SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
[ ] 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
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
1314 King Street, Wilmington, DE 19801
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(Address of Principal Executive Offices, including Zip Code)
(302) 888-7444
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Investor Shares of Beneficial Interest
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(Title of Class)
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[ ] No[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes[ ] No[X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes[ ] No[X]
There is no market for the Investor Shares. As of February 28, 2006,
number of shares outstanding was 658.1067.
1
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business ..........................................................
Item 2. Properties ........................................................
Item 3. Legal Proceedings .................................................
Item 4. Submission of Matters to a Vote of Security Holders ...............
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities ......................
Item 6. Selected Financial Data ...........................................
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation ...........................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........
Item 8. Financial Statements and Supplementary Data .......................
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...........................................
Item 9A. Controls and Procedures ...........................................
Item 9B. Other Information .................................................
PART III
Item 10. Directors and Executive Officers of the Registrant ................
Item 11. Executive Compensation ............................................
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters ................................
Item 13. Certain Relationships and Related Transactions ....................
Item 14. Principal Accountant Fees and Services ............................
PART IV
Item 15. Exhibits and Financial Statement Schedules .........................
SIGNATURES ...................................................................
2
PART I
Item 1. Business.
Cautionary Statement Regarding Forward-looking Statements
This Annual Report on Form 10-K of The Ridgewood Power Growth Fund (the
"Fund") includes "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of
the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, and the "safe harbor" provisions thereof. These
forward-looking statements are usually accompanied by the words "anticipates,"
"believes," "plan," "seek," "expects," "intends," "estimates," "projects," "will
likely result," "will continue," "future" and similar terms and expressions. The
forward-looking statements in this Annual Report on Form 10-K reflect our
current views with respect to future events and financial performance. To make
these statements, we have had to make assumptions as to the future. We have also
had to make estimates in some cases about events that have already occurred, and
to rely on data that may be found to be inaccurate at a later time. Because
these forward-looking statements are based on assumptions, estimates and
changeable data, and because any attempt to predict the future is subject to
other errors, future results may be materially different from those discussed or
anticipated in this report. Some of the 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 taxation, spending and budgetary policies, government
mandates, demand for electricity and thermal energy, 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, availability of labor and the
willingness of electric utilities to perform existing power purchase agreements
in good faith, and such other risks and uncertainties as are discussed in the
Fund's Registration Statement on Form 10 filed with the Securities and Exchange
Commission on April 30, 1999.
You should not rely on these forward-looking statements without
considering all of the things that could make them inaccurate. The Fund's other
filings with the Securities and Exchange Commission and its offering materials
discuss many (but not all) of the risks and uncertainties that might affect
these forward-looking statements.
We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that may arise after today. All
subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this
section.
- - General Development of Business.
The Fund was organized as a Delaware business trust in January 1998 to
participate in the development, construction and operation of independent power
generating facilities and similar capital projects ("Independent Power Projects"
or "Projects"). The Fund was also authorized to invest in capital projects that
at the time of such investment were expected to earn cash flows similar to those
of Independent Power Projects.
The Fund sold whole and fractional shares of beneficial interest in the
Fund ("Investor Shares") pursuant to a private placement offering (the
"Offering"), which terminated in April 2000. Net of offering fees, commissions
and expenses, the Offering provided approximately $54.6 million for investments
in the development and acquisition of Projects. As of February 28, 2006, there
were 1,330 record holders of Investor Shares (the "Investors").
The Fund has two managing shareholders: Ridgewood Renewable Power LLC
("Ridgewood Power") and Ridgewood Power VI LLC ("Power VI"). Power VI has
assigned and delegated all of its rights and responsibilities to Ridgewood Power
and is essentially an entity that conducts only nominal activities. Ridgewood
Power and Power VI are collectively referred to as the "Managing Shareholder".
Both Ridgewood Power and Power VI are controlled by Robert E. Swanson, who is
the manager, chairman, and, together with his family trusts, owns all of the
membership interests of each entity. The officers of Power VI are the same as
those of Ridgewood Power. Ridgewood Power takes all actions necessary to manage
the Fund, without any participation by Power VI.
In general, the Amended Declaration of Trust ("Declaration") provides the
Managing Shareholder with complete control of the day-to-day operation of the
Fund. The Managing Shareholder has appointed a slate of officers to enable the
Fund to carry out its affairs in a manner similar to a conventional corporation.
The Fund does not have a board of directors nor an audit committee or nominating
committee as contemplated by the Sarbanes-Oxley Act of 2002. Instead, the
Managing Shareholder effectively performs the functions that the board of
directors or the audit or nominating committee would otherwise perform.
3
Christiana Bank & Trust Company ("Christiana"), a Delaware trust company,
is the corporate trustee of the Fund. The corporate trustee acts on the
instructions of the Managing Shareholder and is not authorized to take
independent discretionary action on behalf of the Fund.
Ridgewood Power also serves as the Managing Shareholder of the following
Delaware business trusts (the "Other Power Trusts"):
o Ridgewood Electric Power Trust I ("Power I");
o Ridgewood Electric Power Trust II ("Power II");
o Ridgewood Electric Power Trust III ("Power III");
o Ridgewood Electric Power Trust IV ("Power IV");
o Ridgewood Electric Power Trust V ("Power V");
o Ridgewood/Egypt Fund ("Egypt Fund"); and
o Ridgewood Power B Fund/Providence Expansion ("B Fund")
In addition, Ridgewood Power also serves as the manager of the following
Delaware limited liability companies ("Ridgewood LLCs"):
o Ridgewood Renewable PowerBank LLC; ("PowerBank I")
o Ridgewood Renewable PowerBank II LLC; ("PowerBank II")
o Ridgewood Renewable PowerBank III LLC; ("PowerBank III"); and
o Ridgewood Renewable PowerBank IV LLC. ("PowerBank IV")
Financial Information about Industry Segments.
The Fund has been organized to operate in two industry segments:
independent water desalinization and power generation and related facilities.
See Item 8. Financial Statements and Supplementary Data for financial
information about industry segments.
Narrative Description of Business.
(1) General Description.
The Fund was formed to participate principally in the development,
construction and operation of Projects that generate electricity for sale to
utilities and other users. The Fund was also authorized to invest in capital
projects that, at the time of such investment were expected to earn cash flows
similar to those of Independent Power Projects.
(2) The Fund's Investments.
(i) United Kingdom Landfill Gas Projects
The Fund and Power V own 30% and 70% of Ridgewood UK, LLC ("Ridgewood UK"),
respectively, which in turn owns a majority interest of CLPE Holdings, LTD
("CLPE"). As of December 31, 2004, CLPE owned twenty eight landfill methane
gas-fired electric generating projects in the United Kingdom with an installed
capacity of approximately 42.2 megawatts ("MW"). Seventeen of the projects
representing approximately 26.5 MW sell electricity under 15 year contracts to
the Non Fossil Purchasing Agency ("NFPA"), a non-profit organization that
purchases electricity generated by renewable sources on behalf of all British
utilities. The remaining eleven projects representing approximately 15.7 MW are
subject to a PowerBank Program lease (described below) and sell this output
under one year, market-based contracts. As of December 31, 2005, CLPE owned
thirty one landfill methane gas-fired electric generating projects in the United
Kingdom with an installed capacity of approximately 48.7 MW.
CLPE's NFPA Projects have been financed, in part, by bank financing
provided by the Bank of Scotland. NFPA began in 1990 as a program supported by a
small broad-based tax on electricity consumption that required companies
supplying end-use customers to use the power supplied under NFPA contracts,
including power produced at generating facilities using wind, water and waste
materials, including landfill gas. The NFPA Projects enjoy a guaranteed price
and market under the NFPA contracts for their output.
4
In addition to its developed and operational projects, CLPE had, in 2002,
a portfolio of undeveloped landfill methane power projects that would qualify
under the United Kingdom's Renewable Obligation ("RO") incentive program (the
"RO Program"). The RO Program was adopted and implemented as a successor to
Non-Fossil Fuel Obligation ("NFFO") which had become outmoded by changes in the
regulatory structure of the U.K.'s electricity supply industry. Existing NFPA
contracts remain in full force and effect. Similar to renewable portfolio
standards ("RPS") legislation in the United States, the RO Program requires
electricity suppliers serving electricity users in the U.K. to obtain renewable
obligation certificates (each a "ROC") to demonstrate that a portion of their
electricity supply portfolio was generated by registered producers. Electricity
suppliers are required to supply an increasing portion of their delivered
electricity from qualified renewable sources or face penalties. While this
portfolio of undeveloped sites was potentially very profitable as a result of
the RO Program, CLPE, despite significant efforts, was unable to obtain
traditional debt financing necessary to develop these projects.
As a result, the Managing Shareholder organized the Ridgewood LLCs to fund
the "PowerBank Program" by raising the funds needed to finance the development
of CLPE's portfolio of undeveloped sites and such new development opportunities
as CLPE could obtain (the "RO Projects"). Since December 2002, four PowerBank
Programs have been issued. Pursuant to certain Development Services Agreements
(the "Development Agreements") and Operations, Repair and Maintenance Agreements
("OR&M Agreements") between Ridgewood UK and each of the PowerBank Programs, the
PowerBank Programs purchase the facility site needed to develop and operate the
subject RO Projects and then, in return for a fixed and variable lease payment,
said sites will be leased back to Ridgewood UK subject to a 10 year minimum
lease pursuant to sale-lease back agreements. Pursuant to the terms of the
applicable Development Agreement, the PowerBank Programs retain CLPE to develop
each RO Project on a fixed price per MW, on a turnkey basis. The Development
Agreements, however, do not generally contain completion or timing obligations
for the development of the subject RO Projects. Accordingly, while CLPE bears
the risk that the cost of developing such RO Projects may exceed the agreed upon
price, the subject PowerBank Programs run the risk that the development of such
RO Projects is substantially delayed or is not completed. In addition, CLPE
operates and maintains each of these RO Projects. In return for its services,
CLPE has the opportunity to obtain a share in the development profit if the
construction and development of the RO Project is less than the fixed price, and
it also receives continuing payments under the OR&M Agreements. In addition,
after certain required payments, including the fixed and variable lease payments
to PowerBank Programs and royalty payments to the landfill operator, CLPE
receives a certain portion of the energy and ROC revenue generated by the RO
Project. This amount is variable and depends on the price of energy and ROCs in
the U.K. In addition to these revenues, incremental profits from these RO
Projects, once developed, resulting from a combined power plus ROC price greater
than 7.0 pence per kilowatt hour ("kWh")is divided between the applicable
PowerBank Programs and Ridgewood UK's investors (i.e., the Fund and Power V),
with two-thirds of the incremental profit going to the PowerBank Programs and
one-third of the incremental profit going to Ridgewood UK as compensation for
its participation in and facilitation of the PowerBank Programs. This payment,
should it be made, is specifically allocated to Ridgewood UK, not to CLPE.
Ridgewood UK will receive its distribution in the form of a cash allocation.
Sixteen of the RO Projects developed by CLPE pursuant to the PowerBank Programs
were developed and operating as of December 31, 2005.
(ii) Egyptian Projects
In 1999, the Fund and Power V jointly organized Ridgewood Near East
Holdings, LLC, a New Jersey limited liability company ("Ridgewood Near East") as
a holding company for their Egyptian investments. In 2001, the Egypt Fund became
a member of Ridgewood Near East. The Fund, Power V, and Egypt Fund ("member
Funds"), as of December 31, 2005, have contributed approximately $39.1 million
in aggregate to Ridgewood Near East. Each fund which is a member of Ridgewood
Near East owns equity in proportion to the capital the fund has contributed, net
of distributions and allocated profits and losses. Ridgewood Near East, in turn,
owns all of Ridgewood Egypt For Infrastructure Projects LLC ("REFI"), which is
the entity through which the Egyptian investments are made. REFI has developed
projects to supply electricity and potable water to the tourist industry on the
Red Sea in Egypt (the "Egyptian Projects"). As of December 31, 2005, REFI had 1
electric generation plant, 8 water desalinization plants ("water plants") and 8
combination electric generation/water plants.
REFI's larger water plants have underground pipelines that allow the
plants to sell their water to a number of customers. Many of REFI's water plants
also have the capability to sell their water to trucks for delivery to other
customers. Only two of REFI's water plants are limited to selling water to a
single customer.
REFI's projects generally sell their electricity and drinking water output
at prevailing market rates. There is no formal regulatory authority that reviews
those prices or which has authority to set them. REFI's operating expenses,
which are charged against the Egyptian Projects' cash flow, include development
and administrative, operation and maintenance activities for all of its Egyptian
Projects. To the extent possible, REFI's electricity sales provide for a
pass-through cost as the price of diesel fuel changes.
5
On December 30, 2001, the Fund, through REFI, purchased a 28% equity
interest in Sinai Environmental Services S.A.E. ("Sinai"). As a result of
further investments, Ridgewood Near East increased the equity interest in Sinai
to 53% in 2002 and obtained control of all aspects of its operations. Ridgewood
Near East is currently entitled to an additional equity interest in Sinai, in
return for providing Sinai with certain machinery and equipment. At the time of
the initial acquisition of Sinai, it had an outstanding loan from H.S.B.C. Bank,
S.A.E. (formerly Egyptian British Bank) ("HSBC"). In December 2003, a dispute
arose between Sinai and HSBC in connection with the outstanding loan. In the
second quarter of 2005, HSBC and Sinai settled their dispute by agreeing on the
extension and revised payment schedule. Sinai has remained in full compliance
with the terms of the loan as modified by the parties' settlement.
(iii) ZAP
The Fund invested $2,050,000 in Ridgewood ZAP, LLC ("Ridgewood ZAP") in
March 1999 as a wholly owned holding company for its investments in ZAP
(formerly ZAPWorld.COM, Inc. and ZAP Power Systems, Inc.). As part of the
$2,050,000 share purchase, the Fund also received a warrant to purchase
additional shares of ZAP's common stock at a price between $3.50 and $4.50 per
share. In June 1999, the Fund exercised the warrant and purchased 571,249
additional shares for approximately $2,000,000, or $3.50 per share. ZAP designs,
assembles, manufactures and distributes electric vehicles, including
automobiles, bicycle power kits, electric bicycles and tricycles, electric
scooters, and other electric transportation vehicles. ZAP's common stock is
quoted on the OTC Bulletin Board under the symbol "ZP". In the early part of
2001, the Fund agreed to sell to ZAP, and certain of its shareholders, the
Fund's interest in ZAP in return for a $1,500,000 interest bearing promissory
note (the "Ridgewood ZAP Note").
On March 1, 2002, ZAP filed a voluntary petition for reorganization under
Chapter 11 of the U. S. Bankruptcy Code with the US Bankruptcy Court in Santa
Rosa, California. On or about July 1, 2003, the Second Amended Plan for
Reorganization became effective and the Ridgewood ZAP Note was converted into
994,500 shares of common stock in ZAP, as reorganized (the "Reorganized ZAP
Shares"). When Reorganized ZAP Shares were issued to Ridgewood ZAP, as well as
all other unsecured creditors who opted for an equity interest in the
reorganized ZAP (as opposed to taking less than $.10 on the dollar for amounts
owed by ZAP at the time of the bankruptcy filing), the Reorganized ZAP Shares
were subject to a restriction on sales or transfers which was scheduled to be
incrementally removed beginning the third quarter of 2003, on approximately 12%
of the Reorganized ZAP Shares per quarter. As part of the reorganization,
Ridgewood ZAP also received a warrant granting it the right to purchase
994,500 ZAP shares at a price of $1.07 per share.
Upon the lifting of the transfer restrictions on the first set of the
Reorganized ZAP Shares in September 2003, Ridgewood ZAP sold approximately
118,000 of those shares to a private individual for $1.00 per share, which
represented a 10% discount off the then current public market price of ZAP
shares. Thereafter, during the second and third quarters of 2004, Ridgewood ZAP
distributed approximately 772,500 shares of the Reorganized ZAP Shares with a
market value (as defined) of approximately $2,080,000 to the Fund's investors.
The transfer restrictions on approximately 104,000 Reorganized ZAP Shares were
removed in 2005. As of the date of this report, Ridgewood ZAP intends to sell
these shares.
In May 2004, Ridgewood ZAP exercised its rights under the warrant to
purchase 994,500 shares at $1.07 per share. As an incentive to exercise the
warrant it received in the reorganization, Ridgewood ZAP received a second
warrant. Ridgewood ZAP exercised the second warrant in December 2004, with the
purchase of 538,462 shares at a $3.25 per share. Ridgewood ZAP has been engaged
in a program of sales of shares it purchased from the exercise of the warrants.
It is expected that the sale of the remaining Reorganized ZAP Shares will be
completed in the first quarter of 2006.
In 1999, Mr. Swanson purchased a franchise to distribute ZAP's products in
the eastern portion of Long Island, New York. See Item 13. Certain Relationships
and Related Transactions for additional information.
(iv) Ridgewood US Hydro Corporation
On November 22, 2002, the Fund and Power V acquired Ridgewood US Hydro
Corporation (formerly Synergics, Inc.), which at the time owned a portfolio of
seven existing hydroelectric generating plants located in California, Virginia,
Rhode Island and New York (the "US Hydro Projects"). Except for one project (the
Blackstone Project), as of December 31, 2005, all of the US Hydro Projects sold
their electric output to local utilities pursuant to power contracts. The
Blackstone project, in Rhode Island, is currently selling its output to the New
England Independent System Operator (the "NE-ISO"). The US Hydro Projects are
managed by Ridgewood Power Management ("RPM") with each US Hydro Project having
a local RPM employee assigned to manage its day-to-day operations.
At the time of the acquisition of Ridgewood US Hydro by the Fund and Power
V, a note receivable from the US Hydro Project at New Lahontan ("New Lahontan")
was subject to Bank of America debt. New Lahontan was owned and
6
operated by the Truckee-Carson Irrigation District ("TCID"), which also owned
the adjacent Old Lahontan Hydroelectric Power Plant ("Old Lahontan"). The Fund
and Power V owned essentially a contractual right to payments from TCID based on
New Lahontan's KWh production. Initially the Managing Shareholder believed that
New Lahontan would be able to operate at high capacity factors and deliver power
pursuant to a high-priced standard offer contract. After experiencing several
months of operations at New Lahontan, it became clear that Old Lahontan's
operation at full capacity prevented New Lahontan from operating at high
capacity. In addition, New Lahontan and Old Lahontan only operate if water is
released from the Lahontan Reservoir. Such releases, however, require the water
to be diverted from the Truckee River, which adversely affects Pyramid Lake and
the interests of those who own and use the lake. Lawsuits have been filed and
litigated between TCID and the Pyramid Lake Indian Tribes over diversions from
the Truckee River. As a result, in order to protect the divergent interests
associated with, and reduce or minimize the water used from the Truckee River,
TCID releases water pursuant to certain operating criteria and procedures
adopted and enforced by the US Department of Interior, Bureau of Reclamation
(the "Bureau"); the Bureau has been reducing the amount of water that can be
released by TCID. Based on the number of parties and complicated nature of the
relationships between those parties, the Managing Shareholder ultimately decided
to negotiate a sale of its note receivable in New Lahontan to TCID. On March 31,
2004, the US Hydro Projects sold its interest in New Lahontan to TCID for
$4,000,000, which was used to partially pay down the outstanding $5,650,000
balance of the Bank of America debt.
In the fourth quarter of 2004, the US Hydro Projects', Blackstone and New
England Power ("NEP") mutually agreed to terminate their 1989 power purchase
agreement. As per the terms of the Termination and Release Agreement, Blackstone
now has the right to sell its production of electricity to any party it chooses
(as of December 31, 2005, the NE-ISO). In addition, beginning January 2005 NEP
will pay Blackstone $16,000 per month through February 2010 and a lump sum
payment of $1,000,000 on February 15, 2010 to compensate Blackstone for the
cancellation of the fifteen years remaining on the original agreement.
(v) Investments No Longer Owned/Operating/Written-Off: Mediterranean
Fiber Optic Project
In September 1999, the Fund and Power V organized Ridgewood MedFiber LLC
and each of them contributed $1.5 million to the joint venture on equal terms.
Ridgewood MedFiber then invested the $3 million in a 25% equity interest in
Global Fiber Group, a developer seeking to construct a 3,600 kilometer (2,200
mile) underwater fiber optic cable through Spain, Southern France and Italy via
the Mediterranean Sea. In February 2000 the original management, which had been
unable to obtain additional equity financing for the Project, agreed to withdraw
from the venture. Ridgewood MedFiber was unable to find other equity investors
for the venture and the venture ceased activity in the second quarter of 2000.
Accordingly, the Fund wrote off its entire investment in the Project effective
March 31, 2000.
(3) Project Management and Operation.
(i) The United Kingdom Projects
The electricity markets in the United Kingdom were fully deregulated several
years before deregulation began in the US. Accordingly, the Fund has invested in
a niche area, landfill gas power plants which enjoy a guaranteed price and
market for the output of those projects owned in the UK by the Fund (i.e.,
non-PowerBank Projects), and are not subject to price fluctuations for their
fuel. The major business risks and considerations are to keep operating costs to
a minimum through good design, preventative maintenance and attention to fuel
quality/availability, governmental policy changes and exchange rate fluctuations
affecting the pound-denominated revenues from these Projects.
(ii) The Egyptian Projects
Generally, the Projects in Egypt are located at or near resort hotel sites
on the Red Sea, which are distant from other electric and water sources. REFI
developed these Projects using local engineering personnel and contractors.
Environmental, construction, legal, and labor requirements in Egypt are often
unclear and can change unpredictably at any time and without warning. REFI may
find it difficult to enforce contracts and other legal obligations against local
suppliers or customers. There are no backup facilities to provide electricity or
water if the Projects fail or are unusable for any period of time.
Specifications for Projects have changed suddenly and unpredictably and in some
cases it has been necessary for REFI to construct additional infrastructure.
Cultural, language and political differences between Egypt and the US may impair
communication with personnel, cause errors and possibly cause hostile action
against the Projects by employees, residents or governmental agencies. There
have been occasional terrorist incidents in Egypt directed against Western
tourists and tourist facilities. In addition, the War in Iraq and other turmoil
in the Middle East, although somewhat removed from Egypt, can have a negative
effect on tourism. Further such incidents might deter tourism and make the host
hotel resorts unprofitable or might even be directed against the Egyptian
Projects or their personnel.
7
The Egyptian Projects use diesel engines powered by light fuel oil, which
is delivered by tanker truck. Supply interruptions, oil spills or fires are
possible. Although the Egyptian Projects are exposed to world oil price
variations, this risk is mitigated to certain extent as the Egyptian Projects
adjust their prices to substantially transfer the risk tied to fuel oil prices
to their customers. This risk is also somewhat mitigated by the Egyptian
government which controls the price of fuel and tries to limit price movements.
