-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J2JAsz+om1mHJnq4B1XFwYBBgn97V7u1fbFJcGuCiBk73DKzVvQ2LcJVY5jXoQi4 EmWJjzOwPyM0DU7+JYxKmQ== 0001060755-03-000003.txt : 20030624 0001060755-03-000003.hdr.sgml : 20030624 20030624165309 ACCESSION NUMBER: 0001060755-03-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030624 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIDGEWOOD ELECTRIC POWER TRUST V CENTRAL INDEX KEY: 0001060755 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 223437351 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24143 FILM NUMBER: 03755415 BUSINESS ADDRESS: STREET 1: 947 LINWOOD AVE CITY: RIDGEWOOD STATE: NJ ZIP: 07450 BUSINESS PHONE: 2014479000 MAIL ADDRESS: STREET 1: 947 LINWOOD AVE CITY: RIDGEWOOD STATE: NJ ZIP: 07450-2939 10-K 1 t5-10k.txt 1 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. 0-24143 RIDGEWOOD ELECTRIC POWER TRUST V (Exact Name of Registrant as Specified in Its Charter) Delaware 22-3437351 (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 30, 2002 was $93,288,750. Exhibit Index is located on page 35. PART I Item 1. Business. Forward-looking statement advisory This Annual Report on Form 10-K, as with some other statements made by Ridgewood Electric Power Trust V (the "Trust") from time to time, includes forward-looking statements. These statements discuss business trends and other matters relating to the Trust's future results and business. In order to make these statements, the Trust 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 Trust in the future may be materially different from the Trust's statements here. The Trust 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 Trust'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 Trust 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 Trust was organized as a Delaware business trust on March 12, 1996 to participate in the development, construction and operation of independent power generating facilities and similar capital projects ("Projects"). Ridgewood Energy Holding Corporation ("Ridgewood Holding"), a Delaware corporation, is the Corporate Trustee of the Trust. The Trust sold whole and fractional shares of beneficial interest in the Trust ("Investor Shares") at $100,000 per Investor Share, and terminated its private placement offering on April 15, 1998. It raised approximately $93,000,000. Net of offering fees, commissions and expenses, the offering provided approximately $76,000,000 for investments in the development and acquisition of Independent Power Projects and operating expenses. The Trust has approximately 1,620 holders of Investor Shares (the "Investors"). The Trust is organized to be similar to a limited partnership. Ridgewood Renewable Power LLC (the "Managing Shareholder"), a Delaware limited liability company, is the Managing Shareholder of the Trust. In general, the Managing Shareholder has the powers of a general partner of a limited partnership. It has complete control of the day-to-day operation of the Trust. The Trust has a Corporate Trustee, Ridgewood Energy Holding Corporation. The Corporate Trustee acts on the instructions of the Managing Shareholder and is not authorized to take independent discretionary action on behalf of the Trust. In addition, the Trust is affiliated with the following trusts organized by the Managing Shareholder (collectively 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 The Ridgewood Power Growth Fund (the "Growth Fund"); o Ridgewood/Egypt Fund ("Egypt Fund"); and o The 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 Trust sent to Investors a "Notice of Solicitation of Consents" in which the Trust sought the Investor's consent to amend the Amended 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 31, 2001. Based on such tabulation, a majority of Investor Shares consented to such withdrawal and amendments. (b) Financial Information about Industry Segments. The Trust operates in only one industry segment: independent power generation and similar projects. (c) Narrative Description of Business. (1) General Description. The Trust was formed to participate in the development, construction and operation of Projects that generate electricity for sale to utilities and other users, and that might provide heat energy to users, as well as other capital projects that, although not specifically power related, have similar risk-return characteristics, such as water desalinization facilities and environmental beneficial projects. (2) The Trust's Investments. (i) Maine Hydro Projects On December 23, 1996, the Trust purchased from Consolidated Hydro, Inc. a 50% interest in 14 small hydroelectric projects located in Maine. In order to increase diversification of the Trust's investments, Power IV purchased the remaining 50% interest. Each Trust paid approximately $6,700,000 for its interest. The jointly owned partnership that acquired the Project also assumed a lease obligation in the amount of $1,005,000. The 14 hydroelectric projects have an aggregate rated capacity of 11.3 megawatts. All electricity generated by the projects over and above their own requirements is sold to either Central Maine Power Company ("Central Maine") or Bangor Hydro-Electric Company ("Bangor Hydro") under long-term power purchase contracts. Eleven of the contracts expire at the end of 2008 and the remaining three expire in 2007, 2014 and 2017. The power contracts contain a provision that enabled the price paid by Central Maine and Bangor to be re-determined by the Maine Public Utilities Commission ("Maine PUC"). In 2001, the Maine PUC reviewed the prices paid by Central Maine and Bangor and such prices were lowered. However, the Trust believes that the overall impact of the lowered price to the Maine Hydro Projects' revenue will not have a material impact on the Trust. The Maine Hydro Projects are "run-of-river" facilities, which means that the amount of water passing through the turbines is directly dependent upon the fluctuating level of flow of the river or stream. Therefore, the amount of the flow of the river or stream, along with other intangibles, has a much greater impact on revenues. The Maine Hydro Projects entered into a five year operating and maintenance agreement with CHI Energy, Inc. under which a subsidiary of CHI Energy manages and administers the projects for a fixed annual fee of $307,500 (adjusted upwards for inflation), plus an annual incentive fee equal to 50% of the excess of aggregate net cash flow over a target amount of $1.875 million per year. The maximum incentive fee is $112,500 per year; to the extent the annual net cash flow exceeds $2.1 million, the excess will be carried forward to future years; to the extent that the annual net cash flow is less than $1.875 million, the deficit will be carried forward to future years. In addition, the operator will be reimbursed for certain operating and maintenance expenses. The agreement had an initial five-year term, which was extended for another five-year term on June 30, 2001. The agreement can be extended for one more additional five-year term by mutual consent of the parties thereto. One Maine Hydro Project, the Pittsfield Hydro Project, is a signatory to the Kennebec Hydro Developers Group Agreement ("KHDG Agreement"), which was an agreement among many diverse parties with similarly diverse interests regarding development on the Kennebec and Sebasticook Rivers in the State of Maine. Signatories include not only hydro-electric developers, such as the Pittsfield Project, but also sate and federal government agencies as well as environmental groups. According to the KHDG Agreement, several owners of hydro-electric facilities, including the Pittsfield Project, are required by a certain date to install a "fish passage", which would allow a given number of certain species of fish adequate passage on the river and which must be approved by certain federal and state agencies and other organizations. Fish passages take several forms with varying degrees of expense to construct and maintain. Alternatives include fish pumps, fish ladders and fish elevators. Notwithstanding the methodology used, no alternative is cost effective for the Pittsfield Project and, in fact, the projected costs any available "fish passage" alternative would be significantly more than the projected cash flows for the Pittsfield Project. RPM is working with CHI Energy to develop an alternative to the suggested fish passage (such as opening up the dams deep gates during migratory season) that will satisfy both the KHDG Agreement and the economics of the Pittsfield Project. However, there is no guarantee that any such alternative will be approved and the Pittsfield Project may have not other alternative than to breach the dam. (ii) Maine Biomass Projects On July 1, 1997, the Trust and Power IV purchased a preferred membership interest in Indeck Maine Energy, L.L.C. ("Indeck Maine"), an Illinois limited liability company that owns two electric power generating stations fueled by waste wood at West Enfield and Jonesboro, Maine. The Trust and Power IV purchased the interest through a limited liability company owned equally by each. The Trust's share of the purchase price was $7,298,000 and Power IV provided an equal amount of the total purchase price. Indeck Energy Services, Inc. ("Indeck"), an entity unaffiliated with the Trust, Power IV or any of their affiliates, owns the junior membership interest in Indeck Maine. The preferred membership interest entitles the Trust and Power IV to receive all net cash flow from operations each year until they receive an 18% annual cumulative return on their capital contributions to Indeck Maine. Any additional net operating cash flow in that year is paid to Indeck until the total paid to it equals the amount of the 18% preferred return to the Trust and Power IV for that year, without cumulation. Any remaining net operating cash flow for the year is payable 25% to the Trust and Power IV together and 75% to Indeck, unless the Trust and Power IV have recovered their capital contributions from proceeds of a capital event. Thereafter, these percentages change to 50% each. All non-operating cash flow, such as proceeds of capital events, is divided equally between (a) the Trust and Power IV and (b) Indeck. RPM operates the Projects and charges its expenses to Indeck Maine at its cost. Each of the Projects has a 24.5 megawatt rated capacity and uses steam turbines to generate electricity. The fuel is wood chips, bark, sawmill residue and other forest related biomass. Both projects are QFs under PURPA. The Maine Biomass Projects are members of the New England Power Pool ("NEPOOL"), an association of New England generators, transmission utilities, distribution utilities, power marketers and others. NEPOOL's control and market regulation responsibilities are managed by ISO-New England, Inc. ("ISO"), an independent, non-profit organization company. Due to the high costs associated with their operation, if the Maine Biomass Projects are not operating pursuant to a bilateral agreement with another party, they are generally operated, if at all, as peak load plants on those few days per year (typically during summer heat waves) when there are power and reserve shortages in New England. During the rest of the year, the Maine Biomass Projects are shut down but are capable of being restarted on several days' advance notice. Because the Projects are capable of providing electricity, they are entitled to sell their "installed capability," or "ICAP," a measurement of the rated ability of a generating plant to produce electric power. Power plants are credited with installed capability whether or not they run. A member of NEPOOL that serves load (i.e., electric consumers) must own or purchase installed capability on a monthly basis that at least equals its expected load for the month (the maximum amount of power that its customers may demand) plus mandated reserves. Generating facilities may enter into contracts to sell installed capability or were able to purchase it through ISO auction. During 2002, Indeck Maine's West Enfield facility operated and sold its electricity to various power purchasers. Indeck Maine's Jonesboro facility, however, did not operate during 2002 except during ICAP tests. In 1997, the State of Massachusetts passed the Electric Restructuring Act, which, among other things, required that the State encourage the development and construction of renewable resources. The Act requires entities that sell electricity to end-use retail customers in Massachusetts to have in their electric portfolio a certain percentage of renewable resources. Such resources are termed RPS Attributes. Failure to have the required amount of renewable energy results in a payment to the state equal to $.005/kwh for every kwh of the deficiency. The Massachusetts Division of Energy Resources ("DOER") recently issued final regulations regarding the RPS Attributes ("RPS Regulations"). The RPS Regulations require that renewable electric generation facilities, such as the Maine Biomass Plants, qualify as such pursuant to and as required by the RPS Regulations. Both Maine Biomass Plants have qualified under the RPS Regulations As a result of such qualification, the energy generated by West Enfield during much of 2002 also enabled West Enfield to sell its RPS Attributes related to such energy generation. West Enfield was able to sell its 2002 RPS Attributes to several power marketers, one of whom is in current negotiations with RPM, on behalf of Indeck Maine and several other related facilities, to purchase RPS Attributes and options to purchase future RPS Attributes. Such negotiations are nearly completion and if and when definitive documents are completed and executed, the Trust will provide an update on Form 8-k. (iii) Santee River Rubber Company The Trust and Power IV purchased preferred membership interests in Santee River Rubber Company, LLC, a South Carolina limited liability company ("Santee River"). Santee River built a waste tire and rubber processing facility (the "Facility") located in Berkeley County, South Carolina. The Trust and Power IV purchased the interest through a limited liability company owned two-thirds by the Trust and one-thirds by Power IV. The Trust's share of the $13,470,000 purchase price for the membership interest in Santee River was $8,980,000 and Power IV provided the remaining $4,490,000. The remaining equity interest in Santee River was owned by a wholly owned subsidiary of Environmental Processing Systems, Inc. ("EPS") of Garden City, New York. EPS was the developer of the Facility. EPS provided administrative services to Santee River during the construction of the Facility at its cost (including direct and indirect costs and allocable overhead). At the same time as it sold the Trust and Power V their membership interest, Santee River borrowed $16,000,000 through tax-exempt revenue bonds sold to institutional investors and another $16,000,000 through taxable convertible bonds sold to qualified institutional purchasers (collectively the "Debt"). It also obtained $4,500,000 of subordinated financing from the general contractor for the Facility, which is only repayable if the Facility meets specified construction and performance criteria. The Facility was constructed by Bateman Engineering, Inc. (the "Contractor") pursuant to a turnkey construction agreement between the Contractor and Santee River for a fixed price of $30.5 million. The Facility was designed to receive and process waste tires and other waste rubber products and produce fine crumb rubber of various sizes. Due to a variety or reasons including, the Trust believes, wasteful and possibly fraudulent practices of EPS, as well as design and other technical problems, the Facility was unable to perform as represented and never achieved commercial operation. On October 26, 2000, EPS, on behalf of Santee River, filed a Chapter 11 bankruptcy proceeding in U.S. Bankruptcy Court for the District of South Carolina. In the third quarter of 2000, the Trust wrote down its entire investment in Santee River to zero. As previously reported, the Trust instituted litigation against EPS alleging fraud, breach of contract and other claims. This litigation was effectively stayed, then ultimately dismissed, as a result of the bankruptcy proceeding. The Santee River Facility was sold in bankruptcy for approximately $3,500,000; $2,400,000 in cash and $1,000,000 in a note. A large part of the cash to be received from the sale transaction will go to pay the administrative expenses of the bankruptcy proceeding. The Trust believes that it was entitled to the first $457,000 of the remaining cash to repay some earlier and additional loans provided by the Trust to Santee River in order to fund the testing of the facility. Ultimately, the Trust received only $200,000 of this amount. (iv) Quantum Conveyor Systems, LLC Quantum Conveyor Systems, LLC ("Quantum"), a company located in Northvale, New Jersey, had developed a process of integrating control technology, software and conveying equipment into a modular, cost-effective conveying system. In the first quarter of 2000, Quantum ceased all material operations and the Trust wrote off the entire investment for a loss of $2.8 million. There has been no material change in Quantum's activities of financial position since the cessation of operations. Further information on Quantum's business and the structure of the Trust's investment is found in the Trust's previous Annual Reports on Form 10-K. (v) MetaSound Systems, Inc. MetaSound Systems, Inc. ("MetaSound") was organized to develop "digital audio marketing" systems tied into the Internet. The systems were designed to provide digital-quality messages, music and sound information to telephone callers on hold or in a call-center queue while they wait or to shoppers, visitors and others in retail stores and waiting areas. MetaSound was unable to attract sufficient business to become profitable and the Managing Shareholder concluded that additional funding from the Trust was not appropriate. MetaSound unsuccessfully continued to seek additional equity financing until its capital was exhausted in January 2000. On December 31, 2000, the Trust wrote off the entire investment in MetaSound. Further information on MetaSound's business and the structure of the Trust's investment is found in the Trust's previous Annual Reports on Form 10-K. (vi) Ridgewood Waterpure Ridgewood Waterpure Corporation ("Waterpure") is a 54% owned subsidiary of the Trust. Waterpure was to develop an advanced water distillation system that was previously developed by Superstill Corporation ("Superstill"). Superstill, located in California, became a debtor under Chapter 11 of the Bankruptcy Code in 1997. In December 1998, Waterpure acquired substantially all of the assets of Superstill (consisting primarily of patents, intellectual property rights and in-process research and development) under a plan of reorganization approved by the U.S. Bankruptcy Court for the Northern District of California and Superstill's creditors. The Trust invested $3,500,000 and acquired 54% of Waterpure's common stock. Creditors and licensors of intellectual property to Superstill received the remaining 46% of the common stock in exchange for their claims against Superstill. The Trust's invested funds were used by Waterpure to design, develop and commercialize water distillation and purification systems using the Superstill technology. Waterpure, however, was unable to produce a unit with a commercially acceptable price and operating characteristics. Although the Waterpure technology produces very pure water, it is more expensive to build, more expensive to power and more difficult to maintain than other technologies that produce acceptable drinking water. In addition, the minority shareholder of Waterpure brought a legal action challenging Waterpure's rights to license and sell its projects. Such litigation proved to be quite time consuming and expensive to defend. Waterpure used its available cash to develop and market its products, as well as defend against the litigation. In 2001, the available cash ran out and the shareholders of Waterpure were all unwilling to provide additional funds. Therefore, in October 2001, Waterpure filed under Chapter 7 of the U.S. Bankruptcy Code to liquidate its assets. Such filing was made in the Northern District of Ohio, but has since been transferred to the U.S. Bankruptcy Court for the Northern District of California and essentially is being handled in conjunction with the Superstill bankruptcy proceeding. The bankruptcy proceeding continued through 2002 and is still not complete. The Trust has not taken an active role in the bankruptcy proceeding. (vii) United Kingdom Landfill Projects In 1999, Ridgewood Electric Power Trust V ("Power Trust 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 Ridgewood Power Growth Fund (the "Growth Fund") was admitted as a member of UK LLC and contributed capital to allow UK LTD to acquire more UK Projects. Power Trust V and the Growth 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 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. (viii) Egyptian Projects In late 1998, the Trust and the Growth Fund 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 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 serves by REI have increased, although they are still less than normal or expected. 