UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2006
or
| 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: 0-25935
THE RIDGEWOOD POWER GROWTH FUND
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 22-3495594 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification Number) |
| 1314 King Street, Wilmington, Delaware | 19801 | |
| (Address of Principal Executive Offices) | (Zip Code) |
| (302) 888-7444 | ||
| (Registrant’s telephone number, including area code) |
| (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 x
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 Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 31, 2007, there were 658.1067 Investor Shares outstanding.
THE RIDGEWOOD POWER GROWTH FUND
FORM 10-Q
INDEX
Page | |||
| PART I. | FINANCIAL INFORMATION | ||
| 3 | |||
| 11 | |||
| 13 | |||
| 14 | |||
| PART II. | OTHER INFORMATION | ||
| 15 | |||
15 | |||
| 15 | |||
| 15 | |||
| 15 | |||
| 15 | |||
| 16 | |||
| 17 | |||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE RIDGEWOOD POWER GROWTH FUND | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except share data) | ||||||||
| March 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| ASSETS | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,206 | $ | 1,906 | ||||
| Accounts receivable, net of allowance | 1,291 | 1,367 | ||||||
| Notes receivable - current portion | 142 | 140 | ||||||
| Due from affiliates | 316 | 733 | ||||||
| Deferred income taxes | - | 429 | ||||||
| Inventory | 619 | 640 | ||||||
| Prepaid expenses and other current assets | 395 | 227 | ||||||
| Total current assets | 4,969 | 5,442 | ||||||
| Notes receivable - noncurrent portion | 1,447 | 1,500 | ||||||
| Investments | 107 | 192 | ||||||
| Property, plant and equipment, net | 20,105 | 20,812 | ||||||
| Goodwill | 227 | 227 | ||||||
| Intangibles, net | 5,494 | 5,897 | ||||||
| Other assets | 5 | 5 | ||||||
| Total assets | $ | 32,354 | $ | 34,075 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 425 | $ | 1,311 | ||||
| Accrued expenses | 414 | 230 | ||||||
| Long-term debt - current portion | 1,069 | 1,190 | ||||||
| Due to affiliates | 1,065 | 881 | ||||||
| Total current liabilities | 2,973 | 3,612 | ||||||
| Long-term debt - noncurrent portion | 2,552 | 2,609 | ||||||
| Other liabilities | 1,736 | 1,735 | ||||||
| Deferred income taxes, net | 1,076 | 1,515 | ||||||
| Minority interest | 6,736 | 6,855 | ||||||
| Total liabilities | 15,073 | 16,326 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Shareholders’ equity (658.1067 Investor Shares issued and | ||||||||
| outstanding) | 17,647 | 18,111 | ||||||
| Managing Shareholder's accumulated deficit (1 management | ||||||||
| share issued and outstanding) | (366 | ) | (362 | ) | ||||
| Total shareholders’ equity | 17,281 | 17,749 | ||||||
| Total liabilities and shareholders’ equity | $ | 32,354 | $ | 34,075 | ||||
The accompanying notes are an integral part of these financial statements.
3
THE RIDGEWOOD POWER GROWTH FUND | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||||||
(unaudited, in thousands, except per share data) | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2006 | 2005 | |||||||
| Revenues | $ | 3,461 | $ | 2,915 | ||||
| Cost of revenues | 2,228 | 1,940 | ||||||
| Gross profit | 1,233 | 975 | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | 665 | 1,494 | ||||||
| Management fee to the Managing Shareholder | 411 | 411 | ||||||
| Total operating expenses | 1,076 | 1,905 | ||||||
| Income (loss) from operations | 157 | (930 | ) | |||||
| Other income (expense): | ||||||||
| Interest income | 20 | 25 | ||||||
| Interest expense | (68 | ) | (201 | ) | ||||
| Equity in loss from RUK | (61 | ) | (85 | ) | ||||
| Gain (loss) on sale of ZAP securities | 3 | (38 | ) | |||||
| Other income, net | 18 | 571 | ||||||
| Total other (expense) income, net | (88 | ) | 272 | |||||
| Income (loss) before income tax and minority interest | 69 | (658 | ) | |||||
| Income tax expense | 158 | 28 | ||||||
| Loss before minority interest | (89 | ) | (686 | ) | ||||
| Minority interest in the (earnings) loss of subsidiaries | (132 | ) | 30 | |||||
| Net loss | (221 | ) | (656 | ) | ||||
| Foreign currency translation adjustment | 71 | 518 | ||||||
| Unrealized gain (loss) on ZAP securities | 14 | (282 | ) | |||||
| Comprehensive loss | $ | (136 | ) | $ | (420 | ) | ||
| Managing Shareholder - Net loss | $ | (2 | ) | $ | (7 | ) | ||
| Shareholders - Net loss | (219 | ) | (649 | ) | ||||
| Net loss per Investor Share | (332 | ) | (987 | ) | ||||
| Distributions per Investor Share | (500 | ) | (500 | ) | ||||
The accompanying notes are an integral part of these financial statements.
