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 September 30, 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
PART I. | FINANCIAL INFORMATION | Page | |
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11 | |||
14 | |||
14 | |||
PART II. | OTHER INFORMATION | ||
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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) | ||||||||
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
ASSETS | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,379 | $ | 1,906 | ||||
Accounts receivable, net of allowance | 1,163 | 1,367 | ||||||
Notes receivable - current portion | 123 | 140 | ||||||
Due from affiliates | 181 | 733 | ||||||
Deferred income taxes | - | 429 | ||||||
Inventory | 721 | 640 | ||||||
Prepaid expenses and other current assets | 457 | 227 | ||||||
Total current assets | 5,024 | 5,442 | ||||||
Notes receivable - noncurrent portion | 1,407 | 1,500 | ||||||
Investments | 213 | 192 | ||||||
Property, plant and equipment, net | 19,242 | 20,812 | ||||||
Goodwill | 227 | 227 | ||||||
Intangibles, net | 4,881 | 5,897 | ||||||
Other assets | 47 | 5 | ||||||
Total assets | $ | 31,041 | $ | 34,075 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 540 | $ | 1,311 | ||||
Accrued expenses | 350 | 230 | ||||||
Long-term debt - current portion | 865 | 1,190 | ||||||
Due to affiliates | 2,099 | 881 | ||||||
Total current liabilities | 3,854 | 3,612 | ||||||
Long-term debt - noncurrent portion | 2,079 | 2,609 | ||||||
Other liabilities | 1,738 | 1,735 | ||||||
Deferred income taxes, net | 957 | 1,515 | ||||||
Minority interest | 6,246 | 6,855 | ||||||
Total liabilities | 14,874 | 16,326 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Shareholders’ equity (658.1067 Investor Shares issued and | ||||||||
outstanding) | 16,546 | 18,111 | ||||||
Managing Shareholder's accumulated deficit (1 management | ||||||||
share issued and outstanding) | (379 | ) | (362 | ) | ||||
Total shareholders’ equity | 16,167 | 17,749 | ||||||
Total liabilities and shareholders’ equity | $ | 31,041 | $ | 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) | ||||||||||||||||
Nine Months Ended | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues | $ | 10,381 | $ | 9,304 | $ | 3,082 | $ | 2,875 | ||||||||
Cost of revenues | 6,926 | 6,511 | 2,651 | 2,454 | ||||||||||||
Gross profit | 3,455 | 2,793 | 431 | 421 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | 2,058 | 2,791 | 762 | 592 | ||||||||||||
Management fee to the Managing Shareholder | 1,234 | 1,234 | 411 | 411 | ||||||||||||
Total operating expenses | 3,292 | 4,025 | 1,173 | 1,003 | ||||||||||||
Income (loss) from operations | 163 | (1,232 | ) | (742 | ) | (582 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest income | 60 | 70 | 21 | 22 | ||||||||||||
Interest expense | (242 | ) | (739 | ) | (90 | ) | (275 | ) | ||||||||
Equity in income (loss) from RUK | 51 | (425 | ) | 140 | (356 | ) | ||||||||||
Gain (loss) on sale of ZAP securities | 3 | (708 | ) | - | (568 | ) | ||||||||||
Other (expense) income, net | 5 | 588 | 12 | (5 | ) | |||||||||||
Total other (expense) income, net | (123 | ) | (1,214 | ) | 83 | (1,182 | ) | |||||||||
Income (loss) before income tax and minority interest | 40 | (2,446 | ) | (659 | ) | (1,764 | ) | |||||||||
Income tax expense (benefit) | 93 | 62 | (299 | ) | - | |||||||||||
Loss before minority interest | (53 | ) | (2,508 | ) | (360 | ) | (1,764 | ) | ||||||||
Minority interest in the (earnings) loss of subsidiaries | (411 | ) | (83 | ) | (17 | ) | 70 | |||||||||
Net loss | (464 | ) | (2,591 | ) | (377 | ) | (1,694 | ) | ||||||||
Foreign currency translation adjustment | 31 | 508 | (17 | ) | 138 | |||||||||||
Unrealized gain (loss) on ZAP securities | 14 | (272 | ) | - | 573 | |||||||||||
Comprehensive loss | $ | (419 | ) | $ | (2,355 | ) | $ | (394 | ) | $ | (983 | ) | ||||
Managing Shareholder - Net loss | $ | (5 | ) | $ | (26 | ) | $ | (4 | ) | $ | (17 | ) | ||||
Shareholders - Net loss | (459 | ) | (2,565 | ) | (373 | ) | (1,677 | ) | ||||||||
Net loss per Investor Share | (698 | ) | (3,898 | ) | (567 | ) | (2,548 | ) | ||||||||
Distributions per Investor Share | (1,750 | ) | (1,500 | ) | (750 | ) | (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) | ||||||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Cash flows from operating activities: | ||||||||