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. (ix) Mediterranean Fiber Optic Project In September 1999, the Trust and the Growth Fund 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. (x) Synergics, Inc. Beginning in late 1999, the Trust and The Growth Fund 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 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 Trust and Growth Fund 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 Trust and Growth Fund. (3) Project Operation. The Maine Hydro Projects are QFs and have entered into long-term power purchase agreements ("Power Contracts") with their local distribution utilities. Under the Power Contracts for the Maine Hydro Projects, the local utilities are obligated to purchase the contractual output of the Projects at formula prices. No separate payments are made for capacity or capability and all payments under the Power Contracts are made for energy supplied. The Maine Hydro Projects are licensed or operated as "run-of-river" facilities, which means that the amount of water passing through the turbines is directly dependent upon the fluctuating level of flow of the river or stream. The Maine Hydro Projects have a very limited ability to store water during high flows for use at low flow periods. Therefore, they produce electric energy and sell it as generated at the fixed rates provided in the Power Contracts. The Maine Hydro Projects are not subject to fuel price changes or supply interruptions. Because the Maine Hydro Projects are "run-of-river" hydroelectric plants, their output is dependent upon rainfall and snowfall in the areas above the dams. Output is generally lowest in the summer and highest in the spring and fall. The Maine Biomass Projects burn whole-tree wood chips, as well as wood from processing of raw wood at paper mills or sawmills. The price of wood waste fluctuates from time to time and is a primary determinant of whether the Projects can run profitably or not. The major causes of the fluctuation are changes in woodcutting or wood processing volumes caused by general economic conditions, increases in the use of wood waste by paper mills for their own cogeneration plants, changes in demand from competing generating plants using wood waste or paper mill refuse and weather conditions. The cost of wood waste is currently significantly in excess of that anticipated at the time the Maine Biomass Projects were purchased. Although the Maine Biomass Projects are QFs, they do not have long-term Power Contracts and sell their capacity and electric energy through bilateral contracts with utilities and other entities that distribute electricity, such as the contracts with Constellation and Select as described above. Generators may sell directly to such entities on a bilateral basis, or they may sell to the ISO. The ISO dispatches generating plants and takes their power in accordance with offers and its estimate of the most economical means of providing sufficient reliable electricity. It computes the clearing price for each electrical product on an hourly basis, bills loads for their shares of the products and is to pay generators in accordance with the generators' offers and the market rules. The Maine Biomass Projects are "renewable power" projects. "Renewable power" (often called "green power") is a catchphrase that includes Projects (such as solar, wind, small hydroelectric, biomass, geothermal and landfill-gas) that do not use fossil fuels or nuclear fuels. Renewable power plants typically have high capital costs and often have total costs that are well above current total costs for new gas-turbine production. As described above, in Massachusetts, RPS Attributes are required to be purchased by entities serving end-use retail electric customers. RPS Attributes are obtained from renewable resources, such as the Maine Biomass Projects. As a result of the RPS Attribute program in Massachusetts, and similar programs in other states that have not yet been finalized, the Maine Biomass Projects have been and may in the future be able to sell their electric output and the renewable or "green" credits associated with such electric power at a premium over current wholesale electric rates. In order to operate, most Projects require a variety of permits, including zoning and environmental permits. Inability to obtain such permits will likely mean that a 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 Trust 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. The electricity markets in the United Kingdom were fully deregulated several years before deregulation began in the U.S. Accordingly, the Trust has invested in a niche area, landfill gas power plants. The UK Landfill Projects enjoy a status similar to QFs in the U.S. with long-term Power Contracts. They enjoy a guaranteed price and market for their output and are not subject to price fluctuations for their fuel. The major business risks and considerations are keeping operating costs at a minimum through good design, preventative maintenance and attention to fuel quality, governmental policy changes and exchange rate fluctuations affecting the pound-denominated revenues from the Projects. Thus the Trust believes that these investments in a stable Western European country with a guaranteed market for the output have the potential for long-term, stable income. The Egyptian projects are substantially riskier. Generally, these Projects are being developed at remote resort hotel sites on the Red Sea, which are distant from other electric and water sources. REI is developing the Projects itself using local engineering personnel and contractors. Environmental, construction, legal, and labor requirements are often unclear and can change unpredictably at any time and without warning. REI may find it difficult to enforce contracts and other legal obligations against local suppliers or customers. There are no backup facilities to provide electricity or water if the Projects fail or are unusable for any period of time. Specifications for Projects have changed suddenly and unpredictably and in some cases it has been necessary for REI to construct additional infrastructure. Cultural, language and political differences between Egypt and the U.S. may impair communication with personnel, cause errors and possibly cause hostile action against the Projects by employees, residents or governmental agencies. There have been occasional terrorist incidents in Egypt directed against Western tourists and tourist facilities. In addition, terrorist attacks such as those against the United States on September 11, 2001, as well as the War in Iraq and other turmoil in the Middle East, although somewhat removed from Egypt, can have a devastating effect on tourism. Further such incidents might deter tourism and make the host hotel resorts unprofitable or might even be directed against the Egyptian Projects or their personnel. The Projects burn light fuel oil in diesel engines, which is brought in by tanker truck. Supply interruptions, oil spills or fires are possible. Although the Projects are exposed to world oil price variations, this risk is mitigated because many of the Power Contracts contain price adjustments tied to fuel oil prices that should substantially transfer the risk to the customers. The customers of most of the Egyptian Projects are single hotels. It is possible that adverse events in the tourist industry, such as labor disputes, airline problems, shortages of personnel, changes in customer taste, environmental problems, overbuilding and international political or cultural developments could depress tourist trade to the point that the hotels would be unable to pay. Other risks include currency conversion and repatriation risks, exchange rate fluctuations, taxation disputes, international hostilities, arbitrary governmental action, religious tensions, anti-foreign sentiments and legal changes. (4) Trends in the Independent Power and Other Industries (i) U.S. Electric Industry The Trust is somewhat insulated from recent deregulatory trends in the electric industry because the Maine Hydro Projects are QFs with long-term formula-price Power Contracts and a majority of the Trust's investments are outside the United States. The Trust is somewhat insulated from the recent turmoil that has enveloped the electric energy industry during the past several years because the Providence and Maine Hydro 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. However, the Trust Maine Biomass Plants are totally at the mercy of the energy market, but have been provided some substantial support as a result of the adopting of renewable portfolio regulations in Massachusetts. The adoption of the RPS Regulations in Massachusetts is indicative of the significant activity and movement in the industry, as well as at state and federal government, to increase the amount of renewable power that is supplied to utilities and distribution companies that serve retail end-use customers in various states. For example, and as described above, in Massachusetts, legislation and regulations have been passed requiring such retail electric suppliers to have in their electric portfolio one (1%) "new renewable power" for 2003. This renewable generation percentage requirement increases each year until the renewable generation amount equals nine (9%) percent. In addition to Massachusetts, New Jersey, Nevada, and California have passed similar renewable portfolio standards ("RPS") and Connecticut is considering an RPS of its own. Notwithstanding the development of a renewable energy market in many states, the general trends in the electric power industry have continued to reflect an attitude of caution and restraint. Throughout the United States, memories of the California energy crises, Enron Corp.s bankruptcy, proceedings before the Federal Energy Regulatory Commission ("FERC") regarding certain questionable practices of other energy producers and marketers, as well as the generally poor U.S. and world economy, have led many to call for a more regulated electric industry, with strict reporting requirements and cost of service regulation. However, many legislators, regulators and market participants have not disavowed deregulation. (ii) 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 There are a large number of participants in the independent power industry. Several large corporations specialize in developing, building and operating independent power plants. Equipment manufacturers, including many of the largest corporations in the world, provide equipment and planning services and provide capital through finance affiliates. Many regulated utilities are preparing for a competitive market, and a significant number of them already have organized subsidiaries or affiliates to participate in unregulated activities such as planning, development, construction and operating services or in owning exempt wholesale generators or up to 50% of independent power plants. In addition, there are many smaller firms whose businesses are conducted primarily on a regional or local basis. Many of these companies focus on limited segments of the cogeneration and independent power industry and do not provide a wide range of products and services. There is significant competition among non-utility producers, subsidiaries of utilities and utilities themselves in developing and operating energy-producing projects and in marketing the power produced by such projects. 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 by 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, from 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-QFs 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, local and foreign 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 local and foreign 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 local and foreign 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. Environmental, construction, legal, and labor requirements are often unclear and can change unpredictably at any time and without warning. (d) Financial Information about Geographic Areas For 2002 and 2001, all revenues recorded by the Trust were from the United Kingdom. The financial statements of the Maine Hydro Projects, the Maine Biomass Projects, the Synergic Projects, Quantum, MetaSound and the Egyptian Projects are not consolidated with those of the Trust 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 $(2,725,000) $ 16,101,000 United Kingdom (1,972,000) 47,627,000 Egypt (294,000) 3,503,000 (e) Employees. The Trust has no employees. The persons described below at Item 10 - Directors and Executive Officers of the Registrant serve as executive officers of the Trust and have the duties and powers usually applicable to similar officers of a Delaware corporation in carrying out the Trust 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 Trust and the Managing Shareholder (described at Item 10(c)), the Managing Shareholder provides the Trust with office space at the Managing Shareholder's principal office 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 Trust's subsidiaries or partnerships or limited liability companies in which the Trust has an interest. Approximate Square Ownership Ground Approximate Footage of Description Interests Lease Acreage Project of Projects Location in Land Expiration of Land (Actual Project or Projected) Maine Hydro 14 sites Owned n/a 24 n/a Hydro- in Maine by joint electric venture* facilities 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 Egyptian 18 sites Leased n/a less than n/a Electric gen- in Egypt by REI *** 10 acres erating or water desali- nation facil- ties Maine West Enfield Owned n/a less 18,000 Wood waste- Bio- and Jonesboro, by joint than fired genera- mass Maine venture** 25 tion facility Synergics 8 sites in U.S. Leased n/a less than n/a Hydro- by Synergics**** 15 acres facilities * Joint venture equally owned by Trust and Power IV. ** Joint venture owned by Indeck, the Trust and Power IV. *** Joint venture owned by Trust, Growth Fund and Egypt Fund **** Joint venture owned by the Fund and Power V. 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 Trust sold 932.887 Investor Shares of beneficial interest in the Trust in its private placement offering, which concluded on April 15, 1998. There is currently no established public trading market for the Investor Shares and the Trust does not intend to allow a public trading market to develop. 