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 September 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>
September 30, December 31,
1998 1997
<S> <C> <C>
Assets:
Investments in power generation projects $ 22,915,812 $ 24,613,978
Cash and cash equivalents 515,839 2,687,626
Due from affiliates 13,764 20,458
Other assets 4,440 14,162
Total assets $ 23,449,855 $ 27,336,224
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses $ 31,869 $ 38,537
Due to affiliates 425,208 340,373
Total liabilities 457,077 378,910
Shareholders' equity:
Shareholders' equity (391.8444 shares
issued and Outstanding) 23,093,886 27,018,776
Managing shareholder's
accumulated deficit (101,108) (61,462)
Total shareholders' equity 22,992,778 26,957,314
Total liabilities
and shareholders' equity $ 23,449,855 $ 27,336,224
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND QUARTERS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(Unaudited)
<CAPTION>
Nine Months Ended Quarter Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue:
Income from power
generation projects $ 2,479,777 $ 3,258,480 $ 1,359,216 $ 1,762,856
Interest income 63,721 120,993 14,956 54,692
2,543,498 3,379,473 1,374,172 1,817,548
Expenses:
Writedown of
investments in power
generation projects 4,062,147 3,235,680 --- 3,235,680
Management fee 528,003 583,311 176,001 195,102
Accounting
and legal fees 79,641 44,860 43,653 26,776
Miscellaneous 54,076 24,361 9,903 7,608
4,723,867 3,888,212 229,557 3,465,166
Net income (loss) $(2,180,369) $ (508,739) $ 1,144,615 $ (1,647,618)
<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 SEPTEMBER 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 (1,766,325) (17,842) (1,784,167)
Net loss for the period (2,158,565) (21,804) (2,180,369)
Shareholders' equity,
September 30, 1998 $ 23,093,886 $(101,108) $ 22,992,778
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(Unaudited)
<CAPTION>
Nine Months Ended
September 30, September 30,
1998 1997
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,180,369) $ (508,739)
Adjustment to reconcile net income to
net cash flows from operating activities:
Purchase of investments
in power generation projects (588,733) (127,063)
Writedown of investments in
power generation projects 4,062,147 2,945,138
Investment in working capital
of power generation projects (1,775,248) ---
Changes in assets and liabilities:
Decrease (increase) in due from affiliates 6,694 (1,253,670)
Increase in deferred due diligence costs --- 30,000
Decrease (increase) in other assets 9,722 (106,371)
Decrease in accounts
payable and accrued expenses (6,668) (7,728)
Increase in due to affiliates 84,835 603,720
Total adjustments 1,792,749 2,084,026
Net cash (used in) provided
by operating activities (387,620) 1,575,287
Cash flows from financing activities:
Cash distributions to shareholders (1,784,167) (2,483,106)
Net cash used in financing activities (1,784,167) (2,483,106)
Net decrease in cash and
cash equivalents (2,171,787) (907,819)
Cash and cash equivalents,
beginning of period 2,687,626 2,959,240
Cash and cash equivalents, end of period $ 515,839 $ 2,051,421
<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
$8,819,000.
The Trust's subsidiaries that own the on-site cogeneration
projects brought an arbitration proceeding against EUA.
The Trust 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 claimed
that the former owner breached numerous representations and
warranties in the acquisition agreement and violated fair
trade practice laws. The Trust 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 counter-claimed for
approximately $550,000 for alleged unpaid management
services.
On October 26, 1998, the arbitration panel announced that
it had awarded the Trust damages plus interest of
approximately $3,500,000. In addition, the Trust was
awarded most of its attorney fees and EUA was awarded a
counterclaim that should not substantially offset the
attorney fee award to the Trust. The Trust has not
recorded the award in the financial statements pending
the determination of the amount of the attorney fee award
and completion of discussions with EUA regarding the exact
amount and timing of payment of the award.
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 totaling 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.
4. Administrative Proceeding at the Providence Project
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. An administrative
complaint was filed in September 1998 and RPPP has answered.
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 is considering whether the cost of
non-mandated environmental improvements at other sites
may be eligible for offset against any final sanctions.
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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dollar amounts in this discussion are rounded to the
nearest $1,000.
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 Nine Months Ended September 30, Quarter Ended September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
On-site Cogeneration: $ 531,000 $ 1,214,000 $ 301,000 $ 716,000
Providence 529,000 683,000 185,000 275,000
San Joaquin 945,000 921,000 569,000 495,000
Byron 475,000 440,000 304,000 277,000
Interest income 64,000 121,000 15,000 55,000
Total $2,544,000 $ 3,379,000 $1,374,000 $1,818,000
</TABLE>
The $835,000 (25%) decrease in total revenues to
$2,544,000 in the first nine months of 1998 from
$3,379,000 in the same period in 1997 is primarily due
to the $681,000 decrease in revenues from the on-site
cogeneration projects and the $154,000 decrease in
revenues from the Providence project. This $681,000
decrease in revenues from the on-site cogeneration
projects primarily reflects the effects of a temporary
shutdown of the Globe plant for major engine maintenance
in 1998, the shutdown of the Rhode Island facility in 1997
and amounts retained by the projects 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. The overbilling was caused by the
Trust's relying upon improper billing protocols provided by
the prior owner of those projects, EUA Cogenex Corp. and
the major portion of the overbilling was discovered by the
Trust in the course of preparing for the arbitration
proceedings against EUA Cogenex Corp. described at Part II,
Item 1 of this Quarterly Report. The decrease in revenues
from the Providence project reflects an increase in
administrative expenses in 1998 because certain internal
administrative costs are no longer being capitalized after
the completion of an engine addition in 1997.
The decrease in total revenues in the third quarter of 1998
from the third quarter of 1997 was caused by the same factors.
Expenses
The increase in the Trust's expenses by $836,000 from the
nine months ended September 30, 1997 to the same period of
1998 and the decrease of $4,057,000 from the third quarter
of 1997 to the same period of 1998 reflects the timing of
the writedowns of the investment in certain on-site
cogeneration projects. In the third quarter of 1997,
the Trust took a write-down of $3,236,000, primarily
related to the Rhode Island facility. In 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 nine months of 1998, the Trust's operating
activities used $388,000 of cash as opposed to providing
$1,575,000 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 $1,784,000
in the first nine months of 1998 from $2,483,000 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. On October 24, 1998,
the arbitrator panel awarded $2.6 million in damages to the
Trust plus approximately $900,000 in interest. The Sellers
were awarded approximately $400,000 on their counter-claim
plus $130,000 in interest. Each side was also awarded
attorney's fees on the portions of its case it prevailed on,
to be determined by the panel. 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 case was settled for $120,000 to the
Trust, plus contract revisions, in September 1998.
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 United States District Court
for the Eastern District of California ruled for the Trust
on all counts in July 1998
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
November 18, 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 nine month period ended September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 515,839
<SECURITIES> 22,915,812<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 529,603<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,449,855
<CURRENT-LIABILITIES> 457,077
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 22,992,778<F3>
<TOTAL-LIABILITY-AND-EQUITY> 23,449,855
<SALES> 0
<TOTAL-REVENUES> 2,543,498
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,723,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,180,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,180,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,180,369)
<EPS-PRIMARY> (5,564)
<EPS-DILUTED> (5,564)
<FN>
<F1>Investments in power project partnerships.
<F2>Includes $13,764 due from affiliates.
<F3>Represents Investor Shares of beneficial interest
in Trust with capital accounts of $23,093,886 less
managing shareholder's accumulated deficit of $101,108.
</FN>
</TABLE>