The customers of most of the Egyptian Projects are single hotels. It is
possible that adverse events in the tourist industry, such as labor disputes,
airline problems, shortages of personnel, changes in customer taste,
environmental problems, overbuilding and international political or cultural
developments could depress tourist trade to the point that the hotels would be
unable to pay for water or power. Other risks include currency conversion and
repatriation risks, exchange rate fluctuations, taxation disputes, international
hostilities, arbitrary governmental action, religious tensions, anti-foreign
sentiments and legal changes.
(iii) The US Hydro Projects
The US Hydro Projects are qualifying facilities ("QFs") as defined in the
Public Utilities Regulatory Policies Act of 1978, as amended ("PURPA") and
operate under power contracts with their local distribution utilities. Under the
power contracts, the local utilities are obligated to purchase the contractual
output of these Projects at formula prices. No separate payments are made for
capacity and all payments under the power contracts are made for energy
supplied. The US Hydro Projects are licensed or operated as "run-of-river"
facilities, which means that the amount of water passing through the turbines is
directly dependent upon the fluctuating flow of the river or stream. (Output of
the US Hydro Projects is dependent upon rainfall and snowfall in the areas above
the dams.) The US Hydro Projects have no meaningful ability to store water
during high flows for use at low flow periods, and therefore, produce electric
energy and sell it as generated at the fixed rates provided in the power
contracts. The US Hydro Projects are not subject to fuel price changes. Output
is generally lowest in the summer and highest in the spring and fall. RPM has
assigned 3 full time employees to the US Hydro Projects.
(iv) Renewable Power Generated by the US Hydro Projects and UK Projects
The US Hydro Projects and the UK Projects owned by the Fund are "renewable
power" projects. "Renewable power" (often called "green power") is a catchphrase
that includes projects (such as solar, wind, small hydroelectric, biomass,
geothermal and landfill-gas) that do not use fossil fuels or nuclear fuels.
Renewable power plants typically have high capital costs and often have total
costs that are well above current total costs for new gas-turbine production.
Because of the desire of governmental bodies to encourage use of renewable
power as an alternative to fossil/nuclear plants, a number of incentive regimes
have been established to make renewable power more competitive. As a result of
RPS programs in the US, and the NFFO and RO Program in the UK, the Fund's
Projects have generally been selling their electric output and the renewable or
"green" credits associated with such electric power, in most cases, at a premium
over current wholesale electric rates.
(v) General Considerations
The major costs of operating a Project are fuel, taxes, maintenance,
operating labor and debt service (if applicable). The ability to reduce
operating interruptions and to have a Project's capacity available at times of
peak demand is critical to the profitability of a Project. Accordingly, skilled
management is a major factor in the Fund's business.
In order to operate, most Projects require a variety of permits, including
zoning and environmental permits. Inability to obtain such permits will likely
mean that a new Project will not be able to commence operations, and even if
obtained, such permits must usually be kept in force in order for the Project to
continue its operations once commenced.
Compliance with environmental laws is also a material factor in the
independent power industry. The Fund believes that capital expenditures for, and
other costs of, complying with environmental protection have not materially
disadvantaged its activities relative to other competitors and will not do so in
the future. Although the capital costs and other expenses of environmental
protection may constitute a significant portion of the costs of a Project, the
Fund believes that those costs imposed by current laws and regulations have been
and will continue to be largely incorporated into the prices of its investments
and it has accordingly adjusted its investment program so as to minimize
material adverse effects. If future environmental standards require that a
Project spend increased amounts for compliance, any such increased expenditure
could have an adverse effect on the Fund to the extent it is a holder of such
Project's equity securities.
Customers that accounted for more than 10% of the consolidated revenue to
the Fund in each of the last three fiscal years are:
8
Calendar Year
-------------
2004 2003 2002
---- ---- ----
US Hydro Customers
Dominion 14.4% 16.9% --
PacifiCorp 22.4% 27.9% --
Ridgewood Near East Customers
Meridien Makadi Bay -- -- 20.6%
Pyramisa Sharm -- -- 10.1%
(4) Competition.
The independent power industry is considered to be mature and there are a
large number of participants in the independent power industry. Several large
corporations specialize in developing, building and operating independent power
plants. Equipment manufacturers, including many of the largest corporations in
the world, provide equipment and planning services and provide capital through
finance affiliates. Many regulated utilities have organized subsidiaries or
affiliates to participate in unregulated activities such as planning,
development, construction and operating services or owning exempt wholesale
generators or up to 50% of independent power plants. In addition, there are many
smaller competitive firms whose businesses are conducted primarily on a regional
or local basis. Many of these companies focus on limited segments of the
cogeneration and independent power industry and do not provide a wide range of
products and services. There is significant competition among non-utility
producers, subsidiaries of utilities and utilities themselves in developing and
operating energy-producing projects and in marketing the power produced by such
projects. Since energy is an undifferentiated commodity, competition is based
almost exclusively on price and ability to deliver. Given that the Projects may
have higher cost structures than large nuclear or fossil-fueled facilities, they
would need to compete on an alternative basis, such as their favorable
environmental profile.
The Fund is unable to accurately estimate the number of competitors but
believes that there are many competitors at all levels and in all sectors of the
industry. Many of those competitors, especially affiliates of utilities and
equipment manufacturers, are far better capitalized than the Fund.
The Projects owned by the Fund's UK operations, which are not subject to
the PowerBank arrangements, operate under long-term contracts with the
Non-Fossil Fuels Purchasing Agency, a quasi-governmental agency and are not
subject to competition. Currently, the Egyptian Projects are located in remote
coastal areas that are not linked to the national electric power network and
thus are not subject to substantial competition for providing electricity. The
water plants do not face substantial competition except from trucked-in water.
This also means that there is no substantial backup for the Egyptian Projects if
they cannot operate for any reason. It is possible that in future years the
national network may extend to some or all of the Egyptian Projects, in which
case there might be competition.
(5) Regulatory Matters.
United States Regulation.
Projects are subject to energy and environmental laws and regulations at
the federal, state and local levels in connection with development, ownership,
operation, geographical location, zoning and land use of a Project and emissions
and other substances produced by a Project. These energy and environmental laws
and regulations generally require that a variety of permits and other approvals
be obtained before the commencement of construction or operation of an
energy-producing facility and that the facility then operate in compliance with
such permits and approvals.
(i) Energy Regulation.
(A) PURPA. The enactment of Public Utilities Regulatory Policies Act of
1978, as amended ("PURPA") and the adoption of regulations thereunder by Federal
Energy Regulatory Commission ("FERC") provided incentives for the development of
cogeneration facilities and small power production facilities meeting certain
criteria. QFs under PURPA are generally exempt from the provisions of the
Federal Power Act, as amended (the "FPA"), and, except under certain limited
circumstances, from state laws regarding rate or financial regulation. In order
to be a QF, a cogeneration facility must (a) produce not only electricity but
also a certain quantity of heat energy (such as steam) which is used for a
purpose other than power generation, (b) meet certain energy efficiency
standards when natural gas or oil is used as a fuel source and (c) not be
9
controlled or owned more than 50% by an electric utility or electric utility
holding company. Other types of Independent Power Projects, known as "small
power production facilities", can be QFs if they meet certain regulations such
as capacity, primary energy source, and utility ownership.
The exemptions from extensive federal and state regulation afforded by
PURPA to QFs are important to the Fund and its competitors. The Fund believes
that each of its US Hydro Projects is a QF. If a Project loses its QF status,
the utility can reclaim payments it made for the Project's non-qualifying output
to the extent those payments are in excess of current avoided costs or the
Project's power contract can be terminated by the electric utility.
(B) The 1992 Energy Act. The Comprehensive Energy Policy Act of 1992 (the
"1992 Energy Act") empowered FERC to require electric utilities to make
available their transmission facilities to, and wheel power for, Independent
Power Projects under certain conditions. The 1992 Energy Act is not expected to
materially and adversely affect the Fund's business plan, though it may result
in increased competition in the sale of electricity.
(C) Energy Policy Act of 2005. The enactment of the Energy Policy Act of
2005 on August 8, 2005, has essentially repealed substantial portions of PURPA
and the Public Utility Holding Company Act ("PUHCA"). Notwithstanding its impact
on PURPA and PUHCA, the Energy Policy Act of 2005 is not expected to materially
and adversely affect the Fund's business plan.
(D) The FPA. The FPA grants FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce. The FPA provides FERC
with ongoing as well as initial jurisdiction, enabling FERC to revoke or modify
previously approved rates. Such rates may be based on a cost-of-service approach
or determined through competitive bidding or negotiation. While QFs under PURPA
are exempt from the rate-making and certain other provisions of FPA, non-QFs are
subject to FPA and FERC rate-making jurisdiction.
(E) State Regulation. State regulation is pervasive in the area of power
plant permitting and licensing. In addition, states may assert jurisdiction over
the citing and construction of Independent Power Projects.
(ii) Environmental Regulation.
The construction and operation of Independent Power Projects are subject
to extensive federal, state and local laws and regulations adopted to protect
human health and the environment, and to regulate land use. The laws and
regulations applicable to the Fund and Projects in which it invests, primarily
involve the discharge of emissions into the water and air, and the disposal of
waste, but can also include wetlands preservation and noise regulation. These
laws and regulations in many cases require a lengthy and complex process of
renewing licenses, permits and approvals from federal, state and local agencies.
Obtaining necessary approvals regarding the discharge of emissions into the air
is critical to the development of a Project and can be time-consuming and
difficult. Each Project requires technology and facilities which comply with
federal, state and local requirements, which sometimes result in extensive
negotiations with regulatory agencies. Meeting evolving requirements of each
jurisdiction with authority over a Project may require extensive modifications
to existing Projects.
The Fund's Projects must comply with many federal and state laws and
regulations governing wastewater and storm water discharges from the Projects.
These are generally enforced by states under permits for point sources of
discharges and by storm water permits. Under the Clean Water Act, such permits
must be renewed every five years and permit limits can be reduced at that time
or under re-opener clauses at any time. The Projects have not had material
difficulty in complying with their permits or obtaining renewals.
The Managing Shareholder believes that environmental and land use
regulations may become more stringent in the future. The Fund and the Managing
Shareholder have developed expertise and experience in obtaining necessary
licenses, permits and approvals, but still expect to rely upon qualified
environmental consultants and counsel to assist in evaluating the status of
Projects regarding such matters.
(iii) Potential Legislation and Regulation.
All federal, state and local laws and regulations, including but not
limited to PURPA, the 1992 Energy Act, the FPA and the Energy Policy Act of 2005
are subject to amendment or repeal. Future legislation and regulation is
uncertain, and could have material effects on the Fund.
Financial Information about Foreign and Domestic Operations and Export
Sales.
10
In 2004, 2003 and 2002, revenues were recorded from customers of the
Ridgewood US Hydro Projects and Egypt Projects. The financial statements of the
UK Projects and ZAP are not consolidated with those of the Fund and,
accordingly, their revenues are not considered to be operating revenues. As of
and for the years ended December 31, 2004, 2003 and 2002 revenue and property,
plant and equipment from sources inside and outside the United States were as
follows:
2004 2003 2002
------------------------- ------------------------- ------------------------
US Egypt US Egypt US Egypt
----------- ----------- ----------- ----------- ---------- -----------
Revenue $ 5,096,362 $ 5,488,617 $ 5,844,921 $ 4,399,763 $ 371,345 $ 5,459,011
Property, plant
and equiptment, net 1,691,859 18,985,309 1,734,015 20,867,386 1,777,647 31,214,014
Employees.
The Fund has no employees. The executive officers of the Fund described in
Item 10. Directors and Executive Officers of the Registrant, are not employees
of the Fund but as officers of the Managing Shareholder have the duties and
powers applicable to similar officers of a Delaware corporation in carrying out
the Fund's business.
Item 2. Properties.
Pursuant to the Management Agreement between the Fund and the Managing
Shareholder (described at Item 10(c)), Ridgewood Power provides the Fund with
office space at the Managing Shareholder's principal offices at The Ridgewood
Commons, 947 Linwood Avenue, Ridgewood, New Jersey 07450. The Fund also has
office space at 1314 King Street, Wilmington, Delaware 19801.
The following table shows the material properties (relating to Projects)
owned or leased by the Fund's subsidiaries as of December 31, 2005.
Ownership Ground Lease Approximate Project
Projects Location Interests in Land Expiration Acreage of Land Description
- --------------------------------------------------------------------------------------------------------
Egyptian 17 sites in Leased by n/a Less than 10, Electric generation
Egypt* REFI** collectively and/or water
desalinization
US Hydro 7 sites in the Sites owned or n/a Less than 15, Hydro-electric
US*** leased on case by collectively facilities
case basis.****
* All Egyptian sites are located on or near the Red Sea.
** Joint venture owned by Fund, Power V, and Egypt Fund.
*** Six US Hydro sites are located on the Eastern Seaboard and one in California
**** Joint venture equally owned by Fund and Power V.
Engine Generator
No. of Projects Locations Sets (MW Capacity)
United Kingdom Projects(a) 31 22 in England and Scotland 50 (48.7MW)
(a) Including Projects owned by the UK operations of the Fund and those
operated under the terms of the PowerBank arrangements.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
11
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Market Information
The Fund sold 658.1067 Investor Shares of beneficial interest in the Fund
in its private placement offering, which concluded in April 2000. As of the date
of this Annual Report on Form 10-K, there has been no established public trading
market for the Investor Shares. As of the date of this Annual Report on Form
10-K, all such Investor Shares have been issued and are outstanding. There are
no outstanding options or warrants to purchase, or securities convertible into,
Investor Shares.
Investor Shares are restricted as to transferability under the
Declaration. In addition, under federal laws regulating securities the Investor
Shares have restrictions on transferability when persons in a control
relationship with the Fund hold the Investor Shares. Investors wishing to
transfer Investor Shares must also consider the applicability of state
securities laws. The offer and sale of the Investor Shares have not been and are
not expected to be registered under the Securities Act or under any other
similar law of any state (except for certain registrations that do not permit
free resale) in reliance upon what the Fund believes to be exemptions from the
registration requirements contained therein. Because the Investor Shares have
not been registered, they are "restricted securities" as defined in Rule 144
under the 1933 Act.
Holders
As of February 28, 2006, there were 1,330 record holders of Investor
Shares.
Dividends
The Fund made distributions as follows for the years ended December 31,
2004 and 2003:
Year ended
December 31,
2004 2003
----------- -----------
Total distributions to Investors $ 3,395,366 $ 1,316,418
Distributions per Investor Share 5,159 2,000
Distributions to Managing Shareholder 13,297 13,297
The Fund's decision whether to make future distributions to Investors and
their timing will depend on, among other things, the net cash flow of the Fund
and retention of reasonable reserves as determined by the Fund to cover its
anticipated expenses. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation.
Occasionally, distributions may include funds derived from the release of
cash from operating or debt services reserves. Further, the Declaration
authorizes distributions to be made from cash flows rather than income, or from
cash reserves in some instances. Amounts of distributions in excess of
accounting income may be considered to be capital in nature. Investors should be
aware that the Fund is organized to return net cash flow rather than accounting
income to Investors.
Item 6. Selected Financial Data.
The following data is taken from the financial statements presented
elsewhere in this Annual Report on Form 10-K. See Item 8. Financial Statements
and Supplementary Data.
As of and for the Years Ended December 31,
------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Revenue (I) $ 10,584,979 $ 10,244,684 $ 5,830,356 $ 4,237,676 $ 2,180,231
Net income (loss)(II) 645,138 (3,790,043) (3,331,373) (3,037,411) (1,909,206)
Net assets
(shareholders'
equity) (III) 25,251,013 27,713,091 36,315,970 39,313,776 46,091,190
Investments in
property, plant
and equipment (net
of depreciation) (IV) 20,677,168 22,601,401 32,991,661 25,961,010 21,321,104
Total assets (I) (V) 49,304,484 57,871,936 67,117,202 48,835,302 53,174,689
Long term debt (less current
portion) (VI) 3,558,451 4,722,403 8,002,169 -- --
12
(I) Increase in revenue in 2003, investment in property, plant and
equipment and total assets in 2002 due to acquisition of US Hydro in
November 2002, as discussed in Note 3 to the Fund's Notes to
Consolidated Financial Statements.
(II) Increase in net income in 2004 due to gain on sale and distribution
of ZAP securities and also due to decrease in write-down of Power
Sales Contracts. Increase in net loss in 2001 due to write-off of
investment in ZAP securities, as discussed in Note 3 to the Fund's
Notes to Consolidated Financial Statements.
(III) Decrease in shareholders' equity in 2003 due to unrealized loss on
foreign currency related to Egypt investment.
(IV) Decrease in investment in property, plant and equipment in 2003 due
to write-down of Power Sales Contracts, as discussed in Note 2 to
the Fund's Notes to Consolidated Financial Statements.
(V) Decrease in total assets from 2004 to 2003 primarily due to decrease
in notes receivable resulting from payment of notes receivable by
TCID, deferred income tax, and electric power sales contract due to
write-down of assets in power generation projects.
(VI) Increase in long-term debt in 2002 due to introduction of term loan
for Ridgewood Near East and US Hydro. Decrease in 2003 is due to
decrease in Egypt pound currency denominated obligation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
The following discussion and analysis should be read in conjunction with
the Fund's financial statements and the notes thereto presented below. See Item
8. Financial Statements and Supplementary Data. Dollar amounts in this
discussion are generally rounded to the nearest $1,000.
In 2002, the Fund completed its acquisition of the Ridgewood US Hydro
Projects and as a result, the Fund has consolidated the financial statements of
the US Hydro Projects effective November 23, 2002.
Through December 31, 1999, the Fund used the equity method of accounting
for its investment in the Egypt Projects. Beginning in the first quarter of
2000, the Fund made additional investments and acquired majority ownership of
certain Egypt Projects. As a result, effective January 1, 2000, the Fund has
consolidated the financial statements of certain Egypt Projects. In the first
quarter of 2002, the balance of the Egypt Projects were consolidated as a result
of acquisition.
Outlook
The adoption of the Renewable Portfolio Standards ("RPS") legislation in
various states is indicative of the significant activity and movement in the
industry, as well as at state and federal government, to increase the amount of
renewable power that is supplied to utilities that serve end-use customers in
such states. For example, in Massachusetts, legislation and regulations have
been passed requiring such retail electric suppliers to have in their electric
portfolio one (1%) from "new renewable power" for 2003. This renewable
generation percentage requirement increases each year until the renewable
generation amount equals four (4%) percent. New Jersey, Nevada, California and
Connecticut have passed similar RPS legislation.
Notwithstanding the development of a renewable energy market in many
states, the general trends in the electric power industry have continued to
reflect an attitude of caution and restraint. Throughout the United States,
memories of the California energy crises, Enron Corp.'s bankruptcy, proceedings
before the FERC regarding certain questionable practices of other energy
producers and marketers, as well as the US and world economy and the Iraq War,
have led many to call for a more regulated electric industry, with strict
reporting requirements and cost of service regulation. However, many
legislators, regulators and market participants have not disavowed deregulation.
The Projects owned by the Funds' UK operations, which are not subject to
the PowerBank arrangements, operate under long-term contracts with the
Non-Fossil Fuels Purchasing Agency, a quasi-governmental agency. They enjoy a
guaranteed price and market for their output and are not subject to price
fluctuations for their fuel. The UK Projects are relatively unaffected by
developments in the United Kingdom electricity markets, which included the
introduction in 2001 of
13
the New Electricity Trading Arrangements ("NETA"). NETA replaced the electricity
pool with a competitive wholesale energy market. While NETA has not impacted the
income stream for the UK Projects, the attendant disruption has caused a
realignment and consolidation within the UK utility industry. The industry
regulator, Office of Gas & Electricity Markets ("OFGEM"), monitors these
developments on a continuous basis.
The Egyptian Projects are developed at remote resort hotel sites on the
Red Sea, which are distant from other electric and water sources. As a result,
REFI is relatively unaffected by trends in the Egyptian water and power
industry, which is concentrated along the Nile River and Mediterranean Coast.
Prices for power and water delivered to the Egyptian Projects hotels in certain
instances are based on contracted rates. Some arrangements are short-term and in
other cases, hotels may attempt to renegotiate the terms of their arrangements.
The market price for water not under contract varies depending on many factors,
including fuel cost, availability of other sources of supply (primarily other
desalination plants or the Nile River), demand (which is heavily dependant on
temperature) and availability of transportation (primarily trucks and
pipelines).
In connection with the acquisition of US Hydro, the Fund and Power V,
through a joint venture, purchased a note receivable from US Hydro for
approximately $17 million. At the time, the joint venture intended to acquire US
Hydro's nine hydroelectric plants by forgiving the then outstanding debt and
$0.8 million of accrued interest, paying an additional $1 million to the
shareholders of US Hydro, and paying up to an additional $1.7 million of US
Hydro tax related but contingent tax liabilities that might be incurred as a
result of a tax strategy. The then president of US Hydro agreed to vote the
stock of US Hydro beneficially owned by him (approximately 69% of the voting
stock) in favor of a merger or other corporate reorganization as specified by
the Fund and Power V that materially complied with the provisions outlined
above. After further negotiations, however, on November 22, 2002, through
another joint venture owned in the same proportion as the joint venture that
acquired the debt of US Hydro, the Fund and Power V acquired 100% of the
outstanding stock of US Hydro through structured tax reorganization. As part of
the tax structured reorganization, the former shareholders of US Hydro received
100% of the outstanding shares of a subsidiary of US Hydro in exchange for
selling the stock of US Hydro to the Trust and the Growth Fund for a nominal
amount.
Additional trends affecting the independent power industry generally are
described in Item 1. Business.
Significant Accounting Policies
The Fund's plant and equipment is recorded at cost and is depreciated over
its estimated useful life. The estimated useful lives of the Fund's plant and
equipment range from 3 to 20 years. A significant decrease in the estimated
useful life of a material amount of plant and equipment could have a material
adverse impact on the Fund's operating results in the period in which the
estimate is revised and in subsequent periods. The Fund evaluates the impairment
of its long-lived assets based on projections of undiscounted cash flows at
least annually or when events or changes in circumstances indicate that the
carrying amounts of such assets may not be recoverable. Estimates of future cash
flows used to test the recoverability of specific long-lived assets are based on
expected cash flows from the use and eventual disposition of the assets. A
significant reduction in estimated future cash flows may have a material adverse
impact on the Fund's operating results and financial condition.