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 Trust and 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, 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 1,620 record holders of Investor Shares. (c) Dividends The Trust 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 Trust's decision whether to make future distributions to Investors and their timing will depend on, among other things, the net cash flow of the Trust and retention of reasonable reserves as determined by the Trust 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 Trust 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 Years Ended December 31, 2002 2001 2000 1999 1998 Sales 9,120,088 6,233,030 -- -- -- Net loss (4,991,461) (4,239,670) (16,805,021) (4,975,059) (2,643,662) Net assets (shareholders' equity) 28,243,731 32,050,290 37,739,340 60,433,793 69,216,738 Investments in Plant and Equipment (net of depreciation) 21,215,872 17,752,929 11,906,363 -- -- Investment in Power Contract(net of amortization) 18,148,831 17,915,749 9,721,949 -- -- Total assets 67,231,004 61,605,609 50,365,065 62,395,597 71,735,025 Long-term obligations 20,838,730 14,959,385 9,980,679 -- -- Per Share of Trust: Revenues (loss) 9,776 6,681 -- -- -- Net loss (5,351) (4,545) (18,013) (5,333) (2,834) Net asset value 30,276 34,356 40,454 64,983 74,303 Distributions to Investors -- -- 4,205 4,186 4,383 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 Trust's consolidated financial statements and the notes thereto presented below. Dollar amounts in this discussion are generally rounded to the nearest $1,000. The consolidated financial statements include the accounts of the Trust and Waterpure Corporation. The Trust uses the equity method of accounting for its investments in the Maine Hydro Projects, Maine Biomass Projects, Santee River, Quantum, MetaSound, the Egypt Projects and GFG. In 2001 and 2000, the Trust's investment in the Synergics Hydro projects was in the form of a note receivable and, accordingly, the Trust's earnings were in the form of interest income. In 2002, the Trust and the Growth Fund completed its acquisition of the Synergics Hydro projects and as a result, the Trust uses the equity method of accounting for its investment. Through December 31, 2000, the Trust used the equity method of accounting for its investment in the UK Projects because its ability to exercise control over these projects was expected to be temporary due to the anticipated investment in these projects by the Growth Fund. Due to delays in construction of the additional landfill gas plants, the Growth Fund elected to invest some of its funds in unrelated projects. As a result, the Trust expects to maintain control over the projects. As a result, effective on December 31, 2000, the Trust began to account for these projects using the consolidation method of accounting. Outlook The U.S. electricity markets are being restructured and there is a trend away from regulated electricity systems towards deregulated, competitive market structures. The states that the Trust's Projects operate in have passed or are considering new legislation that would permit utility customers to choose their electricity supplier in a competitive electricity market. The Maine Hydro Projects are "Qualified Facilities" as defined under the Public Utility Regulatory Policies Act of 1978 and currently sell their electric output to utilities under long-term contracts. Eleven of the Maine Hydro Projects' contracts expire in 2008 and the remaining three expire in 2007, 2014 and 2017. During the term of the contracts, the utilities may or may not attempt to buy out the contracts prior to expiration. At the end of the contracts, the Projects will become merchant plants and may be able to sell the electric output at then current market prices. There can be no assurance that future market prices will be sufficient to allow the Trust's Projects to operate profitably. The Maine Hydro Projects have a limited ability to store water. Accordingly, the amount of revenue from electricity generation from these Projects is directly related to river water flows, which have fluctuated as much as 30% from the average over the past ten years. It is not possible to accurately predict revenues from the Maine Hydro Projects. The Maine Biomass Projects sold electricity under short-term contracts during 1997. The Projects were shutdown and had minimal operations in 1998, 1999 and 2000. One project resumed full time operations on June 1, 2001 and sold electricity to Constellation Power Source, Inc. under a nine-month contract that expired on February 28, 2001. It now sells electricity to Select Energy on a month-to-month basis. The other project is currently shutdown and will not be operated (except for required tests) unless sales arrangements are obtained which would provide sufficient revenue to allow the Project to operate profitably. Except for the Egyptian Projects, all power generation projects currently owned by the Trust produce electricity from renewable energy sources, such as hydropower and biomass ("renewable power," and sometimes called "green power"). In the State of Maine, as a condition of licensing, competitive generation providers and power marketers will have to demonstrate that at least 30% of their generation portfolio is from renewable power sources. Other states in the New England Power Pool have or are expected to have similar renewable power licensing requirements, although the percentage of renewable power generation may differ from state to state. These renewable power licensing requirements should have a beneficial effect on the future profitability of the Trust's Projects. In Egypt, the Trust, Growth Fund 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 Trust, through a United Kindgdom subsidiary, has purchased fifteen landfill gas fired plants in the United Kingdom with a capacity of 25.5 megawatts. The Trust has a net ownership interest of 53% in the subsidiary. The plants sell the electricity to a quasi-autonomous non-governmental organization an inflation adjusted price for 15 years. The subsidiary is developing 10 additional projects in the United Kingdom. The Trust and the Growth Fund also purchased a note receivable from Synergics for approximately $17 million. The joint venture intends to acquire nine hydroelectric dams owned by Synergics by forgiving the $17 million of outstanding debt and $774,114 of accrued interest, 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 Trust and the Growth Fund 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 trust and the Growth Fund 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 Trust and the Growth Fund. Additional trends affecting the independent power industry generally are described at Item 1 - Business. Significant Accounting Policies The Trust's plant and equipment is recorded at cost and is depreciated over its estimated useful life. The estimate useful lives of the Trust's plant and equipment range from 3 to 15 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 Trust's operating results in the period in which the estimate is revised and subsequent periods. The Trust 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 Trust'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 $2,887,000, to $9,120,000 in 2002, as compared to $6,233,000 in 2001. The increase is attributable to the increase in the capacity and number of completed facilities. Gross margin decreased from $639,000 in 2001, to a loss of $871,000 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 $289,000, or 63%, to $750,000 in 2002 from $461,000 in 2001. The increase is primarily a result of the expansion of the UK Projects. The management fee paid to the Managing Shareholder decreased $1,166,000, or 50%, to $1,166,000 in 2002 from $2,332,000 in 2001. The decrease reflects the Managing Shareholder waiving the third and fourth quarter fees, whereas in 2001 the Trust was charged for a full year of management fees. In 2002, the Trust recorded a writedown of $854,000 for two UK sites, which it received as part of the 2001 merger agreement, which will not be developed. The Trust did not record any writedowns of projects in 2001. The Trust recorded a loss from operations of $3,642,000 in 2002 compared to a loss from operations of $2,439,000 in 2001, a change of $1,203,000. 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 Trust recorded interest income from the note related to the Synergics Projects of $410,000 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 Trust ceased accruing interest effective as of October 1, 2001. Interest expense increased $787,000, or 80%, to $1,766,000 in 2002, as compared to $979,000 in 2001. The increase is a result of the increase in outstanding borrowings under the UK Projects bank loan. Interest income, excluding interest related to the Synergics Projects note, decreased by $79,000 or 49% to $83,000 in 2002 from $162,000 in 2001 reflecting lower average cash balances on hand. The Trust recorded an equity loss of $124,000 from the Maine Hydro Projects in 2002, a decrease of $239,000 from the equity loss of $363,000 recorded in 2001. Although the Maine Hydro Projects experienced drought conditions throughout much of 2002, resulting in the current year loss, rainfall and river flows were greater than in 2001. The Trust's equity loss from the Maine Biomass Projects in 2002 was $1,259,000 compared $904,000 in 2001. The equity loss recognized in 2002 is primarily due to the higher maintenance fees incurred as a result of the West Enfield plant operating under a normal full time schedule, as well as lower capacity revenues received by the West Enfield and Jonesboro plants. As an offset to the higher maintenance fees and lower capacity revenues, the West Enfield plant recorded $2,008,000 of renewable energy attributes revenue based on its recent qualification under the RPS Regulations. The Trust recorded $33,000 of equity income related to the Egypt projects in 2001 compared to $294,000 of losses in 2002. The loss in 2002 is attributed to the increase in maintenance and depreciation expense as a result of the completion of facilities and their operation, as compared to 2001 when some facilities were still under construction. The Trust received $147,000 of other operating income in 2002. The proceeds are from the liquidation of the Santee River Rubber Company, which filed for bankruptcy in 2000. The Trust recorded a provision for United Kingdom income taxes of $307,235 for the year ended December 31, 2001 on a foreign loss of $548,830. For the year ended December 31, 2002, the Trust recorded an income tax benefit of $168,847 on foreign loss of $2,817,152. The income tax benefit/provision recorded is 30%, the statutory corporate tax rate of the United Kingdom, of the net increase in the current years temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The Trust's net loss increased $752,000, or 18%, from a loss of $4,240,000 in 2001 to a loss of $4,991,000 in 2002. The increase in net loss is primarily the result of the increase in loss from operations and the increase in interest expense. The year ended December 31, 2001 compared to the year ended December 31, 2000. Total revenues and cost of sales of $6,233,000 and $5,594,000, respectively, in 2001 were generated by the UK Projects. As indicated above, prior to 2001 the results of operations of the UK Projects were accounted for using the equity method of accounting. As a result, the Trust did not report any revenues or cost of sales in 2000. General and administrative expenses increased $223,000, or 94%, to $461,000 in 2001 from $238,000 in 2000. The increase reflects the general and administrative costs of the UK Projects, whose results of operations are consolidated with those of the Trust effective on December 31, 2000. Research and development expense decreased $1,721,000, or 86%, to $285,000 in 2001 from $2,006,000 in 2000. The decrease reflects the reduction in spending by Waterpure, which ran out of funds for additional spending and declared bankruptcy in 2001. The management fee paid to the Managing Shareholder was relatively unchanged at $2,332,000 in 2001 compared to $2,257,000 in 2000. The Trust recorded a loss from operations of $2,439,000 in 2001 compared to a loss from operations of $4,501,000 in 2000, a change of $1,472,000. The change primarily reflects the decrease in research and development expense from the Trust's Waterpure subsidiary. The Trust recorded interest income from the note related to the Synergics Projects of $410,000 in 2001, an increase of $46,000 or 13%, from the $364,000 recorded in 2000. The Trust acquired the note in April 2000. Interest expense of $979,000 in 2001 relates to the UK Projects whose operations were not consolidated with those of the Trust in 2000. Interest income, excluding interest related to the Synergics Projects note, decreased by $191,000 or 54% to $162,000 in 2001 from $353,000 in 2000 reflecting lower average cash balances on hand. The Trust recorded an equity loss of $363,000 from the Maine Hydro Projects in 2001, a change of $615,000 from the equity income of $252,000 recorded in 2000. This decrease is due to extremely low rainfall and river flows which caused a significant drop in revenue in 2001 compared to 2000. The Trust's equity loss from the Maine Biomass Project increased $264,000 or 41%, to $904,000 in 2001 from $640,000 as a result of the cost of starting up one of the facilities in 2001 and reduced revenue from installed capacity in 2001 compared to 2000. In 2000, the Trust recorded equity income (losses) of $(361,000), $(717,000) and $(57,000) and $79,000 from Santee River, MetaSound, GFG and Quantum, respectively. These projects were written off by the Trust in 2000, resulting in a charge of $12,714,000. As a result of consolidating the UK Projects, the Trust recorded an income tax provision for United Kingdom taxes of $307,000 in 2001. In 2001, the minority interest in loss of consolidated income of $335,000 relates to the UK Projects. In 2000, the minority interest in loss of consolidated income of $865,000 relates to the Waterpure subsidiary. The Trust's net loss decreased $12,565,000 or 75% from a loss of $16,805,000 in 2000 to $4,240,000 in 2001, primarily reflecting the absence of charges for the writedown of investments in 2001. Liquidity and Capital Resources In 2002 and 2001, the Trust's operating activities used cash of $730,000 and $1,591,000, respectively. In 2002, the Trust's investing activities used $3,772,000, primarily related to capital expenditures related to the UK Projects. In 2001, the Trust's investing activities used $9,173,000, primarily related to capital expenditures and acquisitions related to the UK Projects. In 2002, the Trust's financing activities provided cash of $4,642,000, primarily related to the borrowings from the Bank of Scotland to develop UK Projects. The source of cash from financing activities of $8,315,000 in 2001 primarily represents contributions from the Growth Fund to UK LLC and borrowings from the Bank of Scotland to acquire UK Projects. During the fourth quarter of 1997, the Trust and its principal bank executed a revolving line of credit agreement, whereby the bank provided a three year committed line of credit facility of $750,000. The credit facility was extended until July 31, 2002. During the third quarter of 2002, the Trust extended its revolving line of credit agreement with its principal bank through August 31, 2002 and subsequently finalized a further extension until July 31, 2003. The extension provides the Trust with a committed line of credit of $593,000. Outstanding borrowings bear interest at LIBOR plus 2.5% (3.882% and 4.376% at December 31, 2002 and 2001, respectively). The credit agreement requires the Trust to provide 100% cash collateral for any borrowings after December 31, 2002. There were no outstanding borrowings at December 31, 2002 and 2001. Obligations of the Trust 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 Trust has not found it necessary to retain a material amount of working capital. 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. The Trust is exposed to foreign currency risk primarily through its investments in the United Kingdom and Egypt. The Maine Hydro Projects, 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 Trust. The Trust and its subsidiaries anticipate that during 2003 their cash flow from operations will be sufficient to meet their obligations. In the fourth quarter of 2002, the Trust's Managing Shareholder formed Ridgewood Renewable PowerBank LLC ("PowerBank") and began offering shares. PowerBank raised approximately $12 million and discontinued its offering in April 2003. The proceeds from this fund raising will finance the expansion of the United Kingdom Landfill Gas Projects. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Qualitative Information About Market Risk. The Trust'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 Trust invests only in short-term instruments for cash management, its exposure to interest rate changes is low. The Trust has limited exposure to trade accounts receivable and believes that their carrying amounts approximate fair value. The Trust's consolidated United Kingdom Landfill Gas Projects investments in financial instruments are short-term pound denominated obligations of large banks and trade accounts receivable and payable. The Trust's primary market risk exposure is limited interest rate risk caused by fluctuations in short-term interest rates. The Trust's primary market risk exposure related to its consolidated United Kingdom Landfill Gas Projects is to fluctuations in the foreign currency exchange rates. The Trust does not anticipate any changes in its primary market risk exposure or how it intends to manage it. The Trust does not trade in market risk sensitive instruments. Quantitative Information About Market Risk This table provides information about the Trust'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 $ 5,000 Average interest rate 1.04% (U.S. $) Bank Deposits denominated in United Kingdom Pounds $ 2,925,000 Average interest rate 2.75% 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-26 Financial Statements for Maine Biomass 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 ............ $ 1,683,000 $ 2,081,000 $ 2,046,000 $ 3,310,000 Loss from operations (1,116,000) (872,000) (717,000) (937,000) Net loss ........... (1,588,000) (978,000) (269,000) (2,156,000) 2001 ----------- ----------- ----------- ----------- First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- Revenue ............ $ 1,991,000 $ 911,000 $ 1,514,000 $ 1,817,000 Loss from operations (337,000) (887,000) (117,000) (1,099,000) Net loss ........... (680,000) (714,000) (519,000) (2,327,000) Report of Independent Accountants To the Shareholders of Ridgewood Electric Power Trust V: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows present fairly, in all material respects, the financial position of Ridgewood Electric Power Trust V and its subsidiaries (the "Trust") 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 Trust'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 Ridgewood Electric Power Trust V Consolidated Balance Sheets - -------------------------------------------------------------------------------- December 31, Assets: 2002 2001 ------------ ------------ Cash and cash equivalents ...................... $ 2,930,224 $ 2,519,330 Accounts receivable, trade ..................... 3,615,902 2,464,557 Due from affiliates ............................ 1,796,530 435,823 Other current assets ........................... 461,019 334,859 ------------ ------------ Total current assets .................... 8,803,675 5,754,569 ------------ ------------ Plant and equipment ............................ 25,420,611 20,040,217 Less - Accumulated depreciation ................ (4,204,739) (2,287,288) ------------ ------------ Plant and equipment, net ................. 21,215,872 17,752,929 ------------ ------------ Electric power sales contracts and other intangibles .......................... 21,865,668 19,891,901 Less - Accumulated amortization ................ (3,716,837) (1,976,152) ------------ ------------ Electric power sales contracts and other intangibles, net .............. 18,148,831 17,915,749 ------------ ------------ Investments: Maine Hydro Projects ....................... 4,405,278 4,879,015 Maine Biomass Projects ..................... 3,896,576 4,830,991 Egypt Projects ............................. 3,502,819 3,836,912 Synergics Projects ......................... 5,887,389 5,869,109 CLP Spanish Landfill Projects .............. 1,370,564 766,335 ------------ ------------ Total assets .......................... $ 67,231,004 $ 61,605,609 ------------ ------------ Liabilities and shareholders' equity: Liabilities: Current portion of long-term debt .............. $ 1,118,497 $ 609,550 Accounts payable and accrued expenses .......... 3,263,091 3,234,486 Due to affiliates .............................. 3,182,056 343,057 ------------ ------------ Total current liabilities ............. 7,563,644 4,187,093 ------------ ------------ Long-term debt, less current portion ........... 19,842,782 13,878,183 Deferred income taxes .......................... 918,249 1,081,202 Other non-current liabilities .................. 77,699 -- Minority interest .............................. 10,584,899 10,408,841 Commitments and contingencies Shareholders' equity: Shareholders' equity (932.8875 investor shares issued and outstanding) .............................. 28,753,490 32,521,983 Managing shareholder's accumulated deficit (1 management share issued and outstanding) ............. (509,759) (471,693) ------------ ------------ Total shareholders' equity ............ 