Ridgewood Electric Power Trust I 10-K 2005 FY Annual report

Exhibit 99.1
 

STILLWATER HYDRO PARTNERS L.P.

FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2004, and 2003

(As Restated)

TABLE OF CONTENTS

	Page No.
INDEPENDENT AUDITORS' REPORT	1
FINANCIAL STATEMENTS
Balance Sheets	2
Statements of Income and Partners' Capital	3
Statements of Cash Flows	4
Notes to Financial Statements	5 - 10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

  and Stockholders

Stillwater Hydro Partners L.P.

Auburn, New York

We have audited the accompanying balance sheets of Stillwater Hydro Partners L.P. as of December 31, 2005, 2004, and 2003, and the related statements of income and partners’ capital and cash flows for each of the three years in the period ended December 31, 2005.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements as of and for the years ended December 31, 2005, 2004, and 2003 have been restated as discussed in Note G to the financial statements.

/s/ Rotenberg & Co., llp

Rotenberg & Co., llp

Rochester, New York

  March 27, 2007

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STILLWATER HYDRO PARTNERS

BALANCE SHEETS
December 31, 2005, 2004, and 2003
	2005		2004		2003
	(Restated)		(Restated)		(Restated)
ASSETS
Cash	$	1,446	$	76,830	$	51,260
Account receivable		142,939		119,646		101,785
Prepaid expenses		141,027		124,117		116,969
Deferred financing costs, net of
accumulated amortization of $954,178
in 2005, $878,124 in 2004, and $802,070
in 2003		161,972		238,029		314,081
Hydro facility, net of accumulated
depreciation of $3,633,081 in 2005,
$3,341,758 in 2004, and $2,707,153 in 2003		6,830,152		7,095,002		7,306,124
TOTAL ASSETS	$	7,277,536	$	7,653,624	$	7,890,219
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses	$	175,147	$	198,756	$	187,793
Accrued interest		1,730,014		1,560,318		1,397,953
Bonds payable		3,424,190		4,021,054		4,554,898
Due to partners		353,047		353,047		353,047
Due to withdrawing partner		1,000,000		1,000,000		1,000,000
Due to related party		42,020		—		—
TOTAL LIABILITIES		6,724,418		7,133,175		7,493,691
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL		553,118		520,449		396,528
TOTAL LIABILITIES AND PARTNERS'
CAPITAL	$	7,277,536	$	7,653,624	$	7,890,219

See accompanying notes to financial statements.

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STILLWATER HYDRO PARTNERS

STATEMENTS OF INCOME AND PARTNERS' CAPITAL
December 31, 2005, 2004, and 2003
	2005			2004			2003
	(Restated)			(Restated)			(Restated)
POWER SALE REVENUE	$	1,290,017		$	1,384,237		$	1,310,630
OPERATING EXPENSES
Depreciation and amortization		340,903			340,023			335,619
Administration and operations		104,193			87,995			87,367
Insurance		77,479			78,647			73,436
Repairs and maintenance		29,207			24,546			15,130
PILOT and real estate taxes		106,211			91,955			86,415
Professional fees		18,550			11,513			19,767
Easement and land payments		28,802			30,967			29,733
Miscellaneous fees		21,040			20,772			19,591
Utilities		3,989			3,932			3,200
TOTAL OPERATING EXPENSES		730,374			690,350			670,258
OPERATING INCOME		559,643			693,887			640,372
OTHER INCOME (EXPENSE)
Interest income		—			49			83
Interest expense		(526,974	)		(570,015	)		(621,030	)
TOTAL OTHER INCOME (EXPENSE)		(526,974	)		(569,966	)		(620,947	)
NET INCOME (LOSS)		32,669			123,921			19,425
PARTNERS' CAPITAL, BEGINNING OF YEAR		520,449			396,528			377,103
PARTNERS' CAPITAL, END OF YEAR	$	553,118		$	520,449		$	396,528

See accompanying notes to financial statements.