Net cash provided by operating activities | $ | 3,848 | $ | 4,775 | ||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (516 | ) | (1,898 | ) | ||||
Proceeds from sale of equipment | 32 | 52 | ||||||
Collections from notes receivable | 110 | 95 | ||||||
Proceeds from sale of ZAP securities | 45 | 709 | ||||||
Distributions from RUK | - | 1,051 | ||||||
Net cash (used in) provided by investing activities | (329 | ) | 9 | |||||
Cash flows from financing activities: | ||||||||
Repayments under bank loans | (843 | ) | (757 | ) | ||||
Cash distributions to minority shareholder | (1,037 | ) | (1,674 | ) | ||||
Cash distributions to shareholders | (1,163 | ) | (997 | ) | ||||
Net cash used in financing activities | (3,043 | ) | (3,428 | ) | ||||
Effect of exchange rate on cash and cash equivalents | (3 | ) | 44 | |||||
Net increase in cash and cash equivalents | 473 | 1,400 | ||||||
Cash and cash equivalents, beginning of period | 1,906 | 769 | ||||||
Cash and cash equivalents, end of period | $ | 2,379 | $ | 2,169 |
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 September 30, 2006, and for the nine and three-month periods ended September 30, 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 nine and three months ended September 30, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year or any other period.
Certain items in previously issued financial statements have been reclassified for comparative purposes. This had no effect on net income or loss.
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.
3. RECENT ACCOUNTING PRONOUNCEMENTS
FIN 48
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 will be effective for the Fund beginning January 1, 2007. The Fund does not believe that the adoption of FIN 48 will have a material impact on its consolidated financial statements.
6
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
SFAS 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles (GAAP) and expand disclosures about fair value measurements. SFAS 157 requires quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual periods. SFAS 157 will be effective for the Fund beginning January 1, 2008. The Fund is currently evaluating the impact of adopting SFAS 157.
SAB 108
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB 108 is effective for fiscal years ending on or after November 15, 2006. The adoption of this standard did not have a material impact on the Fund's consolidated financial statements.
4. INVESTMENTS
The Fund accounts for its investment in RUK under the equity method of accounting.
Summarized statements of operations data for RUK for the nine and three months ended September 30, 2006 and 2005 is as follows:
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues | $ | 31,314 | $ | 23,807 | $ | 12,112 | $ | 8,176 | ||||||||
Gross profit | 5,556 | 2,476 | 2,287 | 281 | ||||||||||||
Income from operations | 5,061 | 2,250 | 2,093 | 219 | ||||||||||||
Net income (loss) | $ | 169 | $ | (1,398 | ) | $ | 462 | $ | (1,172 | ) | ||||||
Fund share of income (losses) in RUK | $ | 51 | $ | (425 | ) | $ | 140 | $ | (356 | ) |
7
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
5. INVENTORY
At September 30, 2006 and December 31, 2005, inventories are as follows:
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
Consumables | $ | 625 | $ | 497 | ||||
Fuel | 96 | 143 | ||||||
$ | 721 | $ | 640 |
6. 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 September 30, 2006 and December 31, 2005, the Fund had outstanding payables and receivables as follows:
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Due from | Due to | |||||||||||||||
Ridgewood Power Management LLC | $ | - | $ | - | $ | 326 | $ | 335 | ||||||||
RRP | - | - | 1,536 | 186 | ||||||||||||
Trust V | 169 | 538 | - | - | ||||||||||||
Egypt Fund | - | - | 156 | 207 | ||||||||||||
RUK | - | 195 | 81 | - | ||||||||||||
Other affiliates | 12 | - | - | 153 | ||||||||||||
Total | $ | 181 | $ | 733 | $ | 2,099 | $ | 881 |
7. 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 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 nine months ended September 30, 2006 and 2005 was $93 and $62, respectively. Income tax benefit before minority interest and income tax for the three months ended September 30, 2006 was $299.
8. 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 in projects managed by Ridgewood Management.