4
THE RIDGEWOOD POWER GROWTH FUND | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(unaudited, in thousands) | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2006 | 2005 | |||||||
| Cash flows from operating activities: | ||||||||
| Net cash provided by operating activities | $ | 1,074 | $ | 840 | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (74 | ) | (152 | ) | ||||
| Deposits on equipment | - | (1,008 | ) | |||||
| Proceeds from sale of equipment | - | 44 | ||||||
| Collections on notes receivable | 51 | 24 | ||||||
| Proceeds from sale of ZAP securities | 45 | 264 | ||||||
| Distribution from RUK | - | 359 | ||||||
| Net cash provided by (used in) investing activities | 22 | (469 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Cash distributions to shareholders | (332 | ) | (332 | ) | ||||
| Cash distributions to minority shareholders | (285 | ) | - | |||||
| Repayments under bank loans | (179 | ) | (236 | ) | ||||
| Net cash used in financing activities | (796 | ) | (568 | ) | ||||
| Effect of exchange rate on cash and cash equivalents | - | 36 | ||||||
| Net increase (decrease) in cash and cash equivalents | 300 | (161 | ) | |||||
| Cash and cash equivalents, beginning of period | 1,906 | 769 | ||||||
| Cash and cash equivalents, end of period | $ | 2,206 | $ | 608 | ||||
The accompanying notes are an integral part of these financial statements.
5
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules. These condensed consolidated financial statements should be read in conjunction with The Ridgewood Power Growth Fund (the “Fund”) Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on August 17, 2007 (the “2005 Form 10-K”). No significant changes have been made to the Fund’s accounting policies and estimates disclosed in the 2005 Form 10-K.
In the opinion of management, the condensed consolidated financial statements as of March 31, 2006, and for the three-month periods ended March 31, 2006 and 2005, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year or any other period.
2. DESCRIPTION OF BUSINESS
The Fund is a Delaware trust formed in February 1997. The Fund began offering shares on February 9, 1998 and concluded its offering in April 2000. The objective of the Fund is to provide benefits to its shareholders through a combination of distributions of operating cash flow and capital appreciation. The Managing Shareholders of the Fund are Ridgewood Renewable Power LLC (“RRP”) and Ridgewood Power VI LLC (“Power VI”) (collectively, the “Managing Shareholder”). Effective January 1, 2001, Power VI assigned and delegated all of its rights and responsibilities to RRP and since that time has been an entity with only nominal activity.
The Fund has been organized to invest primarily in independent power generation facilities, water desalinization plants and other infrastructure projects both in the US and abroad. The projects to be owned by the Fund may have characteristics that qualify the projects for government incentives. Among the possible incentives are ancillary revenue opportunities related to the fuel used by the power plants or tax incentives provided to projects in remote locations.
The Fund’s accompanying condensed consolidated financial statements include the financial statements of Ridgewood US Hydro Corporation (“US Hydro”) and Ridgewood Near East Holding LLC (“NEH”). The Fund’s condensed consolidated financial statements also include the Fund’s 30.4% interest in Ridgewood UK (“RUK”) which is accounted for under the equity method of accounting as the Fund has the ability to exercise significant influence but does not control the operating and financial policies of RUK.
The Fund owns 70.8% interest in US Hydro and the remaining 29.2% minority interest is owned by Ridgewood Electric Power Trust V (“Trust V”). In addition, the Fund owns a 68.1% interest in NEH and the remaining minority interest is owned by Trust V (14.1%) and Ridgewood Egypt Fund (“Egypt Fund”) (17.8%). The interests of Trust V and Egypt Fund are presented as minority interest in the condensed consolidated balance sheets and statements of operations.