Power generation and water revenue is recorded in the month of delivery,
based on the estimated volumes sold to customers at rates stipulated in the
power sales contract and for water output at prevailing market rates.
Adjustments are made to reflect actual volumes delivered when the actual
information subsequently becomes available. Billings to customers for power
generation generally occurs during the month following delivery. Final billings
do not vary significantly from estimates.
Accounts receivable are carried at original invoice amount less allowance
made for uncollectibility of these receivables. Allowance for uncollectibility
of accounts receivable is established when there is objective evidence that the
Fund will not be able to collect all amounts due according to the original terms
of receivables. The amount of allowance is the difference between the carrying
amount and the recoverable amount, being the expected cash flows. When material,
expected cash flows are discounted at the market rate of interest for similar
borrowers.
Results of Operations
The year ended December 31, 2004 compared to the year ended December 31, 2003
Revenues increased by $340,000, or 3.3%, to $10,585,000 in 2004, as
compared to $10,245,000 in 2003. Revenues from the Egyptian Projects increased
by approximately $1,089,000 primarily due to increase in water desalinization
operations resulting from pickup in tourism in 2004, as compared to a drop-off
in 2003 as a result of the war in Iraq. The US Hydro Projects' revenues declined
$749,000 in 2004 due to lower output resulting from lower levels of
precipitation.
Cost of revenues for 2004 was $8,002,000, as compared to $7,142,000 for
2003, an increase of $860,000, or 12%. The cost of revenues for Egypt Projects
increased by approximately $900,000 primarily due to increase in fuel and direct
14
materials resulting from increase in 2004 operations. The US Hydro projects cost
of revenues for 2004 was comparable to 2003.
Gross Profit decreased by $519,000 or 16.7%, to $2,583,000 in 2004, from
$3,102,000 in 2003. The decrease is mainly attributable to the US Hydro
Projects, which experienced lower revenues in 2004, as noted above; US Hydro
provided a gross profit of $2,129,000 as compared to $2,686,000 in 2003, a
decrease of $557,000. Gross Profit from the Egyptian water desalinization
operations was $1,265,000, an increase of $378,000 compared to 2003, in line
with revenue growth. Gross Profit from the Egyptian power operations decreased
$340,000 from 2003, a result of experiencing higher costs on lower revenues, as
discussed above.
General and administrative expenses increased $257,000 or 7.8%, to
$3,045,000 in 2004 from $3,302,000 in 2003. The increase is primarily due to
higher administrative costs at the Egypt Projects, which included $870,000
write-off of funds advanced to develop a new venture in Dubai partially offset
by reversal of provision for local Egyptian sales and stamp taxes.
The management fee of $823,000 was comparable to 2003.
In 2004, the Fund recorded a gain of assets in power generation projects
in the amount of $565,000 compared to a write-down of power generation projects
of $2,495,000 in 2003. The 2004 gain includes an impairment write-down of
$1,077,000 to an electric power sales contract in 2004, reflecting the
termination of a US Hydro unit's power purchase agreement with a New England
utility. This is partially offset by a gain of $1,642,000, which represents the
present value of future payments due from the utility as a compensation for the
lost revenues on the terminated contract. In 2003, the Fund recorded a
write-down of $527,000 for certain assets acquired in the Sinai acquisition and
an impairment of power sales contract for $1,902,000 due to decrease in future
cash flow of certain US Hydro Projects resulting from the sale of the Fund's
interest in the Lahontan notes and the exercise of certain rights of the off
take party on various power agreements and the restructuring of power agreement
at the Blackstone Project.
In 2004, the Fund recorded a goodwill impairment charge of $661,000
compared to $556,000 in 2003. Goodwill, resulting from the deferred tax
liability associated with the acquisition of US Hydro, was not supported by
discounted future cash flow of the underlying projects to the extent of the
impairment.
Provision for bad debts decreased $494,000 to $42,000 in 2004 from
$536,000 in 2003. The provision recorded for bad debts is attributable to the
Egyptian operations.
The Fund's loss from operations decreased by $3,187,000, from $4,610,000
in 2003 to $1,423,000 in 2004. The decrease primarily reflects the decrease in
the write-down of power sales contracts (see above), partially offset by the
increase in cost of revenues.
Interest income was $20,000 in 2004, a reduction of $38,000 from the prior
year, reflecting the sale of the US Hydro note receivable in early 2004.
Interest expense decreased $171,000 to $690,000 in 2004 from $861,000 in
2003. The decrease is primarily due to the paydown of debt assumed in the U.S.
Hydro acquisition and of the outstanding borrowings under the credit line
executed by the Egypt projects in the third quarter of 2002.
In 2004, the Fund recorded an equity loss of $552,000 from its investment
in the UK Projects, compared to an equity loss of $627,000 in 2003. The decrease
in equity loss is a result of the UK Projects experiencing increased revenues
driven by increased capacity.
The Fund recorded a gain on the sale of equipment of $6,000 in 2004 and a
loss of $499,000 in 2003, as a result of the sale of certain equipment by the
Egyptian operations.
In 2004, the Fund recorded a gain on distributions and sales of ZAP
securities for $2,419,000. This is due to a gain of $340,000 resulting from the
sale of ZAP shares and a gain of $2,079,000 resulting from distribution of
772,500 ZAP shares to the Fund's investor shareholders.
In 2004, the Fund recorded a net gain on sale of US Hydro note of
$175,000. The gain represents $200,000 on the sale of the Lahontan note
receivable held by the U.S. Hydro Projects, partially offset by legal fees of
$25,000 incurred on the sale of the note. The notes receivable were paid by
TCID, the proceeds of which were applied directly towards a reduction of the
term loan of $3,800,000.
15
Other income decreased by $182,000 from other income of $93,000 in 2003 to
other expense of $90,000 in 2004. Other expenses in 2004, represents Egyptian
foreign exchange loss resulting from purchase of equipment from various
international third parties compared to gain on foreign exchange of $93,000 in
2003.
In 2004, the Fund recorded an income tax benefit of $628,000 on behalf of
the US Hydro Projects compared to $1,054,000 in 2003. The decrease in the 2004
income tax benefit is primarily attributable to the net decrease in the
temporary difference in the book to tax basis of the US Hydro Projects. The
Fund's Egyptian subsidiaries have a ten year income tax holiday that expires in
2010. Accordingly, no provision has been made for Egyptian income taxes in the
years presented.
Minority interest in the loss of subsidiary decreased by $1,332,000, from
$1,484,000 in 2003 to $152,000 in 2004. The decrease is primarily due to the
decrease in the impairment of intangibles and the increase in the gain on the
sale of investment in ZAP securities. In addition, the decrease is also due to
the Fund's obligation to fund the Sinai losses as the minority shareholder's
share of accumulated losses exceeded the minority shareholder's equity in Sinai.
Accordingly, the minority shareholder's equity has been reduced to zero and the
reporting of Sinai's losses is fully absorbed by the Fund.
The Fund's net income increased by $4,435,000 from a loss of $3,790,000 in
2003 to income of $645,000 in 2004. The increase in net income is primarily due
to decrease in loss from operations of $3,187,000, increase in gain of
$2,301,000 on sale and distribution of ZAP securities (see above) and decrease
in loss from sale of property, plant and equipment of $505,000 partially offset
by decrease in minority interest in loss of subsidiary of $1,332,000.
The year ended December 31, 2003 compared to the year ended December 31, 2002
Revenues increased by $4,415,000, or 76%, to $10,245,000 in 2003, as
compared to $5,830,000 in 2002. The acquisition of the Ridgewood US Hydro
Projects in the fourth quarter of 2002 provided the current year results with
additional revenues of $5,473,000. Revenues from the Egyptian operations in
local currency were comparable to 2002. Due to the decrease in the exchange rate
of the Egyptian pound in 2003, revenues from the Egyptian operations decreased
$1,059,000.
Cost of revenues increased by $1,739,000, or 32%, to $7,142,000 in 2003,
from $5,403,000 in 2002. This is primarily due to the increase in depreciation
and amortization expense related to US Hydro Projects acquired in November 2002.
In addition, as a result of review of impairment and change in circumstances,
certain US Hydro Projects lives have been adjusted.
Gross Profit increased by $2,675,000 to $3,102,000 in 2003, from $427,000
in 2002. The increase is due to the consolidation of the Ridgewood US Hydro
Projects for the full year in 2003. The Ridgewood US Hydro Projects provided a
gross profit of $2,686,000 in 2003, an increase of $2,526,000. Gross Profit from
the Egyptian operations was $416,000, an increase of approximately $149,000
compared to 2002. The increase in gross profit from the Egyptian operations is
primarily attributed to the improved efficiency of the Sinai operations.
General and administrative expenses increased $1,272,000 or 63%, to
$3,302,000 in 2003 from $2,030,000 in 2002. The increase is primarily due to the
consolidation of the Ridgewood US Hydro Projects in November 2002 and also due
to the settlement of a breach of contract claim resulting in a charge of
$551,000, which represents the present value of the future discounted payments.
The management fee of $823,000 in 2003 was comparable to 2002.
Write-down of power generation projects increased by $2,197,000, from
$298,000 in 2002 to $2,495,000 in 2003. The increase is primarily due to
write-down of $527,000 for certain assets acquired in the Sinai acquisition and
also due to the impairment of power sales contract of $1,902,000 as a result of
a decrease in future cash flow of certain US Hydro Projects resulting from the
exercise of certain rights of the off take party on various power agreements and
the restructuring of power agreement at the Blackstone Project. In 2002, the
Fund recorded a write-down of $298,000 for certain of its on-site plants in
Egypt that were shut down or sold.
In 2003, the Fund recorded a goodwill impairment charge of $556,000
compared to $0 in 2002. Goodwill, resulting from the deferred tax liability
associated with the acquisition of US Hydro, was not supported by discounted
future cash flow of the underlying projects to the extent of the impairment.
Provision for bad debts increased $398,000 to $536,000 in 2003 from
$138,000 in 2002. The provision recorded for bad debts is attributable to the
Egyptian operations.
The Fund's loss from operations increased by $1,749,000, or 61%, to
$4,610,000 in 2003 from $2,861,000 in 2002. The increase in loss reflects the
increase in the write-down of power generation projects, impairment of goodwill
and general and administrative expenses, partially offset by the increase in
gross profit.
16
Interest income of $58,000 in 2003 was comparable to the prior year.
Interest expense decreased $127,000 to $861,000 in 2003 from $988,000 in 2002.
The decrease is the result of the lower outstanding debt balances.
In 2003, the Fund recorded an equity loss of $627,000 from its investment
in the UK Projects, compared to an equity loss of $845,000 in 2002. The decrease
in equity loss is due to the increase in revenue resulting from the increase in
the UK Projects operating capacity, in addition to the decrease in maintenance
costs.
The Fund recorded a loss on sale of equipment of $499,000 in 2003 as a
result of the sale of certain equipment by the Egyptian operations.
Other income decreased $59,000, or 39%, from $152,000 in 2002 to $93,000
in 2003 due to a decrease in Egyptian foreign exchange gains resulting from
purchase of equipment from various international parties.
The increase on gain on sale of investment in ZAP securities reflects the
118,000 shares sold at $1.00 per share and the full proceeds was recorded as a
gain. The Fund had written-off the investment in ZAP securities in 2001.
In 2003, the Fund incurred an income tax benefit of $1,054,000 on behalf
of the Ridgewood US Hydro Projects compared to income tax expense of $13,000 in
2002. The increase in the 2003 income tax benefit is primarily attributable to
the decrease in deferred tax liabilities relating to the US Hydro Projects. The
Fund's Egyptian subsidiaries have a ten year income tax holiday that expires in
2010. Accordingly, no provision has been made for Egyptian income taxes in the
years presented.
Minority interest in the loss of subsidiary increased by $283,000 or 24%,
from $1,201,000 in 2002 to $1,484,000 in 2003. The increase is due to the Fund's
impairment of goodwill and long-lived assets, partially offset by the increase
in income tax benefit. In addition, the increase is also due to the Fund's
obligation to fund the Sinai losses as the minority shareholder's share of
accumulated losses exceeded the minority shareholder's equity in Sinai in 2003.
Accordingly, the minority shareholder's equity in Sinai is reduced to zero and
the reporting of Sinai's losses is fully absorbed by the Fund.
The Fund's net loss increased $459,000 or 14% from a loss of $3,331,000 in
2002 to $3,790,000 in 2003, primarily reflecting the increase in the loss from
operations offset by increase in income tax benefit.
Interim Periods
The net income increased in second quarter of 2004 primarily due to gain
on ZAP securities of $1,574,000.
In third quarter of 2004, gross profit decreased primarily due to the
decrease in revenue by $594,000 compared to the second quarter of 2004. In
addition, the net income decreased in the third quarter of 2004 primarily
attributable to the decrease in gain on ZAP securities from $1,574,000 in the
second quarter of 2004 to $706,000 in the third quarter of 2004.
In the fourth quarter of 2004, the Fund recorded an expense of $870,000 for the
write-down of advances to develop a new venture in Dubai. The write-down was
recorded upon management's decision that the Fund would discontinue its efforts
to develop operations in Dubai. In addition, during the fourth quarter of 2004,
the Fund also recorded an impairment of goodwill of $661,000 as the goodwill
resulting from the deferred tax liability associated with the acquisition of US
Hydro, was not supported by discounted future cash flow of the underlying
projects to the extent of impairment. This is partially offset by increase in
gain on distribution and sale of ZAP securities of $139,000 during the fourth
quarter of 2004 and a net gain of $564,713, reflecting an impairment to electric
power sales contracts of $1,077,296 to write-down the carrying value of the
pre-existing power purchase agreement to zero less $1,642,009 to recognize the
present value of payments to be received beginning 2005.
Increase in loss from operations in the fourth quarter of 2003 is
primarily due to the write-down of $527,000 as a result of an appraisal of the
equipment acquired in the Sinai acquisition. During the fourth quarter of 2003,
the Fund also recorded an impairment of goodwill of $556,000 as the goodwill
resulting from the deferred tax liability associated with the acquisition of US
Hydro, was not supported by discounted future cash flow of the underlying
projects to the extent of impairment. In addition, the Fund recorded impairment
of long-lived assets of $1,902,000 due to decrease in future undiscounted cash
flow for certain US Hydro Projects resulting from the exercise of certain rights
of the off take party on various power agreements and the restructuring of power
agreement at the Blackstone Project.
As a result of the change in the estimated life of certain electric power
sales contracts, the Fund recorded an additional $630,000 of amortization
expense in the fourth quarter of 2003. The Fund also recorded a $288,000
provision for bad debt
17
from its Egyptian operations in the fourth quarter of 2003. This was partially
offset by an increase in income tax benefit of $1,146,000 due to decrease in
deferred tax liability of certain US Hydro Projects.
Liquidity and Capital Resources
At December 31, 2004, the Fund had cash and cash equivalents of $769,000,
a decrease of $33,000 as compared to December 31, 2003. The cash flows for the
year 2004 were $2,439,000 provided by operating activities, $2,995,000 provided
by investing activities, $5,472,000 used in financing activities and $6,000 gain
to the effect of the exchange rate on cash and cash equivalents.
In 2004 the Fund's operating activities generated cash of $2,439,000
compared to $2132,000 in 2003, a increase of $307,000 primarily due to increase
in revenue.
In 2004, investing activities provided $2,994,000 compared to $1,285,000
in 2003, an increase of $1,709,000. The increase is primarily due to $3,975,000
proceeds from the sale of the US Hydro note receivable and $1,404,000 proceeds
from sale of ZAP securities. This is partially offset by additional investment
of $2,814,000 in ZAP securities and $870,000 of advances to Ridgewood Dubai.
In 2004, the Fund used $5,472,000 of cash in financing activities, a
result of $4,892,000 (including $4,000,000 of proceeds received from sale of US
Hydro note) used toward bank loan repayments and $1,330,000 used in
distributions to shareholders. In 2003, the Fund used $3,308,000 of cash in
financing activities, primarily the result of $1,978,000 used to repay bank
loans and $1,330,000 used in distributions to shareholders.
The Fund expects that its cash flows from operations and cash on hand will
be sufficient to fund its obligations and any declared distributions through
January 31, 2007. The Fund has historically financed its operations from cash
generated from its subsidiaries' operations. Obligations of the Fund are
generally limited to payment of debt to third parties and management fee to the
Managing Shareholder as well as payments for certain administrative, accounting
and legal services to third parties. Accordingly, the Fund has not found it
necessary to retain a material amount of working capital.
On June 26, 2003, the Managing Shareholder of the Fund, entered into a
$5,000,000 Revolving Credit and Security Agreement with Wachovia Bank, National
Association. The agreement allows the Managing Shareholder to obtain loans and
letters of credit for the benefit of the trusts and funds that it manages. As
part of the agreement, the Fund agreed to limitations on its ability to incur
indebtedness, liens and provide guarantees. On February 20, 2004, the Managing
Shareholder and Wachovia Bank amended the agreement increasing the amount to
$6,000,000. During 2005, Wachovia Bank agreed to further extend the Managing
Shareholder's Line of credit through September 30, 2006.
The following schedule represents the Fund's total contractual obligations
as of December 31, 2004:
2005 2006 2007 2008 2009 Thereafter Total
--------- --------- --------- --------- --------- ---------- ---------
Contractual Obligations:
Long-term debt
Sinai $ 195,824 $ 233,741 $ 234,306 $ 324,300 $ 424,630 $ 839,633 2,252,433
REFI 509,613 509,613 127,403 - - - 1,146,629
US Hydro 472,451 432,413 432,413 - - - 1,337,277
Minimum lease payment 685,000 695,000 700,000 710,000 720,500 5,495,977 9,006,477
Consulting agreement settlement 40,422 44,655 49,331 54,497 60,203 264,861 513,969
During the third quarter of 2002, REFI executed a term loan agreement with
its principal bank. The bank provided a loan of 12,500,000 Egyptian pounds
(approximately US $2,022,000), which will mature on March 31, 2007. The loan
will be repaid in quarterly installments of 781,250 Egyptian pounds
(approximately US $126,000) starting June 2003. Outstanding borrowings bear
interest at the bank's medium term loan rate plus 0.5% (12.5% at December 31,
2004 and 2003).
Sinai has outstanding loans and interest payable of 13,812,146 Egyptian
pounds (approximately US $2,252,433). The loan bears interest at 11.0% per
annum. The provision of the loan restricts Sinai from paying dividends to its
shareholders or obtaining credit from other banks. As the loan has been in
default since 1999, Sinai Company entered into a new agreement in April 2005 in
order to resolve all issues, cure the default, and reschedule the installment
payments of the debt. At December 31, 2005, Sinai was in compliance with the
terms of the modified loan.
18
Five of the US Hydro Project's hydro-electric power plants are financed by
a term loan. The Fund has a choice of variable or fixed interest rates on the
term loan. Variable rates are LIBOR (2.38% and 1.16% at December 31, 2004 and
2003, respectively) plus 1 3/4%, or the Lenders Corporate Base Rate plus 1/2%.
At the Fund's option, a fixed interest rate can be selected, payable on any
portion of the debt in excess of $1,000,000, for any period of time from two to
seven years. Such fixed rate shall be based on the US Treasury note rate at the
date of election plus 2 3/4%. The variable rate of 4.13% and 2.91% were the
effective interest rates at December 31, 2004 and 2003, respectively. Although
the Fund is current in its interest and principal payments, it is technically in
default under the covenants of the term loan as a result of not providing its
lender a copy of its current audited financial statements. As per the terms of
the term loan agreement, the default does not allow the lender to accelerate or
call the loan.
This credit facility is collateralized by five hydroelectric plants and
the notes receivable owned by the US Hydro Projects. As additional compensation
to the lender, the Fund is required to pay to the lender an additional amount
equal to 10% of the cash flow, as defined, of the financed projects plus 10% of
any net proceeds, as defined, from the sale or refinancing of any of the
financed projects. No additional interest payments were required for the years
ended December 31, 2004 and 2003.
Scheduled principal repayments of the Fund's long-term debt, as revised
for the Sinai loan modification, are as follows:
Sinai REFI US Hydro Total
2005 $ 195,824 $ 509,613 $ 472,451 $ 1,177,888
2006 233,741 509,613 432,413 1,175,766
2007 234,306 127,403 432,413 794,121
2008 324,300 - - 324,300
2009 424,630 - - 424,630
Thereafter 839,633 - - 839,633
-----------------------------------------------------
Total $ 2,252,433 $ 1,146,629 $ 1,337,277 $ 4,736,339
The UK Projects have collateralized long-term debt, without recourse to
the Fund, with scheduled principal payments as follows:
Year Ended Scheduled
December 31, Payment
------------ ------------
2005 $ 1,892,775
2006 2,103,156
2007 2,261,900
2008 2,294,536
2009 2,480,536
Thereafter 11,924,984
------------
Total $ 22,957,887
============
The long-term debt is repayable in semi annual installments each March
31st and September 30th through September 30, 2014. $9,419,280 of the
outstanding debt bears interest at 7.08%, while $9,264,397 of the outstanding
debt bears interest at 7.73% and $4,274,210 bears interest at LIBOR plus 1.31%
(5.93% at December 31, 2004). The notes are collateralized by substantially all
of the assets of the projects and the credit agreement requires that a debt
service coverage ratio of 1.3 to 1 (as defined) be maintained as well as certain
other ratios. At December 31, 2005, the UK Projects outstanding debt was current
and in good standing with its bank.
The UK Projects has substantially reduced its interest rate variability to
the bank loan by entering into near term forward notional swap agreements with
its bank. Each year the UK Projects can reset and fix the interest rate it is
charged on the long term portion of its bank loan or be charged the UK Projects
prevailing available interest rate, approximately LIBOR plus 1.4%. On March 31,
2005, the UK Projects reset the interest rate to 5.88% on the long term portion
with the fixed rate expiring on March 31, 2006.
The UK Projects have certain long-term agreements that require delivery of
unspecified volumes of energy at fixed prices. The long-term contract is not
guaranteed by the Fund. The Egypt Projects generally sell their electricity and
water output at prevailing market rates.
19
Commencing in 2002, Ridgewood UK began to develop and construct expansion
of certain existing facilities in order to take advantage of the RO programs. As
Ridgewood UK required financing to maintain its expansion, it was decided to
raise the necessary financing from affiliates. Accordingly, Ridgewood Power
formed Ridgewood Renewable PowerBank LLC ("PB I") and began offering shares in
the fourth quarter of 2002. During the second quarter of 2003, Ridgewood Power
formed Ridgewood Renewable PowerBank II LLC ("PB II"); in the third quarter of
2003, Ridgewood Power formed Ridgewood Renewable PowerBank III LLC ("PB III")
and during the third quarter of 2004, Ridgewood Power formed Ridgewood Renewable
PowerBank IV LLC ("PB IV"). Shortly after the formation of PBI, PBII, PBIII and
PBIV (collectively, the "PowerBank Funds"), all affiliates of Ridgewood UK, the
offering period began for each respective PowerBank Fund. The proceeds raised by
PowerBank Funds, less the offering costs incurred by the PowerBank Funds, were
initially provided to Ridgewood UK in the form of construction advances.
