the margin loan. The Fund is subject to credit risk to the extent the brokers are unable to deliver cash balances or securities, or clear security transactions on the Fund’s behalf. The Investment Adviser actively monitors the Fund’s exposure to these brokers and believes the likelihood of loss under those circumstances is remote.

Note 4 -

Management and Incentive Fees

The Investment Adviser for the Fund is registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). Pursuant to an Investment Advisory Agreement (the “Agreement”), the Investment Adviser performs certain services, including certain management, investment advisory and administrative services necessary for the operation of the Fund. In addition, under the Agreement, the Investment Adviser is reimbursed by the Fund for certain directly allocable administrative expenses. A summary of fees and reimbursements paid by the Fund under the Agreement, the prospectus and the original offering document are as follows:

The Investment Adviser receives a management fee equal to a quarterly rate of 0.4375% of the Fund’s net assets, as determined at the end of such quarter with each such payment to be due as of the last day of the calendar quarter. The Fund incurred $1,074,847 and $730,297 for management fees during the nine months ended September 30, 2004 and 2003, respectively.

The Investment Adviser receives an incentive fee in an amount equal to 20% of the Fund’s cumulative realized capital gains in excess of cumulative realized capital losses of the Fund after allowance for any unrealized capital depreciation on the portfolio investments of the Fund at the end of the period being calculated less cumulative incentive fees previously accrued. Unrealized capital depreciation equals net unrealized capital loss on each class of security without netting net unrealized capital gains on other classes of securities. Because the incentive fee is calculated, accrued, and paid on an annual basis as of each year end and no probability or estimate of the ultimate fee can be ascertained, no incentive fee was recorded during the nine months ended September 30, 2004 and 2003.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note 4 -

Management and Incentive Fees, continued

·	The Investment Adviser was reimbursed by the Fund for administrative expenses paid by the Investment Adviser on behalf of the Fund. Such reimbursements were $169,766 and $3,975 during the nine months ended September 30, 2004 and September 30, 2003, respectively.

As of September 30, 2004 and December 31, 2003, the Fund had an account payable of $1,380,602 and $1,703,398, respectively, for the amount due for the fees and expense reimbursements above.

As explained in Note 9, during 2005 the Investment Advisers resolved a dispute with the staff of the Securities and Exchange Commission involving the appropriate interpretation of section 205(b)(3) of the Advisers Act. As part of the settlement, the Investment Adviser agreed to pay $2,851,362 as a reduction of incentive fees for the period from inception through December 31, 2003. The Fund reported a receivable of $3,775,872 as of September 30, 2004 and December 31, 2003 to reflect the settlement which included interest income of $924,510, of which $137,440 was reflected as interest income during the nine months ended September 30, 2004.

Note 5 -

Eligible Portfolio Companies and Investments

Eligible Portfolio Companies

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 invested 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. The Fund was in compliance with these provisions at September 30, 2004.

Investments

Investments are carried in the statements of assets and liabilities at fair value, as determined in good faith by the Investment Adviser. The convertible debt securities held by the Fund generally have maturities between five and seven years and are convertible into the common stock of the issuer at a set conversion price at the discretion of the Fund. The common stock underlying these securities is generally unregistered and thinly to moderately traded but is not otherwise restricted. Generally, the Fund may register and sell such securities at any time with the Fund paying the costs of registration. Interest on convertible securities is 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 met relating to underlying market prices, liquidity, or other factors.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note 6 -

Valuation of Investment

On a quarterly basis, the Investment Adviser prepares a valuation of the assets of the Fund subject to the approval of the Board of Directors of the Fund. The valuation principles are described below.

·	The common stock of companies listed on an exchange, Nasdaq or in the over-the-counter market is valued at the closing price on the date of valuation.

The unlisted preferred stock of companies with common stock listed on an exchange, Nasdaq or in the over-the -counter market is valued at the closing price of the common stock into which the preferred stock is convertible on the date of valuation. If the preferred stock is redeemable, the preferred stock is valued at the greater of cost or market.