28,243,731 32,050,290 ------------ ------------ Total liabilities and shareholders' equity ................. $ 67,231,004 $ 61,605,609 ------------ ------------ See accompanying notes to the consolidated financial statements. Ridgewood Electric Power Trust V Consolidated Statements of Operations - -------------------------------------------------------------------------------- Year Ended December 31, ----------------------------------------------- 2002 2001 2000 -------------- ------------- -------------- Power generation revenue ....................... $ 9,120,088 $ 6,233,030 $ -- Cost of sales, including depreciation and amortization of $2,978,809 and $2,042,387 in 2002 and 2001 ................. 9,991,516 5,594,142 -- ------------ ------------ ------------ Gross margin ................... (871,428) 638,888 -- General and administrative expenses ....... 750,240 461,138 238,161 Management fee paid to managing shareholder ....... 1,166,112 2,332,224 2,257,357 Research and development ....... -- 285,429 2,005,494 Write down of investments in power generation projects ...................... 854,367 -- -- ------------ ------------ ------------ Total other operating expenses ............ 2,770,719 3,078,791 4,501,012 Loss from operations ........... (3,642,147) (2,439,903) (4,501,012) Other income (expense): Interest income .............. 82,691 162,250 352,638 Interest income from Synergics Projects ...... -- 409,825 364,289 Interest expense ............. (1,765,644) (978,407) -- Equity interest in income (loss) of: Maine Hydro Projects ....... (124,495) (362,509) 252,250 Maine Biomass Projects ..... (1,259,415) (904,297) (639,984) MetaSound Systems .......... -- -- (717,135) Quantum Conveyor ........... -- -- 79,280 Santee River Rubber ........ -- -- (361,042) Synergics Projects ......... (23,499) -- -- Egypt Projects ............. (294,442) 32,959 5,008 CLP Spanish Landfill Projects ......... 94,781 18,336 -- GFG ........................ -- -- (57,379) United Kingdom Landfill Projects ......... -- -- 551,520 Other income (expenses) ...... 147,096 (206,167) (283,874) Write down of investments .............. -- -- (12,714,090) ------------ ------------ ------------ Other expense, net ..... (3,142,927) (1,828,010) (13,168,519) ------------ ------------ ------------ Loss before taxes .............. (6,785,074) (4,267,913) (17,669,531) Income tax (benefit) expense .............. (168,847) 307,235 -- ------------ ------------ ------------ Loss before minority interest ............. (6,616,227) (4,575,148) (17,669,531) Minority interest in loss of consolidated subsidiaries ................ 1,624,766 335,478 864,510 ------------ ------------ ------------ Net loss ....................... $ (4,991,461) $ (4,239,670) $(16,805,021) ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. Ridgewood Electric Power Trust V Consolidated Statements of Changes In Shareholders' Equity For The Years Ended December 31, 2002, 2001 and 2000 - -------------------------------------------------------------------------------- Subscription Managing Shareholders Receivable Shareholder Total ------------- -------------- ------------- ------------ Shareholders' equity, January 1,2000 . $ 60,644,421 $ (23,000) $ (187,628) $ 60,433,793 Capital contributions, net ............ -- 23,000 -- 23,000 Cash distributions .. (3,922,376) -- (39,620) (3,961,996) Net loss for the year ....... (16,636,971) -- (168,050) (16,805,021) Cumulative translation adjustment ..... (1,930,932) -- (19,504) (1,950,436) ------------ ------------ ------------ ------------ Shareholders' equity, December 31,2000 38,154,142 -- (414,802) 37,739,340 Net loss for the year ....... (4,197,273) -- (42,397) (4,239,670) Cumulative translation adjustment ..... (1,434,886) -- (14,494) (1,449,380) ------------ ------------ ------------ ------------ Shareholders' equity, December 31,2001 32,521,983 -- (471,693) 32,050,290 Net loss for the year ....... (4,941,546) -- (49,915) (4,991,461) Cumulative translation adjustment ..... 1,173,053 -- 11,849 1,184,902 ------------ ------------ ------------ ------------ Shareholders' equity, December 31,2002 $ 28,753,490 $ -- $ (509,759) $ 28,243,731 ------------ ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. Ridgewood Electric Power Trust V Consolidated Statements of Comprehensive Loss - -------------------------------------------------------------------------------- Year Ended December 31, -------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ Net loss ............. $ (4,991,461) $ (4,239,670) $(16,805,021) Cumulative translation adjustment ........... 1,184,902 (1,449,380) (1,950,436) ------------ ------------ ------------ Comprehensive loss ... $ (3,806,559) $ (5,689,050) $(18,755,457) ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. Ridgewood Electric Power Trust V Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000 ------------- ------------- ------------ Cash flows from operating activities: Net loss .................... $ (4,991,461) $ (4,239,670) $(16,805,021) Adjustments to reconcile net loss to net cash used in operating activities, net of acquired businesses: Depreciation and amortization ............... 2,978,809 2,042,387 -- Vesting of employee stock options .............. 309,217 -- -- Minority interest in loss of subsidiaries ............... (1,624,766) (335,478) (864,510) Interest income from Synergics Projects ................... -- (409,825) (364,289) Write down of investments ............. 854,367 -- 12,714,090 Equity interest in (income) loss of: Maine Hydro Projects ............... 124,495 362,509 (252,250) Maine Biomass Projects ............... 1,259,415 904,297 639,984 MetaSound Systems ................ -- -- 717,135 Quantum Conveyor ............... -- -- (79,280) Santee River Rubber ................. -- -- 361,042 Synergics Projects ............... 23,499 -- -- Egypt Projects ............... 294,442 (32,959) (5,008) CLP Spanish Landfill Projects ............... (94,781) (18,336) -- GFG ..................... -- -- 57,379 United Kingdom Landfill Projects ...... -- -- (551,520) Changes in assets and liabilities, net of acquired businesses: Increase in accounts receivable, trade .......... (835,800) (1,334,833) -- (Increase) decrease in other current assets ............. (126,160) 763,395 (20,661) (Decrease) increase in accounts payable and accrued expenses ....... (192,517) 947,640 376,019 Increase in other non-current liabilities ................ 72,826 -- -- (Decrease) increase in deferred income taxes ............... (259,482) 333,812 -- Increase (decrease) in due to/from affiliate, net ............. 1,043,182 (574,351) 707,592 ------------ ------------ ------------ Total adjustments ................ 3,826,746 2,648,258 13,435,723 ------------ ------------ ------------ Net cash used in operating activities ......... (1,164,715) (1,591,412) (3,369,298) ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures ............... (3,358,550) (6,800,747) -- Cash paid for acquired business, net of cash received ................... -- (3,627,867) -- Investment in Maine Biomass Projects ................... (325,000) (250,000) (300,000) Investment in Santee River Rubber ..................... -- -- (354,667) Investment in Synergics Projects ................... (41,779) -- (5,094,995) Investment in Egypt Projects ............. -- -- (2,208,896) Investment in CLP Spanish Landfill Projects ................... (395,887) -- -- Distributions from Maine Hydro Projects ................... 349,242 105,424 568,807 Distributions from United Kingdom Landfill Projects .......... -- -- 1,517,760 Distributions from Egypt Projects ............. -- 1,399,982 -- Cash acquired by consolidation of United Kingdom Landfill Projects .......... -- -- 3,404,243 ------------ ------------ ------------ Net cash used in investing activities ......... (3,771,974) (9,173,208) (2,467,748) ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. Ridgewood Electric Power Trust V Consolidated Statements of Cash Flows (continued) - -------------------------------------------------------------------------------- Year Ended December 31, ------------------------------------------------ 2002 2001 2000 --------------- ------------ -------------- Cash flows from financing activities: Borrowings under line of credit facility ...................... 5,504,004 3,438,589 -- Repayments under line of credit facility ...................... (866,895) (600,803) -- Short term advances from affiliates ............... 435,110 -- -- Contributions to United Kingdom Landfill Projects by minority member ............... 4,491 5,817,006 -- Proceeds from shareholders' contributions ................. -- -- 23,000 Cash distributions to shareholders ............... -- -- (3,961,996) ------------ ------------ ------------ Net cash provided by (used in) financing activities .. 5,076,710 8,654,792 (3,938,996) ------------ ------------ ------------ Effect of exchange rate on cash and cash equivalents .............. 270,873 (101,923) (252,061) Net increase (decrease) in cash and cash equivalents ................... 410,894 (2,211,751) (10,028,103) Cash and cash equivalents, beginning of year ............. 2,519,330 4,731,081 14,759,184 ------------ ------------ ------------ Cash and cash equivalents, end of year ................... $ 2,930,224 $ 2,519,330 $ 4,731,081 ------------ ------------ ------------ See accompanying notes to the consolidated financial statements. Ridgewood Electric Power Trust V Notes to the Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. Organization and Purpose Nature of Business Ridgewood Electric Power Trust V (the "Trust") was formed as a Delaware business trust in March 1996, by Ridgewood Energy Holding Corporation acting as the Corporate Trustee. The managing shareholder of the Trust is Ridgewood Renewable Power LLC (the "Managing Shareholder"). The Trust began offering shares on April 12, 1996 and discontinued its offering on April 15, 1998. The Trust had no operations prior to the commencement of the share offering. The Trust has been organized to invest primarily in independent power generation facilities, in the development of these facilities and in other projects. 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 Trust. The Corporate Trustee acts on the instructions of the Managing Shareholder and is not authorized to take independent discretionary action on behalf of the Trust. 2. Summary of Significant Accounting Policies Principles of consolidation The consolidated financial statements include the accounts of the Trust and its controlled subsidiaries. All material intercompany transactions have been eliminated. The Trust uses the equity method of accounting for its investments in affiliates which are 50% or less owned if the Trust has the ability to exercise significant influence over the operating and financial policies of the affiliates but does not control the affiliate. The Trust'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 Trust 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 Trust evaluates its estimates, including provision for bad debts, carrying value of investments, amortization/depreciation of plant and equipment and intangible assets, and recordable liabilities for litigation and other contingencies. The Trust 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 Trust 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 Trust 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 Trust will adopt SFAS 143 effective January 1, 2003 and has assessed that this standard will not have a material impact on the Trust. 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 Trust 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 Trust will adopt SFAS 145 effective January 1, 2003 and has determined that this standard will not have a material impact on the Trust. 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 Trust will adopt SFAS 146 effective January 1, 2003 and has determined that this standard will not have a material impact on the Trust. 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 Trust 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 Trust 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 Trust's consolidated financial statements. Cash and cash equivalents The Trust 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 Trust 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, is 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 Trust 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 estimated useful life of the assets, which ranges from 4 to 20 years with a weighted average of 15 years at December 31, 2002 and 2001. During the years ended December 31, 2002 and 2001, the Trust recorded depreciation expense of $1,555,486 and $1,105,191, respectively. Electric power sales contracts and other intangibles A portion of the purchase price of the United Kingdom Landfill Projects was assigned to the Electric Power Sales Contracts and is being amortized over the life on the contracts (15 years) on a straight-line basis. The electric power sales contracts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. During the years ended December 31, 2002 and 2001, the Trust recorded amortization expense of $1,423,320 and $937,196, respectively. The Trust expects to record amortization expense during the next five years as follows: Year Ended December 31, Amortization ------------- ------------ 2003 $1,423,320 2004 1,423,320 2005 1,423,320 2006 1,423,320 2007 1,423,320 Revenue recognition Power generation revenue is recorded in the month of delivery, based on the estimated volumes sold to customers at rates stipulated in the power sales contracts. 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 Trust'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. Significant Customers The Trust sells all of the electricity it produces to quasi-autonomous non-governmental organizations that purchase electricity generated by renewable sources (such as landfill gas power plants) on behalf of all British utilities in order to meet British environmental protection goals. The Trust did not record revenues in 2000 since the Trust did not consolidate the United Kingdom Landfill Projects during this year (see Note 3, United Kingdom Landfill Projects). Stock-Based Compensation A subsidiary of the Trust has a plan which allows for the granting of stock options. The Trust applies FASB No. 123, Accounting for Stock-Based Compensation, in accounting for its stock option grants. Accordingly, compensation expense is recognized for fixed stock options as if the fair value of all stock options as of the grant date were recognized as expense over the vesting period in accordance with SFAS No. 123. The outstanding stock option grants vest over a three year period and have an exercise life of ten years from the date of grant. For the year ended December 31, 2002, the Trust recorded compensation expense of $309,217. Supplemental cash flow information Total interest paid during the years ended December 31, 2002 and 2001 was $1,765,644 and $961,246, respectively. For the year ended December 31, 2001 the Trust paid income taxes of $27,385. In connection with the acquisition, (see Note 3, United Kingdom Landfill Projects) on October 16, 2001 a subsidiary of the Trust issued 3,500,000 shares, to a minority shareholder. Income taxes The Trust recorded a provision for United Kingdom income taxes of $307,235 for the year ended December 31, 2001 on a foreign loss of $548,830. For the year ended December 31, 2002, the Trust recorded an income tax benefit of $168,847 on foreign loss of $2,817,152. The income tax benefit/provision recorded is 30%, the statutory corporate tax rate of the United Kingdom. At December 31, 2002 and 2001, the Trust had a deferred tax liability of $918,249 and $1,081,202, respectively. The significant component of the Trust's deferred tax liability is attributable to the accelerated depreciation on its plant and equipment. The Trust does not pay or record United States income taxes on the undistributed earnings of its foreign subsidiaries, where management has determined that the earnings are permanently reinvested in the entities that produced them. The cumulative undistributed earnings are included in "Shareholders' Equity" on the Consolidated Balance Sheets. No provision is made for United States income taxes in the accompanying consolidated financial statements as the income or losses of the Trust are passed through and included in the tax returns of the individual shareholders of the Trust. At December 31, 2002 and 2001, the Trust's net assets had a tax basis of $50,538,258 and $53,243,633, respectively. The following is a reconciliation of the income tax benefit computed using the statutory foreign income tax rate to the actual income tax (benefit) expense and its effective income tax rate. As of December 31, 2002 2001 --------------------------------------------------- Amount Percent of Amount Percent of pretax pretax income income ----------------------- ------------------------- Income tax benefit at foreign statutory rate .................. $(2,035,522) (30.0%) $(1,280,374) (30.0%) U.S. pass thru expenses ......... 905,842 13.4% 1,156,619 27.1% Amortization of foreign intangibles ........... 524,528 7.7% 281,159 6.6% Other .................. 436,305 6.4% 149,831 3.5% ----------- ---- ----------- ---- Income tax (benefit) expense ...... (168,847) (2.5%) 307,235 7.2% ----------- ---- ----------- ---- Reclassification Certain items in previously issued financial statements have been reclassified for comparative purposes. 3. Projects Consolidated Investments United Kingdom Landfill Projects In 1999, the Trust 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 Great Britain. 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 Great Britain. During 2001, the Growth Fund contributed $5,817,006 to 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. The Trust accounted for these projects using the equity method because its ability to exercise control over the projects was expected to be temporary because the Growth Fund was originally expected to ultimately contribute more capital to Ridgewood UK than the Trust. Due to delays in construction of the additional landfill gas plants, the Growth Fund elected to invest some of its funds in unrelated projects. As a result, the Trust expects to maintain control over the projects. As a result, effective December 31, 2000, the Trust began to account for these projects using the consolidation method of accounting. 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 "UK Merger" transaction). 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. UK Ltd. was renamed CLP Envirogas Limited in 2001. The Trust and the Growth 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 $6,781,000, which will be amortized over the 15 year life of the contacts. 