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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File No. 0-25935
THE RIDGEWOOD POWER GROWTH FUND
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3495594
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1314 King Street
Wilmington, DE 19801
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (302) 888-7444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Investor Shares of
Beneficial Interest
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 X No ___
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.[X]
Indicate by check mark whether registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes ___ No X
There is no market for the Shares. The aggregate capital contributions
made for the Registrant's voting Shares held by non-affiliates of the Registrant
at March 31, 2002 was $65,810,670.
Exhibit Index is located on page 29.
PART I
Item 1. Business.
Forward-looking statement advisory
This Annual Report on Form 10-K, as with some other statements made by The
Ridgewood Power Growth Fund (the "Fund") from time to time, includes
forward-looking statements. These statements discuss business trends and other
matters relating to the Fund's future results and business. 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.
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.
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.
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.
(a) 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 certain other capital facilities ("Projects").
Ridgewood Energy Holding Corporation ("Ridgewood Holding"), a Delaware
corporation, is the Corporate Trustee of the Fund.
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 of net funds
available for investments in the development and acquisition of Projects. The
Fund has 1,187 record holders of Investor Shares (the "Investors"). As described
below in Item 1(c)(2), the Fund has invested substantially all of its net funds
in the Projects.
The Fund has two managing shareholders: Ridgewood Renewable Power LLC
("Ridgewood Power") and Ridgewood Power VI LLC ("Power VI"), both New Jersey
limited liability companies. Power VI has assigned and delegated all of its
rights and responsibilities to Ridgewood Power and is essentially a shell
company. Ridgewood Renewable Power and Power VI are collectively referred to as
the "Managing Shareholder." Both Ridgewood Renewable Power and Power VI are
controlled by Robert E. Swanson, who is the manager and chief executive officer
of each. The officers of Power VI are also the same as those of Ridgewood
Renewable Power and Power VI currently does not conduct any business. Ridgewood
Renewable Power takes all actions necessary to manage the Fund, without any
participation by Power VI.
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. See Item 10. Directors and Executive Officers of the Registrant below for
a further description of the management of the Fund.
In addition, the Fund is affiliated with the following trusts organized by
the Ridgewood Power (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 ("PowerV");
o Ridgewood/Egypt Fund ("Egypt Fund");
o Ridgewood Power B Fund/Providence Expansion ("B Fund")
In addition, the Trust is affiliated with the following Delaware limited
liability companies ("Ridgewood LLCs"), which have been organized by the
Managing Shareholder:
o Ridgewood Renewable PowerBank LLC
o Ridgewood Renewable PowerBank II LLC
With respect to the Ridgewood LLCs, the Managing Shareholder acts as the
LLCs' Manager.
On November 5, 2001, the Fund sent to Investors a "Notice of Solicitation
of Consents" in which the Fund sought the Investor's consent to amend the
Declaration of Trust ("Declaration") to, among other things, eliminate
provisions that require the Trust to have an independent review panel, whose
purpose was to review certain affiliated transactions. The Consents were
tabulated at the close of business on December 18, 2001. Based on such
tabulation, a majority of Investor Shares consented to such withdrawal and
amendments.
(b) Financial Information about Industry Segments.
The Fund has been organized to operate in only one industry segment:
independent power generation and similar capital, infrastructure and venture
projects.
(c) Narrative Description of Business.
(1) General Description.
The Fund was formed to participate primarily in the development,
construction and operation of Projects that generate electricity for sale to
utilities and other users or provide long-term cash flows.
(2) The Fund's Investments.
(i) United Kingdom Landfill Projects
In 1999, Power V organized Ridgewood U.K. LLC, a Delaware, limited
liability company ("UK LLC"). UK LLC subsequently formed Ridgewood UK Ltd ("UK
LTD") to acquire certain operating landfill methane gas power generation
projects located in England and Scotland (the "UK Projects"). Later, the Fund
was admitted as a member of UK LLC and contributed capital to allow UK LTD to
acquire more UK Projects. Power V and the Fund own an interest in UK LLC in
proportion to the capital each has contributed, net of distributions and
allocated profits and losses. UK LLC is owned 70% by Power Trust V and 30% by
the Growth Fund. Prior to October 16, 2001, UK LLC owned 100% of the outstanding
shares of UK LTD, which had acquired 10 UK Projects with total capacity of 19.9
Megawatts ("MW").
On October 16, 2001, UK LTD issued additional shares as part of a
transaction (the "UK Merger") to acquire various landfill gas projects in
operation and under development, the assets of the management company that
managed the UK Projects and the assets of the development company. All of the
assets acquired were part of an affiliated group of companies that had developed
and operated the first 10 UK Projects. Subsequent to the UK Merger, UK LTD
changed its name to CLPE Holdings, LTD ("Envirogas"). As a result of the UK
Merger, UK LLC's ownership interest in UK LTD decreased from 100% to 76.3%. The
remaining 23.7% interest in UK LTD was owned by The Arbutus Group ("Arbutus").
In 2003, Ridgewood UK, through a transaction with Arbutus, increased its
ownership (and thereby reduced Arbutus' ownership) by 12%. As a result,
Envirogas is now 88% owned by Power Trust V and the Growth Fund, and 12% owned
by Arbutus.
Envirogas currently has 15 projects (with aggregate generating capacity of
25.5 MW) operating under Non-Fossil Fuel Obligation ("NFFO") contracts
("Envirogas Projects"). Envirogas Projects have been financed, in part, by bank
financing provided by the Bank of Scotland. Outstanding debt under this bank
facility was (pound)13.0 million as of December 31, 2002. NFFO began in 1990 and
is 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 NFFO contracts, including power produced at generating facilities using
wind, water and waste materials, including landfill gas. The Envirogas Projects
enjoy a guaranteed price and market under a long-term contracts for their output
and have thus been 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, resulting in a reduction of around
40% in the wholesale electricity price. While NETA has not impacted the income
stream for the Envirogas Projects, it has caused problems for generators selling
to the wholesale market that do not have the benefit of NFFO contracts.
In addition to its developed and operational projects, Envirogas had a
portfolio of approximately 17 MW of undeveloped landfill methane power projects
that would qualify under the new Renewables Obligation ("RO") subsidy that was
enacted in the United Kingdom in April 2002. The RO was adopted and implemented
as a successor to NFFO, which had become outmoded by changes in the regulatory
structure of the U.K.'s electricity supply industry as a successful stimulus to
increasing renewable energy capacity. While this development portfolio was
potentially very profitable as a result of the new subsidy being granted to
qualifying renewable power producers under the RO, Envirogas was unable to
obtain debt financing necessary to develop these projects.
Under the RO program, electricity suppliers serving retail customers in the
U.K. are required to demonstrate that a certain mandated percentage of their
electricity supply portfolio was generated by RO Qualified Producers in order to
avoid incurring penalty charges. The RO program mandated percentage of the total
electricity supply that must come from RO Qualified Producers is 3.0% in 2002/3,
4.3% in 2003/4 and increases annually until 2010, when it reaches 10.4%.
Electricity suppliers demonstrate their compliance with the RO through ROCs.
Electricity suppliers obtain ROCs either (i) by owning RO-qualified generating
facilities for which they receive ROCs from Ofgem or (ii) by purchasing them
from independent RO Qualified Producers. At the NFPA auction in February 2003,
the output of landfill methane gas-fired RO Projects sold for an average price
of approximately 6.6 p/kwh. These auctions demonstrate a price for power plus
ROCs of approximately 10.5 cents/kwh to 10.7 cents/kwh. The value of the ROC
portion of this price has been estimated at between 4.5 p/kwh and 4.9 p/kwh (or
7.2 cents/kwh and 7.8 cents/kwh).
Incremental profits resulting from a combined power plus ROC price greater
than 7.0 p/kwh will be divided between PowerBank I and the UK LLC investors
(Ridgewood's 88% share of Envirogas held by Power Trust V and The Growth Fund),
with two-thirds of the incremental profit going to PowerBank I and one-third of
the incremental profit going to the UK LLC as a compensation for UK LLC's, and
its officers' and staff's, participation in and facilitation of PowerBank II
transaction. This payment, should it be made, is specifically allocated to U.K
LLC, not to CLP Envirogas Holdings, Ltd. UK LLC will receive its distribution in
the form of a cash allocation.
(ii) Egyptian Projects
In late 1998, the Fund and Power V began investigating Egyptian
opportunities. The two Trusts organized Ridgewood Near East Holdings, LLC, a New
Jersey limited liability company ("Holdings") as a holding company for their
Egyptian investments. In 2001, the Egypt Fund became a member of Holdings. The
three Trusts to date have contributed approximately $39.1 million to Holdings.