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STILLWATER HYDRO PARTNERS

STATEMENTS OF CASH FLOWS
December 31, 2005, 2004, and 2003
	2005			2004			2003
	(Restated)			(Restated)			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	32,669		$	123,921		$	19,425
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		340,903			340,023			335,619
Changes in operating assets and
Liabilities
(Increase) decrease in:
Account receivable		(23,293	)		(17,861	)		24,387
Prepaid expenses		(16,910	)		(7,148	)		(23,047	)
Increase (decrease) in:
Accounts payable and accrued expenses		(23,609	)		10,963			20,682
Accrued interest		169,700			162,365			158,708
Due to related party		42,020			—			—
NET CASH PROVIDED BY OPERATING
ACTIVITIES		521,480			612,263			535,774
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of hydro facility		—			(52,849	)		—
NET CASH USED BY INVESTING ACTIVITIES		—			(52,849	)		—
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of bonds payable		(596,864	)		(533,844	)		(466,800	)
Decrease in due to partners		—			—			(23,000	)
NET CASH USED BY FINANCING ACTIVITIES		(596,864	)		(533,844	)		(489,800	)
NET (DECREASE) INCREASE IN CASH		(75,384	)		25,570			45,974
CASH AT BEGINNING OF YEAR		76,830			51,260			5,286
CASH AT END OF YEAR	$	1,446		$	76,830		$	51,260
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION
Cash paid during the year for interest	$	357,278		$	407,650		$	462,322

See accompanying notes to financial statements.

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STILLWATER HYDRO PARTNERS L.P.

NOTES TO FINANCIAL STATEMENTS

December 31, 2005, 2004, and 2003

NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Stillwater Hydro Partners, L.P. (the Partnership) was formed for the purpose of acquiring, developing, constructing, owning, financing, managing, operating and maintaining a hydroelectric project (the Project) located in Stillwater, New York.  The Partnership was formed on March 2, 1989 and the project began commercial operations on April 26, 1993.  The Partnership has an agreement (The Power Sale Agreement) to sell the power produced by the Project to Niagara Mohawk Power Corporation ("Niagara") for a fixed rate through 2028.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Deferred Financing Costs

Deferred financing costs consist of legal and other costs incurred in obtaining construction and term financing for the Partnership and are being amortized over the term of the bonds payable using the straight-line method.

Hydro Facility

The hydro facility is stated at cost and consists primarily of site acquisition, construction, engineering, and equipment costs associated with the development and construction of the Project.  The cost of the hydro facility is being depreciated over the term of the power sale agreement using the straight-line method.

Revenue Recognition

Power generation revenue is recorded in the month of delivery, based on the estimated volumes sold to its sole customer at rates stipulated in the power sales contract.  Adjustments are made to reflect actual volumes delivered when the actual information subsequently becomes available.  Billings to the customer for power generation generally occurs during the month following delivery.  Final billings do not vary significantly from estimates.

Income Taxes

The Partnership is not subject to income taxes since the Partnership's profits and losses are reported on the individual partners' tax returns.

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NOTE B - CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Partnership to concentrations of credit risk consist principally of cash and cash equivalent accounts in financial institutions, which from time to time exceed the federal depository insurance coverage limit, and accounts receivable from Niagara.

NOTE C - RESTRICTED CASH

All Partnership cash is restricted in accordance with the Partnership's financing agreements. (See Note D)

NOTE D - FINANCING AGREEMENTS

The Partnership has agreements for Project financing through CIT Group/Equipment Financing, Inc. (CIT), consisting of County of Saratoga Industrial Development Agency Industrial Revenue Bonds.

Bonds payable under the agreements are as follows at December 31, 2005, 2004, and 2003:

	2005		2004		2003
Fixed rate term bond with variable quarterly principal payments plus interest at 10.42%	$	2,367,600	$	3,036,000	$	3,648,000
Floating rate term bond with variable quarterly principal payments plus interest at prime plus 1.25% or LIBOR plus 3.5% at the option of the Partnership.  The interest rate in effect at December 31, 2005 was LIBOR (1.51%) plus 3.5%		1,056,590		985,054		906,898
	$	3,424,190	$	4,021,054	$	4,554,898

Security for the bonds consists of the Partnership's assets including contracts.

In accordance with the terms of the bonds, the Partnership must meet certain requirements, including a requirement to notify CIT of an adverse change in the operations, prospects or condition of the Partnership.

