UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2005.
or
[_] 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
RIDGEWOOD POWER GROWTH FUND
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3495594
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1314 King Street, Wilmington, Delaware 19801
---------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (302) 888-7444
----------------
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange 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 Shares. As of March 15, 2006, number of shares
outstanding was 658.1067.
RIDGEWOOD POWER GROWTH FUND
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements
Consolidated Balance Sheets
September 30, 2005 and December 31,2004......................................................1
Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2005 and 2004......................................2
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
Nine months Ended September 30, 2005.........................................................3
Consolidated Statements of Comprehensive (Loss) Income
Nine months Ended September 30, 2005 and 2004................................................3
Consolidated Statements of Cash Flows
Nine months Ended September 30, 2005 and 2004................................................4
Notes to Consolidated Financial Statements ..................................................5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.............................................15
ITEM 4. Controls and Procedures................................................................................15
PART II . OTHER INFORMATION
ITEM 6. Exhibits...............................................................................................19
Signatures ............................................................................................20
The Ridgewood Power Growth Fund
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
September 30, 2005 December 31, 2004
--------------------- ---------------------
Assets: unaudited audited
--------------------- ---------------------
Cash and cash equivalents $ 2,168,607 $ 768,634
Accounts receivable, net of allowance of $147,620 and
$148,649 in 2005 and 2004, respectively 1,140,456 1,159,434
Current portion of notes receivable 125,254 131,399
Due from affiliates 732,916 2,084,990
Inventories 484,910 563,470
Prepaid expenses and other current assets 341,671 559,003
------------ ------------
Total current assets 4,993,814 5,266,930
------------ ------------
Investments:
United Kingdom Landfill Gas Projects 868,670 2,334,069
Investment in ZAP securities 233,613 1,750,000
------------ ------------
Total investments 1,102,283 4,084,069
------------ ------------
Property, plant and equipment:
Plant and equipment 29,419,926 26,190,582
Construction in progress 59,497 58,823
Office equipment 760,784 747,865
------------ ------------
30,240,207 26,997,270
Accumulated depreciation (8,355,355) (6,320,102)
------------ ------------
21,884,852 20,677,168
------------ ------------
Electric power sales contracts 16,221,303 16,221,303
Accumulated amortization (4,162,306) (3,132,121)
------------ ------------
12,058,997 13,089,182
------------ ------------
Notes receivable, less current portion 1,554,209 1,635,722
Other assets 48,799 59,475
Goodwill 4,491,938 4,491,938
------------ ------------
Total assets $ 46,134,892 $ 49,304,484
============ ============
Liabilities and shareholders' equity:
Accounts payable $ 607,774 $ 545,150
Accrued expenses 633,608 591,046
Current portion of long term debt 1,355,154 1,177,888
Due to affiliates 2,806,881 2,999,627
------------ ------------
Total current liabilities 5,403,417 5,313,711
Long-term debt, less current portion 2,772,954 3,558,451
Deferred rent 341,727 259,440
Deferred income taxes 3,317,266 3,587,267
Other liabilities 1,383,859 542,829
Minority interest 9,372,773 10,791,773
------------ ------------
Total liabilities 22,591,996 24,053,471
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Shareholders' equity (658.1067 investor shares issued and outstanding) 23,781,518 25,472,553
Managing shareholder's accumulated deficit
(1 management share issued and outstanding) (238,622) (221,540)
------------ ------------
Total shareholders' equity (deficit) 23,542,896 25,251,013
------------ ------------
Total liabilities and shareholders' equity $ 46,134,892 $ 49,304,484
============ ============
See accompanying notes to the consolidated financial statements.