The unlisted in-the-money options or warrants of companies with the underlying common stock listed on an exchange, Nasdaq or in the over-the-counter market are valued at the positive difference between the closing price of the underlying common stock and the strike price of the warrant or option. An out-of-the money warrant or option has no intrinsic value; thus, we assign no value to it.

Debt securities are valued at the greater of (i) cost or (ii) the market value of the underlying common stock into which the debt instrument is convertible. In cases where the debt instrument is in default or the company is in bankruptcy, the value will be (i) the value of the underlying common stock, (ii) the value of the collateral, if secured, or (iii) zero, if the common stock has no value and there is no collateral.

If there is no independent and objective pricing authority (i.e. a public market) for investments in privately held entities, the latest sale of equity securities to independent third parties by the entity governs the value of that enterprise. This valuation method causes the Fund’s initial investment in the private entity to be valued at cost. Thereafter, new issuances or offers of equity or equity-linked securities by the portfolio company to new investors will be used to determine enterprise value as they will provide the most objective and independent basis for determining the worth of the issuer. Where a private entity does not have an independent value established over an extended period of time, then the Investment Adviser will determine fair value on the basis of appraisal procedures established in good faith and approved by the Fund’s Board of Directors.

As of September 30, 2004, and December 31, 2003, the net unrealized appreciation associated with investments held by the Fund was $21,107,327 and $28,708,907, respectively. As of September 30, 2004 and December 31, 2003, the Fund had gross unrealized gains of $31,239,358 and $39,158,309, respectively, and gross unrealized losses of $10,132,031 and $10,449,402, respectively.

Note 7 -

Restricted Securities

As indicated on the statement of investments as of September 30, 2004 and December 31, 2003, the Fund holds investments in shares of common stock, the sale of which is restricted. These securities have been valued by the Investment Adviser after considering certain pertinent factors relevant to the individual securities (Note 6).

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note 8 -

Distributions to Shareholders

During the three months ended September 30, 2003, the Fund declared dividends of $435,173 resulting in total dividends declared for the nine months ended September 30, 2003 of $1,305,517. During the three months ended September 30, 2004, the Fund declared dividends of $435,171, resulting in total declared dividends for the nine months ended September 30, 2004 of $1,305,515.

Note 9 -

Settlement with Securities and Exchange Commission

During 2004, the staff (“Staff”) of the Securities and Exchange Commission (“SEC”) informed the Fund’s counsel of significant potential regulatory issues in connection with the Staff’s review of a registration statement for a proposed rights offering. On December 1, 2005, the Investment Adviser consented, without admitting or denying the findings, to the entry of an order by the SEC instituting public administrative and cease and desist proceedings and imposing remedial sanctions (the “Order”).

In summary, the dispute concerned the definition of the wording of the incentive fee calculation in the Advisers Act. Under Section 205(b)(3) of the Advisers Act, a performance fee may be earned. The Investment Adviser, for many years, believed the word “capital” referred to the Fund’s shareholders equity as a whole. In 2004, the SEC informed the Investment Adviser that capital depreciation in the formula referred only to unrealized capital losses on marketable securities in the portfolio and therefore the calculations in previous years were incorrect. In the Order, the SEC states that in calculating a performance-based fee under Section 205(b)(3), an Investment Adviser must account for its client’s assets on a security-by-security basis and may not take into consideration unrealized capital appreciation on any individual security or the portfolio as a whole. Section 205(b)(3) does not require that fees earned in one period be subject to repayment based upon performance in a subsequent period. If the performance fee is calculated on a cumulative basis and is based on the period since inception, the unrealized capital depreciation may be calculated for each calculation period by subtracting each security’s valuation at the end of the applicable calculation period from the original cost, as adjusted, of purchasing that security. In practice, the Investment Adviser also took into account unrealized capital appreciation, which offset unrealized capital depreciation, to calculate its performance-based fee. Thus, beginning in fiscal year 1996, the first period in which the Fund realized capital gains, the Investment Adviser’s formula for calculating that fee was not consistent with the agreed formula permitted under Section 205(b)(3).