Each Trust owns equity in Holdings in proportion to the capital it has
contributed, net of distributions and allocated profits and losses. Holdings, in
turn, owns all of the equity in the Egyptian operating subsidiaries, including
Ridgewood Egypt For Infrastructure LTD ("REI"), which is the entity through
which Egyptian investments are made. REI has developed projects to supply
electricity and potable water to the tourist industry on the Red Sea in Egypt.
REI has 13 water plants constructed, with a total capacity of 17,000 cubic
meters per day of potable water production (one cubic meter equals 264.2 U.S.
gallons) and 5 electric generation plants with a total capacity of 18,000
kilowatts.
REI's projects generally sell their electricity and drinking water output
under contracts governed by Egyptian law. There is no formal regulatory
authority that reviews those prices or which has authority to set them.
Long-term electricity and water contracts generally include an annual price
escalation clause as well as a fuel price adjustment clause to insulate REI from
fuel price increases. Most contracts are denominated in Egyptian pounds.
Although the buyer is therefore allowed to pay in local currency, those
long-term contracts generally contain a currency adjustment clause that is
intended to keep REI whole if the Egyptian currency depreciates against the U.S.
dollar. Most contracts contain minimum annual purchase requirements. Where REI
supplies the electricity to the customer, REI also provides the electricity for
the water desalination equipment and includes that electricity cost in the
amount billed for water. Otherwise, the customer has the responsibility for
providing electric power and bears the risk of electricity price changes.
REI produces electric power with diesel engine driven generators only.
Although Egypt is a producer of natural gas, the isolated tourist areas where
the Egyptian Projects are located do not have natural gas available in required
quantities. Diesel fuel is readily available throughout Egypt and is supplied at
a fixed price through government agencies. Diesel engine driven generators are a
well-proven technology over eighty years old. There are many qualified suppliers
throughout the world.
All of REI's water desalination plants employ reverse osmosis equipment
("R/O"). This is a process where seawater or brackish water (water with less
salt than seawater but which is not drinkable or palatable) is pumped at high
pressure (1,000 pounds per square inch) through thin, porous membranes. The
pressurized water passes through but the salt and other large molecules remain
behind and thus are separated from the purified water. This process has been in
existence for over thirty years and is widely used throughout the world. There
are many suppliers of the R/O equipment and the membranes. REI primarily
purchases R/O equipment from a U.S. company named Waterlink, because it believes
Waterlink offers the best combination of price, service and quality. However the
REI is not dependent on Waterlink and can build plants using other
manufacturers' equipment.
REI'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. Electric generation costs that are
dependent on production volume include diesel fuel, consumables, maintenance and
major repairs. All of REI's electricity sales contracts provide for a 100% cost
pass-through as the price of diesel fuel changes.
As a result of the September 11, 2001 terrorist attacks against the United
States, tourism in Egypt plummeted. Despite the continued violence in the Middle
East and the continued volatility of the region, recently the number of bookings
at the resorts served by REI have increased, although they are still less than
normal. The Trust anticipates that the effects of the September 11th attacks and
the current unrest in the Middle East will have a short-term effect on Egyptian
tourism.
(iii) ZAP
The Fund invested $2,050,000 in Ridgewood ZAP, LLC ("Ridgewood ZAP") in
March 1999 as a holding company for its investments in ZAP (formerly
ZAPWorld.COM, Inc. and ZAP Power Systems, Inc.). ZAP is headquartered in
Sebastopol, California, north of San Francisco. ZAP designs, assembles,
manufactures and distributes electric 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 "ZAPPQ."
ZAP produces electric scooters, electric bicycles, electric motorcycles and
other products which are imported or are manufactured by the ZAP using parts
manufactured by various subcontractors.
Further information on ZAP is contained in its Annual Report on Form 10-KSB
and Quarterly Reports on Form 10-QSB, filed with the Securities and Exchange
Commission.
On March 30, 1999, Ridgewood ZAP purchased 678,808 shares of ZAP's common
stock for a total purchase price of $2,050,000 ($3.02 per share) in a private
placement.
As part of the transaction, Ridgewood ZAP was granted a warrant to purchase
additional shares of Common Stock of ZAP, which was exercised in June 1999 after
the Fund contributed to Ridgewood ZAP the $2,000,000 necessary to do so. The
total exercise price under the warrant was $2,000,000 and the exercise price per
share was 85% of the average daily closing price of the Common Stock over the 20
day period prior to the date of exercise, but not more than $4.50 per share and
not less than $3.50 per share. Ridgewood ZAP acquired 571,249 shares of ZAP
Common Stock on exercise.
Ridgewood ZAP and ZAP entered into four agreements as of March 30, 1999: a
Stock and Warrant Purchase Agreement, a Common Stock Purchase Warrant, a letter
agreement regarding exercise of the warrant and an Investor's Rights Agreement.
The Stock and Warrant Purchase Agreement provided for the purchase of the Common
Stock and the issuance of the warrant and contained conventional representations
and warranties by the parties. The warrant and the letter agreement contained
the warrant provisions described above.
In the beginning of the third quarter of 2001, the Fund entered into an
agreement with ZAP which resulted in the Fund selling its ZAP shares to ZAP and
certain of its shareholders. In exchange for the returned shares, the Fund
received a $3,000,000 interest bearing promissory note. The note calls for
installment payments to be made to the Fund until its maturity in 2003. The Fund
has received no payments on the note.
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 Ridgewood Zap's $3,000,000 note was
converted into 994,500 shares of common stock in the ZAP, as reorganized. These
shares are publicly traded but the shares 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) are subject to certain
restrictions which limit the ability to transfer or sell such shares. Generally,
beginning in the Summer of 2003, 12% of Ridgewood interest in ZAP's shares are
released from restriction. Each quarter thereafter, an additional 12% are
likewise released until all such stock is no longer subject to restrictions.
In 1999, Mr. Swanson purchased a franchise to distribute ZAP's products in
the eastern portion of Long Island, New York. See Item 12 -- Certain
Relationships and Related Transactions for additional information.
(iv) Synergics, Inc. Acquisition
Beginning in late 1999, the Fund and Power V negotiations with Synergics,
Inc. ("Synergics") to buy nine existing hydroelectric generating plants (the
"Synergics Projects"). In the course of negotiations and due diligence, the
Trust and the Growth Fund 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 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 Trust and the
Growth Fund, through a joint venture, acquired the debt from the lender on April
28, 2000 for a payment of $17 million to the lender. The Trust supplied $5
million of the capital used by the joint venture to acquire the debt and the
Growth Fund supplied the remaining $12 million. The Trust and the Growth Fund
own the joint venture in proportion to the capital each supplied and neither
will have preferred rights over the other.
On November 22, 2002, through another joint venture owned in the same
proportion as the joint venture that acquired the debt of Synergics, the Fund
and Power V acquired 100% of the outstanding stock of Synergics. The former
shareholders of Synergics Inc. received 100% of the outstanding shares of a
subsidiary of Synergics in exchange for selling the stock of Synergics to the
Fund and Power V.
(v) 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 that was exploring a proposal to construct a
3,600 kilometer (2,200 mile) long underwater fiber optic cable among 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 Trust wrote off its
entire investment in the Project effective March 31, 2000.
(3) Project Operation.
The major costs of a Project while in operation will be debt service (if
applicable), fuel, taxes, maintenance and operating labor. The ability to reduce
operating interruptions and to have a Project's capacity available at times of
peak demand are critical to the profitability of a Project. Accordingly, skilled
management is a major factor in the Fund's business.
In order to commence operations, most Projects require a variety of
permits, including zoning and environmental permits. Inability to obtain such
permits will likely mean that a 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.
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 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 as imposed by current laws and regulations have been and will
continue to be largely incorporated into the prices of its investments and that
it accordingly has adjusted its investment program so as to minimize material
adverse effects. If future environmental standards require that a Project spend
increased amounts for compliance, such increased expenditures could have an
adverse effect on the Fund to the extent it is a holder of such Project's equity
securities.
(4) Trends in the Independent Power and Other Industries
The Fund is somewhat insulated from the recent turmoil that has enveloped
the electric energy industry during the past several years because the Synergics
Projects are QFs with long-term formula-price Power Contracts. Each Power
Contract now provides for rates in excess of current short-term rates for
purchased power. There has been much speculation that in the course of
deregulating the electric power industry, federal or state regulators or
utilities would attempt to invalidate these power purchase contracts as a means
of throwing some of the costs of deregulation on the owners of independent power
plants.