1
The Ridgewood Power Growth Fund
Consolidated Statements of Operations (unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
Revenues $ 9,304,177 $ 8,316,825 $ 2,875,563 $ 2,528,897
Cost of revenues 6,395,134 6,088,877 2,409,226 2,317,647
----------- ----------- ----------- -----------
Gross profit 2,909,043 2,227,948 466,337 211,250
----------- ----------- ----------- -----------
Other operating expenses:
General and administrative expenses 2,777,514 1,623,293 630,845 583,661
Management fee to the Managing Shareholder -- 822,634 -- --
----------- ----------- ----------- -----------
Total other operating expenses 2,777,514 2,445,927 630,845 583,661
----------- ----------- ----------- -----------
Income (loss) from operations 131,529 (217,979) (164,508) (372,411)
----------- ----------- ----------- -----------
Other (expense) income:
Interest income 69,841 51,594 21,446 25,570
Interest expense (487,026) (521,655) (159,533) (151,463)
Equity in loss of United Kingdom Landfill Gas Projects (257,688) (418,249) (218,086) (185,656)
(Loss) gain on distribution and sale of ZAP securities (695,011) 2,279,936 (560,385) 706,403
Gain on sale of US Hydro note, net -- 174,631 -- --
Gain on sale of equipment 4,695 5,699 -- 15,978
Other expense (17,461) (2,796) (7,232) (443)
----------- ----------- ----------- -----------
Other (expense) income, net (1,382,650) 1,569,160 (923,790) 410,389
----------- ----------- ----------- -----------
(Loss) income before income taxes and minority interest (1,251,121) 1,351,181 (1,088,298) 37,978
Income tax benefit (64,228) (457,473) (50,000) (180,898)
----------- ----------- ----------- -----------
(Loss) income before minority interest (1,186,893) 1,808,654 (1,038,298) 218,876
Minority interest in the loss (earnings) of subsidiaries 63,503 (226,119) 54,642 88,049
----------- ----------- ----------- -----------
Net (loss) income $(1,123,390) $ 1,582,535 $ (983,656) $ 306,925
=========== =========== =========== ===========
Managing Shareholder - Net (loss) income $ (11,234) $ 15,825 $ (9,837) $ 3,069
=========== =========== =========== ===========
Shareholders - Net (loss) income $(1,112,156) $ 1,566,710 $ (973,819) $ 303,856
=========== =========== =========== ===========
Net (loss) income per investor share $ (1,690) $ 2,381 $ (1,480) $ 462
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements.
2
The Ridgewood Power Growth Fund
Consolidated Statement of Changes in Shareholders' Equity (Deficit)-(unaudited)
- --------------------------------------------------------------------------------
Total
Managing Shareholders'
Shareholders Shareholder Equity
--------------- --------------- --------------
Shareholders' equity (deficit), December 31, 2004 $ 25,472,553 $ (221,540) $ 25,251,013
Cash distributions (987,300) (9,973) (997,273)
Net loss (1,112,156) (11,234) (1,123,390)
Foreign currency translation adjustment 519,685 5,249 524,934
Unrealized loss on investment in ZAP securities (111,264) (1,124) (112,388)
------------ ------------ ------------
Shareholders' equity (deficit), September 30, 2005 $ 23,781,518 $ (238,622) $ 23,542,896
============ ============ ============
The Ridgewood Power Growth Fund
Consolidated Statements of Comprehensive (Loss) Income (unaudited)
Nine Months Ended Three Months Ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
--------------- --------------- -------------- ---------------
Net (loss) income $(1,123,390) $ 1,582,535 $ (983,656) $ 306,925
Foreign currency translation adjustment 524,934 (110,241) 135,358 (6,446)
Unrealized (loss) gain on investment in ZAP securities (112,388) 430,649 583,889 (1,051,156)
----------- ----------- ----------- -----------
Comprehensive (loss) income $ (710,844) $ 1,902,943 $ (264,409) $ (750,677)
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements.
3
The Ridgewood Power Growth Fund
Consolidated Statements of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Cash flows from operating activities:
Net (loss) income $(1,123,390) $ 1,582,535
----------- -----------
Adjustments to reconcile net (loss) income to net cash
flows provided by operating activities:
Depreciation and amortization 2,740,852 2,653,054
Minority interest in (loss) earnings from subsidiaries (63,503) 226,119
Loss (gain) on distribution and sale of ZAP securities 695,011 (2,279,936)
Gain on sale of US Hydro note, net -- (174,631)
Gain on sale of equipment (4,695) (5,699)
Equity in loss of United Kingdom Landfill Gas Projects 257,688 418,249
Changes in assets and liabilities:
Decrease in accounts receivable, net 69,585 46,021
Decrease in due from/to affiliates, net 1,216,275 319,809
Decrease (increase) in inventories 112,525 (18,970)
Decrease (increase) in prepaid expenses and other current assets 237,736 (617,059)
Decrease (increase) in other assets 13,524 (58,838)
Increase (decrease) in accounts payable 39,460 (63,224)
(Decrease) increase in accrued expenses (12,170) 74,586
Increase (decrease) in other liabilities 841,153 (29,937)
Increase in deferred rent 82,287 93,540
Decrease in deferred income taxes (270,001) (542,691)
----------- -----------
Total adjustments 5,955,727 40,392
----------- -----------
Net cash provided by operating activities 4,832,337 1,622,927
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,896,594) (369,862)
Proceeds from sale of equipment 52,276 90,977
Collections from notes receivable 95,328 320,645
Distributions from United Kingdom Landfill Gas Projects 1,051,315 697,999
Investment in ZAP securities -- (1,064,115)
Proceeds from sale of investment in ZAP securities 708,988 661,505
Proceeds from sale of note receivable, net -- 3,974,631
----------- -----------
Net cash provided by investing activities 11,313 4,311,780
----------- -----------
Cash flows from financing activities:
Repayments under bank loans (815,934) (4,620,428)
Distribution to minority interest (1,674,237) --
Distribution to shareholders (997,273) (997,280)
----------- -----------
Net cash used in financing activities (3,487,444) (5,617,707)
----------- -----------
Effect of exchange rate on cash and cash equivalents 43,767 (10,086)
----------- -----------
Net increase in cash and cash equivalents 1,399,973 306,914
Cash and cash equivalents, beginning of period 768,634 801,233
----------- -----------
Cash and cash equivalents, end of period $ 2,168,607 $ 1,108,147
=========== ===========
Supplemental disclosure:
Interest paid $ 246,263 $ 271,054
Income tax paid $ 376,037 $ --
Non cash investing activities:
Unrealized loss (2005) gain (2004) on ZAP securities $ 112,388 $ 430,649
See accompanying notes to the consolidated financial statements.