6
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
3. INVESTMENTS
The Fund accounts for its investment in RUK under the equity method of accounting.
Summarized statements of operations data for RUK for the three months ended March 31, 2006 and 2005 is as follows:
| March 31, | ||||||||
| 2006 | 2005 | |||||||
| Revenues | $ | 8,255 | $ | 6,835 | ||||
Gross profit | 1,535 | 849 | ||||||
Income from operations | 1,395 | 768 | ||||||
| Net loss | $ | (200 | ) | $ | (280 | ) | ||
| Fund share of losses in RUK | $ | (61 | ) | $ | (85 | ) | ||
4. INVENTORY
At March 31, 2006 and December 31, 2005, inventories are as follows:
| March 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
Consumables | $ | 561 | $ | 497 | ||||
| Fuel | 58 | 143 | ||||||
| $ | 619 | $ | 640 | |||||
7
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
5. RELATED PARTY TRANSACTIONS
The Fund records short-term payables to and receivables from other affiliates in the ordinary course of business. The amounts payable to and receivable from the other affiliates do not bear interest. At March 31, 2006 and December 31, 2005, the Fund had outstanding payables and receivables as follows:
| March 31, | December 31, | March 31, | December 31, | |||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Due from | Due to | |||||||||||||||
| Ridgewood Power Management LLC | $ | - | $ | - | $ | 262 | $ | 335 | ||||||||
| RRP | - | - | 611 | 186 | ||||||||||||
| Trust V | 265 | 538 | - | - | ||||||||||||
| Egypt Fund | - | - | 192 | 207 | ||||||||||||
| RUK | 39 | 195 | - | - | ||||||||||||
| Other affiliates | 12 | - | - | 153 | ||||||||||||
| Total | $ | 316 | $ | 733 | $ | 1,065 | $ | 881 | ||||||||
6. INCOME TAX
Except for US Hydro, no provision is made for US income taxes in the accompanying consolidated financial statements as the income or losses of the Fund are passed through and included in the income tax returns of the individual shareholders of the Fund. As a result, changes in the Fund’s pre-tax income (loss) do not necessarily lead to changes in income tax expense, thereby resulting in volatility of the effective tax rate. US Hydro operates in several tax jurisdictions and, as a result, the geographic mix of US Hydro’s pre-tax income or loss can also impact our overall effective tax rate. The Fund has calculated its actual tax provision based upon year-to-date results. Such an approach is allowed under Financial Accounting Standards Board (“FASB”) Interpretation No. 18 ("FIN 18"), as the Fund has determined that it cannot estimate an annual effective tax rate with reasonable accuracy. The income tax expense on income before minority interest and income tax for the three months ended March 31, 2006 and 2005 was $158 and $28, respectively.
7. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Fund manages and evaluates its operations in two reportable business segments: power generation and water desalinization. These segments have been classified separately by the similarities in economic characteristics and customer base. Common services shared by the business segments are allocated on the basis of identifiable direct costs, time records or in proportion to amount invested.
8
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
Quarterly financial data for business segments is as follows:
| Power | ||||||||
| Three Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
| Revenues | $ | 1,916 | $ | 1,707 | ||||
| Gross profit | 1,159 | 948 | ||||||
| Total assets | 10,643 | 12,806 | ||||||
| Water | ||||||||
| Three Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
| Revenues | $ | 1,545 | $ | 1,208 | ||||
| Gross profit | 74 | 27 | ||||||
| Total assets | 21,379 | 22,443 | ||||||
| Corporate | ||||||||
| Three Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
| Total assets | $ | 332 | $ | 4,209 | ||||
| Consolidated | ||||||||
| Three Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
| Revenues | $ | 3,461 | $ | 2,915 | ||||
| Gross profit | 1,233 | 975 | ||||||
| Total assets | 32,354 | 39,458 | ||||||
8. SUBSEQUENT EVENTS
On August 16, 2006, the Managing Shareholder of the Fund and affiliates of the Fund filed lawsuits against the former independent registered public accounting firm for the Fund, Perelson Weiner, LLP (“Perelson Weiner”), in New Jersey Superior Court. The suits alleged professional malpractice and breach of contract in connection with audit and accounting services performed by Perelson Weiner. On October 26, 2006, Perelson Weiner filed a counterclaim against the Fund and its affiliates alleging breach of contract due to unpaid invoices. Discovery is ongoing and no trial date has been set. The costs and expenses of the litigation are being paid for by the Managing Shareholder and affiliated management companies and not the underlying investment funds, including the Fund.
