UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
Commission File Number 0-23432
RIDGEWOOD ELECTRIC POWER TRUST III
(Exact name of registrant as specified in its charter.)
Delaware, U.S.A. 22-3264565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
947 Linwood Avenue, Ridgewood, New Jersey 07450-2939
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(201) 447-9000
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 [ ]
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
RIDGEWOOD ELECTRIC POWER TRUST III
BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Assets
Investments in power
generation projects $ 22,194,975 $ 24,613,978
Cash and cash equivalents 534,261 2,687,626
Due from affiliates 13,747 20,458
Other assets 6,048 14,162
Total assets $ 22,749,031 $ 27,336,224
Liabilities and Share-
holders' Equity
Accounts payable and
accrued expenses $ 21,368 $ 38,537
Due to affiliates 285,790 340,373
Total liabilities 307,158 378,910
Shareholders' equity:
Shareholders' equity
(391.8444 shares issued
and outstanding) 22,548,490 27,018,776
Managing shareholder's
accumulated deficit (106,617) (61,462)
Total shareholders' equity 22,441,873 26,957,314
Total liabilities and
shareholders' equity $ 22,749,031 $ 27,336,224
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS AND QUARTERS
ENDED JUNE 30, 1998 AND JUNE 30, 1997
(Unaudited)
<CAPTION>
Six Months Ended Quarter Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
<S> <C> <C> <C> <C>
Revenue:
Income from power
generation projects $ 1,120,561 $1,495,623 $ 745,551 $ 502,589
Interest income 48,765 66,304 166 20,122
1,169,326 1,561,927 745,717 522,711
Expenses:
Writedown of
investments in power
generation projects 4,062,147 --- 4,062,147 ---
Management fee 352,002 388,209 176,001 193,962
Accounting
and legal fees 35,988 18,084 11,493 8,987
Miscellaneous 44,173 16,755 19,256 8,468
4,494,310 423,048 4,268,897 211,417
Net income (loss) $(3,324,984) $1,138,879 $(3,523,180) $ 311,294
<FN> See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 1998
(unaudited)
<CAPTION>
Managing
Shareholders Shareholder Total
<S> <C> <C> <C>
Shareholders' equity
December 31, 1997 $27,018,776 $ (61,462) $26,957,314
Cash distributions (1,178,552) (11,905) (1,190,457)
Net loss
for the period (3,291,734) (33,250) (3,324,984)
Shareholders' equity
June 30, 1998 $22,548,490 $(106,617) $22,441,873
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997
(Unaudited)
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
<S> <C> <C>
Cash flows from operating
activities:
Net(loss)income $(3,324,984) $ 1,138,879
Adjustments to
reconcile net income
to net cash flows from
operating activities:
Purchase of investments
in power generation
projects (578,234) (6,715)
Writedown of investments
in power generation projects 4,062,147
Investment in working capital
of power generation projects (1,073,879) 281,081
Changes in assets &
liabilities:
Decrease (increase) in
due from affiliates 6,711 (70,843)
Increase in deferred
due diligence costs --- (40,348)
Decrease (increase) in
other assets 8,114 (84,692)
Decrease in accounts payable
and accrued expenses (17,169) (18,229)
Decrease in due to
affiliates 45,614 ---
Total adjustments 2,362,076 60,254
Net cash (used in) provided
by operating activities (962,908) 1,199,133
Cash flows from financing
activities:
Cash distributions to
Shareholders (1,190,457) (1,889,402)
Net cash used in financing
activities (1,190,457) (1,889,402)
Net decrease in cash
and cash equivalents (2,153,365) (690,269)
Cash and cash equivalents
beginning of period 2,687,626 2,959,240
Cash and cash equivalents
end of period $ 534,261 $ 2,268,971
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
1. General
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments, which consist
of normal recurring adjustments, necessary for the pair
presentation of the results for the interim periods.
Additional footnote disclosure concerning accounting
policies and other matters are disclosed in Ridgewood
Electric Power Trust III's financial statements included in
the 1997 Annual Report on Form 10-K, which should be read in
conjunction with these financial statements. Certain prior
year amounts have been reclassified to conform to the
current year presentation.
The results of operations for an interim period should not
necessarily be taken as indicative of the results of
operations that may be expected for a twelve month period.