During 2005, 2004, and 2003, the Partnership has operated under an oral agreement by which CIT permitted the Partnership to defer principal payments of $37,500 each quarter.  The Partnership is credited with the full quarterly payment due for the fixed rate term bond, although it pays $37,500 per quarter less than required under the contractual terms of the fixed rate term bond.  The floating rate term bond is increased by $37,500 per quarter to offset the credit given for the fixed rate term bond.

During 2001, with the permission of CIT, the Partnership did not make scheduled principal payments of $129,000 on the fixed rate term bond and $15,143 on the floating rate term bond.  During 2002, the $129,000 was credited to the fixed rate term bond and added to the floating rate term bond as described above.

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NOTE D - (Continued)

The scheduled repayment of bonds payable is as follows at December 31, 2005:

2006	$	816,144
2007		891,680
2008		1,716,366
	$	3,424,190

NOTE E - COMMITMENTS AND CONTINGENCIES

In the event of early termination of the Power Sale Agreement, the Partnership is required to pay Niagara an amount equal to the difference between total power previously sold at the fixed rate, as compared to total power previously sold at 90% of the long run avoided cost plus 10% annual interest. Amounts contingently due under this agreement are secured by a subordinate interest in the hydro facility and totaled $7,425,188, $6,891,904, and 6,358,190 at December 31, 2005, 2004, and 2003, respectively.

Under the terms of a Purchase Agreement, the Partnership is obligated to pay the seller additional consideration equal to 1¼% of the Project's gross annual revenues as defined in the Power Sale Agreement with a minimum annual payment of $10,000.  Additional consideration under this agreement totaled $16,125, $17,303, and $16,383 in 2005, 2004, and 2003, respectively.

Under the terms of a Hydroelectric Easement Agreement, the Partnership is obligated to pay the grantor additional consideration equal to 1% of the Project's gross annual revenues as defined in the Power Sale Agreement.  Additional consideration under this agreement totaled $12,677, $13,664, and $13,350 in 2005, 2004, and 2003, respectively.

The Partnership's financing agreements (See Note D) contain provisions for the payment of contingent fees to CIT of 18.5% of project available cash flows as defined in the agreements. There were no fees incurred in 2005, 2004, and 2003.

The realization of the cost of the hydro facility and other assets is contingent upon the generation of adequate revenue by the Project.  The revenue generation is affected by waterflow in the river in which the Project is located and the continuation of the Power Sale Agreement.

NOTE F - RELATED PARTY TRANSACTIONS

In 1994, Ridgewood Energy Electric Power, L.P. (Ridgewood) elected to withdraw from the Partnership and, in accordance with the Partnership agreement, was to receive $1,000,000 plus interest at 12% to be paid in annual amortizing installments of $201,303 commencing May 16, 1995 and continuing through May 16, 2002.  The payments to Ridgewood are subordinate to certain other distributions that may be made as outlined in the partnership agreement and the general obligations of the Partnership. Due to cash flow restrictions, the Partnership was unable to make the scheduled principal and interest payments in 2005, 2004, and 2003.  Any future payments under this agreement are dependent upon the Partnership’s ability to generate sufficient cash flows.

Interest to Ridgewood in connection with its withdrawal totaled $120,000 in 2005, 2004, and 2003. Accrued interest payable to Ridgewood is $1,395,615, $1,275,615, and $1,155,615 at December 31, 2005, 2004, and 2003, respectively.

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NOTE F - (Continued)

At December 31, 2005, 2004, and 2003 amounts due to partners represent operating advances made by NewRic – Stillwater Hydro Partners, L.P.  The advances are payable on demand, subject to sufficient Project cash flows, and bear interest at the greater of 12% or prime plus 3% (10% at December 31, 2005).  Accrued interest on these advances totaled $327,068, $284,703, and $242,338 at December 31, 2005, 2004, and 2003, respectively.

The Partnership has entered into contracts with an affiliate of one of the general partners for the operation and maintenance of the hydro facility.  Amounts and balances due in connection with these agreements consisted of the following as of and for the years ended December 31, 2005, 2004, and 2003:

	2005		2004		2003
Purchase of operations and maintenance services	$	29,067	$	28,223	$	27,400
Accounts payable and expenses	$	63,027	$	85,257	$	57,035

Amounts due to related party represent short term advances made by an affiliate of one of the general partners.  Total interest expense associated with advances from this related party totaled $23,357 during 2005.  Accrued interest on these advances totaled $7,331 at December 31, 2005.