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, the Company'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%. Through October 16, 2001, CLP Services Limited ("CLPS"), provided day-to-day services to the projects. CLPS was paid a flat fee of approximately 1.2 cents per kilowatt-hour for those services (adjusted for increases in the Retail Price Index) and was eligible for bonus payments if a project's actual annual electricity output exceeded 90% of its capacity. CLPS was also paid approximately $88,000 per year (also adjusted for increases in the Retail Price Index) for management services for the various companies owning the ten existing projects. The gas extraction and cleaning systems for the landfills was operated by CLPS for no additional cost. The UK Merger on October 16, 2001 effectively terminated the agreement making Ridgewood UK responsible for its own operating expenses, which include development and administrative, operation, labor and maintenance activities for all of its UK Projects. 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. The writedown has been presented as a separate line item under other operating expenses in the Consolidated Statements of Operations. In addition to the plants located throughout the United Kingdom, Ridgewood UK has a 50% ownership interest in CLP Organogas SL ("Organogas"), a 2 megawatt plant located in Seville, Spain. Ridgewood UK 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. At October 16, 2001 the Management and Development Companies acquired had net assets of approximately $1,000 and had recognized no profit or loss for the period of January 1, 2001 to October 16, 2001. In addition, all the landfill projects acquired as part of the merger, except one, were new construction and were near completion. The one project that was completed, had just begun operating. Since the acquired projects had no operating results and the Management and Development Companies had no income or loss and had minimal net assets, the pro forma results of operations as if the merger had taken place on January 1, 2001 would not be significantly different than the current results included in the Consolidated Statements of Operations. Investments accounted under the Equity Method Maine Hydro Projects In 1996, Ridgewood Maine Hydro Partners, L.P. ("Ridgewood Hydro L.P.") was formed as a Delaware limited partnership and acquired 14 hydroelectric projects, located in Maine (the "Maine Hydro Projects"), from a subsidiary of CHI Energy, Inc. (formerly Consolidated Hydro, Inc.). The assets acquired include a total of 11.3 megawatts of electrical generating capacity. The electricity generated is sold to Central Maine Power Company and Bangor Hydro Company under long-term contracts. The purchase price was $13,628,395 cash, including transaction costs. The Trust owns a 50% limited partnership interest in Ridgewood Hydro L.P. and 50% of the outstanding common stock of Ridgewood Maine Hydro Corporation, which is the sole general partner of Ridgewood Hydro L.P. The remaining 50% is owned by Ridgewood Electric Power Trust IV ("Trust IV"). Ridgewood Power LLC is the managing shareholder of both the Trust and Trust IV. The Trust's 50% investment in the Maine Hydro Projects is accounted for under the equity method of accounting. The Trust's equity in the earnings of the Maine Hydro Projects has been included in the consolidated financial statements since acquisition. The Maine Hydro Projects are operated by a subsidiary of CHI Energy, Inc., under an Operation, Maintenance and Administrative Agreement. The annual operator's fee is adjusted on June 30th of each year for inflation, plus an annual incentive fee equal to 50% of the net cash flow in excess of a target amount. The Maine Hydro Projects recorded $351,162, $343,704 and $414,089 of expense under this arrangement during the years ended December 31, 2002, 2001 and 2000, respectively. The agreement has a five-year term, expiring on June 30, 2006, and can be renewed for one additional five-year term by mutual consent. Summarized financial information for the Maine Hydro Projects is as follows: Balance Sheets December 31, 2002 December 31, 2001 ------------------- ------------------- Current assets .................. $ 957,499 $ 632,298 Non-current assets .............. 8,518,141 9,408,314 ----------- ----------- Total assets .................... $ 9,475,640 $10,040,612 ----------- ----------- Current liabilities ............. $ 665,086 $ 282,582 Partners' equity ................ 8,810,554 9,758,030 ----------- ----------- Total liabilities and equity ..................... $ 9,475,640 $10,040,612 ----------- ----------- Trust share ..................... $ 4,405,278 $ 4,879,015 ----------- ----------- Statements of Operations For the Year Ended December 31, ----------------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Revenue ................... $ 3,144,471 $ 2,311,346 $ 3,750,095 Operating expenses ................. 3,442,764 3,049,927 3,271,902 Other income .............. 49,302 13,563 26,307 ----------- ----------- ----------- Net income (loss) ......... $ (248,991) $ (725,018) $ 504,500 ----------- ----------- ----------- Trust share ............... $ (124,496) $ (362,509) $ 252,250 ----------- ----------- ----------- The Maine Hydro Projects qualify as small power production facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA requires that each electric utility company operating at the location of a small power production facility, as defined, purchase the electricity generated by such facility at a specified or negotiated price. The Maine Hydro Projects sell substantially all of their electrical output to two public utility companies, Central Maine Power Company ("CMP") and Bangor Hydro-Electric Company ("BHC"), under long-term power purchase agreements. Eleven of the twelve power purchase agreements with CMP expire in December 2008 and are renewable for an additional five-year period. The twelfth power purchase agreement with CMP expires in December 2007 with CMP having the option to extend the contract for three more five-year periods. The two power purchase agreements with BHC expire December 2014 and February 2017. Maine Biomass Projects In 1997, through a subsidiary, the Trust acquired a 25% preferred membership interest in Indeck Maine Energy, L.L.C. ("Maine Biomass Projects"), which owns two electric power generating stations fueled by waste wood. The aggregate purchase price was $7,297,971 including transaction costs. Each project has 24.5 megawatts of electrical generating capacity. The Penobscot project is located in West Enfield, Maine and the Eastport project is located in Jonesboro, Maine. The Eastport Project was shut down in January 1998. The facility currently sells installed capacity and is periodically restarted for testing or for the sale of energy during peak periods of demand. The cost of maintaining the idled facility in good condition is approximately $100,000 per month. The Penobscot facility resumed full time operation in June 2001. In accordance with the Maine Biomass Projects operating agreement, the Trust and Trust IV are currently allocated 100% (50% each) of the Maine Biomass Projects losses, since the other Maine Biomass Project member's capital account is zero. The preferred membership interest entitles the Trust to receive an 18% cumulative annual return on its $7,000,000 capital contribution to the Maine Biomass Projects from the operating net cash flow from the projects. Trust IV also purchased an identical preferred membership interest in Indeck Maine. After payments in full to the preferred membership interests, up to $2,520,000 of any remaining operating net cash flow during the year is paid to the other Maine Biomass Project members. Any remaining operating net cash flow is payable 25% to the Trust and Trust IV and 75% to the other Maine Biomass Project members. In 2002, 2001 and 2000, the Trust loaned $325,000, $250,000 and $300,000, respectively, to the Maine Biomass Projects. The loan is in the form of demand notes that bear interest at 5% per annum. Trust IV made identical loans to the Maine Biomass Projects. The other Maine Biomass Project member also loaned $650,000, $500,000 and $600,000 to the Maine Biomass Projects with the same terms in 2002, 2001 and 2000, respectively. The Trust's investment in the Maine Biomass Projects is accounted for under the equity method of accounting. The Trust's equity in the loss of the Maine Biomass Projects has been included in the statements of operations since acquisition. The financials statements of the Maine Biomass Projects were not adjusted to reflect the purchase of the membership interest by the Trust. The Trust's equity in the net loss of the Maine Biomass Projects recorded in the Trust's consolidated financial statements has been adjusted to reflect the purchase price paid by the Trust for its membership interest. Under an Operating Agreement with the Trust, Ridgewood Power Management LLC ("Ridgewood Management"), an entity related to the managing shareholder through common ownership, began providing management, purchasing, engineering, planning and administrative services to the Maine Biomass Projects. Ridgewood Management charges the projects at its cost for these services and for the allocable amount of certain overhead items. Allocations of costs are on the basis of identifiable direct costs, time records or in proportion to amounts invested in projects. From June through December 1999, the facilities periodically operated on dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the ISO to run at high prices during power emergencies. The facilities have claimed the ISO owes them approximately $14 million for the electricity products they provided in those periods and the ISO has claimed that no material revenues at all are due to the projects. As a result, on October 24, 2000, Indeck Maine filed a complaint against the ISO in the Superior Court of Delaware alleging, among other things, that the ISO's actions resulted in a breach of an express or implied contract, violated certain consumer protection laws and amounted to fraud. The ISO removed the litigation to Federal District Court in Delaware. As a result of various pre-trial motions filed by the parties, such litigation was filed as a complaint by the Company before FERC. In April 2002, FERC ruled on this complaint in favor of the ISO. The Company has determined it will not appeal or otherwise contest the ruling by FERC. On May 9, 2002, the Penobscot project and the Eastport project each filed an "Application for Statement of Qualification" with the Massachusetts Division of Energy Resources (the "Division") to qualify as new renewable electric generation facilities under the Massachusetts Renewable Portfolio Standard Regulations ("RPS"). Pursuant to these regulations, qualified renewable electric generation facilities produce renewable portfolio standard attributes ("RPS Attributes") when they generate electricity. RPS Attributes are then sold to and used by entities that are providing electricity to end-use customers in Massachusetts. The RPS regulations, and the statute under which they were promulgated, are intended to spur use and development of new renewable generation facilities. On July 8, 2002, the Trust received official notice from the Division that the Application for Statement of Qualification filed pursuant to the Massachusetts Renewable Energy Portfolio Standard Regulations ("Regulations") by both the Eastport and Penobscot projects had been approved as of July 3, 2002. Pursuant to such approval, the Division found that the Projects meet the eligibility requirements of the Regulations and therefore may market and sell renewable attributes associated with the electric generation of the Plants. Because the Penobscot project qualifies under the RPS, pursuant to the power sales contract, Select Energy paid an additional amount for the RPS Attributes associated with the electric energy it purchased from the Penobscot project, which amounted to approximately $2,008,488 for the year ended December 31, 2002. Summarized financial information for the Maine Biomass Projects is as follows: Balance Sheets December 31, -------------------------------- 2002 2001 ----------- ----------- Current assets ....................... $ 1,217,126 $ 1,162,010 Non-current assets ................... 3,598,162 3,359,795 ----------- ----------- Total assets ......................... $ 4,815,288 $ 4,521,805 ----------- ----------- Current liabilities.......................... 3,485,662 $ 2,021,185 Notes payable to members .......................... 7,101,000 5,801,000 Members' deficit ..................... (5,771,374) (3,300,380) ----------- ----------- Total liabilities and equity .......................... $ 4,815,288 $ 4,521,805 ----------- ----------- Trust share .......................... $ 3,896,576 $ 4,830,991 ----------- ----------- Statement of Operations For the Year Ended December 31, ----------------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Revenue .................. $ 7,246,435 $ 5,587,507 $ 2,017,481 Cost of sales ............ 9,080,905 6,913,336 2,646,770 Other expenses ........... 636,524 557,671 650,680 ----------- ----------- ----------- Net loss ................. $(2,470,994) $(1,883,500) $(1,279,969) ----------- ----------- ----------- Trust share .............. $(1,259,415) $ (904,297) $ (639,984) ----------- ----------- ----------- Egypt Projects In 1999, the Trust and The Ridgewood Power Growth Fund (the "Growth Fund") jointly formed Ridgewood Near East Holdings LLC ("Ridgewood Near East') to develop electric power and water purification plants for resort hotels in Egypt. In 2001, the Ridgewood/Egypt Fund ("Egypt Fund") an affiliate of the Trust and the Growth Fund, became a member of Ridgewood Near East. The Trust, Egypt Fund and the Growth Fund own undivided interests in the Egypt projects in proportion to the capital they contributed, net of distributions and allocated profits and losses. Through December 31, 2002, the Trust had contributed $4,899,019 to the Egypt Projects and has a 14% ownership interest in the Egypt Projects. 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, Ridgewood Near East shut down and removed the equipment from two of its on-site water desalinization plants. In addition, in the first quarter of 2003, Ridgewood Near East sold another of its on-site power plants to the hosting hotel. As a result of these transactions, Ridgewood Near East recorded an impairment writedown of $297,652 to adjust the carrying value of the projects to reflect their fair value at December 31, 2002. On December 30, 2001, Ridgewood Near East purchased a 28% equity interest in Sinai Environmental Services S.A.E. (the "Sinai Company"), a 1,585,000 gallons per day water desalinization plant, for 4,999,800 Egyptian pounds (approximately $1,087,000). At December 31, 2001, Ridgewood Near East 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, Ridgewood Near East made an additional investment of 4,379,637 Egyptian pounds (approximately $939,000) to increase its ownership to 53% and gain control of the Sinai Company. As a result of the additional investment, effective February 16, 2002, Ridgewood Near East accounts for its investment in Sinai Company under the consolidation method of accounting. In return for its investment Ridgewood Near East received a 53% interest in the Sinai Company, 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, Ridgewood Near East 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 the Sinai Company, which at December 31, 2002 had a net book value of $6,957,265. The provision of the loan restricts the Sinai Company from paying dividends to its shareholders or obtaining credit from other banks. Ridgewood Near East 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. The Trust's investment in the Egypt Projects is accounted for under the equity method of accounting. The Trust's equity in the results of opeartions of the Egypt Projects has been included in the consolidated financial statements since the inception of the projects. Summarized financial information for the Egypt Projects is as follows: Balance Sheets December 31, 2002 December 31, 2001 ----------------- ----------------- Current assets ....................... $ 2,192,104 $ 1,157,043 Non-current assets ................... 31,340,449 27,047,922 ----------- ----------- Total assets ......................... $33,532,553 $28,204,965 ----------- ----------- Current liabilities .................. $ 5,798,273 $ 989,609 Non-current liabilities .......................... 2,876,474 -- Members' equity ...................... 24,857,806 27,215,356 ----------- ----------- Liabilities and members' equity ...................... $33,532,553 $28,204,965 ----------- ----------- Trust Share .......................... $ 3,502,819 $ 3,836,912 ----------- ----------- Statements of Operations For the Years Ended December 31, ---------------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Net sales ................. $ 5,459,011 $ 4,237,676 $ 2,180,231 Cost of sales ............. 5,190,501 3,256,555 1,924,932 Other expenses ............ 2,356,996 821,211 237,476 ----------- ----------- ----------- Net income (loss) ......... $(2,088,486) $ 159,910 $ 17,823 ----------- ----------- ----------- Trust Share ............... $ (294,442) $ 32,959 $ 5,008 ----------- ----------- ----------- Synergics Projects Beginning in late 1999, the Trust and the Growth Fund 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 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 Trust and the Growth Fund 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 Trust and the Growth Fund. In total, the Trust and the Growth Fund acquired the Synergics Projects for approximately $20.3 million. In return for their investment, the Trust and the Growth Fund 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, $0.5 million in accounts receivable, and $0.2 million in other assets. In accordance with the purchase agreement, the Trust and the Growth Fund assumed approximately $7.5 million of bank debt and income taxes 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 (11 to 22 years). The Trust 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 Trust recorded $409,825 and $364,289 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 Trust accounted for its 29.2% investment in the Synergics Projects under the equity method of accounting. The Trust's equity in the loss of the Synergics Projects has been included in the consolidated financial statements. Summarized financial information for the Synergic Projects is as follows: Balance Sheets December 31, 2002 ------------------ Current assets ............................ $ 2,497,752 Non-current assets ........................ 25,676,016 ----------- Total assets .............................. $28,173,768 ----------- Current liabilities ....................... $ 2,346,934 Non-current liabilities ................... 5,650,000 Members' equity ........................... 20,176,834 ----------- Liabilities and members' equity ........... $28,173,768 ----------- Trust Share ............................... $ 5,887,389 ----------- Statements of Operations For the Period November 23, 2002 to December 31, 2002 --------------------- Net sales ............................... $ 371,345 Cost of sales ........................... 213,095 Other expenses .......................... 