2. New Investments
In April 1998, the Trust purchased an on-site cogeneration
facility (the "Dobbs House project") located near one of its
existing on-site cogeneration facilities in Los Angeles,
California. The total purchase price was approximately
$590,000, including the payment of liabilities that
encumbered the project.
3. Investment in Cogeneration Projects
On September 29, 1995, the Trust acquired a portfolio of 35
projects from affiliates of Eastern Utilities Associates
("EUA"), which sold electricity and thermal energy to
industrial and commercial customers. From the date of
acquisition through June 30, 1998, the Trust invested
$13,130,000 in the portfolio of projects, which includes the
purchase price, acquisition closing costs, working capital
advances and capital expenditures. In 1996, the Trust
wrote-off four projects amounting to $113,000. In 1997, the
Trust wrote-off an additional sixteen projects amounting to
$4,744,000. During the first six months of 1998, the Trust
completed an intensive review of the remaining projects and
determined that the fair value of the remaining projects is
$4,250,000. Accordingly, the Trust wrote-down its
investment by an additional $4,062,000 in the second quarter
of 1998. Since the time of acquisition, the Trust's total
write-offs relating to the EUA portfolio of projects amount
to $8,919,000.
The Trust's subsidiaries that own the on-site cogeneration
projects have brought an arbitration proceeding against EUA.
The Trust has claimed that the former owner defrauded the
Trust by misrepresenting the financial status of the
Worcester Project and its customer and by making other
material misrepresentations. The Trust also has claimed
that the former owner breached numerous representations and
warranties in the acquisition agreement and violated fair
trade practice laws. The Trust has claimed damages of
$15,945,000 if the arbitration panel grants a rescission
remedy and damages of $10,353,000, plus compensatory
damages, if the arbitration panel grants recovery of out-of-
pocket damages. EUA has counter-claimed for approximately
$550,000 for alleged unpaid management services. In June
1998, the parties presented their case to the arbitration
panel. The decision of the arbitration panel is expected in
the fourth quarter of 1998.
In the ordinary course of business, in late 1996 the Trust
had discovered a small number of overbillings at on-site
cogeneration projects purchased from EUA and had refunded
the overbilled amounts to customers. In preparing for the
arbitration hearings against EUA in the second quarter of
1998, the Trust made an intensive engineering and financial
review of the on-site cogeneration projects and discovered
what appeared to be a pattern of material overbillings of
customers of a number of the on-site projects. The
overbillings were caused by the Trust's reliance on billing
formulas and practices used by EUA and EUA's transfer of
false billing protocols to the Trust is an element of the
Trust's claim against EUA. The Trust has informed affected
customers of the overbillings and is in the process of
offering refunds totalling over $230,000. It has also
advised federal government authorities of overbillings to
federally
supported entities that were included in the that amount.
Although the federal government has the right at any time to
take action adverse to the Trust if it sees fit, it has not
done so to date. Although there can be no assurance that
adverse action will not be taken against the Trust, the
Trust believes
that no such adverse action is probable.
On August 6, 1998, Ridgewood/Providence Power Partners, L.P.
("RPPP"), a limited partnership through which the Trust owns
its limited partnership interest in the Providence Project,
was notified by the Region I office of the U.S.
environmental Protection Agency ("EPA") that the EPA is
considering an
administrative proceeding against RPPP to recover civil
penalties of up to $190,000 for alleged violations of
operational recordkeeping and training requirements at the
Providence Project. RPPP is entering into discussions with
the EPA as to the merits of the allegations and sanctions,
if any, and expects
that it will resolve the matter during 1998. RPPP does not
anticipate a material adverse impact from the proceeding and
does not anticipate the need to make further material
capital expenditures to remedy the items identified by the
EPA. The Trust does not anticipate that it will be liable
for or will
have to fund the costs of the proceeding, although those
costs will reduce cash flow from the Project.
Dollar amounts in this discussion are generally rounded to
the nearest $1,000, except per share data.
Introduction
The Trust carries its investment in the Projects it owns at
fair value and does not consolidate its financial statements
with the financial statements of the Projects. Revenue is
recorded by the Trust as cash distributions are received
from the Projects. Trust revenues may fluctuate from period
to period depending on the operating cash flow generated by
the Projects and the amount of cash retained to fund capital
expenditures.