(i) Foreign operations.
The UK Projects 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. This has resulted in a reduction of
around 40% in the wholesale electricity price. Whilst NETA has not impacted the
income stream for the UK Projects, it has caused problems for small generators.
The industry regulator, OFGEM, is looking at resolving these issues.
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, REI
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 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).
(5) Competition
The UK Projects sell their output to a government 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 Projects do not face substantial competition except from trucked-in water.
This also means that there is no substantial backup for the 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 Project sites, in which case there
might be competition.
(6) Regulatory Matters.
United States Regulation.
(i) Energy Regulation.
The Projects located in the United States are Independent Power Projects
that are subject to a variety of law, including: (A) PURPA, which, pursuant to
regulations issued FERC, provide incentives for the development of QFs and
generally provides an exemption from the provisions of the Public Utility
Holding Company Act of 1935, as amended (the "Holding Company Act"), the Federal
Power Act, as amended (the "FPA"), and, except under certain limited
circumstances, state laws regarding rate or financial regulation. (B) The
Federal Power Act, which gives FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce. While QFs under PURPA are
exempt from the rate-making and certain other provisions of the FPA,
non-Qualifying Facilities are subject to the FPA and to FERC rate-making
jurisdiction. If any of the Trust's electric power Projects failed to be a QF,
it would have to comply with the FPA, unless it filed for exempt-wholesale
generator status under the Energy Policy Act. (C) State Regulation. State public
utility regulatory commissions have broad jurisdiction over Independent Power
Projects which are not QFs under PURPA, and which are considered public
utilities in many states. In states where the wholesale or retail electricity
market remains regulated, projects that are not QFs may be subject to state
requirements to obtain certificates of public convenience and necessity to
construct a facility and could have their organizational, accounting, financial
and other corporate matters regulated on an ongoing basis.
(ii) Environmental Regulation.
The construction and operation of projects and the exploitation of natural
resource properties are subject to extensive federal, state and local laws and
regulations adopted for the protection of human health and the environment and
to regulate land use. The laws and regulations applicable to the Trust 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 that comply with federal, state and local
requirements, which sometimes result in extensive negotiations with regulatory
agencies. Meeting the requirements of each jurisdiction with authority over a
project may require extensive modifications to existing projects.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
For 2001 and 2000, all revenues from customers not affiliated with the Fund
were from Egypt. In 2002, revenues were recorded from customers of the Synergics
and Egypt facilities. 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 year ended December 31,
2002, income (loss) from sources inside and outside the United States and asset
locations were as follows:
Geographic
Location Income (loss) Assets
United States $(1,067,111) $ 28,399,779
United Kingdom (845,164) 5,184,870
Egypt (1,419,098) 33,532,553
(e) Employees.
The Fund has no employees. The persons described below at Item 10 -
Directors and Executive Officers of the Registrant serve as executive officers
of the Fund and have the duties and powers usually applicable to similar
officers of a Delaware corporation in carrying out the Fund business.
REI has approximately 103 employees located in Egypt. UK LTD has
approximately 49 employees located in the United Kingdom.
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 following table shows the material properties (relating to Projects)
owned or leased by the Fund's subsidiaries.
Approximate
Square
Ownership Ground Approximate Footage of Description
Interests Lease Acreage Project of
Projects Location in Land Expiration of Land (Actual Project
or Projected)
UK Projects 15 sites in Leased or 2014- less than n/a Landfill gas
England, licensed 2015 10 acres fueled gene-
Scotland and by UK LTD * ration plants
Spain
Egypt 18 sites Leased n/a less than n/a Electric gen-
Projects in Egypt by REI ** 10 acres erating or
water desali-
nation facil-
ties
Synergics 8 sites
in U.S. Leased n/a less than n/a Hydro-
by Synergics* 15 acres facilities
* Joint venture owned by the Fund and Power V. ** Joint venture owned by the
Fund, Power V and Egypt Fund.
The Fund believes that these properties are currently adequate for
current operations at those sites.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Fund sold 658.1067 Investor Shares of beneficial interest in the Fund
in its private placement offering, which concluded in April 2000. There is
currently 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
Trust hold the Investor Shares. Investors wishing to transfer Shares should also
consider the applicability of state securities laws. The Investor Shares have
not been and are not expected to be registered under the Securities Act of 1933,
as amended (the "1933 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 Trust 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.
The Managing Shareholder has investigated the possibility and feasibility
of a combination of the Other Power Trusts into a publicly traded entity. This
would require the approval of the Investors in the Trust and the other programs
after proxy solicitations, complying with requirements of the Securities and
Exchange Commission, and a change in the federal income tax status of the Trust
from a partnership (which is not subject to tax) to a corporation. The process
of considering and effecting a combination, if the decision is made to do so,
will be very lengthy. There is no assurance that the Managing Shareholder will
recommend a combination, that the Investors of the Trust or other programs will
approve it, that economic conditions or the business results of the participants
will be favorable for a combination, that the combination will be effected or
that the economic results of a combination, if effected, will be favorable to
the Investors of the Trust or other programs. After conducting investigations
during 2001, the Managing Shareholder concluded, and informed the Investors,
that given current market conditions caused by, among other things, the general
U.S. economic down turn, the September 11th terrorist attacks, the Enron
bankruptcy and general volatility in the independent power business, it is
preferable to delay significant expenditures pursuing any such combination until
market conditions, as described above, improve.
(b) Holders
As of the date of this Annual Report on Form 10-K, there are 1,187 record
holders of Investor Shares.
(c) Dividends
The Fund made distributions as follows for the years ended December 31,
2002 and 2001:
Year ended December 31,
2002 2001
Total distributions to Investors $ -- $ --
Distributions per Investor Share -- --
Distributions to Managing Shareholder -- --
The Managing Shareholder discontinued quarterly distributions effective
January 1, 2001. 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.
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. For purposes of generally accepted accounting
principles, 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 qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
As of and for the
Period from Commencement
of Share Offering
(February 9, 1998)
As of and for the Years Ended December 31, through
2002 2001 2000 1999 December 1998
Sales $5,830,356 $4,237,676 $2,180,231 $ -- $ --
Net loss 3,331,373 (3,037,411) (1,909,206) (980,540) (851,745)
Net assets
(shareholders'
equity) 36,315,970 39,313,776 46,091,190 45,657,426 24,354,681
Investments in
Plant and
Equipment (net
of depreciation)32,991,661 25,961,010 21,321,104 -- --
Total assets 67,117,202 48,835,302 53,174,689 45,881,708 25,733,430
Per Share of Trust:
Revenues 8,859 6,439 3,313 -- --
Net loss (5,062) (4,615) (2,901) (1,741) (2,869)
Net asset value 55,182 59,738 70,186 81,074 82,035
Distributions to
Investors -- -- 5,265 1,642 --
(F1)
(F1) Average. Distributions varied based on number of shares and payment of
Early Investor Incentive.
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. Dollar
amounts in this discussion are generally rounded to the nearest $1,000.
The Fund uses the equity method of accounting for its investments in ZAP,
the UK Projects and the Mediterranean Fiber Optic Project/GFG. In 2001 and 2000,
the Fund's investment in the Synergics Hydro projects was in the form of a note
receivable and, accordingly, the Fund's earnings were in the form of interest
income. In 2002, the Fund completed its acquisition of the Synergics Hydro
projects and as a result, the Fund has consolidated the financial position and
results of operations 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
the Egypt Projects. As a result, effective January 1, 2000, the Fund has
consolidated the financial position and results of operations. For the years
ended 2001 and 2000, all the Fund's consolidated revenue and cost of sales
relate to the Egypt Projects.
Outlook
In Egypt, the Fund, Power V and Egypt Fund have constructed 13 water
desalination plants and 5 electric generation plants. The total capacity of the
water and power plants is approximately 4,500,000 U.S. gallons per day and 18
megawatts, respectively. Each plant has a contract with a hotel or group of
hotels for the sale of the water or electricity produced from the plant. These
contracts have terms of up to thirty years.
The Fund, through a United Kindgdom subsidiary, has purchased 15 landfill
gas fired plants in the United Kingdom with a capacity of 25.5 megawatts. The
Fund has a net ownership interest of 23% in the subsidiary. The plants sell the
electricity to a quasi-autonomous non-governmental organization at an inflation
adjusted price for 15 years. The subsidiary is developing 10 additional projects
in the United Kingdom.