4
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. General
The accompanying unaudited consolidated financial statements of Ridgewood Power
Growth Fund (the "Fund") were prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
financial position and results of operations and cash flows of the Fund have
been included. Certain reclassifications have been made to the prior period's
consolidated financial statements to conform to the current period's
presentation. Operating results for the three and nine months ended September
30, 2005 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2005. The consolidated balance sheet at
December 31, 2004 has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles in the United
States of America. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Fund's Annual Report on Form
10-K for the year ended December 31, 2004, as filed with the Securities and
Exchange Commission ("SEC").
The Fund was formed as a Delaware business trust in February 1997. 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 Fund was formed 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.
The consolidated financial statements include the accounts of the Fund, the US
Hydro Projects and the Egypt Projects. The Fund uses the equity method of
accounting for its investment in the United Kingdom Landfill Gas Projects (the
"UK Projects").
2. Summary Results of Operations for Selected Investments
Summary financial information rounded to the nearest $1,000 for the United
Kingdom Landfill Gas Projects, which are accounted for under the equity method,
were as follows:
Balance Sheets
September 30, December 31,
2005 2004
---- ----
Current assets $ 20,962,000 $ 30,791,000
Non-current assets $ 67,535,000 $ 70,485,000
Current liabilities $ 14,195,000 $ 10,670,000
Non-current liabilties $ 70,654,000 $ 81,398,000
Minority interest $ 749,000 $ 1,424,000
5
Statements of Operations
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Revenue $ 23,807,000 $ 16,135,000 $ 8,176,000 $ 5,639,000
Cost of revenues 20,803,000 14,690,000 7,674,000 5,280,000
Other expenses 3,864,000 2,840,000 1,230,000 978,000
------------ ------------ ------------ ------------
Net loss $ (860,000) $ (1,395,000) $ (728,000) $ (619,000)
============ ============ ============ ============
3. New Accounting Standards and Disclosures
SFAS 153
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
SFAS 154
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. SFAS No. 154 replaces APB Opinion No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. This
statement changes the requirements for the accounting for, and reporting of, a
change in accounting principle and applies to all voluntary changes in
accounting principle, as well as changes pursuant to accounting pronouncements
that do not include transition rules. Under SFAS 154, changes in accounting
principle must be applied retrospectively to prior periods' financial
statements, or the earliest practicable date, as the required method for
reporting a change in accounting principle. SFAS 154 is effective for years
beginning after December 15, 2005.
4. Notes Receivable
The following is a summary of the Fund's notes receivable:
September 30, December 31,
2005 2004
---- ----
Blackstone $ 1,561,700 $1,642,009
Other 117,763 125,112
----------- ----------
Total notes receivable 1,679,463 1,767,121
Less current portion 125,254 131,399
----------- ----------
Notes receivable - long-term portion $ 1,554,209 $1,635,722
=========== ==========
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 the 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 is to 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.
5. 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 or net realizable value. Net realizable value is the estimated selling
6
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. Inventories
consist principally of spare parts, fuel and goods-in-transit of approximately
$439,000, $39,000 and $7,000, respectively, as of September 30, 2005.
Inventories consisted principally of spare parts and fuel of approximately
$533,000 and $31,000, respectively, as of December 31, 2004.
6. Long-term Debt
Following is a summary of long-term debt by project at September 30, 2005:
Ridgewood
Egypt for
Sinai Infrastructure U.S. Hydro Total
----- -------------- ---------- -----
Total long-term debt $ 2,332,693 $ 812,477 $ 982,938 $ 4,128,108
Less current maturity (371,081) (541,651) (442,422) (1,355,154)
----------- ----------- ----------- -----------
Long-term portion $ 1,961,612 $ 270,826 $ 540,516 $ 2,772,954
=========== =========== =========== ===========
Sinai has an outstanding loan and interest payable of 13,458,242 Egyptian pounds
(approximately US $2,333,000). 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 $135,000 as of September 30, 2005). Outstanding borrowings
bear interest at the bank's medium term loan rate plus 0.5% (12.5% at September
30, 2005 and December 31, 2004).