As part of the settlement of the SEC proceedings, the Investment Adviser agreed to pay $2,851,362 for adjustments in the incentive fee from the inception through December 31, 2003, plus prejudgment interest of $924,509 and a penalty of $100,000 to the Fund. The Investment Adviser satisfied this obligation in full as of December 8, 2005.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note 9 -

Settlement with Securities and Exchange Commission, continued

The effect of the SEC settlement, was reflected retroactively. As such the effect of the adjustments in incentive fees were reported in prior years as though the agreed methodology had been in place since inception. Interest received by the fund upon settlement was allocated to the years in which it was earned. The $100,000 penalty received upon settlement was reflected in the year settlement was reached (2005).

Note 10 -

Restatement

Subsequent to the previous issuance of financial statements for 2003, the Investment Adviser determined that the method used in valuing certain unregistered securities was inappropriate based upon changes in SEC guidelines. For this reason, the unrealized gains on those securities was increased.

Because of the changes in the Fund’s net assets resulting from the settlement with the SEC as disclosed in Note 9 and the revaluation of investments, the Fund recomputed the management fee explained in Note 4 resulting in an increase in management fees of $251,764 from inception through December 31, 2003.

The effect of the SEC settlement disclosed in Note 9 was reflected as a prior period adjustment. As such the effect of the adjustments in incentive fees were reported in prior years as though the agreed methodology had been in place since inception. Interest received by the Fund upon settlement was allocated to the years in which it was earned. The penalty received upon settlement was reflected in the year settlement was reached (2005).

The Fund also reported the effect of the revaluation of investments discussed above as a prior period adjustment.

The resultant increase in management fees was allocated to each period based on the recalculation of net assets as restated.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Financial Statements

September 30, 2004

Note 10 -

Restatement, continued

The Fund reflected these adjustments retrospectively for the three and nine months ended September 30, 2003 as follows:

	Three months ended			Nine months ended
	September 30, 2003			September 30, 2003
Net income as originally reported	$	14,164,050		$	24,260,781

Increase in interest income		45,813			137,439

Decrease in net change in
unrealized appreciation
on investments		729,946			(138,708	)

Reduction in incentive fees		794,919			991,179

Increase in management fees		(21,900	)		(55,841	)

Net income, as restated	$	15,712,828		$	25,194,850

Earnings per share for the three and nine months ended September 30, 2003 was adjusted as follow:


As originally reported	$	3.25	$	5.57
Adjustment		.36		.22

As restated	$	3.61	$	5.79

Note 11 -

Commitments and Contingencies

As disclosed in Note 4, the Fund is obligated to pay to the Investment Adviser an incentive fee equal to 20% of the funds cumulative realized capital gains in excess of cumulative capital losses of the Fund after allowance for any capital depreciation on the portfolio investments of the Fund. As incentive fees on capital gains are not due to the Investment Adviser until the capital gains are realized, any obligations for incentive fees based on unrealized capital gains are not reflected in the accompanying financial statements as there is no assurance that the unrealized gains as of the end of any period will ultimately become realized. Had an incentive fee been accrued as a liability based on all unrealized capital gains, net assets of the Fund would have been reduced by $7,831,661 as of December 31, 2003.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

September 30, 2004

Note12-

Financial Highlights - unaudited

Selected per share data and ratios for each share of common stock outstanding throughout the nine months ended September 30, 2004 and 2003 are as follows:

	2004			2003 (restated)
Net asset value, beginning of period	$	15.95		$	10.59
Net investment income (loss)		(0.34	)		0.14
Net realized and unrealized gain on investments		1.23			5.65
Total return from investment operations		0.89			5.79
Distributions		(0.30	)		( 0.30	)
Net asset value, end of period	$	16.54		$	16.08

Per share market value, end of period	$	11.25		$	11.44
Portfolio turnover rate		12.75	%		11.23	%
Quarterly return (a)		( 15.98	%)		45.55	%
Ratio to average net assets (b):
Net investment income (loss)		(1.88	%)		1.19	%
Expenses		2.41	%		2.19	%

(a)	Nine month return (not annualized) was calculated by comparing the common stock price on the first day of the period to the common stock price on the last day of the period, in accordance with American Institute of Certified Public Account guidelines.