238,726 --------- Net income (loss) ....................... $ (80,476) --------- Trust Share ............................. $ (23,499) --------- Previous Investments MetaSound Corporation In December 1998, through a subsidiary, the Trust purchased an interest in MetaSound Systems, Inc. ("MetaSound Systems"), which is developing digital audio marketing systems connected to the internet. The systems are designed to provide digital quality messages, music and sound information to telephone callers on hold or in a call center queue. For an aggregate purchase price of $2,508,640, the Trust purchased 4,676,000 shares of Series C Preferred Stock, a warrant to purchase up to 4,676,000 additional shares at $.54 per share expiring on May 31, 1999, and a second warrant to purchase up to 2,000,000 additional shares at $.54 per share expiring in 2003. The Series C Preferred Stock may be converted into an equal number of shares of common stock at the Trust's option. The Series C Preferred Stock automatically converts into common stock in the event of a public offering of MetaSound Systems meeting certain requirements. Ridgewood Capital Venture Partners, LLC and Ridgewood Capital Institutional Venture Partners, LLC (collectively the "Venture Funds"), investment programs sponsored by an affiliate of the managing shareholder, invested $3,066,236 in MetaSound Systems in May 1999 to exercise the 4,676,000 share warrant and obtain a $500,000 Convertible Promissory Note. The Trust and the Venture Funds own undivided interests in MetaSound Systems in proportion to the capital they contributed. The Trust and the Venture Funds own approximately a 42% interest in MetaSound Systems. The Trust's investment in MetaSound Systems is accounted for under the equity method of accounting. The Trust's equity in the loss of MetaSound Systems has been included in the consolidated financial statements since December 1, 1998. In early 2001, MetaSound's funds were exhausted and it ceased operations. Accordingly, the Trust recorded a writedown of $204,028 in 2000 to reduce the investment to its estimated fair value of zero. Quantum Conveyor In September 1998, the Trust purchased a 15% membership interest in Quantum Conveyor Systems, LLC, a newly organized Delaware limited liability company ("Quantum Conveyor") through a subsidiary of the Trust. At the same time, Quantum Conveyor acquired substantially all of the assets and certain of the liabilities of Quantum Conveyor Systems, Inc. Quantum Conveyor designs, manufactures and sells modular conveyor systems used by post offices, distribution centers, warehouses, and other material handling facilities. At the same time as the Trust's subsidiary purchased its membership interest, it made a secured loan of $2,985,000 to Quantum Conveyor. In addition, the Trust's subsidiary had an option that expired on March 2, 1999, to purchase an additional 10% membership interest for $10,000 which was exercised by the Venture Funds in February 1999. The Trust's subsidiary extended a line of credit to loan up to an additional $1,990,000 to Quantum Conveyor through June 1, 2003, under the same terms as the $2,985,000 loan. The Venture Funds provided the maximum $1,990,000 of loans under this line of credit in 1999. In July 1999, the Trust and the Venture Funds purchased an additional 2% membership interest in Quantum Conveyor for $100,000, funded $60,000 by the Trust and $40,000 by the Venture Funds. The Trust and the Venture Funds own the subsidiary in proportion to their capital contributions. The remaining membership interests of Quantum Conveyor are owned by three individuals. As part of the transaction, the president of Quantum Conveyor, who owns a membership interest, accepted a $4,000,000 promissory note in satisfaction of all indebtedness of Quantum Conveyor to him. The promissory note has the same terms as the Trust's secured loan to Quantum Conveyor. The secured loan and promissory note bear interest at 12% per year. From September 1998 to August 2000, no interest payments by Quantum Conveyor were required. From September 2000 to June 2003, Quantum Conveyor is required to make quarterly payments of interest only. From July 2003 to September 2008, Quantum Conveyor must make equal quarterly payments sufficient to fully repay the principal and interest due under the note by September 2008. The Trust's investment in Quantum Conveyor is accounted for under the equity method of accounting. The Trust's equity in the loss of Quantum Conveyor has been included in the consolidated financial statements since September 1998. In early 2001, Quantum's funds were exhausted and it reduced its operations to a minimal level. As a result, the Trust recorded a writedown of $2,889,690 in 2000 to reduce the investment to its estimated fair value of zero. Santee River Rubber In August 1998, the Trust and an affiliate, Trust IV, purchased preferred membership interests in Santee River Rubber Company, LLC, a newly organized South Carolina limited liability company ("Santee River Rubber"). Santee River Rubber was building a waste tire and rubber processing facility located near Charleston, South Carolina. The facility, which was expected to begin full scale operations in 2000, was designed to receive and process waste tires and produce fine crumb rubber of various sizes. The Trust and Trust IV purchased the interests through a limited liability company owned one-third by the Trust and two-thirds by Trust IV. The Trust's share of the purchase price was $8,979,639 and Trust IV's share of the purchase price was $4,489,819. Until January 2000, Santee River Rubber paid the Trust and Trust IV interest at 12% per year on $11,000,000 of their investment. After operations began, the Trusts were entitled to receive all cash flow after payment of debt and other obligations until the Trusts received a cumulative 20% return on their total investment. Thereafter, the Trust and Trust IV were to receive 25% of any remaining cash flow available for distribution. All cash distributions and tax allocations received from Santee River Rubber were shared two-thirds by the Trust and one-third by Trust IV. The remaining equity interest was owned by a wholly-owned subsidiary of Environmental Processing Systems, Inc. ("EPS"), a company not affiliated with the Trust, which was the manager of the project. At the same time as the Trust and Trust IV purchased their membership interests, Santee River Rubber borrowed $16,000,000 through tax exempt revenue bonds and another $16,000,000 through taxable convertible bonds. It also obtained $4,500,000 of subordinated financing from the general contractor of the facility. In late May 2000, EPS informed the Trust that Santee River Rubber needed substantial additional money to pay for its operating expenses while modifications were completed and testing was performed. Intensive negotiations then began between the Trust, Trust IV, EPS, the facility's bondholders and potential outside funding sources. While these negotiations continued, the Project informed the Trust on July 30, 2000 that it had run out of money and would be unable to make payroll. After further discussions, the Trust and Trust IV advanced $354,667 and $152,333, respectively, for that purpose. Negotiation continued until October 26, 2000, when Santee River Rubber Company filed for Chapter 11 bankruptcy in the U.S. District Court for South Carolina. On November 2, 2000, the U.S. Bankruptcy Court ordered that a trustee in bankruptcy be appointed to manage Santee River. As a result, the Trust determined that it would be unlikely to recover its investment in Santee River Rubber Company. Accordingly, the Trust recorded a writedown of $8,180,081 in 2000 to reduce the estimated fair value of the investment to zero. The Trust's investment in Santee River Rubber was accounted for under the equity method of accounting. The Trust's equity in the income or loss of Santee River Rubber has been included in the consolidated financial statements since acquisition. WaterPure Corporation In August 1998, the Trust and two unrelated entities filed a revised reorganization plan for Superstill Technology, Inc ("Superstill"). Superstill, a California company, has been a debtor in Chapter 11 bankruptcy since July 1997. The reorganization plan was approved by the bankruptcy court and Superstill's creditors in December 1998. In accordance with the reorganization plan, Ridgewood WaterPure Corporation ("WaterPure Corporation") acquired substantially all the assets of Superstill and made certain payments to satisfy the claims against Superstill. The purchase price was allocated to the assets and liabilities acquired based upon their respective fair values. Superstill holds various patents and intellectual property rights to an energy efficient water purification technology that it has developed. Superstill has also designed and licensed distillation and desalinization equipment of various sizes and capacities. The Trust made an investment of $3,500,000 in WaterPure Corporation in exchange for 5,400,000 shares of common stock representing a 54% equity interest in WaterPure Corporation. The remaining equity interest in WaterPure Corporation was issued to other creditors and license holders of Superstill in satisfaction of their claims and to acquire certain licensing rights. WaterPure Corporation will design, develop and commercialize water purification systems incorporating the technology acquired from Superstill. WaterPure Corporation, however, was unable to produce a unit with a commercially acceptable price and operating characteristics. Although the WaterPure Corporation technology produces very pure water, it is more expensive to build, more expensive to power and more difficult to maintain than other technologies that produce acceptable drinking water. In addition, the minority shareholder of WaterPure Corporation brought a legal action challenging Waterpure Corporation's rights to license and sell its projects. Such litigation proved to be quite time consuming and expensive to defend. WaterPure Corporation used its available cash to develop and market its products, as well as defend against the litigation. In 2001, the available cash ran out and the shareholders of WaterPure Corporation were all unwilling to provide additional funds. Therefore, in October 2001, WaterPure Corporation filed under Chapter 7 of the United States Bankruptcy Code to liquidate its assets. Such filing was made in the Northern District of Ohio, but has since been transferred to the United States Bankruptcy Court for the Northern District of California and essentially is being handled in conjunction with the Superstill bankruptcy proceeding. GFG In September 1999, the Trust and the Growth Fund 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 Trust and the Growth Fund, provided for a 25% ownership interest in GFG and the right to invest in projects developed by GFG. The Trust and the Growth Fund anticipated equally funding an $18,000,000 joint venture investment in the Mediterranean Fiber Optic Project in 2000. The Trust's investment in the GFG is accounted for under the equity method of accounting. The Trust's equity in the loss of the GFG has been included in the consolidated financial statements since the inception of the projects. In the first quarter of 2000, the Trust 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 Trust recorded a writedown of $1,440,291 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 United Kingdom Landfill Gas Projects long-term debt at December 31,2002 and 2001: 2002 2001 ------------ ------------ Bank loans payable ................... $ 20,961,279 $ 14,487,733 Less - Current maturity .............. (1,118,497) (609,550) ------------ ------------ Total long-term debt ................. $ 19,842,782 $ 13,878,183 ------------ ------------ In 2001, Ridgewood UK renegotiated the terms of its long-term debt with its bank. The renegotiated bank loans are 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 Ridgewood UK to maintain a debt service coverage ratio of 1.4 to 1. At December 31, 2002, Ridgewood UK's outstanding debt was in compliance with the covenants of its credit agreement. Scheduled principal repayments of long-term debt are as follows: Year Ended December 31, Payment ------------ ---------- 2003 $ 1,118,497 2004 1,286,193 2005 1,462,658 2006 1,649,195 2007 1,793,586 Thereafter 13,651,150 ---------- Total $ 20,961,279 ============ During the fourth quarter of 1997, the Trust and its principal bank executed a revolving line of credit agreement, whereby the bank provided a three year committed line of credit facility of $750,000. The credit facility was extended until July 31, 2002. During the third quarter of 2002, the Trust extended its revolving line of credit agreement with its principal bank through August 31, 2002 and subsequently finalized a further extension until July 31, 2003. The extension provides the Trust with a committed line of credit of $593,000. Outstanding borrowings bear interest at LIBOR plus 2.5% (3.882% and 4.376% at December 31, 2002 and 2001, respectively). The credit agreement requires the Trust to provide 100% cash collateral for any borrowings after December 31, 2002. There were no outstanding borrowings at December 31, 2002 and 2001. 5. Fair Value of Financial Instruments At December 31, 2002 and 2001, the carrying values of the Trust's cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate their fair values. The fair value of the long-term debt, calculated using current rates for loans with similar maturities, approximates its carrying value. The fair value of the letter of credit does not differ materially from its carrying value. 6. Electric Power Sales Contracts The United Kingdom Landfill Gas Projects are committed to sell all of the electricity it produces to quasi-autonomous non-governmental organizations that purchase electricity generated by renewable sources (such as landfill gas power plants) on behalf of all British utilities in order to meet British environmental protection goals. The electricity prices will be increased annually by a factor equal to the percentage increase in the United Kingdom Retail Price Index. 7. Transactions with Managing Shareholder and Affiliates The Trust entered into a management agreement with the Managing Shareholder under which the Managing Shareholder renders certain management, administrative and advisory services and provides office space and other facilities to the Trust. As compensation to the Managing Shareholder for such services, the Trust pays the Managing Shareholder an annual management fee equal to 2.5% of the total capital contributions to the Trust payable monthly upon the closing of the Trust which occurred in April 1998. For the year ended December 31, 2002, 2001 and 2000, the Trust paid management fees of $1,166,112, $2,332,224 and $2,257,357, respectively. For the year ended December 31, 2002, the managing shareholder waived 50% of the management fee due. The Trust reimburses the Managing Shareholder and affiliates for expenses and fees of unaffiliated persons engaged by the Managing Shareholder for fund business. The Managing Shareholder or affiliates originally paid all project due diligence costs, accounting and legal fees and other expenses shown in the statement of operation and were reimbursed by the Trust. Under the Declaration of Trust, the Managing Shareholder is entitled to receive each year 1% of all distributions made by the Trust (other than those derived from the disposition of Trust property) until the shareholders have been distributed each year an amount equal to 14% of their equity contribution. Thereafter, the Managing Shareholder is entitled to receive 20% of the distributions for the remainder of the year. The Managing Shareholder is entitled to receive 1% of the proceeds from dispositions of Trust properties until the shareholders have received cumulative distributions equal to their original investment ("Payout"). After Payout, the Managing Shareholder is entitled to receive 20% of all remaining distributions of the Trust. Income is allocated to the Managing Shareholder until the profits equal distributions to the Managing Shareholder. Then, income is allocated to the investors, first among holders of Preferred Participation Rights until such allocations equal distributions from those Preferred Participation Rights, and then among Investors in proportion to their ownership of investor shares. If the Trust has net losses for a fiscal period, the losses are allocated 99% to the Investors and 1% to the Managing Shareholder. Where permitted, in the event the Managing Shareholder or an affiliate performs brokering services in respect of an investment acquisition or disposition opportunity for the Trust, the Managing Shareholder or such affiliate may charge the Trust a brokerage fee. Such fee may not exceed 2% of the gross proceeds of any such acquisition or disposition. No such fees have been paid through December 31, 2002. The corporate trustee of the Trust, Ridgewood Energy Holding Corporation, an affiliate of the Managing Shareholder through common ownership, received no compensation from the Fund. Amounts due to and from affiliates are non-interest bearing and are usually settled within thirty days. Such amounts arise from the delay between when expenses are paid by the Trust or affiliates and when reimbursement occurs. The Managing Shareholder purchased one investor share of the Trust for $83,000 in 1996. The Trust granted the Managing Shareholder a single Management Share representing the Managing Shareholder's management rights and rights to distributions of cash flow. At December 31, 2002 and 2001, the Trust had outstanding payables and receivables, with the following affiliates: As of December 31, Due To Due From ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Ridgewood Management ....... $ -- $ 141,707 $ 80,973 $ -- Ridgewood Renewable Power .. 1,265,862 -- -- -- Growth Fund ................ 387,100 181,832 -- -- Trust IV ................... -- -- -- 135,823 Maine Hydro ................ -- -- 610,878 100,000 Maine Biomass .............. -- -- 950,244 200,000 Synergics Projects ......... 1,510,000 -- -- -- Other affiliates ........... 19,094 19,518 154,435 -- ---------- ---------- ---------- ---------- Total ............... 3,182,056 343,057 1,796,530 435,823 ---------- ---------- ---------- ---------- From time to time, the Trust records short-term payables and receivables from other affiliates in the ordinary course of business. The amounts payable and receivable with the other affiliates do not bear interest. 8. Other Income In 2002 the Trust received $200,000 from the liquidation of the Santee River Rubber Company, which filed for bankruptcy in 2000. The proceeds received have been recorded as other income in the consolidated statements of operations. 9. Subsequent Event On February 13, 2003, the Maine Biomass Projects sold the renewable portfolio standards ("RPS") Attributes generated from the power produced in fourth quarter of 2002 for $336,570 and $1,236,720, respectively. The Trust, along with Trust IV, is currently negotiating a transaction with a power marketer that does business in Massachusetts for the sale of the RPS Attributes generated by the Maine Biomass Projects, in the calendar year 2003. 