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 (approximately 3.83% at
September 30, 2005 and 2.38% at December 31, 2004) 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 approximately 5.58% was the effective interest rate at September 30,
2005 and 4.13% at December 31, 2004. This credit facility is collateralized by
five hydroelectric plants and the notes receivable owned by the US Hydro
Projects. 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 one of its subsidiary's 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.
7. Other Liabilities
As of September 30, 2005, other liabilities include the future discounted
payments aggregating $1,324,181 net of current portion, that is part of the
termination agreements with two consultants that provided marketing,
construction and management services in Egypt (as discussed below).
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 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 liability of $484,034 and $513,969 as of September 30, 2005 and December
31, 2004, respectively.
In the first quarter of 2005, Ridgewood Near East terminated an agreement with a
former consultant, who previously operated under an arrangement whereby the
consultant provided marketing, construction and management services in Egypt. As
per the termination agreement, Ridgewood Near East will pay the consultant
7
$120,000 per year over the remaining life of the projects. The Fund discounted
the future payments over 15 years which represents the estimated useful life of
the Egypt Projects. As per the terms of the agreement, the Fund will make
quarterly installments of $30,000 starting April 1, 2005 and, accordingly,
recorded the liability by discounting the future payments at the rate of 10%
resulting in a total liability of $913,452 as of September 30, 2005. Based on
future events, it is possible that the useful life of the Egypt Projects may
exceed 15 years which would result in costs exceeding more than the amount
accrued as of September 30, 2005.
The Fund recorded the current portion of future discounted payments of $73,305
to accrued expenses. Schedule of future discounted payments (net of current
portion) as of September 30, 2005 are as follows:
2006 (3 months) $ 19,491
2007 82,988
2008 91,647
2009 101,210
2010 111,772
Thereafter 917,073
----------
Total $1,324,181
==========
8. Related Party Transactions
From time to time, the Fund records short-term receivables and payables from
other affiliates in the ordinary course of business. The amounts receivable and
payable with the other affiliates do not bear interest. At September 30, 2005
and December 31, 2004, the Fund had outstanding receivables and payables with
the following affiliates:
Due From Due To
--------------------------------------------------------------------
September 30 , December 31, September 30, December 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Ridgewood Power Management LLC -- -- $ 670,670 $ 326,062
Ridgewood Renewable Power LLC -- -- 1,816,732 2,313,732
Ridgewood Electric Power Trust V $ 463,255 $1,261,459 -- --
Egypt Fund -- -- 230,785 270,389
United Kingdom Landfill Gas Projects 269,661 262,350 -- --
Ridgewood Dubai -- 561,181 -- --
Other affiliates -- -- 88,694 89,444
---------- ---------- ---------- ----------
Totals $ 732,916 $2,084,990 $2,806,881 $2,999,627
========== ========== ========== ==========
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. On June 14, 2005, the Managing Shareholder received notification
from Wachovia Bank that its Line of Credit was extended through September 30,
2005. The agreement has subsequently been extended to September 2006.
The Managing Shareholder waived the management fee for the nine months ended
September 30, 2005.
During the second quarter of 2005, a subsidiary made a cash distribution of
$1,674,237 to Ridgewood Electric Power Trust V, a minority interest.
9. Cost of Revenues
Included in cost of revenues is depreciation and amortization expense of
$2,740,852 and $2,653,054 for the nine months ended September 30, 2005 and 2004,
respectively and $938,797 and $921,293 for the three months ended September 30,
2005 and 2004, respectively.
8
10. ZAP
As an incentive to exercise the warrant it received in the reorganization of
ZAP, the Fund received a second warrant, which was exercised in December 2004
with the purchase of 538,462 shares at $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. During the nine and three months ended September 30, 2005,
the Fund sold 432,000 and 260,000 ZAP shares, respectively, to third parties
which resulted in a loss of $695,011 and $560,385, respectively. The Fund
recorded an unrealized loss in the remaining 106,462 shares (from the exercise
of the warrant) of $227,828 due to the decrease in the market price of ZAP
securities from $3.25 (December 31, 2004) to $1.11 (September 30, 2005). In
addition, during the third quarter of 2005, transfer restrictions on
approximately 104,000 Reorganized ZAP Shares were removed, resulting in an
unrealized gain of $115,440 on 104,000 ZAP unrestricted shares at a market price
of $1.11 per share. A net unrealized loss of $112,388 for the nine months ended
September 30, 2005 is included in shareholders' equity.
11. Foreign Currency
The cumulative foreign currency translation adjustment, which represents total
accumulated other comprehensive loss, is included in shareholders' equity at
September 30, 2005 and December 31, 2004 and amounts to a loss of $7,728,890 and
$8,253,824, respectively.