(b)	Average net assets have been computed based on quarterly valuations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Material Changes in Portfolio Investments

The following material portfolio transactions occurred during the quarter ended September 30, 2006:

Bovie Medical Corporation (AMEX:BVX) During the third quarter of 2004, the Fund bought 310,000 shares of common stock for $525,000.

CaminoSoft Corporation (OTCBB:CMSF) During the third quarter of 2004, the Fund purchased a $250,000 7% 2-year senior secured note and warrants to purchase 471,698 shares of common stock at $0.53 per share for $250,000.

CNE Group, Inc. (AMEX:CNE) During the third quarter of 2004, the Fund sold 125,000 shares of common stock realizing proceeds of $31,079, representing a loss of $219,921.

Cybex International, Inc. (AMEX:CYB) During the third quarter of 2004, the Fund bought 145,000 shares of common stock for $478,500.

eOriginal Holdings, Inc. (private) During the third quarter of 2004, the company bought 16,057 shares of Series D preferred stock for $500,000.

i2Telecom International, Inc. (OTCBB:ITUI) In the quarter ended September 30, 2004, the Fund purchased 500 shares of 7% convertible preferred stock and warrants to purchase 312,625 shares of common stock at $0.96 per share for $500,000.

INET Technologies, Inc. (Nasdaq:INTI) In the quarter ended September 30, 2004, the Fund sold 96,600 shares of common stock realizing proceeds of $1,169,943, representing a gain of $477,942.

Integrated Security Systems, Inc. (OTC:IZZI) In the third quarter of 2004, the Fund received 8,227 shares of common stock of the Company as payment in kind for Russell Cleveland’s director’s fee, having an imputed cost of $3,181. The Fund also received 84,073 shares of common stock of the Company as payment in kind for interest on promissory notes held by the Fund. The Fund also received 83,517 shares of common stock of the Company as payment in kind for dividends on preferred stock held by the Fund.

Results of Operations for the Three Months Ended September 30, 2004

For the quarter ended September 30, 2004, the Fund had a net investment loss of $373,977 compared to a net investment loss of $240,159 for the third quarter of 2003. This change was due in part to a decrease in investment income from $183,341 for the third quarter of 2003 to $154,765 for the comparable period of 2004. This decrease in investment income was attributable to the Fund holding fewer investments that earned interest in the third quarter of 2004. Interest income decreased from $134,212 for the three months ended September 30, 2003 to $95,997 for the same period of 2004. Dividend income remained fairly consistent for the three-month period ended September 30, 2004 compared to the same period in 2003.

Expenses increased from $423,500 for the quarter ended September 30, 2003 to $528,742 for the third quarter 2004. Legal and professional fees increased from $21,879 for the third quarter of 2003 to $117,150 in the same period 2004 as a result of expenses relating to the Fund's rights offering during 2004 and settlement issues (as described in Note 9 of the Fund's financial statements included in Item 1 above) in the third quarter of 2004

Net change in unrealized appreciation increased $11,978,390 for the quarter ended September 30, 2003. Net change in unrealized appreciation decreased $6,313,300 for the quarter ended September 30, 2004. The change is the result of fluctuations in market values of securities at each quarter end and the realization of gains upon sales of investments, primarily Laserscope common stock.

Realized gains decreased from $3,974,597 for the quarter ended September 30, 2003 to $258,022 for the same period in 2004 as a result of fewer investments being sold during the quarter ended September 30, 2004.