The Fund and Power V also purchased a note receivable from Synergics for
approximately $17 million. The joint venture acquired nine hydroelectric dams
owned by Synergics by forgiving the $17 million of outstanding debt and paying
an additional $1 million to the shareholders of Synergics and paying up to an
additional $1.7 million of Synergics' tax liabilities that might be incurred as
a result of the sale of its assets. The president of Synergics agreed to vote
the stock of Synergics 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 complies with the provisions
outlined above. On November 22, 2002, through another joint venture owned in the
same proportion as the joint venture that acquired the debt of Synergics, the
Fund and Power V acquired 100% of the outstanding stock of Synergics. The former
shareholders of Synergics Inc. received 100% of the outstanding shares of a
subsidiary of Synergics in exchange for selling the stock of Synergics to the
Fund and Power V.
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 5 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 subsequent periods. The Fund evaluates the impairment of
its long-lived assets based on projections of undiscounted cash flows whenever
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
actual cash flows and estimated cash flows may have a material adverse impact on
the Fund's operating results and financial condition.
Results of Operations
The year ended December 31, 2002 compared to the year ended December 31, 2001.
Revenues increased by $1,592,000, or 38%, to $5,830,000 in 2002, as
compared to $4,238,000 in 2001. The increase in revenues is a result of a
$334,000 increase from existing operations in Egypt, $887,000 due to the
acquisition of Sinai Company on February 15, 2002, and $371,000 due to the
acquisition of the Synergics Projects on November 23, 2002. The increase in
existing operation revenue is attributable to the increase in the capacity and
number of completed facilities.
Gross margin decreased from $981,000 in 2001, to $427,000 in 2002. The
decrease is primarily attributed to the increase in maintenance and depreciation
expense incurred as a result of the completion of facilities and their
operation, as compared to the prior year when some facilities were still under
construction.
General and administrative expenses increased $728,000 or 56%, to
$2,029,000 in 2002 from $1,301,000 in 2001. The increase is primarily due to the
acquisition of the Synergic Projects and Sinai Company in 2002.
The management fee paid to the Managing Shareholder decreased $823,000, or
50%, to $823,000 in 2002 from $1,645,000 in 2001. The decrease reflects the
Managing Shareholder waiving the third and fourth quarter fees, whereas in 2001
the Fund was charged for a full year of management fees.
In 2002, the Fund recorded a writedown of $298,000 for several of its
on-site plants in Egypt that were shut down or sold. The Fund did not record any
writedowns of projects in 2001.
The Fund's loss from operations increased by $673,000, or 31%, to
$2,861,000 in 2002 from $2,188,000 in 2001. The increase reflects the higher
general and administrative charges, the writedown of investments and lower gross
margin, partially offset by the decrease in the management fee in 2002.
The Fund recorded interest income from the note related to the Synergics
Projects of $994,000 in 2001. During the second half of 2001, drought conditions
affected many of the Synergics Projects, reducing revenues and cash flows
recorded by Synergics. As a result of these reduced cash flows experienced by
Synergics, the Fund ceased accruing interest effective as of October 1, 2001.
Interest income, excluding interest related to the Synergics Projects note,
decreased by $246,000 or 80% to $60,000 in 2002 from $306,000 in 2001 reflecting
lower average cash balances on hand.
In the fourth quarter of 2001, the Fund recorded a loss of $1,282,000
relating to the write down of its investment in ZAP. In 2001 the Fund recorded
an equity loss from its investment in ZAP of $818,000.
Other income decreased $46,000, or 23%, from $198,000 in 2001 to $152,000
in 2002. The decrease relates to the reduction of foreign exchange gains from
the Egyptian Projects.
In 2002 the Fund recorded an equity loss of $845,000 from its investment in
the UK Projects, compared to an equity loss of $165,000 in 2001. The increase in
equity loss is a result of the UK Projects experiencing an increase in
maintenance costs to repair some of the facilities.
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. In 2002, the Fund incurred $13,000 in income tax
expense on behalf of the Synergics Projects.
The Fund's net loss increased $294,000 or 10% from a loss of $3,037,000 in
2001 to $3,331,000 in 2002, primarily reflecting lower income from operations
and lower interest income in 2002.
The year ended December 31, 2001 compared to the year ended December 31, 2000.
Revenues increased by $2,058,000, to $4,238,000 in 2001, as compared to
$2,180,000 in 2000. The increase is attributable to the increase in the capacity
and number of completed facilities.
Gross profit increased by $726,000, to $981,000 in 2001, as compared to
$255,000 in 2000, as a result of the increase in revenues.
General and administrative expenses increased $899,000, or 144%, to
$1,524,000 in 2001 from $625,000 in 2000. The increase reflects additional costs
related to the Egyptian Projects, which had a larger number of projects in
operation in 2001 compared to 2000.
The management fee paid to the Managing Shareholder increased $548,000, or
50%, to $1,645,000 in 2001 from $1,097,000 in 2000. The increase reflects that
the Fund was charged for a full year of management fees in 2001 whereas in 2000
the management fee commenced in April 2000 when the Fund's offering ended.
The investment fee declined from $200,000 in 2000 to zero in 2001
reflecting the end of the Fund's offering in April 2000.
The Fund's loss from operations increased by $521,000, or 31%, to
$2,188,000 in 2001 from $1,667,000 in 2000. The increase reflects the higher
general and administrative charges and increased management fee in 2001,
partially offset by the increased gross profit from the Egyptian Projects.
The Fund recorded interest income from the note related to the Synergics
Projects of $994,000 in 2001, an increase of $111,000 or 13%, from the $883,000
recorded in 2000. The Fund acquired the note in April 2000.
Interest income, excluding interest related to the Synergics Projects note,
decreased by $1,413,000 or 82% to $306,000 in 2001 from $1,719,000 in 2000
reflecting lower average cash balances on hand as the Fund completed its
investment program.
The Fund's equity loss from its investment in ZAP decreased by $523,000, or
39%, from $1,341,000 in 2000 to $818,000 in 2001 primarily as a result of the
Fund's writedown of ZAP in the fourth quarter of 2001. In the fourth quarter of
2001, the Fund recorded a loss of $1,282,000 relating to the write down of its
investment in ZAP. In 2000, the Fund recorded a loss of $1,448,000 relating to
the write down of its investment in GFG.
Other income of $198,000 in 2001 relates to foreign exchange gains from the
Egyptian Projects, partially offset by the costs incurred in issuing the "Notice
of Solicitation of Consents."
The Fund recorded an equity loss in 2001 from its investment in the UK
Projects of $165,000.
The Fund's net loss increased $1,128,000 or 59% from a loss of $1,909,000
in 2000 to $3,037,000 in 2001, primarily reflecting lower income from operations
and lower interest income in 2001.
Liquidity and Capital Resources
In 2002 and 2001, the Fund's operating activities used cash of $971,00 and
$908,000, respectively.
In 2002, investing activities provided $209,000 as a result of the cash
received in the Synergics acquisition offset by the cash invested in the Egypt
Projects and Sinai Company. In 2001, the Fund used $16,918,000 in its investing
activities, primarily relating to investments in the UK Projects and the Egypt
Projects.
In 2002, the Fund generated $628,000 of cash from financing activities
primarily as a result of borrowings of $2,688,000 from the Egyptian subsidiaries
bank loan, offset by loan repayments of $554,000 and advances to affiliates of
$1,505,000. In 2001, the Fund generated $3,638,000 of cash from financing
activities, primarily as a result of contributions to the Egypt Projects by
their minority shareholders.
Obligations of the Fund are generally limited to payment of a 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. In addition,
the Managing Shareholder has agreed to defer collection of management fees in
2003, upon request.
The UK Projects have collateralized long-term debt, without recourse to the
Fund, with scheduled principal payments as follows:
2003 $1,118,000
2004 1,286,000
2005 1,463,000
2006 1,649,000
2007 1,794,000
Thereafter 13,651,000
The long-term debt is repayable in semi annual installments each March 31st
and September 30th through September 30, 2014. $10,305,507 of the outstanding
debt bears interest at 7.17%, while $10,655,772 of the outstanding debt bears
interest at 7.82%. 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 1.4 to 1 be maintained. At December 31, 2002, the UK Projects
outstanding debt was current and in good standing with its bank.
During the third quarter of 2002, Ridgewood Near East executed a term loan
agreement with its principal bank. The bank provided a loan of 12,500,000
Egyptian pounds (approximately $2,688,000), which will mature on March 31, 2007.