12. Commitments and Contingencies
Two of the US Hydro Projects hydroelectric plants have leased the site at their
facility under a long term lease which terminates in 2024. Rent expense for the
quarters ended September 30, 2005 and 2004 was $198,677 and $184,511,
respectively and for the nine months ended September 30, 2005 and 2004 was
$596,381 and $581,869, respectively.
Minimum lease payments at September 30, 2005 are as follows:
2005 (3 months) $ 46,250
2006 695,000
2007 700,000
2008 710,000
2009 720,500
Thereafter 5,495,977
----------
Total Minimum Lease Payments $8,367,727
==========
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 $92,903 and $87,408
as of September 30, 2005 and December 31, 2004, respectively.
13. Financial Information by Business Segment
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 ("power") and water desalinization ("water"). The
power business segment represents the activity of Egypt Infrastructure and U.S.
Hydro, with operations in Egypt and the United States. The water business
segment represents the activity of Sinai, with operations in Egypt. The
corporate business segment represents the activity of the fund, with operations
in the United States.
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:
9
Power
--------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues $ 4,645,843 $ 4,546,035 $ 874,311 $ 993,238
Depreciation and
amortization 1,385,312 1,452,293 462,684 506,268
Gross profit (loss) 1,751,301 1,381,414 (131,827) (124,854)
Interest expense 42,240 70,681 15,703 16,607
Goodwill 4,491,938 5,153,145 4,491,938 5,153,145
Water
--------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2005 2004 2005 2004
----------- ----------- ----------- --------------
Revenues $ 4,658,334 $ 3,770,790 $ 2,001,252 $ 1,535,659
Depreciation and
amortization 1,181,182 1,013,685 417,779 353,318
Gross profit (loss) 1,332,100 (731,266) 656,498 (1,367,064)
Interest expense 233,699 250,601 65,684 74,648
Goodwill -- -- -- --
Corporate
--------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2005 2004 2005 2004
----------- ------------- ----------- --------------
Revenues -- -- -- --
Depreciation and
amortization $ 174,358 $ 187,076 $ 58,334 $ 61,707
Gross (loss) profit (174,358) 1,577,800 (58,334) 1,703,169
Interest expense 211,087 200,373 78,146 60,208
Goodwill -- -- -- --
Total
--------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2005 2004 2005 2004
----------- --------------- ----------- --------------
Revenues $ 9,304,177 $ 8,316,825 $ 2,875,563 $ 2,528,897
Depreciation and
amortization 2,740,852 2,653,054 938,797 921,293
Gross profit 2,909,043 2,227,948 466,337 211,250
Interest expense 487,026 521,655 159,533 151,463
Goodwill 4,491,938 5,153,145 4,491,938 5,153,145
14. Subsequent Events
During October 2005, the management fee to Managing Shareholder accrued for
2004, 2003, and 2002, aggregating $1,623,690, was forgiven. 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.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the accompanying
consolidated financial statements and the associated notes thereto of this
Quarterly Report, and the audited consolidated financial statements and the
notes thereto and our Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended December 31, 2004, as filed with the Securities and Exchange
Commission.
Dollar amounts in this discussion are rounded to the nearest $1,000.
Introduction
The consolidated financial statements include the accounts of the Fund, the U.S.
Hydro projects and the Egypt Projects. The Fund uses the equity method of
accounting for its investment in the UK Projects.
Critical Accounting Policies and Estimates
For a complete discussion of critical accounting policies, refer to "Significant
Accounting Policies" in Item 7 of the Fund's 2004 Form 10-K. There have been no
substantive changes to those policies and estimates.
Outlook
The adoption of the renewable portfolio standard ("RPS") regulations in
Massachusetts is indicative of the significant activity and movement in the
industry, as well as at state and federal governments, to increase the amount of
renewable power that is supplied to utilities that serve end-use customers in
various states. In Massachusetts, legislation and regulations have been passed
requiring such retail electric suppliers to have in their electric portfolio one
(1%) "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 general U.S. 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 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. 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
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, the
Egyptian Projects are 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 are
based on contracted rates. Some contracts are short-term and in other cases,
hotels may attempt to renegotiate the terms of their contracts. 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).
11
Results of Operations
Three Months Ended September 30, 2005, compared to the Three Months Ended
September 30, 2004
Total revenues increased $347,000 to $2,876,000 in the third quarter of 2005
compared to $2,529,000 during the same period in 2004. This is primarily due to
increase in revenues from the Egyptian operations by approximately $489,000,
primarily due to the increased in demand due to peak tourism season. This is
partially offset by the decrease in revenues at the U.S. Hydro Projects by
approximately $142,000 due to the lower outputs resulting from lower
precipitation.