As of December 31, 2004, Ridgewood UK received construction advances of
$53,770,169 from the PowerBank Funds with the expectation to develop 29 projects
with an operating capacity of 37.6 MW. The following table reflects the
construction advances and anticipated development per PowerBank Fund as of
December 31, 2005.
Offering Net Funds Anticipated Anticipated
Period Available For No. of Projects Capacity
Fund Ended (Closed) Construction * to be Developed (MW)
-----------------------------------------------------------------------
PBI Apr 2003 $ 9,478,645 5 7
PBII Jun 2003 16,227,833 10 11.6
PBIII Mar 2004 18,880,696 11 13
PBIV Nov 2004 9,182,995 3 6
-----------------------------------------------------------------------
Total $ 53,770,169 29 37.6
-----------------------------------------------------------------------
* In original $US, not impacted by currency translation
During the construction phase, Ridgewood UK will pay construction period
interest at a rate of 10% on the construction period advances to the PowerBank
Funds for each respective project. Upon completion of construction and
commencement of operations of a project ("commissioning"), construction period
interest charges will cease, each respective facility site will be sold to the
respective PowerBank Fund at a predetermined price ((pound)850,000 per MW), and
said project will be leased back to Ridgewood UK subject to a 10 year minimum
lease pursuant to sale-lease back agreements. Accordingly, the outstanding
construction advances will convert to capital leases, determined on a project by
project basis. The minimum term of the respective capital leases will run for 10
years and are payable in quarterly installments at a rate of 12% with no
guaranteed residuals. At December 31, 2004, capital lease obligation principal
are as follows:
Year Ended
December 31, Repayment
------------ ------------
2005 $ 1,829,552
2006 1,976,045
2007 2,175,496
2008 2,429,685
2009 2,740,147
Thereafter 14,332,141
------------
Total $ 25,483,070
============
Two of the US Hydro Projects hydroelectric plants have leased the site at
its facility under a long term lease which terminates in 2024. Rent expense for
the years ended December 31, 2004, 2003 and the period November 23, 2002 to
December 31, 2002 was $794,720, $794,720 and $12,083, respectively.
Minimum lease payments are as follows:
2005 $ 685,000
2006 695,000
2007 700,000
2008 710,000
2009 720,500
Thereafter 5,495,977
-----------
Total Minimum Lease Payments $ 9,006,477
===========
20
The Fund has certain other leases that require contingent payments based
upon a percentage of annual gross revenue of the hydroelectric plant less any
taxes or other fees paid to the lessors. There are no minimum rents required and
these commitments are not included in the amounts presented above. Rent expense
for these hydroelectric plants for the years ended December 31, 2004, 2003 and
the period November 23, 2002 to December 31, 2002 was $6,045, $6,982 and $451,
respectively.
In February 2003, a complaint was filed against Ridgewood Near East by a
corporation claiming breach of contract. In November 2003, the parties reached
an agreement whereby Ridgewood Near East paid the corporation a one-time payment
of $280,750, representing commissions and penalties, and agreed to continue
making required commission payments as per the original agreement of $900,000
payable in monthly installments of $7,500. The Fund recorded the liability in
2003 by discounting the future payments at the rate of 10% resulting in total
liability of $513,969 as of December 31, 2004.
Schedule of future discounted principal payments are as follows:
Year Ended
December 31, Payment
------------ -----------
2005 $ 40,422
2006 44,655
2007 49,331
2008 54,497
2009 60,203
Thereafter 264,861
-----------
Total $ 513,969
===========
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Qualitative Information About Market Risk.
The Fund's investments in financial instruments are short-term investments
of working capital or excess cash. These short-term investments are limited by
its Declaration of Fund to invest in United States government and agency
securities or to obligations of banks having at least $5 billion in assets.
Since the Fund invests only in short-term instruments for cash management, its
exposure to interest rate changes is low. The Fund has limited exposure to trade
accounts receivable and believes that their carrying amounts approximate fair
value.
The Fund's consolidated Egyptian Projects' investments in financial
instruments are short-term pound denominated obligations of large banks and
trade accounts receivable and payable.
The Fund's primary market risk exposure is limited to interest rate risk
caused by fluctuations in short-term interest rates. The Fund's primary market
risk exposure related to its consolidated Egyptian Projects is to fluctuations
in the foreign currency exchange rates and the secondary market risk exposure
relates to UK Projects. The Fund does not anticipate any changes in its primary
market risk exposure or how it intends to manage it. The Fund does not trade in
market risk sensitive instruments.
The Fund's 2004 long-term debt includes approximately 79.7% of debt on a
fixed rate and 20.3% on variable rate. This is consistent with the Fund's
approach to matching the Fund's assets and liabilities. The following schedule
summarizes the interest rate risk by stating the effective interest rate at
balance sheet date.
21
Variable Fixed Average interest rate
Interest rate Interest rate Variable Fixed
--------------------------------------------------------------
2004
Long-term debt (1)
Sinai $ - $ 2,252,433 - 11.0%
REFI - 1,146,629 12.5% -
US Hydro 1,337,277 - 4.1% -
UK Projects (2) 4,274,210 18,683,677 5.9% 7.4%
2003
Long-term debt (1)
Sinai - 2,313,803 - 11.0%
REFI - 1,642,583 12.5% -
US Hydro 5,650,000 - 2.9% -
UK Projects (3) 3,874,962 18,881,100 5.5% 7.4%
(1) The amounts above include the total long-term debt of the UK
Projects. The Fund owns a 30% interest in the UK Projects through a joint
venture with Power V and accounts for this investment using the equity
method (see Note 2 of the financial statements presented elsewhere in this
Annual Report on Form 10-K).
(2) UK Projects include fixed interest rate on outstanding debt of
$9,419,280 at 7.08% and $9,264,397 at 7.73%.
(3) UK Projects include fixed interest rate on outstanding debt of
$9,698,121 at 7.08% and $9,182,979 at 7.73%.
Quantitative Information About Market Risk
This table provides information about the Fund's financial instruments
that are defined by the Securities and Exchange Commission as market risk
sensitive instruments. These include only short-term US government and agency
securities and bank obligations. The table includes principal cash balances and
related weighted average interest rates by contractual maturity dates.
December 31, 2004 December 31, 2003
Expected Maturity Date Expected Maturity Date
2005 2004
---------------------- ----------------------
(US $) (US $)
Bank Deposits and Certificates
of Deposit $ 77,000 $ 55,000
Average interest rate 1.07% 1.07%
(US $) (US $)
Bank Deposits denominated in
Egyptian Pounds $692,000 $747,000
Average interest rate 7.0% 7.0%
Item 8. Financial Statements and Supplementary Data.
A. Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm ................................................. F-2
Report of Independent Registered Public Accounting Firm ................................................. F-3
Consolidated Balance Sheets at December 31, 2004 and 2003 ............................................... F-4
Consolidated Statements of Operations for the three years ended December 31, 2004 ....................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the three years ended December 31, 2004 .. F-6
Consolidated Statements of Comprehensive Loss for the three years ended December 31, 2004 ............... F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 2004 ....................... F-7
Notes to Consolidated Financial Statements .............................................................. F-9 to F-24
22
Report of Independent Registered Public Accounting Firm
Managing Shareholder and Shareholders
The Ridgewood Power Growth Fund
We have audited the accompanying consolidated balance sheets of The Ridgewood
Power Growth Fund (the "Fund") as of December 31, 2004 and 2003 and the related
consolidated statements of operations, changes in shareholders' equity
(deficit), comprehensive income (loss) and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these consolidated
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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 provides a reasonable basis for our opinion.
In our opinion, the 2004 and 2003 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of The Ridgewood Power Growth Fund as of December 31, 2004 and 2003 and
the consolidated results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Perelson Weiner LLP
New York, New York
January 31, 2006
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders of
The Ridgewood Power Growth Fund:
In our opinion, the accompanying consolidated statements of operations,
comprehensive loss, changes in shareholders' equity and cash flows for the year
ended December 31, 2002 present fairly, in all material respects, the results of
operations and cash flows of Ridgewood Power Growth Fund and its subsidiaries
(the `Fund"), for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Florham Park, NJ
May 29, 2003
F-3
The Ridgewood Power Growth Fund
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
----------------------------
2004 2003
------------ ------------
Assets:
Cash and cash equivalents $ 768,634 $ 801,233
Accounts receivable, net of allowance of $148,649 and
$105,106 in 2004 and 2003, respectively 1,159,434 1,055,229
Current portion of notes receivable 131,399 4,269,020
Due from affiliates 2,084,990 2,491,141
Deferred income taxes - 1,435,129
Inventories 563,470 481,942
Prepaid expenses and other current assets 559,003 197,638
------------ ------------
Total current assets 5,266,930 10,731,332
------------ ------------
Investments:
United Kingdom Landfill Gas Projects 2,334,069 3,710,032
Investment in ZAP securities 1,750,000 -
------------ ------------
Total investments 4,084,069 3,710,032
------------ ------------
Property, plant and equipment:
Plant and equipment 26,190,582 25,493,317
Construction in progress 58,823 598,880
Office equipment 747,865 792,878
------------ ------------
26,997,270 26,885,075
Accumulated depreciation (6,320,102) (4,283,674)
------------ ------------
20,677,168 22,601,401
------------ ------------
Electric power sales contracts 16,221,303 17,558,501
Accumulated amortization (3,132,121) (1,888,661)
------------ ------------
13,089,182 15,669,840
------------ ------------
Notes receivable, less current portion 1,635,722 -
Other assets 59,475 6,186
Goodwill 4,491,938 5,153,145
------------ ------------
Total assets $ 49,304,484 $ 57,871,936
============ ============
Liabilities and shareholders' equity:
Accounts payable $ 545,150 $ 604,112
Accrued expenses 591,046 676,490
Current portion of long-term debt 1,177,888 4,883,983
Due to affiliates 2,999,627 1,888,394
------------ ------------
Total current liabilities 5,313,711 8,052,979
Long-term debt, less current portion 3,558,451 4,722,403
Other liabilities 542,829 513,969
Deferred rent 259,440 134,720
Deferred income taxes, net 3,587,267 5,826,098
Minority interest 10,791,773 10,908,676
------------ ------------
Total liabilities 24,053,471 30,158,845
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Shareholders' equity (658.1067 investor shares issued and outstanding) 25,472,553 27,995,283
Managing shareholder's accumulated deficit (1 management
share issued and outstanding) (221,540) (282,192)
------------ ------------
Total shareholders' equity 25,251,013 27,713,091
------------ ------------
Total liabilities and shareholders' equity $ 49,304,484 $ 57,871,936
============ ============
See accompanying notes to the consolidated financial statements.
F-4
The Ridgewood Power Growth Fund
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
For The Year Ended December 31,
------------------------------------------------
2004 2003 2002
------------ ------------ ------------
Revenues $ 10,584,979 $ 10,244,684 $ 5,830,356
Cost of revenues, including depreciation and
amortization of $3,558,992, $3,628,238 and
$2,076,939 in 2004, 2003 and 2002, respectively 8,001,592 7,142,351 5,403,596
------------ ------------ ------------
Gross profit 2,583,387 3,102,333 426,760
------------ ------------ ------------
Other operating expenses:
General and administrative expenses 3,045,278 3,302,304 2,029,485
Management fee to the managing shareholders 822,633 822,633 822,633
(Gain) write-down of assets in power generation projects, net (564,713) 2,495,178 297,652
Impairment of goodwill 661,207 555,502 -
Provision for bad debts 41,906 536,472 138,233
------------ ------------ ------------
Total other operating expenses 4,006,311 7,712,089 3,288,003
------------ ------------ ------------
Loss from operations (1,422,924) (4,609,756) (2,861,243)
------------ ------------ ------------
Other income (expense):
Interest income 20,073 58,395 59,678
Interest expense (689,436) (860,659) (987,602)
Equity interest in loss from:
United Kingdom Landfill Gas Projects (552,489) (627,057) (845,164)
Sinai Environmental Services - - (37,287)
Gain (loss) on sale of property, plant and equipment 5,693 (499,443) -
Gain on distribution and sale of investment
in ZAP securities 2,419,281 117,980 -
Gain on sale of US Hydro note 174,631 - -
Other (expense) income (89,614) 92,839 152,314
------------ ------------ ------------
Total other income (expense), net 1,288,139 (1,717,945) (1,658,061)
------------ ------------ ------------
Loss before income taxes and minority interest (134,785) (6,327,701) (4,519,304)
Income tax (benefit) expense (627,652) (1,053,744) 12,622
------------ ------------ ------------
Income (loss) before minority interest 492,867 (5,273,957) (4,531,926)
Minority interest in the loss of subsidiaries 152,271 1,483,914 1,200,553
------------ ------------ ------------
Net income (loss) $ 645,138 $ (3,790,043) $ (3,331,373)
============ ============ ============
Managing Shareholder - Net income (loss) $ 70,935 $ (37,900) $ (33,314)
============ ============ ============
Shareholders - Net income (loss) $ 574,203 $ (3,752,143) $ (3,298,059)
============ ============ ============
Net income (loss) per investor share $ 873 $ (5,701) $ (5,011)
============ ============ ============
See accompanying notes to the consolidated financial statements.
F-5
The Ridgewood Power Growth Fund
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
- --------------------------------------------------------------------------------
Total
Managing Shareholders'
Shareholders Shareholder Equity (Deficit)
------------- ------------ ----------------
Shareholders' equity (deficit), January 1, 2002 $ 39,479,962 $ (166,186) $ 39,313,776
Foreign currency translation adjustment 330,231 3,336 333,567
Net loss (3,298,059) (33,314) (3,331,373)
------------- ------------ ----------------
Shareholders' equity (deficit), December 31, 2002 36,512,134 (196,164) 36,315,970
Cash distributions (1,316,418) (13,297) (1,329,715)
Foreign currency translation adjustment (3,448,290) (34,831) (3,483,121)
Net loss (3,752,143) (37,900) (3,790,043)
------------- ------------ ----------------
Shareholders' equity (deficit), December 31, 2003 27,995,283 (282,192) 27,713,091
Cash distributions (1,316,407) (13,297) (1,329,704)
Distribution of ZAP securities (2,078,959) - (2,078,959)
Foreign currency translation adjustment 298,433 3,014 301,447
Net income 574,203 70,935 645,138
------------- ------------ ----------------
Shareholders' equity (deficit), December 31, 2004 $ 25,472,553 $ (221,540) $ 25,251,013
============= ============ ================
The Ridgewood Power Growth Fund
Consolidated Statements of Comprehensive Income (Loss)
- --------------------------------------------------------------------------------
For The Year Ended December 31,
-------------------------------------------------
2004 2003 2002
------------- ------------ ----------------
Net income (loss) $ 645,138 $ (3,790,043) $ (3,331,373)
Foreign currency translation adjustment 301,447 (3,483,121) 333,567
------------- ------------ ----------------
Comprehensive income (loss) $ 946,585 $ (7,273,164) $ (2,997,806)
============= ============ ================
See accompanying notes to the consolidated financial statements.
F-6
The Ridgewood Power Growth Fund
Consolidated Statements Of Cash Flows
- --------------------------------------------------------------------------------
For The Year Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 645,138 $(3,790,043) $(3,331,373)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Non-cash adjustments to acquired assets and
assumed liabilities, net - (371,531) -
Depreciation and amortization 3,558,992 3,628,238 2,076,939
Writedown of Ridgewood Dubai advances 869,629 - -
Provision for bad debts 41,906 536,472 138,233
(Gain) writedown of assets in power generation projects, net (564,713) 2,495,178 297,652
Impairment of goodwill 661,207 555,502 -
Minority interest in loss of subsidiaries (152,271) (1,483,914) (1,200,553)
Equity interest in loss of United Kingdom Landfill Gas Projects 552,489 627,057 845,164
Equity interest in loss of Sinai Environmental Services - - 37,287
Gain on distribution and sale of investment in ZAP securities (2,419,281) (117,980) -
(Gain) loss on sale of equipment (5,693) 499,443 -
Gain on sale of US Hydro note, net (174,631) - -
Changes in assets and liabilities, net of acquired businesses:
Increase in accounts receivable (139,279) (232,149) (355,234)
Increase in inventories (76,135) (305,254) (169,126)
(Increase) decrease in other current assets (354,764) 15,069 145,661
(Increase) decrease in other assets (53,238) 57,152 (126,435)
Decrease in accounts payable (65,581) (120,502) (940,911)
(Decrease) increase in accrued expenses (85,443) 89,256 1,517,352
Increase in due to/from affiliates, net 919,948 719,157 94,126
(Decrease) increase in other liabilities (40,423) 513,969 -
Increase in deferred rent 124,720 134,720 -
Decrease in deferred income taxes (803,702) (1,317,678) -
----------- ----------- -----------
Total adjustments 1,793,737 5,922,206 2,360,155
----------- ----------- -----------
Net cash provided by (used in) operating activities 2,438,875 2,132,162 (971,218)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (317,382) (360,010) (1,067,390)
Proceeds from sale of equipment 108,623 388,989 -
Collections from notes receivable 464,473 200,000 -
Proceeds from sale of note receivable, net 3,974,631 - -
Investment in ZAP securities (2,814,115) - -
Proceeds from sale of investment in ZAP securities 1,404,437 117,980 -
Advances to Ridgewood Dubai (869,629) - -
Investment in United Kingdom Landfill Gas Projects - - (4,491)
Distributions from United Kingdom Landfill Gas Projects 1,043,377 938,088 -
Cash paid for acquisition of Sinai Environmental Services - - (981,267)
Cash received in acquisition of US Hydro Projects, net - - 2,261,686
----------- ----------- -----------
Net cash provided by investing activities 2,994,415 1,285,047 208,538
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
F-7
The Ridgewood Power Growth Fund
Consolidated Statements Of Cash Flows - Continued
- --------------------------------------------------------------------------------
For The Year Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Cash flows from financing activities:
Repayments under bank loan (4,892,408) (1,978,353) (554,008)
Borrowings under bank loan - - 2,688,172
Short term advances from/to affiliates, net 750,000 - (1,505,244)
Cash distributions to shareholders (1,329,704) (1,329,715) -
----------- ----------- -----------
Net cash (used in) provided by financing activities (5,472,112) (3,308,068) 628,920
----------- ----------- -----------
Effect of exchange rate on cash and cash equivalents 6,223 (227,811) 5,347
----------- ----------- -----------
Net decrease in cash and cash equivalents (32,599) (118,670) (128,413)
Cash and cash equivalents, beginning of year 801,233 919,903 1,048,316
----------- ----------- -----------
Cash and cash equivalents, end of year $ 768,634 $ 801,233 $ 919,903
=========== =========== ===========
Supplemental Disclosures:
Dividend receivable - $ 342,756 -
Operating assets and liabilities included in business
acquisitions,including purchase price adjustments:
Accounts receivable - - $ 780,137
Deferred income tax assets - 1,435,129 -
Electric power sales contracts - 1,649,822 -
Goodwill - 5,708,647 -
Notes receivable - - 6,749,822
Other assets - - 248,478
Loans payable - - 10,898,473
Accounts payable and accrued expenses 1,100,000 1,766,868
Deferred income tax liabilities 7,143,776 -
See accompanying notes to the consolidated financial statements.
F-8
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 1
- --------------------------------------------------------------------------------
1. Organization and Purpose
The Ridgewood Power Growth Fund (the "Fund") was formed as a Delaware business
trust in February 1997. The Fund began offering shares on February 9, 1998 and
discontinued its offering in April 2000. Ridgewood Capital Management LLC
("RCC", formerly Ridgewood Capital Corporation) provided most services required
to support the offering. The managing shareholders of the Fund are Ridgewood
Renewable Power LLC ("RPC") and Ridgewood Power VI LLC ("Power VI")
(collectively, the "Managing Shareholder"). Subsequently, Power VI has assigned
and delegated all of its rights and responsibilities to RPC and is essentially
an entity that contains nominal activity. The Managing Shareholder and RCC are
related through common ownership.
The Fund has been organized to invest primarily in independent power generation
facilities, water desalinization plants and other capital facilities. These
independent power generation facilities will include cogeneration facilities,
which produce both electricity and heat energy and other power plants that use
various fuel sources (except nuclear). In the past, the Fund invested in
opportunities outside of independent power generation facilities.
Christiana Bank & Trust Company, a Delaware trust company, is the Corporate
Trustee of the Fund. The Corporate Trustee acts on the instructions of the
Managing Shareholder and is not authorized to take independent discretionary
action on behalf of the Fund.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Fund and its
controlled subsidiaries. All material intercompany transactions have been
eliminated.
The Fund uses the equity method of accounting for its investments in affiliates
which are 50% or less owned if the Fund has the ability to exercise significant
influence over the operating and financial policies of the affiliates but does
not control the affiliate. The Fund's share of the earnings of the affiliates is
included in the consolidated financial statements.
Use of estimates
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires the Fund to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Fund evaluates its
estimates, including provision for bad debts, carrying value of investments,
amortization/depreciation of plant and equipment and intangible assets, and
recordable liabilities for litigation and other contingencies. The Fund bases
its estimates on historical experience, current and expected conditions and
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
New Accounting Standards and Disclosures
SFAS 143
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143,
Accounting for Asset Retirement Obligations, on the accounting for obligations
associated with the retirement of long-lived assets. SFAS 143 requires a
liability to be recognized in the consolidated financial statements for
retirement obligations meeting specific criteria. Measurement of the initial
obligation is to approximate fair value, with an equivalent amount recorded as
an increase in the value of the capitalized asset. The asset will be depreciated
in accordance with normal depreciation policy and the liability will be
increased for the time value of money, with a charge to the income statement,
until the obligation is settled. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. The Fund adopted SFAS 143 effective January 1,
2003, with no material impact on the consolidated financial statements.
SFAS 145
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 eliminates extraordinary accounting treatment for reporting gain or
loss on debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Fund adopted SFAS 145
effective January 1, 2003, with no material impact on the consolidated financial
statements.
SFAS 146
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires recording costs associated
with exit or disposal activities at their fair values when a liability has been
incurred. The Fund adopted SFAS 146 effective January 1, 2003, with no material
impact on the consolidated financial statements.