The loan will be repaid in quarterly installments of 781,250 (approximately
$168,000) starting June 2003. Outstanding borrowings bear interest at the bank's
medium term loan rate plus 0.5% (12.5% at December 31, 2002).
Sinai has outstanding loans and interest payable of 15,086,761 Egyptian
pounds (approximately $3,244,000). The collateralization of the non-recourse
loan is restricted to the assets of Sinai, which at December 31, 2002 were
$6,957,265. The loan bears interest at 12% per annum. The provision of the loan
restricts Sinai from paying dividends to its shareholders or obtaining credit
from other banks. The loan has been in default since 1999 and has thus been
classified as a current liability.
Six of the Synergics Projects'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 plus 1 3/4% (3.20% at December 31, 2002) 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 U.S. Treasury note rate at the date of election plus 2
3/4%. At December 31, 2002, the variable rate of 3.2% was the effective interest
rate.
This credit facility is collateralized by six hydroelectric plants and the
notes receivable owned by the Synergics 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 period ended
December 31, 2002.
The Fund is exposed to foreign currency risk primarily through its
investments in the United Kingdom and Egypt.
The Egyptian Projects and UK Projects have certain long-term agreements
that require delivery of unspecified volumes of energy and water at fixed
prices. These long-term contracts are not guaranteed by the Fund. The Fund and
its subsidiaries anticipate that during 2003 their cash flow from operations
will be sufficient to meet their obligations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Fund's investments in financial instruments are short-term investments
of working capital or excess cash. Those short-term investments are limited by
its Declaration of Trust to investments in United States government and agency
securities or to obligations of banks having at least $5 billion in assets.
Because 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 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. 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.
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 U.S. 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, 2002
Expected Maturity Date
2003
(U.S. $)
Bank Deposits and Certificates of Deposit $ 13,000
Average interest rate 1.04%
(U.S. $)
Bank Deposits denominated in Egyptian Pounds $ 907,000
Average interest rate 1.05%
Item 8. Financial Statements and Supplementary Data.
A. Index to Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
2002 and 2001 F-3
Consolidated Statements of Operations for the
three years ended December 31, 2002 F-4
Consolidated Statements of Comprehensive Loss for
the three years ended December 31, 2002 F-5
Consolidated Statements of Changes in
Shareholders' Equity for the three years
ended December 31, 2002 F-5
Consolidated Statements of Cash Flows for the three
years ended December 31, 2002 F-6
Notes to Consolidated Financial Statements F-8 to F-23
Financial Statements for United Kingdom Landfill Gas Projects
B. Supplementary Financial Information
Selected Quarterly Financial Data for the years ended December 31,2002 and 2001.
(Unaudited)
2002
- -------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
Revenue ............ $ 896,000 $ 1,398,000 $ 2,058,000 $ 1,478,000
Loss from operations (538,000) (571,000) (513,000) (1,239,000)
Net loss ........... (762,000) (690,000) (498,000) (1,381,000)
2001
- -------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
Revenue ............ $ 916,000 $ 1,165,000 $ 1,372,000 $ 785,000
Loss from operations (461,000) (343,000) (628,000) (756,000)
Net loss ........... (307,000) (452,000) (54,000) (2,224,000)
Report of Independent Accountants
To the Shareholders of
The Ridgewood Power Growth Fund:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive loss, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of The Ridgewood Power Growth Fund and its subsidiaries
(the "Fund") at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period 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 Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
May 29, 2003
The Ridgewood Power Growth Fund
Consolidated Balance Sheets
------------------------------------------------------------------------------
December 31,
-----------------------------
2002 2001
----------- ------------
Assets:
Cash and cash equivalents .................. $ 919,903 $ 1,048,316
Accounts receivable, net of
allowance of $327,491 and
$222,862................................... 1,586,394 597,727
Current portion of note receivable ......... 200,000 --
Due from affiliates ........................ 1,726,435 181,832
Prepaid and other current assets ........... 483,135 213,106
------------ ------------
Total current assets .............. 4,915,867 2,040,981
Investments:
Synergics Projects ......................... -- 14,245,679
United Kingdom Landfill Gas Projects ....... 5,184,870 5,500,719
Sinai Environmental Services ............... -- 1,086,913
Plant and equipment ........................ 33,788,290 21,921,816
Construction in progress ................... 1,543,911 4,527,094
Office equipment ........................... 1,042,367 913,363
------------ ------------
36,374,568 27,362,273
Accumulated depreciation ............... (3,382,907) (1,401,263)
------------ ------------
Plant and equipment, net ................... 32,991,661 25,961,010
------------ ------------
Electric power sales contract .............. 17,430,794 --
Accumulated amortization ................... (82,247) --
------------ ------------
17,348,547 --
------------ ------------
Note receivable,
less current portion ...................... 6,549,822 --
Other assets ............................... 126,435 --
------------ ------------
Total assets ....................... $ 67,117,202 $ 48,835,302
------------ ------------
Liabilities and shareholders' equity:
Liabilities:
Accounts payable and accrued expenses ...... $ 2,823,107 $ 373,868
Current portion of long term debt .......... 5,030,468 --
Due to affiliates .......................... 558,254 424,769
------------ ------------
Total current liabilities .......... 8,411,829 798,637
------------ ------------
Loan payable, net of current portion ....... 8,002,169 --
Minority interest .......................... 14,387,234 8,722,889
Commitments and contingencies
Shareholders' equity:
Shareholders' equity
(658.1067 investor shares
issued and outstanding) .................. 36,512,134 39,479,962
Managing shareholders'
accumulated deficit (1 management
share issued and outstanding) ............ (196,164) (166,186)
------------ ------------
Total shareholders' equity ......... 36,315,970 39,313,776
------------ ------------
Total liabilities and
shareholders' equity .............. $ 67,117,202 $ 48,835,302
------------ ------------
See accompanying notes to the consolidated financial statements.
The Ridgewood Power Growth Fund
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
For the Year Ended December 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Revenues .......................... $ 5,830,356 $ 4,237,676 $ 2,180,231
Cost of sales,
including depreciation
of $2,076,939, $1,025,620
and $588,119 in 2002,
2001 and 2000 ................... 5,403,596 3,256,555 1,924,932
----------- ----------- -----------
Gross margin ...................... 426,760 981,121 255,299
General and
administrative expenses .......... 2,029,485 1,301,015 625,514
Investment fee paid
to the managing
shareholders ..................... -- -- 199,590
Management fee paid to
the managing shareholders ........ 822,633 1,645,267 1,096,844
Write down of assets in
power generation
projects ........................ 297,652 -- --
Provision for bad debt expense .... 138,233 222,862 --
----------- ----------- -----------
Total other operating expenses .. 3,288,003 3,169,144 1,921,948
----------- ----------- -----------
Loss from operation ............... (2,861,243) (2,188,023) (1,666,649)
Other income (expense):
Interest income ................... 59,678 305,746 1,718,371
Interest income from
Synergics Projects ............... -- 993,685 883,275
Interest expense .................. (987,602) (29,698) --
Equity interest in
loss of:
Sinai Environmental
Services ....................... (37,287) -- --
ZAP ............................. -- (818,043) (1,341,525)
United Kingdom Landfill
Gas Projects ................... (845,164) (164,559) --
GFG ............................. -- -- (49,924)
Other income ...................... 152,314 197,629 --
Write down of investment
in ZAP ........................... -- (1,282,241) --
Write down of investment
in GFG ........................... -- -- (1,447,746)
----------- ----------- -----------
Other (expense) income, net ....... (1,658,061) (797,481) (237,549)
----------- ----------- -----------
Loss before income taxes .......... (4,519,304) (2,985,504) (1,904,198)
Provision for income taxes ........ 12,622 -- --
----------- ----------- -----------
Loss before minority interest ..... (4,531,926) (2,985,504) (1,904,198)
Minority interest in the
loss (earnings) of
subsidiaries .................... 1,200,553 (51,907) (5,008)
----------- ----------- -----------
Net loss .......................... $(3,331,373) $(3,037,411) $(1,909,206)
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
The Ridgewood Power Growth Fund
Consolidated Statements of Changes in Shareholders' Equity
For The Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
Subscriptions Managing
Shareholders Receivable Shareholders Total
------------ ------------ ------------ ------------
Shareholders'
equity,
January 1,2000
(563.16
investor
shares and 1
management
share) ........ 46,548,589 $ (863,500) $ (27,663) $ 45,657,426
Capital
contributions,
net (94.9467
investor
shares) ........ 6,645,185 863,500 -- 7,508,685
Distributions ... (3,465,001) -- (35,000) (3,500,001)