Cost of revenues for the third quarter of 2005 was $2,409,000, an increase of
$92,000 from the third quarter of 2004, primarily due to the increase in
operating expenses of Egypt operations resulting from increase in revenues.
Gross profit increased by $255,000, from $211,000 in the third quarter of 2004
to $466,000 in the third quarter of 2005. This is primarily due to the increase
of $367,000 in gross profit of the Egypt operations resulting from the increase
in revenues, partially offset by the decrease of $112,000 in gross profit of US
Hydro projects resulting from the decrease in revenues.
General and administrative expenses increased by $47,000 to $631,000 in the
third quarter of 2005, due to an increase in salary related expenses and
professional fees for the Egypt operations.
Loss from operations decreased by $208,000 from $372,000 in the third quarter of
2004 to $164,000 in the third quarter of 2005. The decrease in loss from
operations is primarily due to the increased gross profit.
Interest income decreased by $5,000 from $26,000 in the third quarter of 2004 to
$21,000 during the same period in 2005. The decrease is primarily due to
decrease in interest income from REFI partially offset by interest earned in
2005 on the note receivable resulting from the cancellation of the Blackstone
Project's power purchase agreement with New England Power.
Interest expense for the third quarter of 2005 was $160,000 compared to $151,000
in 2004. The increase is primarily due to the interest paid as per the
termination of a consulting agreement starting in the second quarter of 2005
discounted at 10%. This is partially offset by the pay down of the outstanding
borrowings under the credit line executed by the Egypt Projects in the third
quarter of 2002.
In the third quarter of 2005, the Fund recorded an equity loss of $218,000 from
the UK Projects, compared to a loss of $186,000 in the third quarter of 2004.
The increase in equity loss is primarily attributable to the increase in cost of
revenue and interest expense, partially offset by higher revenues as a result of
the United Kingdom Landfill Gas Projects increased capacity in the current year.
The Fund recorded loss on sale of ZAP securities of $560,000 in the third
quarter of 2005 compared to gain on distribution and sale of ZAP securities of
$706,000 in the third quarter of 2004. In third quarter of 2005, the Fund sold
260,000 ZAP shares at a market price lower than the price of $3.25 in December
2004. During the third quarter of 2004, the Fund sold a portion of its
investment in ZAP for a gain of $201,000. In addition, the Fund recorded a gain
of $505,000 from the distribution of approximately 273,000 ZAP shares to its
shareholders.
The Fund's Egypt projects recorded a gain on the sale of equipment of $16,000 in
the third quarter of 2004 at one of its on-site hotel accounts.
The Fund recorded other expense of $7,000 in the third quarter of 2005 resulting
from the Egyptian foreign exchange loss resulting from the purchase of equipment
from various international third parties.
In the third quarter of 2005, the Fund recorded a deferred income tax benefit of
$90,000 compared to $181,000 in the third quarter of 2004. In the third quarter
of 2005, the Fund also incurred $40,000 in current state income tax expense on
behalf of certain 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 periods presented.
12
Minority interest in the losses of subsidiaries decreased from $88,000 in the
third quarter of 2004 to $55,000 in the third quarter of 2005. The decrease in
loss is primarily due to the decrease in the loss of Ridgewood Near East
resulting from the increase in revenue and the decrease in loss on sale of
equipment.
Net loss increased by $1,291,000, from income of $307,000 in third quarter of
2004 to a loss of $984,000 in third quarter of 2005. This is primarily due to
the decrease in gain on distribution and sale of ZAP securities.
Nine Months Ended September 30, 2005, compared to the Nine Months Ended
September 30, 2004
Total revenues increased $987,000, from $8,317,000 for the nine months ended
September 30, 2004 compared to $9,304,000 for the same period in 2005. This is
primarily due to the increase in revenues from the Egyptian operations by
approximately $790,000, primarily due to the increase in demand due to peak
tourism season and increase in revenues at the U.S. Hydro Projects by
approximately $197,000 due to the higher outputs resulting from higher than
anticipated precipitation.
Cost of revenues for the first nine months of 2005 was $6,395,000, as compared
to $6,089,000 for the same period in 2004. The increase is due to the increase
in operating expenses of the Egyptian operations resulting from increase in
revenues.
Gross profit increased by $681,000, from $2,228,000 in the first nine months of
2004 to $2,909,000 in the first nine months of 2005. This is due to the increase
of $360,000 in gross profit of US Hydro resulting from the decrease in
depreciation and amortization expenses related to Blackstone project. Gross
profit of Egyptian operations increased by $321,000 due to the increase in
revenues.
General and administrative expenses increased $1,153,000 to $2,777,000 for the
nine months ended September 30, 2005. The increase in expenses is primarily due
to the termination agreement with a former consultant which resulted in a charge
of $927,000 which represents the present value of the future discounted
payments. In addition, the increase in expense is also due to increase in
professional fees for US Hydro Projects.