Results of Operations
<TABLE>
<CAPTION>
Revenues Six Months Ended June 30, Quarter Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
On-site Cogeneration: $ 229,000 500,000 57,000 35,000
Providence 344,000 408,000 177,000 128,000
San Joaquin 376,000 426,000 341,000 278,000
Byron 171,000 162,000 171,000 62,000
Interest income 49,000 66,000 --- 20,000
Total $1,169,000 $1,562,000 $ 746,000 $523,000
</TABLE>
The $393,000 (25%) decrease in total revenues to $1,169,000
in the first six months of 1998 from $1,562,000 in the same
period in 1997 is due to the $271,000 decrease in revenues
from the on-site cogeneration projects, slightly lower
revenues from the Providence Project, the use of cash flow
at San Joaquin for completion of capital improvements, and
timing delays on payments at Byron. This $271,000 decrease
in revenues from the on-site cogeneration projects primarily
reflects the loss of income from the Rhode Island facility
from the 1997 to the 1998 periods and amounts retained by
the projects in in 1998 to cover refunds to be made to
customers as the result of over-billing during
earlier years of operation of certain of the on-site
cogeneration projects. A major portion of the overbilling
was discovered by the Trust in the course of preparing for
the arbitration proceedings described at Part II, Item 1 of
this Quarterly Report.
The $232,000 (44%) increase in total revenues to $755,000 in
the second quarter of 1998 from $523,000 in the same period
in 1997 primarily reflects slightly improved results at
Providence and significant increases at San Joaquin and
Byron as shown above. The increase at San Joaquin reflects
the completion of the capital improvements and the beginning
of year-round operation in April 1998. In 1997, the plant
did not begin operation until May. The Byron increases were
the result of timing of revenue receipts and a slight
increase in revenue. The Trust's results were also improved
by the absence in the 1998 period of a deficit at the Rhode
Island on-site cogeneration facility.
Expenses
The increase in the Trust's expenses by $4,071,000 from the
six-months ended June 30, 1997 to the same period of 1998
and $4,057,000 from the second quarter of 1997 to the same
period of 1998 reflects the writedown of the investment in
certain on-site cogeneration projects in the second quarter
of 1998. During the second quarter of 1998, the Trust
completed an intensive review of the remaining projects and
determined that a writedown of its investment by an
additional $4,062,000 was necessary. Other 1998 Trust
expenses were comparable to 1997 levels.
Liquidity and Capital Resources
During the first six months of 1998, the Trust's operating
activities used $963,000 of cash as opposed to providing
$1,199,000 of cash during the same period in 1997. The
change is primarily attributable to lower net income in
1998, additional investments in new and existing projects,
and costs of the arbitration proceedings against the former
owner of the on-site cogeneration projects. Cash
distributions to shareholders decreased to $1,190,000 in the
first six months of 1998 from $1,889,000 in the same period
in 1997 due to a decrease in the monthly cash distribution
rate in July 1997.
During 1997, the Trust and Fleet Bank, N.A. (the "Bank")
entered into a revolving line of credit agreement, whereby
the Bank provides a three year committed line of credit
facility of $750,000. Outstanding borrowings bear interest
at the Bank's prime rate or, at the Trust's choice, at LIBOR
plus 2.5%. The credit agreement requires the Trust to
maintain a ratio of total debt to tangible net worth of no
more than 1 to 1 and a minimum debt service coverage ratio
of 2 to 1. The credit facility was obtained in order to
allow the Trust to operate using a minimum amount of cash,
maximize the amount invested in Projects and maximize cash
distributions to shareholders. There were no borrowings
under this line of credit in 1998.
In April 1998, the Trust purchased a 500kw facility (the
"Dobbs House project") located near its current Sky Chefs
on-site cogeneration facility in Los Angeles, California.
The total purchase price was approximately $590,000,
including the payment of liabilities that encumbered the
project. The project has a power sales contract that
expires in 2005.
Other than investments of available cash in power generation
Projects, obligations of the Trust are generally limited to
payment of the management fee to the Managing Shareholder,
payments for certain accounting and legal services to third
persons and distributions to shareholders of available
operating cash flow generated by the Trust's investments.