Cumulative
translation
adjustment ..... (1,649,057) -- (16,657) (1,665,714)
Net loss ........ (1,890,114) -- (19,092) (1,909,206)
----------- ------------ ------------ ------------
Shareholders'
equity,
December 31,2000
(658.1067
investor
shares and 1
management
share) ........ 46,189,602 -- (98,412) 46,091,190
Cumulative
translation
adjustment ..... (3,702,603) -- (37,400) (3,740,003)
Net loss ........ (3,007,037) -- (30,374) (3,037,411)
------------ ------------ ------------ ------------
Shareholders'
equity,
December 31,2001
(658.1067
investor
shares and 1
management
share) ......... 39,479,962 -- (166,186) 39,313,776
Cumulative
translation
adjustment ..... 330,231 -- 3,336 333,567
Net loss ........ (3,298,059) -- (33,314) (3,331,373)
------------ ------------ ------------ ------------
Shareholders'
equity,
December 31,2002
(658.1067
investor
shares and 1
management
share) ......... $ 36,512,134 -- $ (196,164) $ 36,315,970
------------ ------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
The Ridgewood Power Growth Fund
Consolidated Statements of Comprehensive Loss
- --------------------------------------------------------------------------------
For the Year Ended December 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Net loss ........................ $(3,331,373) $(3,037,411) $(1,909,206)
Cumulative translation adjustment 333,567 (3,740,003) (1,665,714)
----------- ----------- -----------
Comprehensive loss .............. $(2,997,806) $(6,777,414) $(3,574,920)
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
The Ridgewood Power Growth Fund
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
For The Year Ended December 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Cash flows from
operating activities:
Net loss ....................... $ (3,331,373) $ (3,037,411) $ (1,909,206)
Adjustments to reconcile
net loss to net cash flows
from operating activities:
Depreciation ................. 2,076,939 1,025,620 588,119
Provision for doubtful
accounts .................... 138,233 222,862
Writedown of investments
in power generation projects 297,652 -- --
Minority interest in (loss)
earnings of subsidiaries .... (1,200,553) 51,907 5,008
Equity interest in loss of ZAP -- 818,043 1,341,525
Equity interest in loss of
Sinai Environmental Services 37,287 -- --
Equity interest in loss of
United Kingdom Landfill Gas
Projects .................. 845,164 164,559 --
Equity interest in loss of GFG -- -- 49,924
Write down investment in ZAP . -- 1,282,241 --
Write down investment in GFG . -- -- 1,447,746
Interest income from
Synergics Projects .......... -- (993,685) (883,275)
Changes in assets and
liabilities, net of
acquired businesses:
(Increase) decrease in
accounts receivable ..... (355,234) (216,166) (845,329)
(Increase) decrease in
other current assets .... (23,465) (185,860) 51,521
Increase in other assets . (126,435) -- --
Increase (decrease) in
accounts payable and
accrued expenses ........ 576,441 (214,376) (3,157,789)
(Decrease) increase in due
to/from affiliate, net . 94,126 174,209 378,074
------------ ------------ ------------
Total adjustments ......... 2,360,155 2,129,354 (1,024,476)
------------ ------------ ------------
Net cash used in
operating activities .......... (971,218) (908,057) (2,933,682)
------------ ------------ ------------
Cash flows from investing
activities:
Capital expenditures ........... (1,067,390) (10,354,301) (11,703,970)
Cash paid for acquisition of
Sinai Environmental Services .. (981,267) (1,086,913) --
Cash received (paid) in
acquisition of Synergics
Projects, net ................. 2,261,686 -- (12,369,067)
Investment in United Kingdom
Landfill Gas Projects ......... (4,491) (5,476,886) (334,611)
Cash acquired by consolidation
of Egypt Projects ............ -- -- 719,794
------------ ------------ ------------
Net cash provided by (used in)
investing activities .......... 208,538 (16,918,100) (23,687,854)
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
The Ridgewood Power Growth Fund
Consolidated Statements of Cash Flows (Continued)
- -------------------------------------------------------------------------------
For The Year Ended December 31,
-------------------------------------------
2002 2001 2000
----------- ------------ -------------
Cash flows from financing
activities:
Borrowings under bank loan .... 2,688,172 -- --
Repayments under bank loan .... (554,008) -- --
Short term advances to
affiliates, net .............. (1,505,244) -- --
Proceeds from shareholders'
contributions ................ -- -- 8,642,400
Selling commissions and
offering costs paid .......... -- -- (1,133,715)
Distribution to minority
interest ..................... -- (1,399,982) --
Contributions to Egypt Projects
by minority member ........... -- 5,037,526 2,208,895
Cash distributions to
shareholders ................. -- -- (3,500,001)
------------ ------------ ------------
Net cash provided by
financing activities ......... 628,920 3,637,544 6,217,579
------------ ------------ ------------
Effect of exchange rate on
cash and cash equivalents .... 5,347 (91,774) --
Net decrease in cash and
cash equivalents ............. (128,413) (14,280,387) (20,403,957)
Cash and cash equivalents,
beginning of period .......... 1,048,316 15,328,703 35,732,660
------------ ------------ ------------
Cash and cash equivalents,
end of period ................ $ 919,903 $ 1,048,316 $ 15,328,703
------------ ------------ ------------
Supplemental Disclosures:
Operating assets and
liabilities included in
business acquisitions;
Accounts receivable ........... 780,137 -- --
Notes receivable .............. 6,749,822 -- --
Other assets .................. 248,478 -- --
Loans payable ................. 10,898,473 -- --
Accounts payable and
accrued expenses ............. 1,766,868 -- --
See accompanying notes to the consolidated financial statements.
The Ridgewood Power Growth Fund
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Purpose
The Ridgewood Power Growth Fund (the "Fund") was formed as a Delaware business
trust in February 1997 by Ridgewood Energy Holding Corporation acting as the
Corporate Trustee. The managing shareholders of the Fund are Ridgewood Renewable
Power LLC ("RPC") and Ridgewood Power VI LLC ("RP6C") (collectively the
"Managing Shareholder"). 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 Shareholder and RCC are related through
common ownership. The Fund had no operations prior to the commencement of the
share offering.
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 Trust has invested in
opportunities outside of independent power generation facilities.
Ridgewood Energy Holding Corporation, a Delaware corporation, 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 Statements of Operations.
Critical accounting policies and estimates
The preparation of consolidated financial statements requires the Fund to make
estimates and judgements that affect the reported amounts of assets,
liabilities, sales 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, depreciation of plant
and equipment, 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 judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
New Accounting Standards and Disclosures
SFAS 141
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 141, Business Combinations, which
eliminates the pooling-of-interest method of accounting for business
combinations and requires the use of the purchase method. In addition, SFAS 141
requires the reassessment of intangible assets to determine if they are
appropriately classified either separately or within goodwill. SFAS 141 is
effective for business combinations initiated after June 30, 2001. The Fund
adopted SFAS 141 on July 1, 2001, with no material impact on the consolidated
financial statements.
SFAS 142
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which eliminates the amortization of goodwill and other acquired intangible
assets with indefinite economic useful lives. SFAS 142 requires an annual
impairment test of goodwill and other intangible assets that are not subject to
amortization. Other intangible assets with definite economic lives will continue
to be amortized over their useful lives. The Fund adopted SFAS 142 effective
January 1, 2002, with no material impact on the consolidated financial
statements.
SFAS 143
In June 2001, the 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
will adopt SFAS 143 effective January 1, 2003 and has assessed that this
standard will not have a material impact on the Fund.
SFAS 144
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which replaces SFAS 121, Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed Of. For
long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS
121 to (a) recognize an impairment loss only if the carrying amount is not
recoverable from undiscounted cash flows and (b) measure an impairment loss as
the difference between the carrying amount and fair value of the asset. For
long-lived assets to be disposed of, SFAS 144 establishes a single accounting
model based on the framework established in SFAS 121. The accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations and replaces the provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of segments of a business. SFAS 144
also broadens the reporting of discontinued operations. The Fund adopted SFAS
144 effective January 1, 2002, 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 Correction.
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 will adopt SFAS
145 effective January 1, 2003 and has determined that this standard will not
have a material impact on the Fund.
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 will adopt SFAS 146 effective January 1, 2003 and has
determined that this standard will not have a material impact on the Fund.
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 the disclosure provisions of
FIN 45 during the fourth quarter of 2002 with no material impact to the
consolidated financial statements.