8
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
Business segment financial data for the nine and three months ended September 30, 2006 and 2005 is as follows:
Power | Power | |||||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues | $ | 4,388 | $ | 4,320 | $ | 626 | $ | 712 | ||||||||
Gross profit (loss) | 2,304 | 2,045 | (79 | ) | (53 | ) | ||||||||||
Total assets | 8,614 | 12,020 | 8,614 | 12,020 | ||||||||||||
Water | Water | |||||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues | $ | 5,993 | $ | 4,984 | $ | 2,456 | $ | 2,163 | ||||||||
Gross profit | 1,151 | 748 | 510 | 474 | ||||||||||||
Total assets | 21,047 | 22,422 | 21,047 | 22,422 | ||||||||||||
Corporate | Corporate | |||||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Total assets | $ | 1,380 | $ | 1,282 | 1,380 | 1,282 | ||||||||||
Consolidated | Consolidated | |||||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues | $ | 10,381 | $ | 9,304 | $ | 3,082 | $ | 2,875 | ||||||||
Gross profit | 3,455 | 2,793 | 431 | 421 | ||||||||||||
Total assets | 31,041 | 35,724 | 31,041 | 35,724 |
9. 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.
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.
9
THE RIDGEWOOD POWER GROWTH FUND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollar amounts in thousands)
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 September 30, 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 nine and three months ended September 30, 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.
Results of Operations and Changes in Financial Condition
Nine months ended September 30, 2006 compared to the nine months ended September 30, 2005
Total revenues increased $1.1 million, or 11.8%, from $9.3 million for the nine months ended September 30, 2005 to $10.4 million for the nine months ended September 30, 2006. The increase in revenues was primarily due to an increase of $1 million in revenues from water volume sales from NEH operations due to greater tourism in the NEH market area.
Cost of revenues for the nine months ended September 30, 2006 was $6.9 million compared to $6.5 million for the same period in 2005, an increase of approximately $0.4 million, or 6.2%. This increase was primarily due to an increase in cost of revenues from NEH operations of $0.6 million, partially offset by a decrease of $0.2 million from US Hydro operations primarily due to a decrease in amortization expense for the 2006 period. The increase in cost of revenues from NEH operations for the 2006 period was primarily due to an increase in repairs and maintenance expense resulting from the increase in water volumes processed. The decrease in cost of revenues from US Hydro operations in 2006 period was primarily due to decrease in amortization expense.
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Gross profit increased by approximately $0.7 million from $2.8 million for the first nine months of 2005 to $3.5 million for the same period in 2006. This increase was primarily due to an increase in gross profit of NEH operations of $0.4 million and US Hydro operations of $0.3 million due to the increase in revenues, partially offset by increase in cost of revenues of NEH operations in 2006 period.
General and administrative expenses decreased by approximately $0.7 million from $2.8 million for the nine months ended September 30, 2005 to $2.1 million for the comparable 2006 period. General and administrative expenses for the first nine months 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. Partially offsetting this decrease for the nine months ended September 30, 2006 was an increase in professional fees.
Interest expense for the nine months ended September 30, 2006 was $0.2 million compared to $0.7 million for the same period in 2005. The decrease of $0.5 million was primarily due to a decrease in outstanding borrowings of NEH.
The Trust recorded equity income from RUK of $51,000 for the nine months ended September 30, 2006 compared to an equity loss of $0.4 million for the nine months ended September 30, 2005. The increase in equity income for the third quarter of 2006 was primarily due to an increase in revenues resulting from increased output, partially offset by an increase in cost of revenues associated with the higher production levels and an increase in interest expense at RUK due to higher outstanding borrowings associated with the RUK expansion construction program.
The Fund recorded a loss on the sale of ZAP securities of $0.7 million for the first nine months of 2005 compared to a gain of $3,000 during the same period in 2006. For the first nine months of 2005, the Fund sold 432,000 ZAP shares at a market price lower than their carrying value.
The Trust recorded other income of $5,000 for the first nine months of 2006 compared to other income of $0.6 million for the first nine months of 2005. For the first nine months of 2005, other income included $0.6 million of recovery of advances related to the Fund’s Dubai operations.
For the first nine months of 2006, the Fund recorded income tax expense of $93,000 compared to $62,000 for the same period in 2005. This change related to income taxes was primarily attributable to the decreases in the temporary timing differences between the book and tax basis for the depreciation and amortization expense of US Hydro operations.
Minority interest in the earnings of subsidiaries was $0.4 million for the first nine months of 2006 compared to $83,000 for the first nine months of 2005. The increase was attributable to the increase in net income of NEH operations.