NOTE G - RESTATEMENT TO FINANCIAL STATEMENTS

The Company has identified a series of adjustments that have resulted in a restatement of the previously issued financial statements for the years ended December 31, 2005, 2004, and 2003.

The following table presents the effects of the restatement adjustments upon the Company’s previously reported balance sheet and statement of operations as of December 31, 2005:

	December 31, 2005
	Previously Reported		Adjustments				Restated
Balance Sheet
ASSETS
Total Assets	$	7,791,773	$	(514,237	)	(A)	$	7,277,536
LIABILITIES AND MEMBERS’ DEFICIT
Total Liabilities	$	6,724,418	$	—			$	6,724,418
Partners’ Capital		1,067,355		(514,237	)	(A)		553,118
Total Liabilities and Partners’ Capital	$	7,791,773	$	(514,237	)	(A)	$	7,277,536

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NOTE G - (Continued)

	Year ended December 31, 2005
	Previously Reported			Adjustments				Restated
Statement of Operations
Revenues	$	1,290,017		$	—			$	1,290,017
Operating expenses		756,848			(26,474	)	(B)		730,374
Operating income		533,169			26,474		(B)		559,643
Other (expense) income, net		(526,974	)		—				(526,974	)
Net income	$	6,195		$	26,474		(B)	$	32,669

(A) The Company could not account for certain pre-development costs for periods prior to March 1991.

(B) Decrease in depreciation expense relating to the pre-development costs.

The following table presents the effects of the restatement adjustments upon the Company’s previously reported balance sheet and statement of operations as of December 31, 2004:

	December 31, 2004
	Previously Reported		Adjustments				Restated
Balance Sheet
ASSETS
Total Assets	$	8,194,335	$	(540,711	)	(A)	$	7,653,624
LIABILITIES AND MEMBERS’ DEFICIT
Total Liabilities	$	7,133,175	$	—			$	7,133,175
Partners’ Capital		1,061,160		(540,711	)	(A)		520,449
Total Liabilities and Partners’ Capital	$	8,194,335	$	(540,711	)	(A)	$	7,653,624

	Year ended December 31, 2004
	Previously Reported			Adjustments				Restated
Statement of Operations
Revenues	$	1,384,237		$	—			$	1,384,237
Operating expenses		716,824			(26,474	)	(B)		690,350
Operating income		667,413			26,474		(B)		693,887
Other (expense) income, net		(569,966	)		—				(569,966	)
Net income	$	97,447		$	26,474		(B)	$	123,921

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NOTE G - (Continued)

(A) The Company could not account for certain pre-development costs for periods prior to March 1991.

(B) Decrease in depreciation expense relating to the pre-development costs.

The following table presents the effects of the restatement adjustments upon the Company’s previously reported balance sheet and statement of operations as of December 31, 2003:

	December 31, 2003
	Previously Reported		Adjustments				Restated
Balance Sheet
ASSETS
Total Assets	$	8,457,404	$	(567,185	)	(A)	$	7,890,219
LIABILITIES AND MEMBERS’ DEFICIT
Total Liabilities	$	7,493,691	$	—			$	7,493,691
Partners’ Capital		963,713		(567,185	)	(A)		396,528
Total Liabilities and Partners’ Capital	$	8,457,404	$	(567,185	)	(A)	$	7,890,219

	Year ended December 31, 2003
	Previously Reported			Adjustments				Restated
Statement of Operations
Revenues	$	1,310,630		$	—			$	1,310,630
Operating expenses		696,732			(26,474	)	(B)		670,258
Operating income		613,898			26,474		(B)		640,372
Other (expense) income, net		(620,947	)		—				(620,947	)
Net income	$	(7,049	)	$	26,474		(B)	$	19,425

(A) The Company could not account for certain pre-development costs for periods prior to March 1991.

(B) Decrease in depreciation expense relating to the pre-development costs.

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