In the fourth quarter of 2006, as a result of the losses recognized by the Fund from the disposition of ZAP shares, the Managing Shareholder waived a receivable from the Fund of $300 and contributed $315 in cash to the Fund.
On January 23, 2007, RUK entered into an agreement (the "Sale Agreement") along with Arbutus and the PowerBank Funds (the “Sellers”), and MEIF LG Energy Limited (the "Buyer"). At that time, RUK owned 88% of the issued and outstanding shares of CLPE Holdings Ltd. (“CLP”) and the remaining 12% of CLP was owned by Arbutus. On February 22, 2007, RUK completed the sale (the “Sale”) of all of the issued and outstanding shares of CLP.
9
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
Under the Sale Agreement, the Buyer agreed to buy (i) 100% of the issued and outstanding shares (the "Shares") of CLP from Ridgewood UK and Arbutus, and (ii) substantially all of the assets (the "Assets") of the PowerBanks. The Assets and the Shares constitute all the landfill gas business located in the United Kingdom of RUK and of the PowerBank Funds.
In accordance with the Sale Agreement, at closing, the Buyer paid an aggregate purchase price for the Shares and the Assets of £117.8 million ($229,500), subject to a working capital adjustment that resulted in an increase to the purchase price of £4.2 million ($8,200). After adjustment, the purchase price for the Shares was £25.1 million ($48,900), of which £22.1 million ($43,100) was attributable to the shares sold by RUK. Taking into account payments made to RUK pursuant to certain sharing arrangements with the PowerBanks, the total gross sales proceeds to RUK were £27.6 million ($53,800).
On February 23, 2007, the Manager caused a portion of the sales proceeds to be converted from sterling into US dollars which was done at the rate of 1.9483 U.S. dollars for each pound sterling. On March 27, 2007 a subsequent conversion took place at an exchange rate of 1.9604 US dollars for each pound sterling. While certain transactions remain to be made that will require dollar/sterling conversions, management of the Fund does not expect the exchange rates of these conversions to have a material effect on RUK.
The Sellers gave a number of warranties and indemnities to the Buyer in connection with the Sale that it considers typical of such transactions. Should there be a breach or breaches of the warranties or should an indemnifiable event occur, the Buyer could make claims against the Sellers including RUK. Management of RUK does not believe there is a material likelihood that such a claim will arise or that, should such a claim arise, RUK would incur a material liability. This belief is based, in part, on the Sellers having purchased warranty and indemnity insurance to minimize such risk. There are no current plans to reserve or provide an escrow for the contingent liabilities represented by these warranties and indemnities. As of the date of this filing, the Fund is not aware of any claims. In March 2007, the Fund distributed a portion of the Sale proceeds to its shareholders.
On December 30, 2005, an investor in the Fund and entities affiliated with the Fund, Paul Bergeron, on behalf of himself and as Trustee for the Paul Bergeron Trust (the “Plaintiff”), filed a Complaint in Suffolk Superior Court, Commonwealth of Massachusetts, Paul Bergeron v. Ridgewood Electric Power Trust V, et al., Suffolk Superior Court, Docket No. 07-1205 BLS1 (“Bergeron I”). The action was brought against, among others, the Managing Shareholder and persons who are or were officers of the Managing Shareholder alleging violations of the Massachusetts Securities Act, as well as breach of fiduciary duty, fraud, breach of contract, negligent misrepresentation and unjust enrichment, all related to a set of alleged facts and allegations regarding the sale of securities of funds (including the Fund) managed by the Managing Shareholder or affiliates of the Managing Shareholder which were sold in private offerings and the operation of those funds subsequent to the sale. The Plaintiff is seeking damages of $900,000 plus interest and other damages to be determined at trial.