Results of Operations for the Nine Months Ended September 30, 2004

For the nine months ended September 30, 2004, the Fund experienced a net investment loss in the amount of $1,472,230 compared to a net investment income in the amount of $628,779 for the same nine-month period in 2003. This change was due in part to a decrease in investment income from $1,785,236 for the nine months ended September 30, 2003 to $411,160 for the comparable period of 2004. This decrease in investment income was attributable to lower dividend and interest income being earned in 2004. Interest income decreased from $573,324 for the nine months ended September 30, 2003, to $266,998 for the same period of 2004 primarily due to debt investments being converted to equity, sold, redeemed, or realized as losses in 2003. Dividend income for the nine-month period ended September 30, 2004 was $100,652 versus $1,207,936 for the same period in 2003 as a result of dividends being earned upon the conversion of eOriginal, Inc. and Integrated Security Systems, Inc. preferred stock in 2003.

Expenses increased from $1,156,457 for the nine months ended September 30, 2003 to $1,883,390 for the same period in 2004. Legal and professional fees increased from $102,393 for the nine months ended September 30, 2003 to $474,880 for the nine months ended September 30, 2004 as a result of the Fund's rights offering in 2004 and settlement issue (as described in Note 9 of the Fund's financial statements included in Item 1 above) expenses for the nine months ended September 30, 2004. Management fees increased from $730,297 for the nine months ended September 30, 2003 to $1,074,847 for the same period in 2004 due to higher net asset values during 2004.

The net change in unrealized appreciation increased $19,610,175 for the nine months ended September 30, 2003. The net change in unrealized appreciation decreased $7,601,580 for the nine months ended September 30, 2004. The variance is the result of fluctuations in market values of securities at each quarter end and the realization of gains upon sale of investments, primarily Laserscope common stock.

Realized gains increased from $4,955,896 for the nine months ended September 30, 2003 to $12,958,824 for the same period in 2004 as a result of gains earned primarily from the sale of Laserscope common stock during the nine months ended September 30, 2004.

Liquidity and Capital Resources

For the nine months ended September 30, 2004, net assets increased from $69,405,964 at December 31, 2003 to $71,985,463 at September 30, 2004. This increase is primarily attributable to realized gains from the sale of investments (primarily Laserscope common stock), offset by a decrease in the fair market value of investments due to market value fluctuations.

At September 30, 2004, the Fund had cash and cash equivalents of $38,059,256 versus cash and cash equivalents of $35,255,687 at December 31, 2003. This increase is primarily attributable to an increased cash balance due to the sale of Laserscope common stock. The Fund’s interest and dividends receivable decreased from $233,201 at December 31, 2003 to $53,358 at September 30, 2004 due primarily to the receipt of recovered losses following the bankruptcy of VoiceIt Worldwide, Inc.

Accounts payable decreased from $57,273 at December 31, 2003 to $44,330 at September 30, 2004 primarily due to the payment of expenses during the nine months ended September 30, 2004. Accounts payable to affiliate decreased from $1,703,398 at December 31, 2003 to $1,380,602 at September 30, 2004, reflecting the payments of management fee and 2003 incentive fee offset by the accrual of management fee payable to the Fund’s investment adviser for the first three quarters of 2004.

During the nine months ended September 30, 2004 the Fund paid $5,004,475 of dividends to shareholders of which $3,698,960 was capital gains dividend payable at December 31, 2003 and $1,305,515 of dividends declared and payable during the nine months ended September 30, 2004.

The majority of the Fund’s investments in portfolio companies are individually negotiated, non-registered for public trading, and are subject to legal and contractual investment restrictions. Accordingly, the Fund’s portfolio investments are generally considered non-liquid. This lack of liquidity primarily affects the Fund’s ability to make new investments and distributions to shareholders.

Pending investment in portfolio investments, funds are invested in temporary cash accounts and in government securities. Government securities used as cash equivalents will typically consist of U. S. Treasury securities or other 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.

Contractual Obligations

The Fund has a contract for the purchase of services under which it will have future commitments: the investment advisory agreement, pursuant to which RENN Capital Group, Inc. has agreed to serve as the Fund’s investment adviser. Such agreement has contractual obligations with fees which are based on values of the portfolio investments which the Fund owns. For further information regarding the Fund’s obligations under the investment advisory agreement see Note 4 of the Financial Statements.