The Trust's policy is to distribute as much cash as is
prudent to shareholders. Accordingly, the Trust has not
found it necessary to retain a material amount of working
capital. The amount of working capital retained is further
reduced by the availability of the line of credit facility.
PART II - OTHER INFORMATION
Item #1 Legal Proceedings
The Trust's subsidiaries that own the On-Site Cogeneration
projects brought an arbitration proceeding in the amount of
$4,100,000 against the sellers of those Projects,
subsidiaries of Eastern Utilities Associates, Inc., the
former owner. The Trust claims breaches of representations
and warranties made by the former owner at the time the on-
site cogeneration projects were acquired. In October 1997,
the complaint was amended to allege fraud by the sellers.
Factual hearings were held for 12 days in June 1998 and a
concluding hearing is scheduled for August 25, 1998. The
former owner has counterclaimed for approximately $550,000
for alleged unpaid management services. The Trust has not
reflected the amounts claimed in its financial statements
pending the outcome of the arbitration proceeding. See Part
I, Item 2 for additional information.
In February 1997, the Trust's subsidiaries that own the San
Joaquin and Byron projects filed suit in the Superior Court
of California for the City of San Francisco against Pacific
Gas and Electric Company ("PG & E") for breach of the power
sales contracts. The Trust argues PG & E has improperly
withheld approximately $200,000 of capacity payments and
also has asked for declaratory relief to require PG & E to
conform to the contracts' terms in the future. Settlement
negotiations are in an advanced stage. The Trust has not
reflected the withheld capacity payments as revenue in its
financial statements pending the outcome of the suit.
On February 28, 1997 Michael Cutbirth, an individual, sued
the Managing Shareholder in the Superior Court of
California, Kern County, claiming unspecified damages
(including a claim to an equity interest) for breach
of an alleged confidentiality agreement relating to the
acquisition of the San Joaquin and Byron Projects. The
Managing Shareholder has successfully removed the lawsuit to
the United States District Court for the Eastern District of
California. A trial date of August 19 and 20, 1998 has been
set. The Managing Shareholder believes that it has ample
defenses to Mr. Cutbirth's claims and that it will defend
the action vigorously.
On August 6, 1998, Ridgewood/Providence Power Partners, L.P.
("RPPP"), a limited partnership through which the Trust owns
its limited partnership interest in the Providence Project,
was notified by the Region I office of the U.S.
environmental Protection Agency ("EPA") that the EPA is
considering an administrative proceeding against RPPP to
recover civil penalties of up to $190,000 for alleged
violations of operational recordkeeping and training
requirements at the Providence Project. RPPP is entering
into discussions with the EPA as to the merits of the
allegations and sanctions, if any, and expects
that it will resolve the matter during 1998. RPPP does not
anticipate a material adverse impact from the proceeding and
does not anticipate the need to make further material
capital expenditures to remedy the items identified by the
EPA. The Trust does not anticipate that it will be liable
for or will have to fund the costs of the proceeding,
although those costs will reduce cash flow from the Project.
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
<PAGE>
RIDGEWOOD ELECTRIC POWER TRUST III
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
RIDGEWOOD ELECTRIC POWER TRUST III
Registrant
August 14, 1998 By /s/ Martin V. Quinn
Date Martin V. Quinn,
Senior Vice President and
Chief Financial Officer
(signing on behalf of the
Registrant and as
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the Registrant's unaudited interim financial
statements for the six month period ended June 30, 1998 and
is qualified in its entirety by reference to those financial
statements.
</LEGEND>
<CIK> 0000917032
<NAME> RIDGEWOOD ELECTRIC POWER TRUST III
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 534,261
<SECURITIES> 22,194,975<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 548,008<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,749,031
<CURRENT-LIABILITIES> 307,158
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 22,441,873<F3>
<TOTAL-LIABILITY-AND-EQUITY> 22,749,031
<SALES> 0
<TOTAL-REVENUES> 1,169,326
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,494,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,324,984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,324,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,324,984)
<EPS-PRIMARY> (8,485)
<EPS-DILUTED> (8,485)
<FN>
<F1>Investments in power project partnerships.
<F2>Includes $13,747 due from affiliates.
<F3>Represents Investor Shares of beneficial interest
in Trust with capital accounts of $22,548,490 less
managing shareholder's accumulated deficit of $106,617.
</FN>
</TABLE>