Total assets at September 30, 2006 were $31 million, a decrease of approximately $3.1 million from the December 31, 2005 balance of $34.1 million. This decrease was primarily due to decreases of $1.6 million and $1 million in property, plant and equipment and intangibles, respectively, attributable to the periodic depreciation and amortization of recorded balances. The decrease was also due to decreases of $0.6 million in due from affiliates, $0.4 million in deferred taxes and $0.2 million in accounts receivable, partially offset by increases of $0.2 million in prepaid expenses and other current assets and $0.5 million in cash and cash equivalents as discussed below in “Liquidity and Capital Resources”. Total liabilities decreased approximately $1.4 million from $16.3 million at December 31, 2005 to $14.9 million at September 30, 2006. Decreases of $0.9 million in long-term debt, $0.8 million in accounts payable, $0.6 million in minority interest and $0.6 million in deferred taxes were partially offset by an increase of $1.2 million in due to affiliates.
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Three months ended September 30, 2006 compared to the three months ended September 30, 2005
Total revenues increased by approximately $0.2 million, or 6.9%, to $3.1 million for the third quarter of 2006, compared to $2.9 million for the third quarter of 2005. This increase in revenues was primarily due to increased revenues from NEH operations of $0.3 million, resulting from increased water volume sales due to greater tourism in the NEH market area. This increase was partially offset by a decrease in revenues from US Hydro of $86,000 due to the lower outputs resulting from lower precipitation.
Cost of revenues for the third quarter of 2006 was $2.7 million, an increase of $0.2 million, or 8%, compared to $2.5 million for the third quarter of 2005. This increase was primarily due to an increase of $0.3 million in the cost of revenues from NEH operations for the third quarter of 2006, partially offset by a decrease of $60,000 in cost of revenues from US Hydro operations. The increase in NEH operations cost of revenues was primarily due to the increase in consumables and repairs and maintenance expenses resulting from the increase in revenues. The decrease in cost of revenues for US Hydro operations was attributable to a decrease in amortization expense partially offset by in increase in repairs and maintenance expense during the 2006 period.
General and administrative expenses increased by approximately $0.2 million, from $0.6 million in the third quarter of 2005 to $0.8 million in the comparable 2006 period, primarily attributable to an increase in professional fees.
Interest expense for the three months ended September 30, 2006 was $90,000 compared to $0.3 million during the same period in 2005. The decrease of approximately $0.2 million was primarily due to a decrease in outstanding borrowings of the NEH operations.
In the third quarter of 2006, the Fund recorded equity in income from RUK of $0.1 million compared to an equity loss of $0.4 million during the same period in 2005. The equity in income for the 2006 period was primarily attributable to increased revenues from higher output, partially offset by higher associated cost of revenues.
The Fund recorded a loss on the sale of ZAP securities of $0.6 million in the third quarter of 2005. In third quarter of 2005, the Fund sold 260,000 ZAP shares.
For the third quarter of 2006, the Fund recorded an income tax benefit of $0.3 million, primarily attributable to decreases in the temporary timing differences between the book and tax basis for the depreciation and amortization expense of US Hydro operations.
Liquidity and Capital Resources
Nine months ended September 30, 2006 compared to the nine months ended September 30, 2005
At September 30, 2006, the Fund had cash and cash equivalents of $2.4 million, an increase of approximately $0.5 million from December 31, 2005. The cash flows for the first nine months of 2006 were $3.8 million provided by operating activities, $0.3 million used in investing activities, $3 million used in financing activities and a $3,000 negative effect of foreign exchange on cash and cash equivalents.
Cash provided by operating activities for the nine months ended September 30, 2006 was $3.8 million as compared to $4.8 million for the nine months ended September 30, 2005. The decrease in cash flow from operating activities in the 2006 period compared to the 2005 period was primarily due to a decrease in accounts payable and an increase in prepaid and other current assets, partially offset by an increase in revenues.
Cash used in investing activities was $0.3 million during the first nine months of 2006 as compared to cash provided of $9,000 during the 2005 period. For the first nine months of 2006, the Fund used cash of $0.5 million for capital expenditures and received cash from notes receivable of $0.1 million. For the first nine months of 2005, the Fund used cash of $1.9 million for capital expenditures and received cash of $1.1 million in distributions from RUK and $0.7 million of proceeds from the sale of ZAP securities.
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Cash used in financing activities for the first nine months of 2006 was $3 million compared to $3.4 million for the first nine months of 2005. The decrease in cash used in financing activities in the 2006 period was due to a decrease in cash distributions to the minority shareholder of $0.6 million, partially offset by an increase in cash distributions to shareholders of $0.2 million.
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 September 30, 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.
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 September 30, 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.
During the quarter ended September 30, 2006, the Fund 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. Except as noted above, the Fund’s Chief Executive Officer and Chief Financial Officer have concluded that there were no other changes noted 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 September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.
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Since the review, the Fund has implemented the following to address the above weaknesses:
· | Increased the number of degreed accountants. Additional staff expansion is underway. |
· | 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. |
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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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.
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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