The management fee to the Managing Shareholder was waived for the first nine
months of 2005 compared to $823,000 of fees recorded in the first nine months of
2004.
Income from operations increased from a loss of $218,000 in the first nine
months of 2004 to income of $132,000 in the first nine months of 2005. The
increase in income from operations is primarily due to the increase in gross
profit and also due to waiving of the management fee for 2005. This is partially
offset by the increase in general and administrative expenses.
Interest income increased by $18,000, from $52,000 in the first nine months of
2004 to $70,000 during the same period in 2005. The increase is attributable to
the interest earned on the note receivable resulting from the cancellation of
the Blackstone Project's original power agreement with New England Power.
Interest expense for the first nine months of 2005 was $487,000 compared to
$522,000 in 2004. The decrease is primarily due to the paydown of the debt
assumed in the US Hydro acquisition and the outstanding borrowings under the
Egypt Projects' credit line. This is partially offset by the interest related to
the termination of a consulting starting in the second quarter of 2005 with the
payment discounted at 10%.
In the first nine months of 2005 the Fund recorded an equity loss of $258,000
from the UK Projects, compared to $418,000 for the first nine months of 2004.
The decrease in equity loss is primarily a result of the United Kingdom Landfill
Gas Projects experiencing higher revenues as a result of increased capacity,and
a decrease in administrative and professional fees expenses, partially offset by
increase in interest expense.
The Fund recorded a loss on sale of investment in ZAP securities of $695,000 in
the first nine months of 2005 compared to gain on distribution and sale of
investment in ZAP securities of $2,280,000 during the same period in 2004. In
2005, the Fund sold 432,000 ZAP shares at a market price lower than the price of
$3.25 in December 2004. In 2004, the Fund recorded a gain on distribution and
sale of 772,500 ZAP shares to the Fund's investor shareholders.
In the first nine months of 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
13
of $25,000 incurred for 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.
The Fund's Egyptian operations recorded a gain on the sale of equipment of
$5,000 in the first nine months of 2005 compared to $6,000 in 2004. In 2004, the
Fund's Egyptian operations sold equipment at one of its on-site hotel accounts
for a gain of $16,000, partially offset by the sale of three vehicles for a loss
of $10,000.
Other expenses increased by $14,000 from $3,000 in the first nine months of 2004
to $17,000 during the same period in 2005. The increase in other expense is
primarily due to increase in foreign exchange loss resulting from the purchase
of equipment from various international third parties.
In the first nine months of 2005, the Fund recorded a deferred income tax
benefit of $270,000 compared to $542,000 in the first nine months of 2004.
During the first nine months of 2005 the Fund incurred $206,000 in current state
income tax expense on behalf of certain of the US Hydro Projects as compared to
$85,000 in the first nine months of 2004. 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 periods presented.
Minority interest in the earnings of subsidiaries increased from $226,000 in the
first nine months of 2004 to a loss of $64,000 in the first nine months of 2005.
The decrease in earnings of subsidiaries is attributable to the increase in loss
of the Egypt operations due to the increase in operating expenses, partially
offset by the increase in earnings of US Hydro Projects resulting from the
increase in revenue.
Net loss for the first nine months of 2005 was $1,123,000 compared to net income
of $1,583,000 for the first nine months of 2004. The decrease in net income is
primarily attributable to the decrease in gain on distribution and sale of ZAP
securities and income tax benefit. This is partially offset by the increase in
income from operations.
Liquidity and Capital Resources
At September 30, 2005, the Fund had cash and cash equivalents of $2,169,000, an
increase of $1,400,000 as compared to December 31, 2004. The cash flows for the
first nine months of 2005 are $4,832,000 provided by operating activities,
$11,000 provided by investing activities, $3,487,000 used in financing
activities and $44,000 gain from the effect of the exchange rate on cash and
cash equivalents.
Cash provided by operating activities for the nine months ended September 30,
2005 was $4,832,000 as compared to $1,623,000 for the nine months ended
September 30, 2004. The increase in cash flow from operating activities compared
to 2004 is primarily due to the increase in other liabilities resulting from the
termination agreement of a consultant in Egypt. In addition, the increase in
cash flow is also due to the decrease in short-term receivable from affiliates
and in other current assets resulting from the decrease in prepayments made by
the Egyptian operations for the equipment.
Cash provided by investing activities was $11,000 during the first nine months
of 2005 as compared to $4,312,000 provided by these activities in the first nine
months of 2004. The decrease is primarily due to $1,527,000 increase in capital
expenditures and $225,000 decrease in collections of note receivable. In
addition, the decrease in the first nine months of 2005 is also due to
$3,975,000 proceeds from the sale of the US Hydro note receivable in 2004
compared to $0 in 2005. This is partially offset by $1,064,000 of investment in
ZAP securities in the first nine months of 2004 and an increase of $353,000 in
distributions from the United Kingdom Landfill Gas Projects in the first nine
months of 2005.