F-9
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 2
- --------------------------------------------------------------------------------
FIN 45
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual reports
ending after December 15, 2002. The Fund adopted FIN 45 during the fourth
quarter of 2002 with no material impact to the consolidated financial
statements.
FIN 46R
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46") which changes the criteria by which one
company includes another entity in its consolidated financial statements. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after December 31, 2003, and apply in the
first fiscal period ending after March 15, 2004, for variable interest entities
created prior to January 1, 2004. The Fund adopted the disclosure provisions of
FIN 46 effective December 31, 2003, with no material impact to the consolidated
financial statements. In December 2003, the FASB issued a revision to FIN 46
("FIN 46R") to clarify some of the provisions and to exempt certain entities
from its requirements. The Fund implemented the full provisions of FIN 46R
effective January 1, 2004, with no material impact on the consolidated financial
statements.
SFAS 149
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is generally effective for contracts entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The Fund
adopted SFAS 149 effective July 1, 2003, with no material impact on the
consolidated financial statements.
SFAS 150
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. The Fund
adopted SFAS 150 effective July 1, 2003, with no material impact on the
consolidated financial statements.
SFAS 153
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets--an amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions ("Opinion 29"), is based on the
principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in Opinion 29, however,
included certain exceptions to that principle. This Statement amends Opinion 29
to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The Fund adopted SFAS 153
effective June 15, 2005, with no material impact on the consolidated financial
statements.
Significant Accounting Policies
Cash and cash equivalents
The Fund considers all highly liquid investments with maturities when purchased
of three months or less to be cash and cash equivalents. Cash and cash
equivalents consist of commercial paper and funds deposited in bank accounts.
Cash balances with bank exceeded insured limits by $692,000 at December 31,
2004.
Accounts receivable
Trade receivables are recorded at invoice price and do not bear interest. The
Fund recorded an allowance for doubtful accounts of $148,649 and $105,106 in
2004 and 2003, respectively, based upon historical write-off experience,
evaluation of customer credit condition and the general economic status of the
customer. For the years ended December 31, 2004, 2003 and 2002, the Fund
recorded provision for bad debts of $41,906, $536,472 and $138,233,
respectively.
Inventories
Inventories consist of spare parts, consumable products, fuel, goods-in-transit
and finished goods of the Egypt operations. Inventories are stated at the lower
of cost and net realizable value. Ridgewood Near East changed the inventory cost
method from first-in-first-out (FIFO) to the moving average method during the
second quarter of 2004. The effect on the
F-10
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 3
- --------------------------------------------------------------------------------
inventory value and cost of revenues resulting from the change is immaterial.
Net realizable value is the estimated selling price in the ordinary course of
business, less the costs of completion and selling expenses. An allowance is
established for slow moving items on the basis of management's review and
assessment of inventory movements.
At December 31, 2004 and 2003, the inventories were as follows:
December 31,
2004 2003
--------- ---------
Spare parts and consumables $ 532,626 $ 428,273
Fuel 30,844 23,822
Goods-in-transit - 16,286
Finished goods - 13,561
---------------------
Total inventories $ 563,470 $ 481,942
---------------------
Revenue recognition
Power generation and water revenues are recorded in the month of delivery, based
on the estimated volumes sold to customers. Adjustments are made to reflect
actual volumes delivered when the actual information subsequently becomes
available. Billings to customers for power generation generally occur during the
month following delivery. Final billings do not vary significantly from
estimates.
Foreign currency translation
The consolidated financial statements of the Fund's non-United States
subsidiaries utilize local currency as their functional currency and are
translated into United States dollars using current rates of exchange; gains or
losses on conversion are included in the foreign currency translation adjustment
account in the shareholders' equity section of the Consolidated Balance Sheets.
On January 30, 2003, the Egyptian government discontinued the regulation of its
monetary currency rate and decided to allow the currency rate to float. As a
result of this change in policy, the Egyptian pound decreased 15% against the US
dollar on January 30, 2003. As of December 31, 2003, the Fund's investment in
the Egyptian operations decreased by approximately 27% due to the decrease in
the exchange rate from January 1, 2003 through December 31, 2003. For the period
of January 1, 2004 through December 31, 2005 the Egyptian pound increased
approximately 4.9% against the US dollar. The cumulative foreign currency
translation adjustment which represents total accumulated other comprehensive
loss and is included in shareholders' equity at December 31, 2004 and 2003
amount to a loss of $8,253,824 and $8,555,271, respectively.
Impairment of Goodwill and long-lived assets
In accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets, and SFAS No. 144, Accounting for the Impairment or disposal of
Long-Lived Assets, the Fund evaluates goodwill and long-lived assets, such as
plant and equipment and amortizable intangibles, when events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable.
Goodwill represents the excess cost over fair value of the net assets of
purchased businesses. Goodwill and long-lived assets are assessed annually for
impairment in the first quarter of each year or more frequently if impairment
indicators arise, based on the fair value. To perform annual goodwill impairment
testing, the Fund compared the fair value of each reporting unit to its carrying
value. If the fair value of the reporting unit is less than its carrying value,
an impairment loss is recorded. Fair values are determined by taking into
account future estimated discounted cash flows which are based on detailed cash
flow forecast of each reporting unit at the estimated cost of capital of
approximately 6.9% for 2004.
The Fund performed its annual impairment evaluation, which resulted in goodwill
impairment expense of approximately $661,000 and $556,000 for the years ended
December 31, 2004 and 2003, respectively. In addition, long-lived assets were
impaired for $0 and approximately $1,902,000 which is included in write-down of
assets in power generation projects, for the years ended December 31, 2004 and
2003, respectively. Goodwill, resulting from the deferred tax liability
associated with the acquisition of US Hydro, was not supported by discounted
future cash flow of the underlying projects to the extent of impairment. The
impairment of long-lived assets impacting the loss from operations is primarily
due to decrease in future undiscounted cash flow of certain US Hydro projects
resulting from the exercise of certain rights of the off take party on various
power agreements and the restructuring of power agreement at the Blackstone
Project. All of the impairments relate to assets included in the Fund's Power
segment. At December 31, 2004 and 2003, the gross and net amount of intangible
assets were:
F-11
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 4
- --------------------------------------------------------------------------------
2004 2003
------------- ------------
Amortized intangibles:
Electric power sales contracts - gross $ 16,221,303 $ 17,558,501
Less accumulated amortization
expense 3,132,121 1,888,661
Electric power sales contracts - net $ 13,089,182 $ 15,699,840
Unamortized intangibles:
Goodwill $ 4,491,938 $ 5,153,145
Electric power sales contract is being amortized over the duration of the
contracts (from 4 to 22 years) on a straight-line basis. During the years ended
December 31, 2004, 2003 and 2002, amortization expense was $1,503,362,
$1,806,414 and $82,247, respectively. The Fund expects to record amortization
expense during the next five years as follows:
Year Ended
December 31, Amortization
------------ ------------
2005 $ 1,351,486
2006 1,049,158
2007 919,589
2008 870,665
2009 756,509
Plant and equipment
Plant and equipment, consisting principally of electrical generating equipment
and water desalinization facilities, are stated at cost. Major renewals and
betterments that increase the useful lives of the assets are capitalized. Repair
and maintenance expenditures that increase the efficiency of the assets are
expensed as incurred.
Depreciation is recorded using the straight-line method over the useful lives of
the assets, which vary from 3 to 20 years with a weighted average of 13 and 17
years at December 31, 2004 and 2003, respectively. During the years ended
December 31, 2004, 2003 and 2002, depreciation expense was $2,055,630,
$1,821,824 and $1,994,692, respectively.
Income taxes
The Fund's Egyptian subsidiaries have ten year income tax holidays that expire
in 2008 through 2010. Accordingly, no provision has been made for Egyptian
income taxes in the accompanying consolidated financial statements.
The US Hydro Projects, for federal income tax purposes, file on a consolidated
basis using the accrual method of accounting on a calendar year basis. The US
Hydro Projects, for state income tax purposes, file on an individual entity
basis. The US Hydro Projects use the liability method in accounting for income
taxes. Deferred income tax reflects, where required, the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for tax purposes.
Except for the US Hydro Projects, 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.
Investment in securities
The Fund has classified its marketable equity securities as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax (if any), reported in a separate component of
shareholders' equity. Realized gains and losses and declines in value judged to
be other-than-temporary are included in other income.
Supplemental cash flow information
Total interest paid during the years ended December 31, 2004, 2003 and 2002 was
$595,466, $807,735 and $1,057,866 respectively.
In 2004, the Fund distributed 772,500 shares of ZAP common stock with a fair
value of $2,078,959 to its investor shareholders.
For the years ended December 31, 2004 and 2003, the Fund paid income taxes of
$102,285 and $166,920, respectively.
Significant Customers
The Fund's largest customers accounted for 22.4% and 14.4% of revenue in 2004,
27.9% and 16.9% of revenue in 2003 and 20.6% and 10.1% of revenue in 2002.
F-12
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 5
- --------------------------------------------------------------------------------
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes. This had no effect on net income (loss).
3. Projects
The Fund is comprised of several projects summarized as follows:
Accounting Percent
Method Ownership
---------------------------
Egypt Projects Consolidation 68.1%
US Hydro Projects Consolidation 70.8%
United Kingdom Landfill Gas Projects Equity 30.0%
Egypt Projects
In 1999, the Fund and Ridgewood Electric Power Trust V ("Trust V") jointly
formed Ridgewood Near East Holdings LLC ("Ridgewood Near East") to develop
electric power and water purification plants for resort hotels in Egypt. In
2000, the Fund made additional investments and acquired majority ownership of
Ridgewood Near East which wholly owns Ridgewood Egypt For Infrastructure, LLC
("REFI"). The Fund and Trust V own Ridgewood Near East in proportion to the
capital they contributed, net of distributions and allocated profits and losses.
Accordingly, the Fund has consolidated the financial statements of Ridgewood
Near East since 2000. In 2001, Ridgewood/Egypt Fund ("Egypt Fund"), an affiliate
of Trust V and the Fund, made contributions to Ridgewood Near East in exchange
for a minority interest. At December 31, 2004 and 2003, the Fund owns 68.1% of
Ridgewood Near East. Trust V and the Egypt Fund's interests in Ridgewood Near
East are presented as minority interest in the consolidated balance sheets and
consolidated statements of operations.
Currently REFI consists of 8 water desalinization plants, 1 electric generation
plant and 8 combination electric generation/water plants. The projects generally
sell their electricity and drinking water output under contracts and other
arrangements at prevailing market rates. In 2002, REFI shut down and removed the
equipment from two of its water desalinization plants. As a result of these
transactions, REFI recorded a writedown of $297,652 in 2002 to adjust the
carrying value of the projects to reflect their current fair market value. In
the first quarter of 2003, REFI sold another of its on-site power plants to the
hosting hotel. As a result of the sale, REFI recorded a loss on sale of assets
of $499,443 in 2003. The writedown and loss on sale of assets have been
presented as separate line items in the consolidated statements of operations.
On December 30, 2001, Ridgewood Near East, through REFI, purchased a 28% equity
interest in Sinai Environmental Services S.A.E. ("Sinai"), a 1,585,000 gallons
per day water desalinization plant, for 4,999,800 Egyptian pounds (approximately
US $1,087,000 in 2001). At December 31, 2001, the Fund accounted for this
investment under the equity method of accounting because it had the ability to
exercise significant influence, but not control. In February of 2002, the Fund
made an additional investment of 4,379,637 Egyptian pounds (approximately US
$939,000 in 2002) to increase its ownership to 53% and gain control of Sinai. As
a result of the additional investment, effective February 16, 2002, REFI
accounts for its investment in Sinai under the consolidation method of
accounting. REFI is currently entitled to additional interest in Sinai in return
for providing Sinai with certain machinery and equipment. On REFI, a minority
interest receivable related to this subsidiary was not recorded as of December
31, 2004 and 2003, respectively, as no obligation to fund the losses by the
minority shareholder exists.
At the time of acquisition in February 2002, Sinai had plant and equipment with
a net book value of approximately $5,906,000, accounts receivable of $214,000
and other assets with an approximate book value of $32,000. In accordance with
the purchase agreement, the Fund assumed liabilities of approximately $450,000
and a non-recourse loan of approximately $3,417,000 (approximately $2,252,000 at
December 31, 2004), which was in default (Note 4). Ridgewood Near East has
ascribed the excess purchase price of $777,000 (on its 53% interest) to plant
and equipment which is being amortized over the 20 year life of the assets.
In 2003, the Fund hired an independent third party engineering firm to analyze,
value and determine the economic life of the recorded plant and equipment of the
Sinai Company. As a result of the analysis, Ridgewood Near East recorded a
writedown of $527,416. The writedown has been presented as separate line item in
the consolidated statements of operations.
Since the effective date of the acquisition of Sinai was February 16, 2002, the
pro forma results of operations as if the merger had taken place on January 1,
2002 would not be significantly different than the current results included in
the consolidated statements of operations.
US Hydro Projects
Beginning in 1999, the Fund and Trust V began negotiations with Synergics, Inc.
("Synergics") to buy seven of its hydroelectric generating plants (the "US Hydro
Projects"). In the course of negotiations and due diligence, the Fund and
F-13
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 6
- --------------------------------------------------------------------------------
Trust V learned that one of Synergics' lenders had declared a payment default
against Synergics and that the lender had agreed to discharge the debt at a
substantial discount from the face amount (approximately $23.5 million) if
payment were made by the end of April 2000. In order to preserve the benefit of
the lender's offer and to allow completion of the acquisition on favorable
terms, the Fund and Trust V, through a joint venture (the "debt joint venture"),
acquired the debt from the lender on April 28, 2000 for a payment of
approximately $17 million to the lender. The Fund supplied $12 million of the
capital used by the debt joint venture to acquire the debt and Trust V supplied
the remaining $5 million. The Fund and Trust V own the debt joint venture 70.8%
and 29.2%, respectively, which is in proportion to the capital each supplied.
Neither entity has preferred rights over the other. The Fund accounted for its
investment in the initial $17 million of debt acquired as a note receivable
through November 21, 2002.
On November 22, 2002, through another joint venture (the "acquisition joint
venture") owned in the same proportion as the debt joint venture that acquired
the debt of Synergics, the Fund and Trust V completed its acquisition of the
U.S. Hydro Projects and acquired 100% of the outstanding stock of Synergics
through a structured tax reorganization. As part of the tax structured
reorganization, the former shareholders of Synergics received 100% of the
outstanding shares of a subsidiary of Synergics in exchange for selling the
stock of Synergics to the Fund and Trust V for a nominal amount. Upon completion
of the acquisition, Synergics was renamed Ridgewood U.S. Hydro Corporation, the
Fund accounted for its 70.8% interest in the US Hydro Projects as a purchase and
the results of operations of the US Hydro Projects have been included in the
Fund's consolidated financial statements.
The aggregate acquisition price of the US Hydro Projects (collectively, the debt
joint venture, the acquisition joint venture, and Synergics) was approximately
$20.3 million. As a result of the acquisition, the Fund and Trust V received
seven hydroelectric generating plants with a market value of approximately $1.8
million, $2.7 million in cash and other current assets, and notes receivable
with a market value of $4.0 million (approximately $6.7 million value was
initially assigned to the note at December 31, 2002). In accordance with the
purchase agreement, the Fund and Trust V assumed approximately $7.5 million of
other bank debt, income taxes payable of $0.1 million and agreed to a contingent
income tax obligation initially estimated at approximately $1 million. As of
December 31, 2002, the Fund and Trust V initially ascribed the approximate
excess purchase price of $17.4 million to electric power sales contracts, which
in 2003 was adjusted to approximately $19.4 million (before the $1.9 million
impairment charge - Note 2) and will be amortized over the remaining life of the
respective contracts.
As part of the purchase agreement, the Fund and Trust V had the option to treat
the acquisition of the Synergics stock as an acquisition of assets in accordance
with Internal Revenue Code ("IRC") Section 338 (h) 10. By electing IRC Section
338, the tax basis of the assets acquired would be stepped up and there would be
little if any difference between the financial reporting basis and the income
tax basis of the assets acquired. If the election were made it was agreed that a
contingent income tax obligation would be due the seller of the US Hydro
Projects as compensation for their increased tax cost. At acquisition, a $1
million contingent income tax obligation was recorded as part of the purchase
price. However, after further analysis, the income tax obligation due under IRC
Section 338 was estimated to be $1.7 million.
During the third quarter of 2003, the Fund and Trust V chose not to exercise the
IRC Section 338 h (10) election it had originally intended to make at the time
of the acquisition of the US Hydro Projects. The Fund and Trust V's change in
position on IRC Section 338 was determined in part by the revised $1.7 million
contingent tax obligation that would be due upon the filing of the election,
compared to the minimal income taxes that would be due over the life of the
projects. As a result of not exercising the IRC Section 338 h (10) election, the
Fund and Trust V reversed the $1 million contingent tax obligation (along with
other purchase price adjustments) and also recorded deferred taxes on the
temporary differences between the financial reporting basis and the income tax
basis of the assets acquired, which amounted to approximately $5.7 million of
net deferred tax liabilities. The Fund and Trust V assigned $5.7 million of
additional net deferred tax liabilities to goodwill.
The unaudited pro forma consolidated financial information of the Fund shown
below has been prepared based upon the historical consolidated income statements
of the Fund and the US Hydro Projects, giving effect to the Fund's acquisition
of the US Hydro Projects as if it had occurred at the beginning of the period
presented. The historical information has been adjusted to reflect the
elimination of intercompany transactions as well as the interest income earned
on notes receivable from third parties. The pro forma information is not
necessarily indicative of the results that the Fund would have had if its
acquisition of the US Hydro Projects had been completed prior to November 23,
2002, or the results that the Fund will have in the future.
Pro forma Combined Statement of Operations
For the Year Ended
December 31,
2002
------------------
Revenue $ 10,154,427
Cost of sales 7,427,470
Operating loss (1,237,795)
Minority interest (809,912)
Net loss (2,384,203)
Net loss per investor share (3,623)
F-14
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 7
- --------------------------------------------------------------------------------
United Kingdom Landfill Gas Projects
On May 26, 1999, Ridgewood UK, LLC ("Ridgewood UK") was formed as a Delaware
limited liability company, which in turn formed a subsidiary Ridgewood UK Ltd.
("UK Ltd"). On June 30, 1999, Trust V contributed $16,667,567 to Ridgewood UK;
in turn UK Ltd., purchased six landfill gas power plants located in the United
Kingdom. During 2001, the Fund contributed $5,817,006 to Ridgewood UK in return
for an approximate equity share of 30%. Approximately $3,400,000 of the
contributed funds, along with bank financing, was used to acquire four landfill
gas power plants in the United Kingdom with a capacity of 10.6 megawatts
("MWs"). Approximately $2,100,000 of the total purchase price of the acquired
plants was assigned to the electric power sales contracts acquired and is being
amortized over the life of the contracts (15 years).
On October 16, 2001, UK Ltd., through the issuance of approximately 24% of its
shares and $2,000,000 cash under the terms of a merger agreement (the "UK
Merger"), acquired certain of the assets and liabilities of CLP Services, Ltd.,
CLP Development, Ltd and CLP Envirogas, Ltd. (collectively the "Management and
Development Companies") and the equity and debt of new landfill projects. The
Management and Development Companies previously developed the various landfill
gas projects that were sold to UK Ltd. pursuant to the UK Merger. As a result of
the acquisition, which totaled seven plants, UK Ltd. provides its own operation,
management and development services. UK Ltd. was renamed CLPE Holdings Ltd.
("CLP") in 2001. In return for the stock issuance and $2,000,000 cash, CLP
received plant and equipment valued at approximately $4,201,000, a 50% equity
interest in landfill projects valued at approximately $744,000, cash of $454,000
and other assets with an approximate value of $1,000,000. CLP also assumed
liabilities of approximately $3,058,000. CLP assigned the electric power sales
contracts and other intangibles acquired a value of $6,781,000, which is being
amortized over the 15 year life of the underlying power sales contracts.
Since 2001, the members of Ridgewood UK are Trust V and the Fund, both Delaware
business trusts. Trust V, which owns 70% of Ridgewood UK, is managed by RPC, its
managing shareholder. The Fund, which owns 30% of the Ridgewood UK, is managed
by RPC and Power VI, its managing shareholder.
As of December 31, 2004, CLP owned twenty eight landfill methane gas-fired
electric generating projects in the United Kingdom with an installed capacity of
approximately 42.2 MWs. Seventeen of the projects representing approximately
26.5 MWs sells electricity under 15 year contracts to the Non Fossil Purchasing
Agency ("NFPA"), a non-profit organization that purchases electricity generated
by renewable sources on behalf of all British utilities. The remaining eleven
projects representing approximately 15.7 MWs are subject to leases and sell this
output under one year contracts. As of December 31, 2005, CLP owned thirty one
landfill methane gas-fired electric generating projects in the United Kingdom
with an installed capacity of approximately 48.7 MWs.
In the fourth quarter of 2002, CLP decided not to continue the development of
two projects it received as part of the 2001 UK Merger and recorded a writedown
of $854,367 to adjust the carrying value of the projects to zero.
As part of the UK Merger, Ridgewood UK also acquired a 50% ownership in CLP
Organogas SL ("Organogas"), a 2 MW plant located in Seville, Spain, as well as a
50% interest in CLP Envirogas, SL, ("Envirogas"), a management and development
service company also located in Seville, Spain (collectively, the "Spanish
Landfill Projects"). Under the terms of an agreement with one of its minority
shareholders, effective January 1, 2003 Ridgewood UK transferred its 50%
interest in the Spanish Landfill Projects in return for a portion of the
minority shareholder's interest in CLP. As a result of the transaction,
Ridgewood UK increased its ownership in CLP from 76% to 88%.
Beginning in 2002, Ridgewood UK began to identify and develop sites in order to
take advantage of the United Kingdom's Renewable Obligation incentive program
("RO"). The RO program requires electricity suppliers serving electric users in
the U.K. to obtain renewable obligation certificates ("ROC") to demonstrate that
a portion of their electricity supply portfolio was produced by qualified
producers. Registered producers generate electricity from qualified renewable
sources. Accordingly, Ridgewood UK began to borrow funds from Ridgewood
Renewable PowerBank LLC, an affiliated entity, to finance Ridgewood UK's
expansion in 2002. In 2003 and 2004, Ridgewood UK borrowed funds from Ridgewood
Renewable PowerBank II LLC, Ridgewood Renewable PowerBank III LLC and Ridgewood
Renewable PowerBank IV LLC, all affiliates of Ridgewood UK (as they have a
common managing shareholder), to further finance expansion. As of December 31,
2004, Ridgewood UK received advances totaling $53,770,169 from four of the
respective PowerBank Funds with the expectation to develop twenty nine projects
with an operating capacity of 37.6 MWs. As of December 31, 2004, Ridgewood UK
had commissioned eleven projects with a capacity of 15.6 MWs. As of December 31,
2005, Ridgewood UK had commissioned sixteen projects with a capacity of 21.3
MWs.