FIN 46
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 January 31, 2003, and apply in the
first fiscal period beginning after June 15, 2003, for variable interest
entities created prior to February 1, 2003. The Fund will adopt the disclosure
provisions of FIN 46 effective June 15, 2003 and has determined that the
adoption will not have a material impact on the Fund's consolidated financial
statements.
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.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 144, the Fund evaluates long-lived
assets, such as fixed assets and specifically identifiable intangibles, when
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. The determination of whether an impairment has
occurred is made by comparing the carrying value of an asset to the estimated
undiscounted cash flows attributable to that asset. If an impairment has
occurred, the impairment loss recognized is the amount by which the carrying
value exceeds the discounted cash flows attributable to the asset or the
estimated fair value of the asset.
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. The Fund periodically assesses the recoverability of plant
and equipment, and other long-term assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
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 14 and 20
years at December 31, 2002 and 2001, respectively. During the years ended
December 31, 2002, 2001 and 2000, the Fund recorded depreciation expense of
$1,994,692, $1,025,620 and $588,119, respectively.
Electric Power Sales Contracts
A portion of the purchase price of the Synergic's Projects was assigned to the
Electric Power Sales Contracts at their fair market value and is being amortized
over the duration of the contracts (11 to 22 years) on a straight-line basis.
Long term power purchase contracts for each operating hydroelectric plant
require the sale of the entire output of power of the respective facility to
local public utility companies.
During the period ended December 31, 2002, the Fund recorded amortization
expense of $82,247. The Fund expects to record amortization expense during the
next five years as follows:
Year Ended
December 31, Amortization
2003 $986,964
2004 986,964
2005 986,964
2006 986,964
2007 986,964
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 occurs during
the month following delivery. Final billings do not vary significantly from
estimates. Interest income is recorded when earned and dividend income is
recorded when declared.
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, with
gains or losses included in the cumulative translation adjustment account in the
shareholders' equity section of the Consolidated Balance Sheets.
Income taxes
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 accompanying consolidated financial statements.
No provision is made for United States federal income taxes in the accompanying
consolidated financial statements as the income or losses of the Fund are passed
through and included in the tax returns of the individual shareholders of the
Fund. The Fund did incur state income taxes of $12,622 for the year ended
December 31, 2002 on behalf of certain of the Synergics Projects. At December
31, 2002 and 2001, the Fund's net assets had a tax basis of $63,778,903 and
$63,960,568, respectively.
Offering costs
Costs associated with offering Fund shares (selling commissions, distribution
and offering costs) are reflected as a reduction of the shareholders' capital
contributions.
Subscriptions receivable
Capital contributions are recorded upon receipt of the appropriate subscription
documents. Subscriptions receivable from shareholders are reflected as a
reduction of shareholders' equity.
Supplemental cash flow information
Total interest paid during the years ended December 31, 2002 and 2001 was
$239,514 and $29,698, respectively.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Projects
Accounting Percent
Method Ownership
------------- -----------
Egypt Projects Consolidation 68%
Synergics Projects Consolidation 70.8%
United Kingdom Landfill Gas Projects Equity 30%
ZAP* Equity 21%
GFG* Equity 12.5%
* The Fund has written its investments in ZAP and GFG to zero, in 2001 and 2000,
respectively. Accordingly, the Fund no longer accounts for these investments.
Egypt Projects
In 1999, the Fund and 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. The Fund and Trust V own Ridgewood Near East in
proportion to the capital they contributed, net of distributions and allocated
profits and losses.
Beginning in the first quarter of 2000, the Fund made additional investments and
acquired majority ownership of Ridgewood Near East. As a result, effective
January 1, 2000, the Fund has consolidated the financial position and results of
operations. In 2001, Ridgewood/Egypt Fund ("Egypt Fund") an affiliate of Trust V
and the Fund, made contributions to Ridgewood Near East. At December 31, 2001,
The Fund owns 68% of Ridgewood Near East. Trust V and the Egypt Fund's interests
in Ridgewood Near East is presented as a minority interest in the consolidated
balance sheets and consolidated statements of operations.
Currently the Egypt projects consist of 13 water desalinization plants and 5
electric generation plants. The total capacity of the water and power plants is
approximately 4,500,000 gallons per day and 18 megawatts, respectively. Each
plant has a contract with a hotel or group of hotels for the sale of the water
or electricity produced from the plant. These contracts generally have terms up
to thirty years and some of the contracts provide for the transfer or sale of
ownership of the plant to the hotel at the expiration of the contract. In 2002,
the Fund shut down and removed the equipment from two of its on-site water
desalinization plants. In addition, in the first quarter of 2003, the Fund sold
another of its on-site power plants to the hosting hotel. As a result of these
transactions, the Fund recorded a writedown of $297,652 to adjust the carrying
value of the projects to reflect their current fair market value. The writedown
has been presented as a separate line item under other operating expenses in the
Consolidated Statements of Operations.
On December 30, 2001, the Fund, through its Egyptian subsidiary, 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 $1,087,000). 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
$939,000) to increase its ownership to 53% and gain control of Sinai. As a
result of the additional investment, effective February 16, 2002, Ridgewood Near
East accounts for its investment in Sinai under the consolidation method of
accounting.
In return for its investment the Fund received a 53% interest in Sinai, which at
the time of acquisition, 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 approximately $450,000 of liabilities and bank debt of
approximately $3,417,000. The loan, which was and still is in default, bears
interest at 12% per annum. The collateralization of the non-recourse loan is
restricted to the assets of Sinai, which at December 31, 2002 had a net book
value of $6,957,265. The provision of the loan restricts Sinai from paying
dividends to its shareholders or obtaining credit from other banks. The Fund
assigned the estimated excess purchase price of $777,000 to plant and equipment,
which will be amortized over the 20 year life of the assets.
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.
Synergics Projects
Beginning in late 1999, the Fund and Ridgewood Electric Power Trust V ("Trust
V") began negotiations with Synergics, Inc. ("Synergics") to buy nine existing
hydroelectric generating plants (the "Synergics Projects"). In the course of
negotiations and due diligence, the Fund and 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 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, acquired the
debt from the lender on April 28, 2000 for a payment of $17 million to the
lender. Trust V supplied $5 million of the capital used by the joint venture to
acquire the debt and the Fund supplied the remaining $12 million. The Fund and
Trust V own the joint venture in proportion to the capital each supplied and
neither has preferred rights over the other.
On November 22, 2002, through another joint venture owned in the same proportion
as the joint venture that acquired the debt of Synergics, the Fund and Trust V
acquired 100% of the outstanding stock of Synergics. The former shareholders of
Synergics Inc. 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.
In total, the Fund and Trust V acquired the Synergics Projects for approximately
$20.3 million. In return for their investment, the Fund and Trust V received
eight hydroelectric generating plants with a market value of approximately $1.8
million, $2.4 million in cash, $6.7 million in notes receivable, $ .5 million in
accounts receivable, and $.2 million in other assets. In accordance with the
purchase agreement, the Fund and Trust V assumed approximately $7.5 million of
bank debt and income taxes payable of approximately $1.2 million. The Fund and
Trust V assigned the approximate excess purchase price of $17.4 million to
electric power sales contracts, which will be amortized over the remaining life
of the respective contracts.
The Fund accounted for its investment in the initial $17 million of debt
acquired as a note receivable and accrued interest at 11% per annum. For the
years ended December 31, 2001 and 2000, the Fund recorded $993,685 and $883,275
of income related to the debt of Synergics. During the second half of 2001,
drought conditions affected many of the Synergics Projects, reducing revenues
and cash flows recorded by Synergics. As a result of these reduced cash flows
experienced by Synergics, the Fund ceased accruing interest effective as of
October 1, 2001.
Effective November 23, 2002, the Fund accounted for its 70.8% interest in the
Synergics Projects as a purchase and the results of operations of the Synergics
Projects have been included in the Trust's consolidated financial statements.