Cash used by financing activities for the first nine months of 2005 was
$3,487,000 compared to $5,618,000 for the first nine months of 2004. In 2005,
cash used in financing activities includes $997,000 in cash distribution to
shareholders, $1,674,000 in US Hydro cash distribution to its minority
shareholder and $816,000 in repayments of bank loans. In 2004, financing
activities includes $997,000 in cash distribution to shareholders and $4,620,000
in repayment of bank loans.
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 March
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 the management fee to the Managing Shareholder and payments for
certain administrative, accounting and legal services to third persons.
Accordingly, the Fund has not found it necessary to retain a material amount of
working capital.
14
The following schedule represents the Fund's total contractual obligations as of
September 30, 2005:
2005 2006 2007 2008 2009 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Long-term debt
Sinai $ 173,995 $ 248,435 $ 249,036 $ 344,687 $ 451,325 $ 865,215 $2,332,693
REFI 135,414 541,651 135,412 -- -- -- 812,477
US Hydro 118,112 432,413 432,413 -- -- -- 982,938
Minimum lease payments 46,250 695,000 700,000 710,000 720,500 5,495,977 8,367,727
Consulting settlement agreements 17,650 75,146 82,988 91,647 101,210 1,028,845 1,397,486
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 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 a
total liability of $484,033 and $513,969 as of September 30, 2005 and December
31, 2004, respectively.
In the first quarter of 2005, Ridgewood Near East terminated an agreement with a
former consultant, who previously operated under an arrangement whereby the
consultant provided marketing, construction and management services in Egypt. As
per the termination agreement, Ridgewood Near East will pay the consultant
$120,000 per year over the remaining life of the projects. The Fund discounted
the future payments over 15 years which represents the estimated useful life of
the Egypt Projects. As per the terms of the agreement, the Fund will make
quarterly installments of $30,000 starting April 1, 2005 and, accordingly,
recorded the liability by discounting the future payments at the rate of 10%
resulting in a total liability of $913,452 as of September 30, 2005. Based on
future events, it is possible that the useful life of the Egypt Projects may
exceed 15 years which would result in costs exceeding the amount accrued as of
September 30, 2005.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in the Fund's assessment of its market risk
since its presentation set forth in Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," in its Annual Report on Form 10-K for the fiscal
year ended December 31, 2004.
Item 4. 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 September 30, 2005. 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 September 30, 2005 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 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.
15
(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
U.S. 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 U.S. 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:
16
(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 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 September 30, 2005
that have materially affected, or are reasonably like to materially affect, our
internal control over financial reporting.
Forward-looking statement advisory
This Quarterly Report on Form 10-Q, as with some other statements made by the
Fund from time to time, contains forward-looking statements. These statements
discuss business trends and other matters relating to the Fund's future results
and the business climate and are found, among other places, in the notes to
financial statements and at Part I, Item 2, Management's Discussion and
Analysis. In order to make these statements, the Fund has had to make
assumptions as to the future. It has also had to make estimates in some cases
about events that have already happened, 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, what happens to the Fund in the
future may be materially different from the Fund's statements here.
17
Some of these are 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 plant, mechanical breakdowns, availability of labor and the
willingness of electric utilities to perform existing power purchase agreements
in good faith. Some of the cautionary factors that readers should consider are
described in the Fund's most recent Annual Report on Form 10-K.
The Fund therefore warns readers of this document that they 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.
By making these statements now, the Fund is not making any commitment to revise
these forward-looking statements to reflect events that happen after the date of
this document or to reflect unanticipated future events.
18
PART II - OTHER INFORMATION
Item 6. Exhibits
31.1 Certification of Randall D. Holmes, Chief Executive
Officer of the Registrant, pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of Douglas R. Wilson, Senior Vice
President and Chief Financial Officer of the
Registrant, pursuant to Securities Exchange Act Rule
13a-14(a).
32.1 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, Senior Vice President and Chief Financial
Officer of the Registrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE RIDGEWOOD POWER GROWTH FUND
(Registrant)
Date: March 31, 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 31, 2006
- --------------------- (Principal Executive Officer)
Randall D. Holmes
/s/ Douglas R. Wilson Senior Vice President and Chief Financial Officer March 31, 2006
- --------------------- (Principal Accounting Officer)
Douglas R. Wilson
RIDGEWOOD POWER LLC
(Managing Shareholder)
By: /s/ Randall D. Holmes Chief Executive Officer of Managing Shareholder March 31, 2006
---------------------
Randall D. Holmes
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