The Fund's 30% investment in Ridgewood UK is accounted for under the equity
method of accounting as the Fund has the ability to exercise significant
influence over the operating and financial policies of Ridgewood UK. The Fund's
equity in the earnings of Ridgewood UK has been included in the consolidated
statements of operations since acquisition.
F-15
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 8
- --------------------------------------------------------------------------------
Summarized financial information for the United Kingdom Landfill Gas Projects is
as follows:
Balance Sheet Information
December 31, December 31,
2004 2003
------------- -------------
Current assets $ 30,790,976 $ 39,129,585
Non-current assets 70,485,487 53,899,002
------------- -------------
Total assets $ 101,276,463 $ 93,028,587
============= =============
Current liabilities $ 10,669,975 $ 12,307,232
Long-term debt 21,065,111 21,193,090
Construction advances 35,685,487 34,178,955
Capital lease obligations 23,653,518 10,198,319
Deferred income taxes 994,072 753,979
Minority interest 1,423,814 2,030,568
Members' equity 7,784,486 12,366,444
------------- -------------
Liabilities and members' equity $ 101,276,463 $ 93,028,587
============= =============
Statements of Operations
For the Year Ended December 31,
----------------------------------------------
2004 2003 2002
----------------------------------------------
Revenue $ 22,776,328 $ 13,713,905 $ 9,120,088
-------------- ------------- -------------
Cost of sales 20,484,901 13,633,056 9,991,516
Other expenses 4,134,083 2,170,997 1,945,724
-------------- ------------- -------------
Total expenses 24,618,984 15,840,053 11,937,240
-------------- ------------- -------------
Net loss $ (1,842,656) $ (2,090,148) $ (2,817,152)
============== ============= =============
ZAP
In March 1999, the Fund, through a wholly owned subsidiary, purchased 678,808
shares of common stock of ZAP ("ZAP", formerly ZAP World.com,) for $2,050,000.
ZAP, headquartered in Sebastopol, California, designs, assembles, manufactures
and distributes electric power bicycle kits, electric bicycles and tricycles and
electric scooters. As part of the $2,050,000 share purchase, the Fund also
received a warrant to purchase additional shares of ZAP's common stock at a
price between $3.50 and $4.50 per share. In June 1999, the Fund exercised the
warrant and purchased 571,249 additional shares for approximately $2,000,000, or
$3.50 per share. The Fund then owned approximately 21% of the outstanding common
stock of ZAP. In December 1999, the Fund received a warrant to purchase an
additional 100,000 shares of ZAP, at a price of $6.25 per share which expired in
December 2002.
In the third quarter of 2001, the Fund entered into an agreement with ZAP which
resulted in the Fund selling all of its ZAP shares to ZAP and certain of its
shareholders. In exchange for the returned shares, the Fund received a
$1,500,000 interest bearing promissory note ("note"). The note provided for
installment payments to be made to the Fund until its maturity in 2003. However,
no payments on the note were received and, effective the fourth quarter of 2001,
the Fund wrote down $1,282,241 to reduce the note to zero based upon the quick
deterioration of ZAP's financial status.
On March 1, 2002, ZAP filed a voluntary petition for reorganization under
Chapter 11 of the U. S. Bankruptcy Code with the U.S. Bankruptcy Court in Santa
Rosa, California. On or about July 1, 2003, the Second Amended Plan for
Reorganization became effective and the Fund's note was converted into 994,500
shares of common stock in the reorganized ZAP. The new shares are publicly
traded but the shares issued to the Fund, as well as all other unsecured
creditors who opted for an equity interest in the reorganized ZAP, are subject
to certain restrictions (lapsing over specified periods of time), which limited
the ability to transfer or sell such shares and impaired its value given ZAP's
history. Accordingly, the Fund's policy was to maintain the carrying value of
the ZAP securities at zero until the restrictions on the respective shares
lapsed. In September 2003, the Fund, with permission from ZAP, sold
approximately 118,000 shares of ZAP to a private individual for $1.00 per share,
which represented a 10% discount off the then current market price of
unrestricted ZAP shares, and recognized the full proceeds as a realized gain.
During the second and third quarters of 2004, as 772,500 ZAP shares became
unrestricted, the Fund and ZAP entered into an agreement in which ZAP would
transfer the unrestricted shares into the names of the Fund's investor
shareholders. Except for 104,000 shares that became unrestricted in July 2005,
the transfers were made and the Fund distributed the share certificates to its
investor shareholders. Accordingly, the Fund recorded the transfer of the
772,500 shares of ZAP common
F-16
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 9
- --------------------------------------------------------------------------------
stock as distributions to its investor shareholders at the market value of
$2,078,959 in the second and third quarters of 2004 and recorded a corresponding
realized gain.
As part of the reorganization of ZAP, the Fund also received a warrant granting
it the right to purchase another 994,500 ZAP shares at an exercise price of
$1.07 per share. In May 2004, the Fund exercised its rights under the warrant
and purchased 994,500 unrestricted shares at $1.07 per share. During 2004, the
Fund sold all of the shares it purchased from the exercise of the first warrant
for a gain of $340,322. As an incentive to exercise the warrant it received in
the reorganization, the Fund received a second warrant, which was exercised in
December 2004, with the purchase of 538,462 shares at a $3.25 per share. As of
December 31, 2004, the Fund did not sell any of the shares it purchased from the
exercise of the second warrant and recorded an investment of $1,750,000 to
reflect the shares held at market value. From January 1, 2005 through December
31, 2005, the value of the ZAP shares has declined to $0.26 per share. During
this period, the Fund has sold 537,000 shares and realized and recognized losses
in the net amount of approximately $940,000.
4. Long-Term Debt
Following is a summary of long-term debt by project at December 31, 2004:
Ridgewood
Egypt for
Sinai Infrastructure US Hydro Total
------------- -------------- ------------- ---------------
Total long-term debt $ 2,252,433 $ 1,146,629 $ 1,337,277 $ 4,736,339
Less - Current maturity (195,824) (509,613) (472,451) (1,177,888)
------------- -------------- ------------- ---------------
Long-term portion $ 2,056,609 $ 637,016 $ 864,826 $ 3,558,451
============= ============== ============ ===============
Sinai has an outstanding loan and interest payable of 13,812,146 Egyptian pounds
(approximately US $2,252,000). The loan bears interest at 11.0% per annum and is
non-recourse to the Fund. A provision of the loan restricts Sinai from paying
dividends to its shareholders or obtaining credit from other banks. The loan was
in default prior to the acquisition of Sinai by Ridgewood Near East and has
remained in default through the second quarter of 2005. In the second quarter of
2005, the bank and Sinai resolved all issues and an extension and revised
payment schedule was formalized. The revised terms provide for progressive
monthly payments over six years ranging from 171,545 Egyptian pounds to 356,727
Egyptian pounds (or US $29,451 to US $61,243 at loan inception exchange rates),
including interest, maturing on May 1, 2011.
During the third quarter of 2002, REFI executed a term loan agreement with its
principal bank. The bank provided a loan of 12,500,000 Egyptian pounds
(approximately US $2,022,000), which matures on March 31, 2007. The loan is
being repaid in quarterly principal installments of 781,250 Egyptian pounds
(approximately US $126,000) starting June 2003. Outstanding borrowings bear
interest at the bank's medium term loan rate plus 0.5% (12.5% at December 31,
2004 and 2003).
Five of the US Hydro Projects' hydro-electric power plants are financed by a
term loan ("term loan"). The Fund has a choice of variable or fixed interest
rates on the term loan. Variable rates are LIBOR (2.38% and 1.16% at December
31, 2004 and 2003, respectively) plus 1 3/4% or the Lenders Corporate Base Rate
(as defined). At the Fund's option, a fixed interest rate can be selected,
payable on any portion of the debt in excess of $1,000,000, for any period of
time from two to seven years. Such fixed rate shall be based on the U.S.
Treasury note rate at the date of election plus 2 3/4%. The variable rate of
4.13% and 2.91% were the effective interest rates at December 31, 2004 and 2003,
respectively. This credit facility is collateralized by five hydroelectric
plants and notes receivable owned by the US Hydro Projects (See Note 6).
Although the Fund is current in its interest and principal payments, it is
technically in default under the covenants of the term loan as a result of not
providing its lender a copy of its current audited financial statements. As per
the terms of the term loan agreement, the default does not allow the lender to
accelerate or call the loan.
During the fourth quarter of 2003, discussions were entered into with the
Truckee-Carson Irrigation District ("TCID") to sell the US Hydro Projects notes
receivable (see Note 6) and cash flow rights from one of its projects (the
Lahontan project) to TCID. In the first quarter of 2004, TCID's Board of
Directors approved the purchase. In return for its notes receivable and cash
flow rights, the US Hydro Projects received $4,000,000. Pursuant to the term
loan agreement, the US Hydro Projects submitted the proceeds it received from
the sale of the notes receivable directly to its lender on March 31, 2004. As a
result of the sale and remittance of the proceeds, the balance of the term loan
was reduced to approximately $1,700,000. Of the proceeds received, $3,958,386
was applied to the principal balance and the remaining $41,614 was applied to
current interest due. The parties mutually agreed to amend the term loan
agreement, providing for a revised amortization of principal for the $4,000,000
received.
As additional compensation to the lender of the U.S. Hydro Projects, the Fund is
required to pay an additional amount equal to 10% of the cash flow, as defined,
of the financed projects plus 10% of any net proceeds, as defined, from the sale
or refinancing of any of the financed projects. No additional payments were
required for the years ended December 31, 2004, 2003 and 2002.
F-17
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 10
- --------------------------------------------------------------------------------
Scheduled principal repayments of the Fund's long-term debt, as revised for the
Sinai loan modification, are as follows:
Year Ended
December 31, Payment
------------ -----------
2005 $ 1,177,888
2006 1,175,766
2007 794,121
2008 324,300
2009 424,630
Thereafter 839,634
-----------
Total $ 4,736,339
===========
5. Lease Commitments
Two of the US Hydro Projects hydroelectric plants have leased the site at its
facility under a long term lease which terminates in 2024. Rent expense for the
year ended December 31, 2004, 2003 and the period November 23, 2002 to December
31, 2002 was $794,720, $794,720 and $12,083, respectively.
Minimum lease payments are as follows:
2005 $ 685,000
2006 695,000
2007 700,000
2008 710,000
2009 720,500
Thereafter 5,495,977
-----------
Total Minimum Lease Payments $ 9,006,477
===========
The Fund has certain other leases that require contingent payments based upon a
percentage of annual gross revenue of the hydroelectric plant less any taxes or
other fees paid to the lessors. There are no minimum rents required and these
commitments are not included in the amounts presented above. Rent expense for
these hydroelectric plants for the years ended December 31, 2004, 2003 and the
period November 23, 2002 to December 31, 2002 was $6,045, $6,982 and $451,
respectively.
6. Notes Receivable
The following is a summary of the Fund's notes receivable:
December 31,
---------------------------
2004 2003
---------------------------
Blackstone $ 1,642,009 $ -
TCID - 3,800,000
Other 125,112 469,020
---------------------------
Total notes receivable 1,767,121 4,269,020
Less current portion 131,399 4,269,020
---------------------------
Notes receivable - long-term portion $ 1,635,722 $ -
===========================
Blackstone
In the fourth quarter of 2004, US Hydro Projects' Blackstone entity and New
England Power ("NEP") agreed to terminate their 1989 power purchase agreement.
As per the terms of Termination and Release Agreement, Blackstone now has the
right to sell its production of electricity to any party it chooses. In
addition, beginning January 2005 NEP will pay Blackstone $16,000 per month
through February 2010 and a lump sum payment of $1,000,000 on February 15, 2010
to compensate Blackstone for the cancellation of the fifteen years remaining on
the original agreement.
As a result of the new agreement, the Fund recorded a net gain of $564,713 in
the consolidated statement of operations in 2004, reflecting an impairment to
electric power sales contracts of $1,077,296 to write-down the carrying value of
the pre-existing power purchase agreement to zero less $1,642,009 to recognize
the present value of payments to be received.
TCID
During 1989, Synergics (Note 3) constructed a hydroelectric facility ("HF") for
TCID. The construction and term funding for this plant was provided by (i) a
portion of the secured term loan credit facility (see Note 4), the proceeds of
which were
F-18
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 11
- --------------------------------------------------------------------------------
originally paid to a certain US Hydro Project and then advanced to Synergics,
(ii) funds from Synergics and (iii) TCID. The HF, after completion, was sold by
Synergics to TCID. The sales price of the HF was paid by assignment of future
excess cash flows, as defined, to Synergics in the form of a long term note
receivable, which consists of two separate notes. As of December 31, 2003 the
long term note receivable has been pledged as additional collateral for the
secured term loan credit facility. The amounts initially due from TCID:
Portion payable over
15 years at variable interest $ 4,000,000
Portion payable over
15 years at 15% fixed rate 2,137,000
-----------
Total due $ 6,137,000
===========
Upon the Fund's acquisition of US Hydro in 2002, the then outstanding balances
of the notes receivable, which accreted to approximately $6,700,000, were
adjusted by approximately $2,900,000, through purchase accounting to
approximately $3,800,000 as of December 31, 2003. In March 2004, $4,000,000 of
the notes receivable were paid by TCID, the proceeds of which were applied
directly towards a reduction of the term loan (Note 4) and a gain, net of
professional fees, of $175,000 was recognized accordingly.
7. Consulting Agreements
The Fund's Egypt Projects have an arrangement with a consultant that provides
marketing, construction and management services in Egypt. The consultant
receives, in total, a development fee of 3% of the capital cost of the completed
projects, an annual management fee of greater of 0.3% of the capital cost of
completed projects and $180,000 and reimbursement of out-of-pocket costs
incurred in performing its duties under the agreement. The agreement has a term
of one year and is automatically renewed annually. The agreement may be
terminated by either party upon written notice.
In February 2003, a complaint was filed against Ridgewood Near East by a
corporation claiming breach of consulting contract. In November 2003, the
parties reached an agreement whereby Ridgewood Near East paid the corporation a
one-time payment of $280,750, representing commissions and penalties, and have
agreed to continue making required commission payments as per the original
agreement of $900,000 payable in monthly installments of $7,500. The Fund
recorded the liability by discounting the future payments at the rate of 10%
resulting in total expense of $567,534 in 2003.
Schedule of future discounted principal payments as of December 31, 2004 are as
follows:
Year Ended
December 31, Payment
------------ ------------
2005 $ 40,422
2006 44,655
2007 49,331
2008 54,497
2009 60,203
Thereafter 264,861
------------
Total $ 513,969
============
8. Commitments
In the first quarter of 2005, Ridgewood Near East entered into an agreement with
a former consultant, who previously operated under an arrangement similar to
terms defined in Note 7. The new agreement provides for a fixed annual fee of
$120,000.
In accordance with Egyptian company law, the Egypt Projects transfer 5% of
annual net profits to a statutory reserve. Transfers will cease when the reserve
reaches 50% of issued capital. The statutory reserve is not eligible for
distribution to members. The statutory reserve amounted to $87,408 and $50,943
as of December 31, 2004 and 2003, respectively.
9. Fair Value of Financial Instruments
At December 31, 2004 and 2003, the carrying value of the Fund's cash and cash
equivalents, accounts receivable, notes receivable, and accounts payable and
accrued expenses approximates their fair value. The fair value of the long-term
debt, calculated using current rates for loans with similar maturities, does not
differ materially from its carrying value.
F-19
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 12
- --------------------------------------------------------------------------------
10. Transactions with Managing Shareholder and Affiliates
The Fund which closed on April 30, 2000, operates pursuant to a management
agreement with RPC, a Managing Shareholder, under which RPC renders certain
management, administrative and advisory services and provides office space and
other facilities to the Fund. As compensation to RPC for such services, the Fund
was initially obligated for an annual management fee equal to $1,645,266, or
2.5% of the total capital contributions to the Fund payable monthly upon the
closing of the Fund. For the years ended December 31, 2004, 2003 and 2002, the
managing shareholder contemporaneously waived 50% of the management fee due (or
$822,633 annually). Accordingly, management fees of $822,633 were charged to the
Fund for each of the years ended December 31, 2004, 2003 and 2002. For 2004,
$317,105 of the 2004 management fee was paid to the managing shareholder and
$505,528 was accrued. For 2003 the Fund paid $150,000 of the 2003 management fee
to the managing shareholder and the remaining $672,633 was accrued. For 2002,
$377,105 of the 2002 management fee was paid to managing shareholder and
$445,528 was accrued. During 2005, the management fee amounts accrued for 2004,
2003, and 2002, aggregating $1,623,690 was forgiven by the managing shareholder.
The aggregate management fee forgiven was recorded as a capital contribution by
the managing shareholder in the fourth quarter of 2005, who also anticipates
assigning said contribution for the benefit of the investor shareholders.
The Fund reimburses the Managing Shareholder and affiliates for expenses and
fees of unaffiliated persons engaged by the Managing Shareholder for fund
business. The Managing Shareholder or affiliates originally paid all project due
diligence costs, accounting and legal fees and other expenses shown in the
statements of operations and were reimbursed by the Fund.
Under the Declaration of Trust, RPC is entitled to receive each year 1% of all
distributions made by the Fund (other than those derived from the disposition of
Fund property) until the shareholders have been distributed each year an amount
equal to 12% of their equity contribution. Thereafter, RPC is entitled to
receive 25% of the distributions for the remainder of the year. RPC is entitled
to receive 1% of the proceeds from dispositions of Fund properties until the
shareholders have received cumulative distributions equal to their original
investment ("Payout"). After Payout, RPC is entitled to receive 25% of all
remaining distributions of the Fund.
Income is allocated to the Managing Shareholder until the profits equal
distributions to the Managing Shareholder. Then, income is allocated to the
investors, first among holders of Preferred Participation Rights until such
allocations equal distributions from those Preferred Participation Rights, and
then among Investors in proportion to their ownership of investor shares. If the
Fund has net losses for a fiscal period, the losses are allocated 99% to the
Investors and 1% to the Managing Shareholder, except that if an allocation of a
loss would cause an Investor to have a negative amount in the Investor's capital
account, the loss will be allocated to the Managing Shareholder instead in the
amount necessary to prevent the creation of a negative balance in the Investor's
capital account. Revenues from dispositions of Fund Property are allocated in
the same manner as distributions from such dispositions. Amounts allocated to
the Investors are apportioned among them in proportion to their capital
contributions.
Where permitted, in the event the Managing Shareholder or an affiliate performs
brokering services in respect of an investment acquisition or disposition
opportunity for the Fund, the Managing Shareholder or such affiliate may charge
the Fund a brokerage fee. Such fee may not exceed 2% of the gross proceeds of
any such acquisition or disposition. No such fees have been paid through
December 31, 2004.
RPC purchased one investor share of the Fund for $83,000 in 1998. The Fund
granted the Managing Shareholder a single Management Share representing the
Managing Shareholder's management rights and rights to distributions of cash
flow.
On June 26, 2003, the Managing Shareholder of the Fund, entered into a
$5,000,000 Revolving Credit and Security Agreement with Wachovia Bank, National
Association. The agreement allows the Managing Shareholder to obtain loans and
letters of credit for the benefit of the trusts and funds that it manages. As
part of the agreement, the Fund agreed to limitations on its ability to incur
indebtedness, liens and provide guarantees. On February 20, 2004, the Managing
Shareholder and Wachovia Bank amended the agreement increasing the amount to
$6,000,000. As described in Note 14, the agreement has subsequently been
extended.
From time to time, the Fund records short-term payables and receivables from
other affiliates in the ordinary course of business. The amounts payable and
receivable with the other affiliates do not bear interest. At December 31, 2004
and 2003, the Fund had outstanding payables and receivables, with the following
affiliates:
As of December 31,
Due From Due To
-------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------
Ridgewood Power Management LLC $ --- $ 1,851 $ 326,062 $ ---
Ridgewood Renewable Power --- --- 2,313,732 1,058,204
Trust V 1,261,459 1,280,936 --- ---
Ridgewood Electric Power Trust IV --- --- --- 71,000
Egypt Fund --- --- 270,389 351,239
United Kingdom Landfill Gas Projects 262,350 595,837 --- ---
Ridgewood Dubai (paid January 2005) 561,181 612,517 --- ---
Other affiliates --- --- 89,444 407,951
------------------------ ----------------------------
Total $ 2,084,990 $2,491,141 $ 2,999,627 $ 1,888,394
======================== ============================
F-20
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 13
- --------------------------------------------------------------------------------
11. Key Employees Incentive Agreement
The Key Employees Incentive Plan (the "Plan") was adopted by the Fund in
February 1998 and permits the Managing Shareholder to designate key executives
and employees of the Fund and its operating companies to receive Incentive
Shares. Currently, the Fund does not have any employees.
The Managing Shareholder and persons granted Incentive Shares under the Plan are
entitled to receive a portion of the Fund's cash flow as follows:
Prior to Payout* After Payout*
--------------------- ---------------------
Net Operating Managing Shareholder Managing Shareholder
Cash Flow Up to 20% 20%
after Investors
obtain 12% Plan Participants Plan Participants
cumulative Up to 5% 5%
return
Net Cash Managing Shareholder Managing Shareholder
Flow from 1% 20%
Dispositions Plan Participants Plan Participants
Zero 5%
* - Payout is considered to be cumulative distributions to the
shareholders equal to the original investment.
The Managing Shareholder and Plan participants will be entitled to cash flow on
a proportionate basis, meaning that if the cash flow allocable to them is less
than the maximum percentages stated in the table, that cash flow will be
distributed pro rata between the Managing Shareholder and Plan participants.
No Incentive Shares have been issued by the Managing Shareholder. Until
Incentive Shares are actually issued, the cash flow, if any, distributable to
those Shares will be distributed to the Managing Shareholder after the Payout
threshold is reached.
Each issued and outstanding Incentive Share will have voting rights equal to one
Investor Share.
When approved by Ridgewood Near East, its subsidiaries pay 10% of its cash
dividends as profit sharing to its employees.