Because the Fund does not enter into other long-term debt obligations, capital lease obligations, operating lease obligations, or purchase obligations, a table of contractual obligations has not been presented.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Fund is subject to financial market risks, including changes in market interest rates as well as changes in marketable equity security prices. The Fund does not use derivative financial instruments to mitigate any of these risks. The return on the Fund’s investments is generally not affected by foreign currency fluctuations.

A majority of the Fund’s net assets consists of common stocks and warrants and options to purchase common stock in publicly traded companies. These investments are directly exposed to equity price risk, in that a percentage change in these equity prices would result in a similar percentage change in the fair value of these securities.

A lesser percentage of the Fund’s net assets consist of fixed rate convertible debentures and other debt instruments as well as convertible preferred securities. Since these instruments are generally priced at a fixed rate, changes in market interest rates do not directly impact interest income, although they could impact the Fund’s yield on future investments in debt instruments. In addition, changes in market interest rates are not typically a significant factor in the Fund’s determination of fair value of its debt instruments, as it is generally assumed they will be held to maturity, and their fair values are determined on the basis of the terms of the particular instrument and the financial condition of the issuer.

A small percentage of the Fund’s net assets consist of equity investments in private companies. The Fund would anticipate no impact on these investments from modest changes in public market equity prices. However, should significant changes in market prices occur, there could be a longer-term effect on valuations of private companies which could affect the carrying value and the amount and timing of proceeds realized on these investments.

Item 4. Controls and Procedures.

The Fund has in place systems relating to disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our principal executive officer and principal financial officer evaluated the effectiveness of these disclosure controls and procedures as of the end of our quarter ended September 30, 2004 in connection with the preparation of this report. They concluded that the controls and procedures were effective and adequate at that time. There were no significant changes in the Fund’s internal control over financial reporting during the first quarter of fiscal 2004 that have materially affected, or are reasonably likely to materially affect the Fund’s control over financial reporting.

PART II

Item1.

Legal Proceedings

None

Item 1A.

Risk Factors

You should carefully consider the risks described below and all other information contained in this quarterly report on Form 10-Q, including our financial statements and the related notes thereto before making a decision to purchase our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our common stock could decline, and you may lose all or part of your investment.

Failure to Meet Listing Standards. It is uncertain whether our common stock will meet the requirements for listing on Nasdaq, or any other stock exchange or quotation service.

In July 2004, due to our inability to complete our audit and file our Form 10-K for the year ended December 31, 2003 in a timely manner, the Fund’s common stock was delisted from Nasdaq. As we become current with the delinquent filings, we will attempt to relist with Nasdaq or a national stock exchange, but there is no certainty that we will be able to do so.

Our Growth is Dependent on Investing in Quality Transactions. Sustaining growth depends on our ability to identify, evaluate, finance, and invest in companies that meet our investment criteria. Accomplishing such results on a cost-effective basis is a function of our marketing capabilities and skillful management of the investment process. Failure to achieve future growth could have a material adverse effect on our business, financial condition, and results of operations.

Failure to Invest Capital Effectively May Decrease Our Stock Price. If we fail to invest our capital effectively, our return on equity may be decreased, which could reduce the price of the shares of our common stock.

Highly Competitive Market for Investments. We compete with a number of private equity funds, other investment entities and individuals for investment opportunities. Some of these competitors are substantially larger and have greater financial resources, and some are subject to different and frequently less stringent regulation. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time and there can be no assurance that we will be able to identify and make investments that satisfy our objectives.

Lack of Publicly Available Information on Certain Portfolio Companies. Some of the securities in our portfolio are issued by privately held companies. There is generally little or no publicly available information about such companies, and we must rely on the diligence of our management to obtain the information necessary for our decision to invest. There can be no assurance that such diligence efforts will uncover all material information necessary to make fully informed investment decisions.