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%. On January 30, 2003, the Egyptian government discontinued the regulation of its monetary currency rate and decided to allow the currency rate to float. As a result of this change in policy, the Egyptian pound decreased 15% against the US dollar on January 30, 2003. As of May 31, 2003, the Trust's investment in the Egyptian projects decreased by approximately 23% as a result of the decrease in exchange rate. In the fourth quarter of 2002, the Trust's Managing Shareholder formed Ridgewood Renewable PowerBank LLC ("PowerBank") and began offering shares. PowerBank raised approximately $12 million and discontinued its offering in April 2003. The proceeds from this fund raising will finance the expansion of the United Kingdom Landfill Gas Projects. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. (a) General. As Managing Shareholder of the Trust, Ridgewood Renewable Power LLC has direct and exclusive discretion in management and control of the affairs of the Trust. The Managing Shareholder will be entitled to resign as Managing Shareholder of the Trust only (i) with cause (which cause does not include the fact or determination that continued service would be unprofitable to the Managing Shareholder) or (ii) without cause with the consent of a majority in interest of the Investors. It may be removed from its capacity as Managing Shareholder as provided in the Declaration. Ridgewood Holding, which was incorporated in April 1992, is the Corporate Trustee of the Trust. (b) Managing Shareholder. Ridgewood Power Corporation was incorporated in February 1991 as a Delaware corporation for the primary purpose of acting as a managing shareholder of business trusts and as a managing general partner of limited partnerships. It organized the Trust and acted as managing shareholder until April 1999. On or about April 21, 1999 it was merged into the current Managing Shareholder, Ridgewood Power LLC. In December of 2002, Ridgewood Power, LLC changed its name to Ridgewood Renewable Power, LLC. Robert E. Swanson is the controlling member, sole manager and President of the Managing Shareholder. All of the equity in the Managing Shareholder is owned by Mr. Swanson or by family trusts. Mr. Swanson has the power on behalf of those trusts to vote or dispose of the membership equity interests owned by them. The Managing Shareholder has also organized the Other Power Trusts as Delaware business trusts or other Delaware limited liability companies. Ridgewood Renewable Power LLC is the managing shareholder of the Other Power Trusts and the manager of the Ridgewood LLCs. The business objectives of these trusts and LLCs are similar to those of the Trust. A number of other companies are affiliates of Mr. Swanson and Ridgewood Power. Each of these also was organized as a corporation that was wholly-owned by Mr. Swanson. In April 1999, most of them were merged into limited liability companies with similar names and Mr. Swanson became the sole manager and controlling owner of each limited liability company. For convenience, the remainder of this Memorandum will discuss each limited liability company and its corporate predecessor as a single entity. The Managing Shareholder is an affiliate of Ridgewood Energy Corporation ("Ridgewood Energy"), which has organized and operated 48 limited partnership funds and one business trust over the last 18 years (of which 25 have terminated) and which had total capital contributions in excess of $190 million. The programs operated by Ridgewood Energy have invested in oil and natural gas drilling and completion and other related activities. Other affiliates of the Managing Shareholder include Ridgewood Securities LLC ("Ridgewood Securities"), an NASD member which has been the placement agent for the private placement offerings of the seven trusts sponsored by the Managing Shareholder and the funds sponsored by Ridgewood Energy; Ridgewood Capital Management LLC ("Ridgewood Capital"), which assists in offerings made by the Managing Shareholder and which is the sponsor of four privately offered venture capital funds (the Ridgewood Capital Venture Partners and Ridgewood Capital Venture Partners II funds); Ridgewood Power VI LLC ("Power VI"), which is a managing shareholder of the Growth Fund, and RPM. Each of these companies is controlled by Robert E. Swanson, who is their sole director or manager. Set forth below is certain information concerning Mr. Swanson and other executive officers of the Managing Shareholder. Robert E. Swanson, age 56, has also served as President of the Trust since its inception in 1991 and as President of RPM, the Other Power Trusts since their respective inceptions. Mr. Swanson has been President and registered principal of Ridgewood Securities and became the Chairman of the Board of Ridgewood Capital on its organization in 1998. He also is Chairman of the Board of the Ridgewood Capital Venture Partners I, II,III and IV venture capital funds ("Ridgewood Venture Funds"). In addition, he has been President and sole stockholder of Ridgewood Energy since its inception in October 1982. Prior to forming Ridgewood Energy in 1982, Mr. Swanson was a tax partner at the former New York and Los Angeles law firm of Fulop & Hardee and an officer in the Trust and Investment Division of Morgan Guaranty Trust Company. His specialty is in personal tax and financial planning, including income, estate and gift tax. Mr. Swanson is a member of the New York State and New Jersey bars, the Association of the Bar of the City of New York and the New York State Bar Association. He is a graduate of Amherst College and Fordham University Law School. Robert L. Gold, age 44, has served as Executive Vice President of the Managing Shareholder, RPM, the Trust, and the Other Power Trusts since their respective inceptions, with primary responsibility for marketing and acquisitions. He has been President of Ridgewood Capital since its organization in 1998. As such, he is President of the Ridgewood Venture Funds. He has served as Vice President and General Counsel of Ridgewood Securities Corporation since he joined the firm in December 1987. Mr. Gold has also served as Executive Vice President of Ridgewood Energy since October 1990. He served as Vice President of Ridgewood Energy from December 1987 through September 1990. For the two years prior to joining Ridgewood Energy and Ridgewood Securities Corporation, Mr. Gold was a corporate attorney in the law firm of Cleary, Gottlieb, Steen & Hamilton in New York City where his experience included mortgage finance, mergers and acquisitions, public offerings, tender offers, and other business legal matters. Mr. Gold is a member of the New York State bar. He is a graduate of Colgate University and New York University School of Law. Daniel V. Gulino, age 42 has been Senior Vice President and General Counsel of the Managing Shareholder, RPM, the Trust, and other Power Trusts since August 2000. He began his legal career as an associate for Pitney, Hardin, Kipp & Szuch, a large New Jersey law firm, where his experience included corporate acquisitions and transactions. Prior to joining Ridgewood, Mr. Gulino was in-house counsel for several large electric utilities, including GPU, Inc., Constellation Power Source, and PPL Resources, Inc., where he specialized in non-utility generation projects, independent power and power marketing transactions. Mr. Gulino also has experience with the electric and natural gas purchasing of industrial organizations, having worked as in-house counsel for Alumax, Inc. (now part of Alcoa) where he was responsible for, among other things, Alumax's electric and natural gas purchasing program. Mr. Gulino is a member of the New Jersey State Bar and Pennsylvania State Bar. He is a graduate of Fairleigh Dickinson University and Rutgers University School of Law - Newark. Christopher I. Naunton, 38, has been the Vice President and Chief Financial Officer of the Managing Shareholder, RPM, the Trust, and Other Power Trusts since April 2000. From February 1998 to April 2000, he was Vice President of Finance of an affiliate of the Managing Shareholder. Prior to that time, he was a senior manager at the predecessor accounting firm of PricewaterhouseCoopers LLP. Mr. Naunton's professional qualifications include his certified public accountant qualification in Pennsylvania, membership in the American Institute of Certified Public Accountants and Pennsylvania Institute of Certified Public Accountants. He holds a Bachelor of Science degree in Business Administration from Bucknell University (1986). Mary Lou Olin, age 50, has served as Vice President of the Managing Shareholder, RPM, Ridgewood Capital, the Trust, the Other Power Trusts since their respective inceptions. She has also served as Vice President of Ridgewood Energy since October 1984, when she joined the firm. Her primary areas of responsibility are investor relations, communications and administration. Prior to her employment at Ridgewood Energy, Ms. Olin was a Regional Administrator at McGraw-Hill Training Systems where she was employed for two years. Prior to that, she was employed by RCA Corporation. Ms. Olin has a Bachelor of Arts degree from Queens College. (c) Management Agreement. The Trust has entered into a Management Agreement with the Managing Shareholder detailing how the Managing Shareholder will render management, administrative and investment advisory services to the Trust. Specifically, the Managing Shareholder will perform (or arrange for the performance of) the management and administrative services required for the operation of the Trust. Among other services, it will administer the accounts and handle relations with the Investors, provide the Trust with office space, equipment and facilities and other services necessary for its operations and conduct the Trust's relations with custodians, depositories, accountants, attorneys, brokers and dealers, corporate fiduciaries, insurers, banks and others, as required. The Managing Shareholder will also be responsible for making investment and divestment decisions, subject to the provisions of the Declaration. The Managing Shareholder will be obligated to pay the compensation of the personnel and all administrative and service expenses necessary to perform the foregoing obligations. The Trust will pay all other expenses of the Trust, including transaction expenses, valuation costs, expenses of preparing and printing periodic reports for Investors and the Commission, postage for Trust mailings, Commission fees, interest, taxes, legal, accounting and consulting fees, litigation expenses and other expenses properly payable by the Trust. The Trust will reimburse the Managing Shareholder for all such Trust expenses paid by it. As compensation for the Managing Shareholder's performance under the Management Agreement, the Trust is obligated to pay the Managing Shareholder an annual management fee described below at Item 13 -- Certain Relationships and Related Transactions. Each Investor consented to the terms and conditions of the initial Management Agreement by subscribing to acquire Investor Shares in the Trust. The Management Agreement is subject to termination at any time on 60 days' prior notice by a majority in interest of the Investors or the Managing Shareholder. The Management Agreement is subject to amendment by the parties with the approval a majority in interest of the Investors. (d) Executive Officers of the Trust. Pursuant to the Declaration, the Managing Shareholder has appointed officers of the Trust to act on behalf of the Trust and sign documents on behalf of the Trust as authorized by the Managing Shareholder. Mr. Swanson has been named the President of the Trust and the other executive officers of the Trust are identical to those of the Managing Shareholder. The officers have the duties and powers usually applicable to similar officers of a Delaware business corporation in carrying out Trust business. Officers act under the supervision and control of the Managing Shareholder, which is entitled to remove any officer at any time. Unless otherwise specified by the Managing Shareholder, the President of the Trust has full power to act on behalf of the Trust. The Managing Shareholder expects that most actions taken in the name of the Trust will be taken by Mr. Swanson and the other principal officers in their capacities as officers of the Trust under the direction of the Managing Shareholder rather than as officers of the Managing Shareholder. (f) Corporate Trustee The Corporate Trustee of the Trust is Ridgewood Holding. Legal title to Trust property is now and in the future will be in the name of the Trust, if possible, or Ridgewood Holding as trustee. Ridgewood Holding is also a trustee of the Other Power Trusts and of an oil and gas business trust sponsored by Ridgewood Energy and is expected to be a trustee of other similar entities that may be organized by the Managing Shareholder and Ridgewood Energy. The President, sole director and sole stockholder of Ridgewood Holding is Robert E. Swanson; its other executive officers are identical to those of the Managing Shareholder. The principal office of Ridgewood Holding is at 1105 North Market Street, Suite 1300, Wilmington, Delaware 19899. (g) Section 16(a) Beneficial Ownership Reporting Compliance All individuals subject to the requirements of Section 16(a) have complied with those reporting requirements during 1999. (h) RPM. As discussed above at Item 1 - Business, RPM assumed day- to-day management responsibility for the Maine Biomass Projects in March 1999. Like the Managing Shareholder, RPM is wholly owned by Robert E. Swanson. It will enter into an "Operation Agreement" with the Indeck Maine Energy, LLC under which RPM, under the supervision of the Managing Shareholder, will provide the management, purchasing, engineering, planning and administrative services for the Maine Biomass Projects. RPM will charge the Trust at its cost for these services and for the Trust's allocable amount of certain overhead items. RPM shares space and facilities with the Managing Shareholder and its affiliates. To the extent that common expenses can be reasonably allocated to RPM, the Managing Shareholder may, but is not required to, charge RPM at cost for the allocated amounts and such allocated amounts will be borne by the Trust and other programs. Common expenses that are not so allocated will be borne by the Managing Shareholder. Initially, the Managing Shareholder does not anticipate charging RPM for the full amount of rent, utility supplies and office expenses allocable to RPM. As a result, both initially and on an ongoing basis the Managing Shareholder believes that RPM's charges for its services to the Trust are likely to be materially less than its economic costs and the costs of engaging comparable third persons as managers. RPM will not receive any compensation in excess of its costs. Allocations of costs will be made either on the basis of identifiable direct costs, time records or in proportion to each program's investments in Projects managed by RPM; and allocations will be made in a manner consistent with generally accepted accounting principles. RPM will not provide any services related to the administration of the Trust, such as investment, accounting, tax, investor communication or regulatory services, nor will it participate in identifying, acquiring or disposing of Projects. RPM will not have the power to act in the Trust's name or to bind the Trust, which will be exercised by the Managing Shareholder or the Trust's officers. The Operation Agreement does not have a fixed term and is terminable by RPM, by the Managing Shareholder or by vote of a majority in interest of Investors, on 60 days' prior notice. The Operation Agreement may be amended by agreement of the Managing Shareholder and RPM; however, no amendment that materially increases the obligations of the Trust or that materially decreases the obligations of RPM shall become effective until at least 45 days after notice of the amendment, together with the text thereof, has been given to all Investors. The executive officers of RPM are the same as those of the Managing Shareholder set forth above. Item 11. Executive Compensation. The Managing Shareholder compensates its officers without additional payments by the Trust. The Trust will reimburse RPM at cost for services provided by RPM's employees. Information as to the fees payable to the Managing Shareholder and certain affiliates is contained at Item 13 - Certain Relationships and Related Transactions. Ridgewood Holding, the Corporate Trustee of the Trust, is not entitled to compensation for serving in such capacity, but is entitled to be reimbursed for Trust expenses incurred by it, which are properly reimbursable under the Declaration. Item 12. Security Ownership of Certain Beneficial Owners and Management. The Managing Shareholder purchased for cash of $83,000 in the offering one full Investor Share. By virtue of its purchase of Investor Shares, the Managing Shareholder is entitled to the same ratable interest in the Trust as all other purchasers of Investor Shares. No other Trustees or executive officers of the Trust acquired Investor Shares in the Trust's offering. No person beneficially owns 5% or more of the Investor Shares. The Managing Shareholder was issued one Management Share in the Trust representing the beneficial interests and management rights of the Managing Shareholder in its capacity as the Managing Shareholder (excluding its interest in the Trust attributable to Investor Shares it acquired in the offering). The management rights of the Managing Shareholder are described in further detail above at Item 1 - Business and below in Item 10. Directors and Executive Officers of the Registrant. Its beneficial interest in cash distributions of the Trust and its allocable share of the Trust's net profits and net losses and other items attributable to the Management Share are described in further detail below at Item 13 -- Certain Relationships and Related Transactions. Item 13. Certain Relationships and Related Transactions. The Declaration provides that cash flow of the Trust, less reasonable reserves which the Trust deems necessary to cover anticipated Trust expenses, is to be distributed to the Investors and the Managing Shareholder (collectively, the "Shareholders"), from time to time as the Trust deems appropriate. Prior to Payout (the point at which Investors have received cumulative distributions equal to the amount of their capital contributions), each year all distributions from the Trust, other than distributions of the revenues from dispositions of Trust Property, are to be allocated 99% to the Investors and 1% to the Managing Shareholder until Investors have been distributed during the year an amount equal to 14% of their total capital contributions (a "14% Priority Distribution"), and thereafter all remaining distributions from the Trust during the year, other than distributions of the revenues from dispositions