On January 27, 2006, the Plaintiff, on its own initiative, filed an Amended Complaint and Jury Demand in Massachusetts Superior Court, adding a non-diverse broker-dealer to the action. On February 22, 2006, the case was removed by the defendants to United States District Court for the District of Massachusetts on the basis of diversity jurisdiction, but the defendants alleged that the only non-diverse party had been fraudulently joined by the Plaintiff. On February 27, 2006, a motion to dismiss was filed by the defendants in the District Court. On April 12, 2006, the District Court affirmed its jurisdiction over the case, and dismissed the non-diverse party. On January 10, 2007, the District Court dismissed Plaintiff’s unjust enrichment case, but denied the motion of the defendants to dismiss as to the remaining claims. Presently, attorneys for the parties are involved in discovery, with a magistrate judge having decided motions to compel brought by the parties during the Summer of 2007. A new scheduling order is in the process of being developed by the parties for approval by the District Court. As of the date of the filing, no trial date has been set.
On March 20, 2007, the Plaintiff commenced a derivative action, in Suffolk Superior Court, Commonwealth of Massachusetts. Paul Bergeron v. Ridgewood Electric Power Trust V, et al., Suffolk Superior Court, Docket No. 07-1205 BLS1 (“Bergeron II”). The Plaintiff joined the Fund and affiliated entities, including the Managing Shareholder and a person who is an officer of the Managing Shareholder, alleging that the allocation of the proceeds from the sale of certain assets of the Fund and affiliated entities to an unaffiliated entity was unfair and sought an injunction prohibiting the distribution to shareholders of such proceeds. For a description of the sale transaction, see Item 1. “Business – Ridgewood UK.” The Superior Court denied the request by the Plaintiff for an injunction. The case was then removed by the defendants to the same District Court as Bergeron I, but the District Court remanded the case to Massachusetts Superior Court on July 5, 2007, where it is presently pending.
All defendants in Bergeron I and Bergeron II deny the allegations and intend to defend both actions vigorously.
In October 2007, the Managing Shareholder announced that it will be marketing the assets of NEH for sale; no purchaser has been identified as of the date of this filing.
10
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis of the operating results and financial condition at March 31, 2006 is intended to help readers analyze the accompanying financial statements, notes and other supplemental information contained in this document. Results of operations for the three-month period ended March 31, 2006 are not necessarily indicative of results to be attained for any other period. This discussion and analysis should be read in conjunction with the accompanying financial statements, notes and other supplemental information included elsewhere in this report and Part II, Item 7 of the Fund’s Form 10-K (Management’s Discussion and Analysis of Financial Condition and Results of Operations) for the year ended December 31, 2005, as filed with the SEC on August 17, 2007.
Forward-Looking Statements
Certain statements discussed in this item and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Fund’s plans, objectives and expectations for future events and include statements about the Fund’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. These statements are based upon management’s opinions and estimates as of the date they are made. Although management believes that the expectations reflected in these forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties that may be beyond the Fund’s control, which could cause actual results, performance and achievements to differ materially from the results, performance and achievements projected, expected, expressed or implied by the forward-looking statements. Examples of events that could cause actual results to differ materially from historical results or those anticipated include changes in political and economic conditions, federal or state regulatory structures, government mandates, the ability of customers to pay for energy received, supplies and prices of fuels, operational status of generating plants, mechanical breakdowns, volatility in the price for electric energy, natural gas, or renewable energy. Additional information concerning the factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the 2005 Form 10-K. The Fund undertakes no obligation to publicly revise any forward-looking statements or cautionary factors, except as required by law.
Critical Accounting Policies and Estimates
The following discussion and analysis of the Fund’s financial condition and operating results is based on its financial statements. The preparation of this Quarterly Report on Form 10-Q requires the Fund to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Fund’s financial statements, and the reported amount of revenue and expenses during the reporting period. Actual results may differ from those estimates and assumptions. No material changes have been made to the Fund’s critical accounting policies and estimates disclosed in the 2005 Form 10-K.
11
Results of Operations and Changes in Financial Condition
Three months ended March 31, 2006 compared to the three months ended March 31, 2005
Total revenues increased approximately $0.6 million, or 17.2%, to $3.5 million in the first quarter of 2006 as compared to $2.9 million in the first quarter of 2005. Revenues from US Hydro operations increased $0.2 million to $1.9 million as a result of higher outputs due to increased precipitation; revenues from NEH operations increased $0.4 million primarily due to increased water volume sales due to greater tourism in the NEH market area.