Dependence on Key Management. Selecting, structuring and closing our investments depends upon the diligence and skill of our management, which is responsible for identifying, evaluating, negotiating, monitoring and disposing of our investments. Our management's capabilities will significantly impact our results of operations. If we lose any member of our management team and he/she cannot be promptly replaced with an equally capable team member, our results of operations could be significantly impacted.

Failure to Deploy Capital may Lower Returns. Our failure to successfully deploy sufficient capital may reduce our return on equity.

Results May Fluctuate. Our operating results may fluctuate materially due to a number of factors including, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our portfolio companies’ markets, the ability to find and close suitable investments, and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Uncertain Value of Certain Restricted Securities. Our net asset value is based on the values assigned to the various investments in our portfolio, determined in good faith by our board of directors. Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, our fair value determinations may differ materially from the values which would be applicable to unrestricted securities having a public market.

Illiquid Securities May Adversely Affect Our Business. Our portfolio contains securities which are subject to restrictions on sale because they were acquired from issuers in "private placement" transactions or because we are deemed to be an affiliate of the issuer. Unless an exemption from the registration requirements of the Securities Act of 1933 is available, we will not be able to sell these securities publicly without the expense and time required to register the securities under applicable federal and state securities laws. In addition, contractual or practical limitations may restrict our ability to liquidate our securities in portfolio companies, because we may own a relatively large percentage of the issuer's outstanding securities. Sales may also be limited by unfavorable market conditions. The illiquidity of our investments may preclude or delay the disposition of such securities, which may make it difficult for us to obtain cash equal to the value at which we record our investments.

Regulated Industry. Publicly traded investment funds are highly regulated. Changes in securities laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business.

Failure to Qualify for Favorable Tax Treatment. We may not qualify for conduit tax treatment as a Regulated Investment Company ("RIC") if we are unable to comply with the requirements of Subchapter M of the Internal Revenue Code. If we fail to satisfy such requirements and cease to qualify for conduit tax treatment, we will be subject to federal taxes on our net investment income. The loss of this pass-through tax treatment could have a material adverse effect on the total return, if any, obtainable from an investment in our common stock.

Highly Leveraged Portfolio Companies. Some of our portfolio companies could incur substantial indebtedness in relation to their overall capital base. Such indebtedness often has a term that will require the balance of the loan to be refinanced when it matures. If portfolio companies cannot generate adequate cash flow to meet the principal and interest payments on their indebtedness, the value of our investments could be reduced or eliminated through foreclosure on the portfolio company's assets or by the portfolio company's reorganization or bankruptcy.

Our Common Stock Often Trades at a Discount. Our common stock often trades at a discount from net asset value. Our common stock is traded over-the-counter in the pink sheets. Stockholders desiring liquidity may sell their shares at current market value, which has often been below net asset value. Shares of closed-end investment companies frequently trade at discounts from net asset value, which is a risk separate and distinct from the risk that a fund's performance will cause its net asset value to decrease.

Nature of Investment in Our Common Stock. Our stock is intended for investors seeking long-term capital appreciation. Our investments in portfolio securities generally require some time to reach maturity, and such investments generally are illiquid. An investment in our shares should not be considered a complete investment program. Each prospective purchaser should take into account his or her investment objectives as well as his or her other investments when considering the purchase of our shares.

Our Stock Price May Fluctuate Significantly. The market price of our common stock may fluctuate significantly. The market price and marketability of shares of our common stock may from time to time be significantly affected by numerous factors, including our investment results, market conditions, and other influences and events over which we have no control and that may not be directly related to us.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

		None

Item 3.		Defaults Upon Senior Securities

		None

Item 4.		Submission of Matters to a Vote of Security Holders

		None

Item 5.		Other Information

		None

Item 6.		Exhibits

			31.1	Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

			31.2	Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

			32.1	Certification of the principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

			32.2	Certification of the principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 hereunto duly authorized.


	RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

/s/ Russell Cleveland		December 19, 2006
Russell Cleveland, President and Chief Executive Officer (Principal Executive Officer)




/s/ Barbe Butschek		December 19, 2006
Barbe Butschek, Chief Financial Officer (Principal Financial Officer)