12. Financial Information by Business Segment and Location
In 2004, 2003 and 2002, revenues were recorded from customers of the US Hydro
Projects and Egypt Projects. The financial statements of the UK Projects and ZAP
are not consolidated with those of the Fund and, accordingly, their revenues are
not considered to be operating revenues. As of and for the years ended December
31, 2004, 2003 and 2002, financial information by geographic location was as
follows:
2004 2003 2002
------------------------- ------------------------- -------------------------
US Egypt US Egypt US Egypt
----------- ----------- ----------- ----------- ----------- -----------
Revenue $ 5,096,362 $ 5,488,617 $ 5,844,921 $ 4,399,763 $ 371,345 $ 5,459,011
Property, plant
and equiptment, net 1,691,859 18,985,309 1,734,015 20,867,386 1,777,647 31,214,014
The Fund has two customers which accounted for approximately 77% and 80% of US
sourced revenue in 2004 and 2003, respectively. The Fund has two customers which
accounted for approximately 20%, 19% and 33% of Egypt sourced revenue in 2004,
2003 and 2002, respectively.
The Fund's business segments were determined based on similarities in economic
characteristics and customer base. The Fund's principal business segments
consist of power generation and water desalinization.
F-21
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 14
- --------------------------------------------------------------------------------
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.
The financial data for business segments are as follows:
F-22
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 15
- --------------------------------------------------------------------------------
Power
------------------------------------------
2004 2003 2002
------------ ------------ ------------
Revenue $ 5,611,185 $ 6,625,810 $ 1,742,184
Depreciation and
amortization 1,931,580 2,044,067 419,345
Gross profit 1,566,558 2,478,556 (49,539)
Impairment of intangibles 661,207 2,457,834 -
Interest expense 85,875 204,173 22,320
Plant and equipment and
office equipment, net 7,125,165 7,637,620 11,514,945
Capital expenditures 58,202 5,954 1,143
Goodwill 4,491,938 5,153,145 -
Water
------------------------------------------
2004 2003 2002
------------ ------------ ------------
Revenue $ 4,973,794 $ 3,618,874 $ 4,088,172
Depreciation and
amortization 1,379,455 1,285,564 1,395,198
Gross profit 1,264,786 922,384 738,695
Impairment of intangibles - - -
Interest expense 331,661 325,800 574,480
Plant and equipment and
office equipment, net 12,913,340 13,656,329 19,009,864
Capital expenditures 226,060 344,679 856,648
Goodwill - - -
Corporate
------------------------------------------
2004 2003 2002
------------ ------------ ------------
Revenue $ - $ - $ -
Depreciation and
amortization 247,957 298,607 262,396
Gross profit (247,957) (298,607) (262,396)
Impairment of intangibles - - -
Interest expense 271,900 330,686 390,802
Plant and equipment and
office equipment, net 579,840 708,572 922,941
Capital expenditures 33,120 9,377 209,599
Goodwill - - -
Total
------------------------------------------
2004 2003 2002
------------ ------------ ------------
Revenue $ 10,584,979 $ 10,244,684 $ 5,830,356
Depreciation and
amortization 3,558,992 3,628,238 2,076,939
Gross profit 2,583,387 3,102,333 426,760
Impairment of intangibles 661,207 2,457,834 -
Interest expense 689,436 860,659 987,602
Plant and equipment and
office equipment, net 20,618,345 22,002,521 31,447,750
Capital expenditures 317,382 360,010 1,067,390
Goodwill 4,491,938 5,153,145 -
F-23
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements Page 16
- --------------------------------------------------------------------------------
13. Income Taxes
The provision for income taxes consists of:
2004 2003 2002
---------------- ---------------- -------------------
Current
Federal $ --- $ --- $ ---
State 176,050 263,934 12,622
---------------- ---------------- -------------------
176,050 263,934 12,622
---------------- ---------------- -------------------
Deferred
Federal $ (928,545) $ (1,209,098) $ ---
State 124,843 (108,580)
---------------- ---------------- -------------------
(803,702) (1,317,678) ---
---------------- ---------------- -------------------
$ (627,652) $ (1,053,744) $ 12,622
================ ================ ===================
The Fund incurred current state income taxes of $176,050, $263,934 and $12,622
for the years ended December 31, 2004, 2003 and 2002, respectively, on behalf of
certain of the US Hydro Projects. For the year ended December 31, 2004 and 2003
the Fund recorded a deferred federal income tax benefit of $928,545 and
$1,209,098, respectively, and deferred state income tax expense of $124,843 and
a tax benefit of $108,580, respectively, which reflects the change in the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities of the US Hydro Projects for financial reporting purposes and the
amounts used for income tax purposes. At December 31, 2004, the Fund had
approximately $5,423,000 in net operating losses carry forwards expiring in
2024.
Components of the Fund's deferred income tax assets and liabilities are as
follows:
2004 2003
------------ ------------
Deferred tax asset-current
Carrying value of TCID note receivable $ -- $ 1,435,129
============ ============
Deferred tax asset-non current
Net operating losses $ 1,850,954 $ --
Deferred tax liabilities-non current
Depreciation and amortization (5,438,221) (5,826,098)
------------ ------------
Deferred tax liabilities, net-non current $ (3,587,267) $ (5,826,098)
------------ ------------
14. Subsequent Events
Effective January 1, 2005, the Managing Shareholder, acting on the
recommendation of tax counsel for the Fund, amended the Declaration of Trust in
order to clear up potential ambiguity and to maintain the tax status of the
Fund. The Declaration authorizes the Managing Shareholder to make such
amendments to the Declaration without notice to or approval of the Investors in
a variety of circumstances, including, without limitation, amendments to
maintain the tax status of the Fund.
Under the terms of the amendment, if an Investor's Adjusted Capital Account
would become negative using General Allocations, losses and expenses will be
allocated to the Managing Shareholder. Should the Managing Shareholder's
Adjusted Capital Account become negative and items of income or gain occur, then
such items of income or gain will be allocated entirely to the Managing
Shareholder until such time as the Managing Shareholder's Adjusted Capital
Account becomes positive. This mechanism will not affect the allocation of cash
which was not affected by the amendment.
The Managing Shareholder has reviewed the amendments to the Declaration
recommended by tax counsel for the Fund, and has concluded that the amendment of
the Declaration will not materially and adversely affect the interests of the
Investors in the Fund.
During 2005, Wachovia Bank agreed to further extend the Managing Shareholder's
Line of credit, as described in Note 10, through September 30, 2006.
F-24
B. Supplementary Financial Information
Selected Quarterly Financial Data for the years ended December 31, 2004 and 2003
(Unaudited).
2004
- -------------------------------------------------------------------------------
First Second Third Fourth
quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
Revenue $ 2,665,000 $ 3,123,000 $ 2,529,000 $ 2,268,000
- -------------------------------------------------------------------------------
Gross profit 929,000 1,087,000 211,000 356,000
- -------------------------------------------------------------------------------
Income (loss) from
operations 20,000 135,000 (372,000) (1,206,000)
- -------------------------------------------------------------------------------
Net (loss) income (211,000) 1,486,000 307,000 (937,000)
- -------------------------------------------------------------------------------
2003
- -------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
Revenue $ 2,701,000 $ 2,987,000 $ 2,336,000 $ 2,221,000
- -------------------------------------------------------------------------------
Gross profit (loss) 1,286,000 1,508,000 838,000 (530,000)
- -------------------------------------------------------------------------------
Income (loss) from
operations 184,000 718,000 145,000 (5,657,000)
- -------------------------------------------------------------------------------
Net loss (292,000) (326,000) (164,000) (3,008,000)
- -------------------------------------------------------------------------------
See Item 7. 'Management's Discussion and Analysis of Financial Condition and
Results Operation' for discussion regarding interim periods.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Fund dismissed PricewaterhouseCoopers LLP as its independent
accountants on January 14, 2004 and appointed Perelson Weiner LLP as successor,
as reported in the Fund's Current Report on Form 8-K dated January 14, 2004,
incorporated herein by reference. There were no disagreements with
PricewaterhouseCoopers LLP for the year ended December 31, 2002 or for the
interim period through January 14, 2004, whether or not resolved, on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
Item 9A. Controls and Procedures.
In accordance with Rule 13a-15(b) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), our management with the participation of
our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2004.
The system of disclosure controls and procedures was designed to ensure that
information required to be disclosed by us in this report and other reports we
file under 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 us is accumulated and communicated to our senior
management so as to allow timely decisions regarding required disclosure. Our
evaluation disclosed material deficiencies in our disclosure controls and
procedures. The material deficiencies identified as of December 31, 2004 are as
follows:
(a) Accounting Systems and Financial Reporting Software. We have
concluded that the lack of automation and integration in our
accounting systems and financial reporting software utilized during
2004 did not permit us to timely comply with our financial reporting
responsibilities for 2004. In 2003 we began to address this by
arranging for the replacement of our then existing accounting
systems and financial reporting software. However, the process of
migrating from the then existing systems and software to the new
systems and software was not completed until the latter part of 2004
and we did not have the full benefit of the automation and
integration features of the new system and software for that year.
We believe that the new accounting systems and financial reporting
software constitute a significant improvement in our disclosure
controls and procedures but a
23
comprehensive assessment of the effectiveness of these improvements
can only be made in subsequent periods when the new accounting
systems and financial reporting software have been fully implemented
and are fully operational.
(b) Personnel Resources. We have determined that additional accounting
and financial reporting staff with relevant experience is necessary
to maintain and operate the new accounting systems and financial
reporting software and to develop and administer additional
disclosure controls and procedures to enable us to comply with our
financial reporting obligations. The following changes in our
staffing have occurred:
(i.) Five existing accounting positions and one legal support
staff position have been upgraded by staffing with personnel
having enhanced experience and/or training;
(ii.) Two new accounting positions have been created and
filled;
(iii.) A new full-time Director of Compliance and Reporting
position has been created and filled;
(iv.) A new full-time Director of Tax Reporting and Compliance
position has been created and filled and replaces a prior
part-time consulting arrangement; and
(v.) The Chief Financial Officer was replaced by a new Chief
Financial Officer.
We believe that the substantial upgrades and expansion of the accounting
and financial reporting staff and legal support staff will result in material
improvements in our disclosure controls and procedures, but the evaluation of
these new personnel upgrades and additions can only be made in subsequent
periods when we review personnel performance under these new arrangements.
(c) Additional Disclosure Controls and Procedures. We have determined
that additional disclosure controls and procedures are necessary for
our US operations to ensure that we will meet our financial
reporting and disclosure obligations in an accurate and timely
manner. We implemented the following additional disclosure controls
and procedures with respect to the US operating facilities in which
we have an ownership interest:
(i) Weekly budgeting of cash receipts and disbursements with a
roll-forward of budgets based on actual results;
(ii) Formal procedures to evaluate new contractual
arrangements and amendments and/or terminations of existing
contractual arrangements and to provide accounting personnel
with supporting analysis and documentation;
(iii) Adoption of a standardized format for the reporting of
the output, sales, prices and expenses for the operating
facilities in which we have an ownership interest; and
(iv) For facilities having material amounts of inventory,
adoption of formal procedures for quarterly physical inventory
observations with corresponding adjustments to financial
statements.
We believe that these additional disclosure controls and procedures have
addressed the material deficiencies in disclosure controls and procedures that
we have previously identified, but we believe that the internal control process
is constantly evolving and we expect that additional disclosure controls and
procedures will be added from time to time as deficiencies are discovered.
Evaluation of the effectiveness of these enhanced disclosure controls and
procedures must wait until later periods when we will have the ability to review
the results of these controls and procedures in operation.
(d) Foreign Operations. We have interests in foreign operations in the
United Kingdom and Egypt. Each of these foreign operations is
managed by a separate in-country staff that includes management,
accounting, engineering and support personnel. Each of the U.K. and
Egyptian operations delivers to us audited financial statements
prepared in accordance with the legal requirements and auditing
standards of the U.K. or Egypt, as the case may be. We have
concluded that there exist material deficiencies in our disclosure
controls and procedures as applied to these foreign operations, as
follows:
(i) The audited financial statements for the U.K. operations
were not timely delivered to us because of an extended
review of the proposed U.K. accounting treatment
applicable to a material financing transaction of the
U.K. operations. This delay in the receipt of the U.K.
audited financial statements
24
contributed to our delay in completing our financial
statements for the year ended December 31, 2003. In
2004, we implemented additional procedures relating to
the preparation of the U.K. financial statements, and
the 2004 audited financial statements of the U.K.
operations for the year ended December 31, 2004 were
delivered to us in a timely manner.
(ii) Disclosure controls and procedures in the Egyptian
operations relating to the administration and reporting
of contractual relationships were not properly applied
during 2004, with the result that a contingent guarantee
by an Egyptian parent entity of a subsidiary's
obligations was not properly disclosed and thus not
reported on the books and records of the Egyptian parent
entity. We have taken steps to establish additional
disclosure controls and procedures to ensure timely
disclosure and recording of all material contractual
arrangements. In addition, the then existing Chief
Executive Officer and the Chief Financial Officer of the
Egyptian operations have been replaced. We believe that
these actions address the identified material
deficiencies in our disclosure controls and procedures
in the Egyptian operations. However, assessment of the
effectiveness of these actions must wait until
subsequent periods when we can assess the new
personnel's performance under these new procedures.
(e) We have concluded that our disclosure controls and procedures
relating to the reporting and analysis of material events,
including those requiring disclosure on Form 8-K or otherwise,
were not effective in all circumstances to ensure that such
events were brought to the attention of the appropriate
personnel in a timely and accurate fashion. In response to
this deficiency, we have established a Disclosure Committee
consisting of the Chief Executive Officer, the Chief Financial
Officer and the General Counsel to review events that may
require disclosure by us. In addition, the Disclosure
Committee has promulgated reporting procedures under which
operating personnel are required to inform the Disclosure
Committee of material events. We believe that the use of a
Disclosure Committee and reporting procedures for material
events addresses the deficiency in our disclosure controls and
procedures relating to events that may require disclosure and
will allow us to make timely decisions regarding required
disclosures.
(f) Additional Reviews. We have retained an accounting firm to
undertake an independent review of our disclosure controls and
procedures and to report the results of such review to us. We
expect to receive such report during the second quarter of
2006.
As a result, our management under the supervision of our Chief Executive
Officer, has evaluated the effectiveness of our 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, our disclosure controls and procedures did not provide
reasonable assurance of effectiveness because of the material deficiencies noted
above.
Other than the changes discussed above, there were no changes in our
internal control over financial reporting during the quarter ended December 31,
2004 that have materially affected, or are reasonably like to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
General.
Each of the two entities that function together as the Fund's Managing
Shareholder, Ridgewood Power and Power VI, are controlled by Robert E. Swanson,
who is the manager, chairman, and, together with his family trusts, owns all of
the membership interests of each entity. The officers of Power VI are the same
as those of Ridgewood Power, and Power VI currently does not conduct any
business. Ridgewood Power takes all actions necessary to manage the Fund,
without any participation by Power VI. As a result, Ridgewood Power effectively
serves as the Managing Shareholder of the Fund. Please see chart below for
information regarding executive officers.
The Fund does not have a board of directors nor an audit committee or
nominating committee as contemplated by the Sarbanes-Oxley Act of 2002. Instead,
the Managing Shareholder effectively performs the functions that the board of
directors or the audit or nominating committee would otherwise perform.
25
As Managing Shareholder of the Fund, Ridgewood Power has direct and
exclusive discretion in management and control of the affairs of the Fund. The
Managing Shareholder may resign as Managing Shareholder of the Fund only (i)
with cause (which cause does not include the fact or determination that
continued service would be unprofitable to the Managing Shareholder), or (ii)
without cause with the consent of a majority in interest of the Investors. The
Managing Shareholder may be removed as managing shareholder as provided in the
Declaration.
The purpose for having two managing shareholders was to have continuity of
management related to certain transactions that were considered regarding
combination of Power I through Power V to combine into a publicly traded
business. That transaction did not occur and Power VI assigned and delegated all
of its rights and responsibilities to Ridgewood Power and is essentially an
entity that contains nominal activity.
Managing Shareholder.
Ridgewood Power Corporation was incorporated in February 1991 as a
Delaware corporation for the primary purpose of acting as a managing shareholder
of the business of funds and as a managing general partner of limited
partnerships. Ridgewood Power Corporation organized the Fund and acted as
managing shareholder until April 1999. On or about April 21, 1999, Ridgewood
Power Corporation was merged into the current Managing Shareholder, Ridgewood
Power LLC. In December 2002, Ridgewood Power, LLC changed its name to Ridgewood
Renewable Power, LLC. Robert E. Swanson is the controlling member, sole manager
and Chairman of the Managing Shareholder. All of the equity in the Managing
Shareholder is owned by Mr. Swanson or by family trusts. Mr. Swanson has the
power on behalf of those trusts to vote or dispose of the membership equity
interests owned by them.
The Managing Shareholder has also organized the other Power Trusts as
Delaware business trusts or Delaware limited liability companies. Ridgewood
Renewable Power LLC is the managing shareholder of the Other Power Trusts which
are business trusts and the manager of the limited liability companies which are
Power Trusts. The business objectives of these Other Power Trusts are similar to
those of the Fund.
A number of other companies are affiliates of Mr. Swanson and Ridgewood
Power. Each of these also was organized as a corporation that was wholly-owned
by Mr. Swanson. In April 1999, most of them were merged into limited liability
companies with similar names and Mr. Swanson became the sole manager and
controlling owner of each limited liability company. For convenience, the
remainder of this Annual Report on Form 10-K will discuss each limited liability
company and its corporate predecessor as a single entity.
The Managing Shareholder is an affiliate of Ridgewood Energy Corporation
("Ridgewood Energy"), which organizes and operates limited partnership funds
that have invested in oil and natural gas drilling and completion and other
related activities. Other affiliates of the Managing Shareholder include
Ridgewood Securities LLC ("Ridgewood Securities"), an NASD member which has been
the placement agent for the private placement offerings of the eight trusts
sponsored by the Managing Shareholder and the funds sponsored by Ridgewood
Energy; Ridgewood Capital Management LLC ("Ridgewood Capital"), which assists in
offerings made by the Managing Shareholder and which is the sponsor of four
privately offered venture capital funds (the Ridgewood Capital Venture Partners
and Ridgewood Capital Venture Partners II funds); and RPM. Each of these
companies is controlled by Robert E. Swanson, who is their sole director or
manager.
Set forth below is certain information concerning Mr. Swanson and other
executive officers of the Fund and the Managing Shareholder.
Name Age Position with Registrant Officer Since
- ----------------- --- ---------------------------------------- -------------
Randall D. Holmes 58 President and Chief Executive Officer 2004
of the Fund [and the Managing
Shareholder] since January 3, 2006;
Chief Operating Officer of the Fund
from January 1, 2004 to January 3,
2006.
Robert E. Swanson 58 Chairman of the Fund since January 1, 1991
2006; President and Chief Executive
Officer of the Fund from 1991 until
January 3, 2006; Manager, Chief
Executive Officer, and, together with
his family trusts, owner of all of the
membership interests in the Managing
Shareholder.
26
Robert L. Gold 47 Executive Vice President of the Fund 1991
and the Managing Shareholder since
1991.
Daniel V. Gulino 44 Senior Vice President and General 2000
Counsel of the Fund and the Managing
Shareholder.
Douglas R. Wilson 46 Senior Vice President and Chief 2005
Financial Officer of the Fund [and the
Managing Shareholder] since 2005
Robert E. Swanson, age 58, currently serves as a Chairman of the Fund. Mr.
Swanson has also served as Chief Executive Officer of the Fund since its
inception in 1991 and as Chief Executive Officer of RPM, the Other Power Trusts,
and the Ridgewood LLCs since their respective inceptions through January 3,
2006. Mr. Swanson has been President and registered principal of Ridgewood
Securities and became the Chairman of the Board of Ridgewood Capital on its
organization in 1998. In addition, he has been President and sole stockholder of
Ridgewood Energy since its inception in October 1982. Prior to forming Ridgewood
Energy in 1982, Mr. Swanson was a tax partner at the former New York and Los
Angeles law firm of Fulop & Hardee and an officer in the Trust and Investment
Division of Morgan Guaranty Trust Company. His specialty is in personal tax and
financial planning, including income, estate and gift tax. Mr. Swanson is a
member of the New Jersey State Bar, the Association of the Bar of the City of
New York and the New York State Bar Association. He is a graduate of Amherst
College and Fordham University Law School.
Randall D. Holmes, age 58, has served as President and Chief Executive
Officer of the Fund since January 3, 2006 and served as Chief Operating Officer
of the Fund from January 1, 2004 until January 3, 2006. Mr. Holmes has served as
the President and Chief Operating Officer of the Managing Shareholder, RPM, the
Trust, the Other Power Trusts and the Ridgewood LLCs since January 1, 2004.
Prior to such time, Mr. Holmes served as the primary outside counsel to and has
represented the Managing Shareholder and its affiliates since 1991. Mr. Holmes
has over 30 years of acquisition, development, financing and operating
experience in the electric generation and other industries. Mr. Holmes
previously was counsel to Downs Rachlin Martin PLLC in Vermont ("DRM"), to
DeForest & Duer in New York and to Chadbourne & Parke in New York. Mr. Holmes
was also President of the Pepsi-Cola Operating Company of Chesapeake and
Indianapolis and was Vice President of Advanced Medical Technologies. He was
also a Partner with the New York law firm of Barrett Smith Schapiro Simon &
Armstrong where he specialized in financing transactions, acquisitions and tax
planning. DRM is one of the primary outside counsel to the Fund, Managing
Shareholder and their affiliates. Immediately prior to being appointed President
and Chief Operating Officer, Mr. Holmes was counsel to DRM. He has maintained a
minor consulting relationship with DRM in which he may act as a paid advisor to
DRM on certain matters that are unrelated to Ridgewood. Such relationship will
not require a significant amount of Mr. Holmes' time and it is expected that
such relationship will not adversely affect his duties as President and Chief
Executive Officer. Mr. Holmes is a graduate of Texas Tech University and the
University of Michigan Law School. He is a member of the New York State bar.
Robert L. Gold, age 47, has served as Executive Vice President of the
Managing Shareholder, RPM, the Fund, and the Other Power Trusts since their
respective inceptions, with primary responsibility for marketing and
acquisitions. He has been President of Ridgewood Capital since its organization
in 1998. He has served as Vice President and General Counsel of Ridgewood
Securities Corporation since he joined the firm in December 1987. Mr. Gold has
also served as Executive Vice President of Ridgewood Energy since October 1990.
He served as Vice President of Ridgewood Energy from December 1987 through
September 1990. For the two years prior to joining Ridgewood Energy and
Ridgewood Securities Corporation, Mr. Gold was a corporate attorney in the law
firm of Cleary, Gottlieb, Steen & Hamilton in New York City where his experience
included mortgage finance, mergers and acquisitions, public offerings, tender
offers, and other business legal matters. Mr. Gold is a member of the New York
State bar. He is a graduate of Colgate University and New York University School
of Law.