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 Synergics, giving effect to the Funds acquisition of Synergics
as if it had occurred at the beginning of each of the presented periods. 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 Synergics 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 2001
----------- -----------
Revenue ......... $10,154,427 $ 8,032,301
Cost of sales ... 7,427,470 5,517,871
Operating loss .. (1,237,795) (1,772,033)
Minority interest (809,912) (13,340)
Net loss ........ (2,384,203) (4,125,520)
United Kingdom Landfill Gas Projects
In 1999, Trust V formed Ridgewood UK, LLC ("UK LLC"), which in turn formed a
subsidiary Ridgewood UK Ltd ("Ridgewood UK"). On June 30, 1999, Ridgewood UK
purchased 100% of the equity in six landfill gas power plants located in the
United Kingdom. The total purchase price was $16,667,567, including $617,567 of
acquisition costs. Ridgewood UK had the right to acquire other landfill gas
plants under development in the United Kingdom. During 2001, the Fund
contributed $5,817,006 to the UK LLC in return for an equity share of
approximately 30%. Bank financing and approximately $3,400,000 of the invested
funds were used to acquire four landfill gas power plants with a capacity of 5.3
megawatts. The total purchase price of the acquired plants was approximately
$5,800,000, of which $2,100,000 was assigned to the electric power sales
contracts acquired, which will be amortized over the life of the contract (15
years). The remaining invested funds of $2,000,000 were used in the October 16,
2001 merger described below.
Under the terms of a merger agreement (the "UK Merger"), on October 16, 2001,
Ridgewood UK, through the issuance of 24% of its shares and $2,000,000 cash,
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 United
Kingdom Landfill Gas Projects and managed and operated the projects after they
were sold to Ridgewood UK. Ridgewood UK was renamed CLP Envirogas Limited in
2001. Trust V and the Fund own approximately 70% and 30%, respectively, of UK
LLC, which in turn owns approximately 76% of Ridgewood UK.
In return for the stock issuance and $2,000,000 cash, Ridgewood UK 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. In accordance with the UK Merger
agreement, Ridgewood UK assumed liabilities of approximately $3,058,000.
Ridgewood UK assigned the electric power sales contacts and other intangibles
acquired a value of $6,304,000, which will be amortized over the 15 year life of
the contact.
Certain unrelated shareholders of Ridgewood UK are attempting to renovate
certain older projects in the United Kingdom. Under the terms of the UK Merger
agreement, if they are successful in renovating these projects and the projects
meet certain performance tests, Ridgewood UK will be obligated to acquire the
renovated projects in exchange for the issuance of additional shares. The number
of shares to be issued is dependent on the projected financial performance of
the renovated projects. If Ridgewood UK issues the maximum number of shares to
acquire the renovated projects, UK LLC's ownership of Ridgewood UK would fall
from 76.3% to 63.5%. During 2002, the parties mutually agreed that Ridgewood UK
would not acquire the defined older projects and would not be required to issue
any additional shares in relation to these projects.
Under the terms of the UK Merger, certain directors and employees of Ridgewood
UK have received vested options to acquire shares in Ridgewood UK. The price to
exercise the options is equal to the share price of UK Ltd at the time of the
merger. If all the options were exercised, Ridgewood UK would receive
approximately $2.9 million from the exercise of the options and the Company's
ownership of Ridgewood UK would fall from 76.3% to 67.2%.
Ridgewood UK owns 15 plants with an installed capacity of 25.5 megawatts and
sells the electricity under 15 year contracts to a quasi-autonomous,
non-governmental organization that purchases electricity generated by renewable
sources on behalf of all British utilities. Ridgewood UK has 10 additional
projects under development. In the fourth quarter of 2002, Ridgewood UK decided
not to continue the development of two of the plants it received as part of the
2001 UK Merger. As a result of this decision, Ridgewood UK recorded a writedown
of $854,367 to adjust the carrying value of the projects to zero.
In addition to the plants located throughout the United Kingdom, Ridgewood UK
has a 50% ownership in CLP Organogas SL ("Organogas"), a 2 megawatt plant
located in Seville, Spain. The Company obtained its interest in Organogas, as
well as a 50% interest in CLP Envirogas, SL, ("Envirogas"), a management and
development service company also located in Seville, Spain, as part of the UK
Merger.
During the first quarter of 2003, Ridgewood UK entered into an agreement with
one of its minority shareholders. Under the terms of the agreement, Ridgewood UK
transferred its 50% interest in the Spanish landfill projects in return for a
portion of the minority shareholder's interest in Ridgewood UK. As a result of
the transaction, Ridgewood UK increased its ownership in UK Ltd. from 76.3% to
88.3%.
The Fund's investment in the UK Landfill Gas Projects is accounted for under the
equity method of accounting. The Fund's equity in the loss of the UK Landfill
Gas Projects is included in the Fund's consolidated financial statements.
Summarized financial information for the UK Landfill Gas Projects is as follows:
Balance Sheet Information
December 31, December 31,
2002 2001
----------- -----------
Current assets ................ $ 6,892,113 $ 5,104,586
Non-current assets ............ 40,735,267 36,435,013
----------- -----------
Total assets .................. $47,627,380 $41,539,599
----------- -----------
Current liabilities ........... $ 4,106,077 $ 3,326,271
Long-term debt ................ 19,842,782 13,878,183
Deferred income taxes ......... 918,249 1,081,202
Other liabilities ............. 77,699 --
Minority interest ............. 5,400,035 4,908,121
Members' equity ............... 17,282,538 18,345,822
----------- -----------
Liabilities and members' equity $47,627,380 $41,539,599
----------- -----------
Statement of Operations
For the Year Ended December 31,
------------------------------
2002 2001
----------- -----------
Revenue ...... $ 9,120,088 $ 6,233,030
Cost of sales 9,991,516 5,594,142
Other expenses 1,945,724 1,187,718
----------- -----------
Net loss ..... $(2,817,152) $ (548,830)
----------- -----------
ZAP
On March 30, 1999, the Fund, through a wholly owned subsidiary, purchased
678,808 shares of common stock of ZAP (formerly ZAP World.com, "ZAP") 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. 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. The Fund exercised the warrant in June 1999 and purchased 571,249
additional shares for $2,000,000. The Fund owns 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.
The Fund's investment in ZAP is accounted for using the equity method of
accounting. Accordingly, the accompanying consolidated statements of operations
include the Fund's interest in ZAP's results of operations since the acquisition
of the shares.
In the beginning of the third quarter of 2001, the Fund entered into an
agreement with ZAP which resulted in the Fund selling 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. The note calls for
installment payments to be made to the Fund until its maturity in 2003. The Fund
has received no payments on the note.
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 are subject to certain restrictions, which limit the Fund the ability
to transfer or sell such shares. Generally, beginning in the third quarter of
2003, 12% of the Fund's interest will be released from restriction. Each quarter
thereafter, an additional 12% will be likewise released until all such stock is
no longer subject to restrictions. Effective in the fourth quarter of 2001, the
Fund wrote down its entire investment in ZAP to zero.
GFG
In September 1999, the Fund and Trust V made a joint investment of $3,000,000 in
Global Fiber Group ("GFG"), which was in the process of developing an underwater
fiber optic cable in the Western Mediterranean (the "Mediterranean Fiber Optic
Project"). The investment, which was funded equally by the Fund and Trust V,
provided for a 25% ownership interest in GFG and the right to invest in projects
developed by GFG. The Fund and Trust V anticipated equally funding an
$18,000,000 joint venture investment in the Mediterranean Fiber Optic Project in
2000.
The Fund's investment in GFG was accounted for under the equity method of
accounting. The Fund's equity in the loss of GFG has been included in the
consolidated financial statements since the inception of the projects.
In the first quarter of 2000, the Fund determined that GFG would probably not be
able to develop the Mediterranean Fiber Optic Project or any other project. As a
result, the Fund determined that it would be unlikely to recover its investment
in GFG. Accordingly, the Fund recorded a writedown of $1,447,746 in the first
quarter of 2000 to reduce the estimated fair value of the investment to zero.
GFG subsequently ceased operations.
4. Long-Term Debt
Following is a summary of long-term debt at December 31, 2002:
Sinai Ridgewood Synergics Total
Near East
------------ ------------- ------------ ------------
Bank debt ....... $ 3,244,465 $ 2,688,172 $ 7,100,000 $ 13,032,637
Less -
Current maturity (3,244,465) (336,003) (1,450,000) (5,030,468)
------------ ------------ ------------ ------------
Total long-term
debt ........... $ -- $ 2,352,169 $ 5,650,000 $ 8,002,169
------------ ------------- ------------- ------------
During the third quarter of 2002, Ridgewood Near East executed a term loan
agreement with its principal bank. The bank provided a loan of 12,500,000
Egyptian pounds (approximately $2,688,000), which will mature on March 31, 2007.
The loan will be repaid in quarterly installments of 781,250 (approximately
$168,000) starting June 2003. Outstanding borrowings bear interest at the bank's
medium term loan rate plus 0.5% (12.5% at December 31, 2002).
Sinai has outstanding loans and interest payable of 15,086,761 Egyptian pounds
(approximately $3,244,000). The collateralization of the non-recourse