Cost of revenues for the first quarter of 2006 was $2.2 million compared to $1.9 million in the first quarter of 2005, an increase of approximately $0.3 million or 15.8%. This increase was primarily attributable to higher consumable expenses in Egyptian operations.
Gross profit increased 26.5% from $1 million in the first quarter of 2005 to $1.2 million in the first quarter of 2006. The increase of approximately $0.2 million was due to increases in the gross profit of US Hydro as a result of the increase in revenues.
General and administrative expenses decreased by approximately $0.8 million to $0.7 million for the first three months of 2006 as compared to $1.5 million for the comparable 2005 period. General and administrative expenses for the first quarter of 2005 included the termination of an agreement with a former consultant, which resulted in an expense of $0.9 million, representing the present value of future payments to be made under the settlement agreement.
Interest expense was $68,000 for the first three months of 2006 compared to $0.2 million for the comparable 2005 period. The decrease was primarily due to the decrease in outstanding borrowings of the NEH operations.
The Fund recorded other income of $18,000 in the first three months of 2006 compared to other income of $0.6 million during the same period in 2005. In the first quarter of 2005, other income represents recovery of advances related to the Fund’s Dubai operations.
In the first quarter of 2006, the Fund recorded income tax expense of $0.2 million compared to $28,000 in the first quarter of 2005. The increase in income tax expense was primarily attributable to the increase in US Hydro net income for the quarter and to the recognition of temporary timing differences between the book and tax basis for the deprecation and amortization expense of the US Hydro projects.
The Fund recorded $0.1 million of minority interest in the earnings of subsidiaries in the first quarter of 2006 as compared with minority interest in the loss of subsidiaries of $30,000 in the first quarter of 2005. This increase in earnings was primarily due to higher revenues and lower general and administrative expense, partially offset by an increase in other expense of the NEH operations.
Total assets at March 31, 2006 were $32.4 million, a decrease of approximately $1.7 million from the December 31, 2005 balance of $34.1 million. The decrease in total assets was primarily due to a decrease of $0.7 million in property, plant and equipment and decreases of $0.4 million each in intangibles, due from affiliates and deferred income taxes, partially offset by an increase of $0.3 million in cash and cash equivalents. Total liabilities decreased by approximately $1.2 million from $16.3 million at December 31, 2005 to $15.1 million at March 31, 2006. The decrease in total liabilities was primarily due to decreases of $0.9 million in accounts payable, $0.2 million in long term debt and $0.4 million in deferred income taxes, partially offset by an increase of $0.2 million in due to affiliates.
12
Liquidity and Capital Resources
Three months ended March 31, 2006 compared to the three months ended March 31, 2005
At March 31, 2006, the Fund had cash and cash equivalents of $2.2 million, an increase of $0.3 million from December 31, 2005. The cash flows for the three months ended March 31, 2006 were $1.1 million provided by operating activities, $22,000 provided by investing activities and $0.8 million used in financing activities.
Cash provided by operating activities for the three months ended March 31, 2006 was $1.1 million compared to $0.8 million for the three months ended March 31, 2005. The increase in cash flow in the first quarter of 2006 compared to the first quarter of 2005 was primarily due to an increase in revenues and an increase in short-term payables to affiliates, partially offset by a decrease in accounts payable.
For the three months ended March 31, 2006, investing activities provided cash of $22,000 as compared to using cash of $0.5 million for the three months ended March 31, 2005. Cash provided by investing activities for the first quarter of 2006 included $51,000 from collection on notes receivable, $45,000 of proceeds from the sale of ZAP securities, partially offset by $74,000 in capital expenditures. In the first quarter of 2005, cash used in investing activities included $1 million of deposits made on purchase of equipment by the NEH operations, partially offset by $0.4 million in distributions from RUK and $0.3 million in proceeds from the sale of ZAP securities.
Cash used in financing activities for the first quarter of 2006 was $0.8 million compared to $0.6 million in the first quarter of 2005. The increase of $0.2 million in cash used in financing activities in the 2006 period was primarily due to distributions to minority shareholders.