Douglas R. Wilson, age 46, was appointed Senior Vice President and Chief
Financial Officer of RPM, the Fund, the Other Power Trusts and the Ridgewood
LLCs as of April 15, 2005. Mr. Wilson has been associated with the Ridgewood
group of companies as a consultant and advisor since 1996 performing investment
evaluation, structuring and execution services for the Other Power Trusts and
for Ridgewood Venture Funds. Since May of 2002 Mr. Wilson has served as a
Director, CEO and Finance Director for CLP Envirogas Ltd. ("Envirogas") which
manages Ridgewood's UK landfill gas operations. Mr. Wilson has wide energy
industry experience including hydrocarbon and project finance lending and
investing
27
and has participated in over $1 billion of financings. During his 22 years in
the financial services industry Mr. Wilson has been with Republic Bank of
Dallas, Shearson-Lehman Brothers and Bank of Tokyo. Mr. Wilson is a graduate of
the University of Texas at Arlington and has an MBA from the Wharton School at
the University of Pennsylvania. It is anticipated that Mr. Wilson will continue
to serve as an executive and Director of Envirogas during the remainder of its
expansion phase which is estimated to be completed in 18-24 months. During this
period Mr. Wilson will devote approximately 20-25% of his time to the affairs of
Envirogas. It is not anticipated that this executive role at Envirogas will
adversely affect performance of his duties as Senior Vice President and Chief
Financial Officer.
Daniel V. Gulino, age 44, has been Senior Vice President and General
Counsel of the Managing Shareholder, RPM, the Fund, and other Power Trusts since
August 2000. He began his legal career as an associate for Pitney, Hardin, Kipp
& Szuch, a large New Jersey law firm, where his experience included corporate
acquisitions and transactions. Prior to joining Ridgewood group of companies,
Mr. Gulino was in-house counsel for several large electric utilities, including
GPU, Inc., Constellation Power Source, and PPL Resources, Inc., where he
specialized in non-utility generation projects, independent power and power
marketing transactions. Mr. Gulino also has experience with the electric and
natural gas purchasing of industrial organizations, having worked as in-house
counsel for Alumax, Inc. (now part of Alcoa) where he was responsible for, among
other things, Alumax's electric and natural gas purchasing program. Mr. Gulino
is a member of the New Jersey State Bar and Pennsylvania State Bar. He is a
graduate of Fairleigh Dickinson University and Rutgers University School of Law
- - Newark.
Management Agreement.
The Fund has entered into a Management Agreement with the Managing
Shareholder detailing how the Managing Shareholder will render management,
administrative and investment advisory services to the Fund under the terms of
the Declaration. Specifically, the Managing Shareholder will perform (or arrange
for the performance of) the management and administrative services required for
the operation of the Fund. Among other services, they will administer the
accounts and handle relations with the Investors, provide the Fund with office
space, equipment and facilities and other services necessary for its operation
and conduct the Fund's relations with custodians, depositories, accountants,
attorneys, brokers and dealers, corporate fiduciaries, insurers, banks and
others, as required. The Managing Shareholder will also be responsible for
making investment and divestment.
The Managing Shareholder will be obligated to pay the compensation of the
personnel and all administrative and service expenses necessary to perform the
foregoing obligations. The Fund will pay all other expenses of the Fund,
including transaction expenses, valuation costs, expenses of preparing and
printing periodic reports for Investors and the Commission, postage for Fund
mailings, Commission fees, interest, taxes, legal, accounting and consulting
fees, litigation expenses, expenses of operating Projects and costs incurred by
the Managing Shareholder in so doing and other expenses properly payable by the
Fund. The Fund reimburses the Managing Shareholder for all such Fund and other
expenses paid by it.
The responsibilities of the Managing Shareholder and the fees and
reimbursements of expenses it is entitled to are set out in the Declaration.
Each Investor consented to the terms and conditions of the Declaration by
subscribing to acquire Investor Shares in the Fund.
The Fund has relied and will continue to rely on the Managing Shareholder,
engineering, legal, investment banking and other professional consultants as
needed and to monitor and report to the Fund the matters concerning operations
of Projects in which it invests, review proposals for additional development or
financing, and represent the Fund's interests. The Fund will rely on such
persons to review proposals designed to sell its interests in Projects in the
future.
Executive Officers of the Fund.
Pursuant to the Declaration, the Managing Shareholder has appointed
officers of the Fund to act on behalf of the Fund and sign documents on behalf
of the Fund as authorized by the Managing Shareholder. Mr. Swanson serves as the
Chairman of the Fund and the other executive officers of the Fund are identical
to those of the Managing Shareholder, as indicated in the table under the
subheading Managing Shareholder above.
The officers have the duties and powers usually applicable to similar
officers of a Delaware business corporation in carrying out Fund business.
Officers act under the supervision and control of the Managing Shareholder,
which is entitled to remove any officer at any time. Unless otherwise specified
by the Managing Shareholder, the President of the Fund has full power to act on
behalf of the Fund. The Managing Shareholders expects that most actions taken in
the name of the Fund will be taken by Mr. Swanson and the other principal
officers in their capacities as officers of the Fund under the direction of the
Managing Shareholder rather than as officers of the Managing Shareholder.
28
Corporate Trustee.
The corporate trustee of the Fund, Christiana Bank & Trust Company, acts
on the instructions of the Managing Shareholder and is not authorized to take
independent discretionary action on behalf of the Fund. Legal title to Trust
Property is in the name of the Fund. Christiana is also a trustee of the Other
Power Trusts. The principal office of Christiana Bank is 1314 King Street,
Wilmington, DE 19801.
Section 16(a) Beneficial Ownership Reporting Compliance.
The individuals who are subject to the requirements of Section 16(a) have
not complied with those reporting requirements during 2004 and 2003. All
fillings required under Section 16(a), have since been filed with the
Commission.
RPM.
RPM is controlled by Robert E. Swanson and owned by him and his family
trusts. For US Projects for which the Fund decides to take operating
responsibility itself, the Fund will cause the Fund's subsidiary that owns the
Project to enter into an "Operation Agreement" under which RPM, under the
supervision of the Managing Shareholder, will provide the management,
purchasing, engineering, planning and administrative services for the Project.
RPM will charge the Fund at its cost for these services and for the Fund's
allocable amount of certain overhead items. RPM shares space and facilities with
the Managing Shareholder and its affiliates. To the extent that common expenses
can be reasonably allocated to RPM, the Managing Shareholder may, but is not
required to, charge RPM at cost for the allocated amounts and such allocated
amounts will be borne by the Fund and other programs. Common expenses that are
not so allocated will be borne by the Managing Shareholder.
The Managing Shareholder does not charge RPM for the full amount of rent,
utility supplies and office expenses allocable to RPM. As a result, RPM's
charges for its services to the Fund are likely to be materially less than its
economic costs and the costs of engaging comparable third persons as managers.
RPM will not receive any compensation in excess of its costs.
Allocations of costs will be made either on the basis of identifiable
direct costs, time records or in proportion to each program's investments in
Projects managed by RPM; and allocations will be made in a manner consistent
with generally accepted accounting principles.
RPM will not provide any services related to the administration of the
Fund, such as investment, accounting, tax, investor communication or regulatory
services, nor will it participate in identifying, acquiring or disposing of
Projects. RPM will not have the power to act in the Fund's name or to bind the
Fund, which will be exercised by the Managing Shareholder or the Fund's
officers.
The Operation Agreements will not have a fixed term and will be terminable
by RPM, by the Managing Shareholder or by vote of a majority in interest of
Investors, on 60 days' prior notice. The Operation Agreements may be amended by
agreement of the Managing Shareholder and RPM; however, no amendment that
materially increases the obligations of the Fund or that materially decreases
the obligations of RPM shall become effective until at least 45 days after
notice of the amendment, together with the text thereof, has been given to all
Investors.
The executive officers of RPM the same as those for the Managing
Shareholder.
Code of Ethics.
In March 2004, the Managing Shareholder, for itself and for the Fund,
Other Power Trusts, Ridgewood LLCs and their affiliates, adopted a Code of
Ethics applicable to the principal executive officer, principal financial
officer, principal accounting officer or controller (or any persons performing
similar functions), of each such entity. A copy of the Code of Ethics will be
provided to any person without charge, upon written request made to The
Ridgewood Power Growth Fund, 947 Linwood Avenue, Ridgewood, New Jersey 07450
Attn: Daniel V. Gulino.
29
Audit Committee Financial Expert.
The Fund has neither a board of directors nor an audit committee as
contemplated by the Sarbanes-Oxley Act of 2002 and instead, the Managing
Shareholder effectively performs the functions that the board of directors or
the audit committee would otherwise perform. However, the Managing Shareholder
has determined that Douglas R. Wilson, who serves as Senior Vice President and
Chief Financial Officer of the Fund and the Chief Financial Officer of the
Managing Shareholder qualifies as an audit committee financial expert as defined
in Item 401(h)(2) of Regulation S-K.
Item 11. Executive Compensation.
None of the executive officers of the Fund receive any compensation
directly from the Fund. The Managing Shareholder compensates the officers
without additional payments by the Fund. The Fund reimburses RPM at cost for
services provided by RPM's employees. Information as to the fees payable to the
Managing Shareholder and certain affiliates is contained at Item 13. Certain
Relationships and Related Transactions.
Christiana Bank, the Corporate Trustee of the Fund, is not entitled to
compensation for serving in such capacity, but is entitled to be reimbursed for
Fund expenses incurred by it that are reimbursable under the Declaration.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The Fund sold 658.1067 Investor Shares (approximately $65.8 million of
gross proceeds) of beneficial interest in the Fund pursuant to a private
placement offering under Rule 506 of Regulation D under the Securities Act. The
offering closed in April 2000. Further details concerning the offering are set
forth above at Item 1. Business.
The Managing Shareholder purchased one Investor Share for $83,000 in cash.
The one Investor Share equals 0.2 of 1% of the outstanding Investor Shares. By
virtue of its purchase of such Investor Share, the Managing Shareholder is
entitled to the same ratable interest in the Fund as all other purchasers of
Investor Shares. No executive officers of the Fund acquired Investor Shares in
the Fund's offering and no executive officers of the Fund currently own any
Investor Shares.
The Managing Shareholder was issued one Management Share in the Fund
representing the beneficial interests and management rights of the Managing
Shareholder in its capacity as the Managing Shareholder (excluding its interest
in the Fund attributable to Investor Shares it acquired in the offering). The
management rights of the Managing Shareholder are described in further detail
above at Item 1. Business and in Item 10. Directors and Executive Officers of
the Registrant. Its beneficial interest in cash distributions of the Fund and
its allocable share of the Fund's net profits and net losses and other items
attributable to the Management Share are described in further detail below at
Item 13. Certain Relationships and Related Transactions.
Item 13. Certain Relationships and Related Transactions.
The Declaration provides that cash flow of the Fund, less reasonable
reserves which the Fund deems necessary to cover anticipated Fund expenses, is
to be distributed to the Investors and the Managing Shareholder (collectively,
the "Shareholders"), from time to time as the Fund deems appropriate and
attributable to their respective share holdings. Prior to payout (the point at
which Investors have received cumulative distributions equal to the amount of
their capital contributions), each year all distributions from the Fund, other
than distributions of the revenues from dispositions of Fund assets are to be
allocated 99% to the Investors and 1% to the Managing Shareholder until
Investors have been distributed during the year an amount equal to 12% of their
total capital contributions (a "12% Priority Distribution"), and thereafter all
remaining distributions from the Fund during the year, other than distributions
of the revenues from dispositions of Fund Property, are to be allocated 75% to
Investors and 25% to the Managing Shareholder. Revenues from dispositions of
Fund Property are to be distributed 99% to Investors and 1% to the Managing
Shareholder until payout. In all cases, after payout, Investors are to be
allocated 75% of all distributions and the Managing Shareholder 25%.
For any fiscal period, the Fund's net profits, if any, other than those
derived from dispositions of Fund Property, are allocated 99% to the Investors
and 1% to the Managing Shareholder until the profits so allocated offset (1) the
aggregate 12% Priority Distribution to all Investors and (2) any net losses from
prior periods that had been allocated to the Shareholders. Any remaining net
profits, other than those derived from dispositions of Fund Property, are
allocated 75% to the Investors and 25% to the Managing Shareholder. If the Fund
realizes net losses for the period, the losses are allocated 99% to the
Investors and 1% to the Managing Shareholder, except that if an allocation of a
loss would cause an Investor to have a negative amount
30
in the Investor's capital account, the loss will be allocated to the Managing
Shareholder instead in the amount necessary to prevent the creation of a
negative balance in the Investor's capital account. Revenues from dispositions
of Fund Property are allocated in the same manner as distributions from such
dispositions. Amounts allocated to the Investors are apportioned among them in
proportion to their capital contributions.
On liquidation of the Fund, the remaining assets of the Fund after
discharge of its obligations, including any loans owed by the Fund to the
Shareholders, will be distributed, first, 99% to the Investors and the remaining
1% to the Managing Shareholder, until payout, and any remainder will be
distributed to the Shareholders in proportion to their capital accounts.
Effective January 1, 2005, the Managing Shareholder, acting on the
recommendation of tax counsel for the Fund, amended the Declaration of Trust of
the Registrant (the "Declaration") in order to clear up potential ambiguity and
to maintain the tax status of the Fund. The Declaration authorizes the Managing
Shareholder to make such amendments to the Declaration without notice to or
approval of the Shareholders in a variety of circumstances, including, without
limitation, amendments to maintain the tax status of the Fund.
Under the terms of the amendment, if an Investor's Adjusted Capital
Account would become negative using General Allocations, losses and expenses
will be allocated to the Managing Shareholder. Should the Managing Shareholder's
Adjusted Capital Account become negative and items of income or gain occur, then
such items of income or gain will be allocated entirely to the Managing
Shareholder until such time as the Managing Shareholder's Adjusted Capital
Account becomes positive. This mechanism will not affect the allocation of cash
which was not affected by the amendment.
The Managing Shareholder has reviewed the amendments to the Declaration
recommended by tax counsel for the Fund, and has concluded that the amendment of
the Declaration will not materially and adversely affect the interests of the
Shareholders in the Fund.
The Fund made distributions of $13,297 in each of the years ended 2004 and
2003 to the Managing Shareholder (which is a member of the Board of the Fund) as
stated at Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. Accordingly, the Managing Shareholder and its affiliates charged fees
and reimbursements to the Fund and its subsidiaries as follows:
Fee Paid to 2004 2003 2002 2001 2000
- ---------------- ----------- --------- --------- --------- ----------- -----------
Investment fee Ridgewood
Power $ -- $ -- $ -- $ -- $ 199,500
Placement agent Ridgewood
fee and sales Securities
commissions Corporation -- -- -- -- 98,950
Management fees Ridgewood 822,633 822,633 822,633 1,645,267 1,096,844
Power
Organizational, Ridgewood
distribution and Power
offering fee -- -- -- -- 442,790
Due diligence Ridgewood
expenses(a) Power -- -- -- -- 708,758
The investment fee equaled 2% of the proceeds of the offering of Investor
Shares and was payable for the Managing Shareholder' services in investigating
and evaluating investment opportunities and effecting investment transactions.
The placement agent fee (1% of the offering proceeds) and sales commissions were
also paid from proceeds of the offering, as was the organizational, distribution
and offering fee (5% of offering proceeds) for legal, accounting, consulting,
filing, printing, distribution, selling, closing and organization costs of the
offering. As compensation to the Managing Shareholder, the Fund is obligated for
an annual management fee equal to $1,645,266, or 2.5% of the total capital
contributions to the Fund payable monthly upon the closing of the Fund. For the
years ended December 31, 2004, 2003 and 2002, the managing shareholder
contemporaneously waived 50% of the management fee due (or $822,633 annually).
Accordingly, management fees of $822,633 were charged to the Fund for each of
the years ended December 31, 2004, 2003 and 2002.
31
In addition to the foregoing, the Fund reimbursed the Managing Shareholder
and RPM at cost for expenses and fees of unaffiliated persons engaged by the
Managing Shareholder for Fund business and for certain expenses related to
management of Projects.
Christiana Bank, the Corporate Trustee of the Fund, is not entitled to
compensation for serving in such capacity, but is entitled to be reimbursed for
Fund expenses incurred by it that are reimbursable under the Declaration.
Mr. Swanson, who is the manager and chairman of the Managing Shareholder,
in September 1999, purchased a franchise to distribute ZAP's products on eastern
Long Island, New York and paid $10,000 to ZAP for the franchise. See Item 1.
Business; Narrative Description of Business; The Fund's Investments; ZAP.
On June 26, 2003, the Managing Shareholder of the Fund entered into a
$5,000,000 Revolving Credit and Security Agreement with Wachovia Bank, National
Association. The agreement allows the Managing Shareholder to obtain loans and
letters of credit for the benefit of the trusts and funds that it manages. As
part of the agreement, the Fund agreed to limitations on its ability to incur
indebtedness, liens and provide guarantees. On February 20, 2004, the Managing
Shareholder and Wachovia Bank amended the agreement increasing the amount to
$6,000,000. Subsequently, the agreement has been extended to September 30, 2006.
From time to time, the Fund records short-term payables and receivables
from other affiliates in the ordinary course of business. The amounts payable
and receivable with the other affiliates do not bear interest. At December 31,
2004, the Fund had outstanding payables and receivables with the following
affiliates:
Due From Due To
----------- -----------
Ridgewood Power Management LLC $ --- $ 326,062
Ridgewood Renewable Power --- 2,313,732
Trust V 1,261,459 ---
Ridgewood Electric Power Trust IV --- ---
Egypt Fund --- 270,389
United Kingdom Landfill Gas Projects 262,350 ---
Ridgewood Dubai (paid January 2005) 561,181 ---
Other affiliates --- 89,444
----------- -----------
Total $ 2,084,990 $ 2,999,627
=========== ===========
Item 14. Principal Accountant Fees and Services.
On January 14, 2004, Perelson Weiner LLP was appointed as the Fund's
independent accountants to audit the Fund's financial statements for the fiscal
year ended December 31, 2004 and to render other professional services as
required. Prior to January 14, 2004, PricewaterhouseCoopers LLP served as the
Fund's independent accountants.
Fees billed by Perelson Weiner LLP relating to the 2004 fiscal year, and
by PricewaterhouseCoopers LLP relating to the 2004 and 2003 fiscal years, were
as follows:
Type of Service 2004 2003
- ------------------ -----------------------
Audit Fees (1) $ 68,000(2) $ 74,000
Audit-Related Fees -- --
Tax Fees (3) 51,000 51,000
All Other Fees -- --
--------- ---------
Total $ 119,000 $ 125,000
========= =========
(1) Comprised of the audit of the Fund's annual financial statements and
reviews of the Fund's quarterly financial statements, as well as review of
SEC filings.
(2) Consists of aggregate audit fees of (i) $68,000 billed for professional
services rendered by Perelson Weiner LLP for the audit of the Fund's
annual financial statements and reviews of the financial statements
included in the Fund's Quarterly Reports on Form 10-Q for the year ended
December 31, 2004, and (ii) $33,000 and $41,000 billed for professional
services rendered by Perelson Weiner and PricewaterhouseCoopers LLP,
respectively, for the audit of the Fund's annual financial statements and
reviews of the financial statements included in the Fund's Quarterly
Reports on Form 10-Q for the year ended December 31, 2003.
32
(3) Comprised of services for tax advice.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements.
See the Index to Financial Statements in Item 8 of this report.
(b) Exhibits.
Exhibits required by Section 601 of Regulation S-K.
Exhibit No. Description
- ----------- -----------
3 (i)(A) + Certificate of Trust of the Registrant.
3 (i)(B) + Amendment No. 1 to Certificate of Trust.
3 (i)(C) + Declaration of Trust of the Registrant.
3 (i)(D) Amendment No. 1 to the Declaration of Trust. Incorporated by reference to the
Registrant's Registration Statement on Form 10, dated April 30, 1999, as filed
on the Registrant's Form DEFA14A filed with the Commission on November 5, 2001
10A + Stock and Warrant Purchase Agreement for ZAP Power Systems, Inc., dated March
29, 1999.
10B + Warrant for Purchase of Common Stock of ZAP Power Systems, Inc., dated March
29, 1999.
10C + Investors' Rights Agreement with ZAP Power Systems, Inc., dated March 29,
1999.
10D + Milestone letter agreement with ZAP Power Systems, Inc., dated March 29, 1999.
10E + Letter agreement re board representation with ZAP Power Systems, Inc., dated
March 29, 1999.
10F +# Management Agreement between the Fund and Managing Shareholders, dated March
29, 1999.
10G +# Key Employees' Incentive Plan
10H + Agreement of Merger between Ridgewood Power Corporation and Ridgewood Power
LLC.
10I +/@ Operating Agreement of Ridgewood Near East Holding LLC., dated September 30,
1999.
10J @ Form of contracts and agreements between CLPE Holdings, Inc and each of (i)
Ridgewood Renewable PowerBank II, LLC, (ii) Ridgewood Renewable PowerBank I,
LLC, (iii) Ridgewood Renewable PowerBank III, LLC and (iv) Ridgewood Renewable
PowerBank IV, LLC.
14 @ Code of Ethics, adopted on March 1, 2004.
33
Exhibit No. Description
- ----------- -----------
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 Douglas R. Wilson, 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 Douglas R. Wilson, Chief
Financial Officer of the Registrant.
99.2 * 2004 Financial Statements for Ridgewood UK, LLC.
- ----------
* Filed herewith.
+ Incorporated by reference to the Registrant's Registration Statement
on Form 10 filed with the SEC on April 30, 1999.
# A management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.
@ Filed with Form 10-K report on March 1, 2006.
(c) Financial Statement Schedules
See Financial Statements and accompanying notes included in this report.
34
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
(Registrant)
Date: March 3, 2006 By: /s/ Randall D. Holmes
---------------------
Randall D. Holmes
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Randall D. Holmes Chief Executive Officer March 3, 2006
- --------------------- (Principal Executive Officer)
Randall D. Holmes
/s/ Douglas R. Wilson Senior Vice President and March 3, 2006
- --------------------- Chief Financial Officer
Douglas R. Wilson (Principal Accounting Officer)
RIDGEWOOD POWER LLC
(Managing Shareholder)
By: /s/ Randall D. Holmes Chief Executive Officer of March 3, 2006
--------------------- Managing Shareholder
Randall D. Holmes
35