Future Liquidity and Capital Resource Requirements
The Fund expects cash flows from operating activities, along with existing cash and cash equivalents, will be sufficient to provide working capital and fund capital expenditures for the next 12 months.
Off-Balance Sheet Arrangements
The Fund does not have any off-balance sheet arrangements or contractual obligations or commitments as of March 31, 2006, except as discussed in the 2005 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The disclosure required by this Item is omitted pursuant to Item 305(e) of Regulation S-K.
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ITEM 4. CONTROLS AND PROCEDURES
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), the Fund’s Chief Executive Officer and Chief Financial Officer evaluate the effectiveness of the Fund’s disclosure controls and procedures. A system of disclosure controls and procedures is designed to ensure that information required to be disclosed by a registrant in reports filed with the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms. This includes disclosure controls and procedures designed to ensure that information required to be disclosed by a registrant is accumulated and communicated to senior management so as to allow timely decisions regarding required disclosure. A review of these controls and procedures was done by the Fund as of March 31, 2006 which revealed that the following material weaknesses previously identified continue to exist:
(i) a lack of sufficient personnel with relevant experience to develop, administer and monitor disclosure controls and procedures to enable the Fund to comply efficiently, or on a timely basis, with its financial reporting obligations,
(ii) inadequate disclosure controls and procedures, including inadequate record retention and review policies, over both foreign and US operations, that would enable the Fund to meet its financial reporting and disclosure obligations in an efficient and timely manner.
As a result of these weaknesses, the Fund has not timely met its reporting obligations under the Exchange Act.
The Fund's Chief Executive Officer and Chief Financial Officer have concluded that there were no other changes in the Fund's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended March 31, 2006 that have materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting.
Since the review, the Fund has implemented the following changes in internal control over financial reporting:
| · | Increased the number of degreed accountants. Additional staff expansion is underway. |
| · | Engaged a national accounting firm to evaluate procedures and controls over financial reporting. The firm made a report to the Managing Shareholder in May 2006, which has implemented some of the firm’s recommendations, and is in the process of evaluating the remaining recommendations. |
| · | In August 2006, engaged a national accounting firm to supply accounting personnel to assist while personnel hiring is underway. The work performed by the firm is under the direct supervision of the Fund’s Chief Financial Officer and Controller. |
| · | In May 2007, the Fund appointed a new Chief Financial Officer who is a Certified Public Accountant with approximately 29 years of professional accounting |
| experience, including prior experiences as a financial officer of publicly traded companies. |
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The Fund believes that the completion of the expansion of the accounting and financial reporting staff and implementation of recommended procedures will mitigate the above weaknesses. However, due to the Fund’s delinquencies in meeting its filing deadlines under the Exchange Act, the Fund expects these deficiencies to continue to be material weaknesses at least until such time as the Fund is no longer delinquent in its Exchange Act filings.
The Fund’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Fund’s disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act and concluded that, as of the end of the period covered by this report, because of the material weaknesses noted above, the Fund’s disclosure controls and procedures were not effective.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes to the legal proceedings disclosed in the 2005 Form 10-K.
ITEM 1A. RISK FACTORS
For information regarding factors that could affect the Fund’s results of operations, financial condition and liquidity, see the risk factors discussed under “Risk Factors” in Item 1A of the 2005 Form 10-K. There have been no material changes from the risk factors previously disclosed in such Form 10-K.
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.
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ITEM 6. EXHIBITS
Exhibits
31.1 | * | Certification of Randall D. Holmes, Chief Executive Officer of the Registrant, pursuant to Securities Exchange Act Rule 13a-14(a). | |
31.2 | * | Certification of Jeffrey H. Strasberg, Chief Financial Officer of the Registrant, pursuant to Securities Exchange Act Rule 13a-14(a). | |
| 32 | * | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Randall D. Holmes, Chief Executive Officer of the Registrant, and Jeffrey H. Strasberg, Chief Financial Officer of the Registrant. |
_____________________
| * | Filed herewith. |
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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.
THE RIDGEWOOD POWER GROWTH FUND | ||
| Date: November 27, 2007 | By: | /s/ Randall D. Holmes |
| Randall D. Holmes | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 27, 2007 | By: | /s/ Jeffrey H. Strasberg |
| Jeffrey H. Strasberg | ||
Executive Vice President and Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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