of Trust Property, are to be allocated 80% to Investors and 20% to the Managing Shareholder. Revenues from dispositions of Trust Property are to be distributed 99% to Investors and 1% to the Managing Shareholder until Payout. In all cases, after Payout, Investors are to be allocated 80% of all distributions and the Managing Shareholder 20%. For any fiscal period, the Trust's net profits, if any, other than those derived from dispositions of Trust Property, are allocated 99% to the Investors and 1% to the Managing Shareholder until the profits so allocated offset (1) the aggregate 14% Priority Distribution to all Investors and (2) any net losses from prior periods that had been allocated to the Shareholders. Any remaining net profits, other than those derived from dispositions of Trust Property, are allocated 80% to the Investors and 20% to the Managing Shareholder. If the Trust realizes net losses for the period, the losses are allocated 80% to the Investors and 20% to the Managing Shareholder until the losses so allocated offset any net profits from prior periods allocated to the Shareholders. Any remaining net losses are allocated 99% to the Investors and 1% to the Managing Shareholder. Revenues from dispositions of Trust Property are allocated in the same manner as distributions from such dispositions. Amounts allocated to the Investors are apportioned among them in proportion to their capital contributions. On liquidation of the Trust, the remaining assets of the Trust after discharge of its obligations, including any loans owed by the Trust to the Shareholders, will be distributed, first, 99% to the Investors and the remaining 1% to the Managing Shareholder, until Payout, and any remainder will be distributed to the Shareholders in proportion to their capital accounts. The Trust made distributions to the Managing Shareholder (which is a member of the Board of the Trust) and Investors in 2000 and 1999 as stated at Item 5 - Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters. The Trust paid fees to the Managing Shareholder and its affiliates as follows: Fee Paid to 2002 2001 2000 1999 1998 Investment fee Managing Shareholder $ -- $ -- $ -- $ -- $337,158 Placement agent fee Ridgewood and sales commis- Securities sions Corporation -- -- -- -- 277,008 Organizational, Managing distribution and Shareholder offering fee -- -- -- -- 1,448,944 Management fee Managing Shareholder 1,166,112 2,332,224 2,257,357 2,377,941 1,606,269 Due diligence Managing expenses Shareholder -- -- -- 969,793 830,823 Reimbur- Managing sements Shareholder -- -- -- -- 793,654 The investment fee equaled 2% of the proceeds of the offering of Investor Shares and was payable for the Managing Shareholder's services in investigating and evaluating investment opportunities and effecting investment transactions. The placement agent fee (1% of the offering proceeds) and sales commissions were also paid from proceeds of the offering, as was the organizational, distribution and offering fee (5% of offering proceeds) for legal, accounting, consulting, filing, printing, distribution, selling, closing and organization costs of the offering. In addition to the foregoing, the Trust reimbursed the Managing Shareholder and RPM at cost for expenses and fees of unaffiliated persons engaged by the Managing Shareholder for Trust business and for certain expenses related to management of Projects. Other information in response to this item is reported in response to Item 12. Executive Compensation, which information is incorporated by reference into this Item 13. Item 14. Control and Procedures Within the 90 days prior to the filing date of this Report, the Trust's Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness and design of the Fund's disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer each concluded that the disclosure controls and procedures were effective, with the exception of the matter noted below. During the 2002 annual financial reporting process, management has identified deficiencies in the Trust's ability to process and summarize financial information of certain individual projects and equity investees on a timely basis. Management is establishing a project plan to address this deficiency in 2003. There have been no significant changes in the internal controls or in other factors that could significantly affect these controls subsequent to the date that they completed their evaluation. The term "disclosure controls and procedures" is defined in Rule 13a-14(c) of the Exchange Act as "controls and other procedures designed to ensure that information required to be disclosed by the issuer in the reports files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the [Securities and Exchange] Commission's rules and forms." The Trust's disclosure controls and procedures are designed to ensure that material information relating to the consolidated subsidiaries is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosures. Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Financial Statements. See the Index to Financial Statements in Item 8 hereof. (b) Reports on Form 8-K. On January 3, 2002, the Trust filed a Form 8-k to report that the Investors had voted to approve the amendments to the Declaration. On July 18, 2002, the Trust filed a Form 8-k to report that the Biomass Plants had each received Statements of Qualification from the Massachusetts Division of Energy Resources. On November 27, 2002, the Trust filed a Form 8-k to report on the completion of the Synergics acquisition. (c) Exhibits 3.A. Certificate of Trust of the Registrant. Incorporated by reference to Exhibit 3.A of the Registrant's Registration Statement on Form 10, dated April 30, 1998. 3.B. Amended Declaration of Trust of the Registrant. Incorporated by reference to Exhibit 3.B of the Registrant's Registration Statement on Form 10, dated April 30, 1998. 3.C. Amendment No. 2 to Declaration of Trust. Incorporated by reference to Exhibit 3.C of the Registrant's Registration Statement on Form 10, dated April 30, 1998. 3.D. Amendment No. 3 to Declaration of Trust. Incorporated by reference to Exhibit 3.D of the Registrant's Registration Statement on Form 10, dated April 30, 1998. 10.A. Agreement of Merger, dated as of July 1, 1996, by and among Consolidated Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro, Inc., Ridgewood Maine Power Partners, L.P. and Ridgewood Maine Hydro Corporation. Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK 0000930364) with the Commission on January 8, 1997. 10.B. Letter, dated November 15, 1996, amending Agreement of Merger. Incorporated by reference to Exhibit 2.2 of Amendment No. 1 to the -Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File No. 0-25430, CIK 0000930364) with the Commission on January 9, 1997. 10.C. Letter, dated December 3, 1996, amending Agreement of Merger. Incorporated by reference to Exhibit 2.3 of the Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK 0000930364) with the Commission on January 8, 1997. 10.D. Operation, Maintenance and Administration Agreement, dated November 1996, by and among Ridgewood Maine Hydro Partners, L.P., CHI Operations, Inc. and Consolidated Hydro, Inc. Incorporated by reference to Exhibit 10 of the Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK 0000930364) with the Commission on January 8, 1997. 10.E. Management Agreement, dated as of April 12, 1996, between the Registrant and Ridgewood Power Corporation. Page 172 10.F. Agreement to Purchase Membership Interests, dated as of June 11, 1997, by and between Ridgewood Maine, L.L.C. and Indeck Maine Energy, L.L.C. Incorporated by reference to Exhibit 2.A. of Amendment No. 1 to Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK 0000930364), dated July 1, 1997. 10.G. Amended and Restated Operating Agreement of Indeck Maine Energy, L.L.C., dated as of June 11, 1997. Incorporated by reference to Exhibit 2.B. of Amendment No. 1 to Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK 0000930364) dated July 1, 1997. 10.H. Omitted. No longer in force. 10.I. Limited Liability Company Agreement of Santee River Rubber Company, LLC. 99.1. Certifications under Section 906 of the Sarbanes-Oxley Act. The Registrant agrees to furnish supplementally a copy of any omitted exhibit or schedule to agreements filed as exhibits to the Commission upon request. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIDGEWOOD ELECTRIC POWER TRUST V (Registrant) By:/s/ Robert E. Swanson President June 24, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By:/s/ Robert E. Swanson President June 24, 2003 Robert E. Swanson By:/s/ Christopher Naunton Vice President and June 24, 2003 Christopher Naunton Chief Financial Officer RIDGEWOOD POWER LLC Managing Shareholder June 24, 2003 By:/s/ Robert E. Swanson President Robert E. Swanson CERTIFICATION PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, Robert E. Swanson, Chief Executive Officer of Ridgewood Electric Power Trust V ("registrant"), certify that: 1. I have reviewed this annual report on Form 10-K of the registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and senior management: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 24, 2003 /s/ Robert E. Swanson - ----------------------- Robert E. Swanson Chief Executive Officer CERTIFICATION PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED I, Christopher I. Naunton, Chief Financial Officer of Ridgewood Electric Power Trust V ("registrant"), certify that: 1. I have reviewed this annual report on Form 10-K of the registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and senior management: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 24, 2003 /s/ Christopher I. Naunton - ---------------------------- Christopher I. Naunton Chief Financial Officer EX-99.2O 3 indeckfs.txt FINANCIAL STATEMENTS INDECK MAINE Indeck Maine Energy, L.L.C. Financial Statements December 31, 2002, 2001 and 2000 Report of Independent Accountants To the Members of Indeck Maine Energy, L.C.C.: In our opinion, the accompanying balance sheets and the related statements of operations, changes in members' deficit and of cash flows present fairly, in all material respects, the financial position of Indeck Maine Energy, L.L.C. (the "Company") at December 31, 2002 and 2001, and the results of its operations and its 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. As discussed in Note 4 to the financial statements, the Company has temporarily suspended operations and is dependent on the continuing financial support of the Members. PricewaterhouseCoopers LLP Florham Park, NJ April 3, 2003 Indeck Maine Energy, L.L.C. Balance Sheets - -------------------------------------------------------------------------------- December 31, ---------------------------- 2002 2001 ------------ ------------ Assets: Cash and cash equivalents ................. $ 6,270 $ 69,798 Accounts receivable ....................... 488,542 606,089 Inventories ............................... 693,733 480,422 Prepaid expenses .......................... 28,581 5,701 ------------ ------------ Total current assets ................... 1,217,126 1,162,010 ------------ ------------ Property, plant and equipment: Land ................................... 158,000 158,000 Power generation facilities ............ 4,240,041 3,795,639 Equipment and other .................... 98,438 60,009 ------------ ------------ 4,496,479 4,013,648 Accumulated depreciation ............... (1,033,427) (800,108) ------------ ------------ 3,463,052 3,213,540 ------------ ------------ Intangible assets ......................... 206,577 206,577 Accumulated amortization .................. (71,467) (60,322) ------------ ------------ 135,110 146,255 ------------ ------------ Total assets ......................... $ 4,815,288 $ 4,521,805 ------------ ------------ Liabilities and Members' Deficit: Liabilities: Accounts payable and accrued expenses ..... $ 290,785 $ 477,182 Due to affiliates ......................... 2,794,877 1,244,003 Management fee payable .................... 400,000 300,000 Notes payable to members .................. 7,101,000 5,801,000 ------------ ------------ Total current liabilities ............ 10,586,662 7,822,185 Commitments and contingencies ............. -- -- Total members' deficit .................... (5,771,374) (3,300,380) ------------ ------------ Total liabilities and members' deficit $ 4,815,288 $ 4,521,805 ------------ ------------ See accompanying notes to the financial statements Indeck Maine Energy, L.L.C. Statements of Operations - -------------------------------------------------------------------------------- For the year ended December 31, ----------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Power generation revenue .. $ 5,237,947 $ 5,587,507 $ 2,017,481 Renewable attribute revenue 2,008,488 -- -- ----------- ----------- ----------- Total revenue ......... 7,246,435 5,587,507 2,017,481 Cost of sales, including depreciation and amortization of $244,464, $206,032 and $184,771 in 2002, 2001 and 2000 ...... 9,080,905 6,913,336 2,646,770 ----------- ----------- ----------- Gross loss ................ (1,834,470) (1,325,829) (629,289) General and administrative expenses ................. 299,746 300,112 478,696 ----------- ----------- ----------- Loss from operations ... (2,134,216) (1,625,941) (1,107,985) Interest income ........... 3,434 11,657 11,857 Interest expense .......... (340,212) (269,216) (183,841) ----------- ----------- ----------- Net loss ............... $(2,470,994) $(1,883,500) $(1,279,969) ----------- ----------- ----------- See accompanying notes to the financial statements. Indeck Maine Energy, L.L.C. Statements of Changes in Members' Deficit For the Years Ended December 31, 2002, 2001 and 2000 - -------------------------------------------------------------------------------- Indeck Energy Ridgewood Services Maine, LLC Total ------- ------------ ---------- Members' deficit, January 1, 2000 . $ -- $ (136,911) $ (136,911) Net loss .......................... -- (1,279,969) (1,279,969) ------- ----------- ----------- Members' deficit, December 31, 2000 -- (1,416,880) (1,416,880) Net loss .......................... -- (1,883,500) (1,883,500) ------- ----------- ----------- Members' deficit, December 31, 2001 -- (3,300,380) (3,300,380) Net loss .......................... -- (2,470,994) (2,470,994) ------- ----------- ----------- Members' deficit, December 31, 2002 $ -- $(5,771,374) $(5,771,374) ------- ----------- ----------- See accompanying notes to the financial statements. Indeck Maine Energy, L.L.C. Statements of Cash Flows - -------------------------------------------------------------------------------- For the year ended December 31, ----------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Cash flows from operating activities: Net loss ....................... $(2,470,994) $(1,883,500) $(1,279,969) ----------- ----------- ----------- Adjustments to reconcile net loss to net cash flows used in operating activities Depreciation and amortization 244,464 206,032 184,771 Changes in assets and liabilities: Decrease (increase) in accounts receivable ...... 117,547 (458,177) 126,450 (Increase) decrease in inventories ............. (213,311) (336,127) 903 (Increase) decrease in prepaid expenses ........ (22,880) 129,916 (108,353) (Decrease) increase in accounts payable and accrued expenses ........ (186,397) 189,802 (182,526) Increase (decrease) in due to/from affiliates, net .. 1,550,874 827,582 (8,185) Increase in management fee payable .............. 100,000 100,000 100,000 ----------- ----------- ----------- Total adjustments ........... 1,590,297 659,028 113,060 ----------- ----------- ----------- Net cash used in operating activities ................. (880,697) (1,224,472) (1,166,909) ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures ............. (482,831) (395,263) -- ----------- ----------- ----------- Net cash used in investing activities .................. (482,831) (395,263) -- Cash flows from financing activities: Issuance of notes payable ...... 1,300,000 1,000,000 1,200,000 ----------- ----------- ----------- Net cash provided by financing activities ....... 1,300,000 1,000,000 1,200,000 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents ........... (63,528) (619,735) 33,091 Cash and cash equivalents, beginning of year ............... 69,798 689,533 656,442 ----------- ----------- ----------- Cash and cash equivalents, end of year ..................... $ 6,270 $ 69,798 $ 689,533 ----------- ----------- ----------- See accompanying notes to the financial statements. Indeck Maine Energy, L.L.C. Notes to Financial Statements - -------------------------------------------------------------------------------- 1. Description of Business Indeck Maine Energy, L.L.C. (the "Company") is a limited liability company formed on April 1, 1997 by Indeck Energy Services, Inc. ("IES") for the purpose of acquiring, operating and managing two 24.5 megawatt wood-fired electric generation facilities (the "Facilities") located in Maine. The Facilities commenced operations on June 10, 1997. On June 11, 1997, Ridgewood Maine, LLC ("Ridgewood"), which is owned equally by Ridgewood Electric Power Trust IV and Ridgewood Electric Power Trust V, purchased a 50% membership interest in the Company from IES for $14,000,000. Of this purchase price, $4,857,015 was contributed to the Company and the remainder was retained by the other members. a. Ridgewood's Priority Return from Operations: Ridgewood's Priority Return From Operations is an amount equal to 18% per annum of $14 million, increased by the amount of any additional contribution made by Ridgewood and reduced by the amount of distributions to Ridgewood of Net Cash Flow From Capital Events, as defined. b. Allocation of Profits and Losses: In accordance with the Operating Agreement, profits and losses, as defined, are allocated as follows: First, profits shall be allocated to each member, other than Ridgewood, until the cumulative amount of profits allocated is equal to the amount of distributions made or to be made to each member pursuant to the distributions provisions of the Operating Agreement. Second, all remaining profits and losses shall be allocated to Ridgewood. Also, all depreciation shall be allocated to Ridgewood. Losses and depreciation allocated to members in accordance with the Operating Agreement may not exceed the amount that would cause such members to have an Adjusted Capital account Deficit, as defined, at the end of such year. All losses and depreciation in excess of this limitation shall be allocated to the remaining members who will not be subject to this limitation, in proportion to and to the extent of their positive Capital Account Balances, as defined. Also, if in any fiscal year a member unexpectedly receives an adjustment, allocation or distribution as described in the Operating Agreement, and such allocation or distribution causes or increases an Adjusted Capital Account Deficit for such fiscal year, such member shall be allocated items of income and gain in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. c. Distributions of Net Cash Flows From Operations: For each Fiscal year, the Company shall distribute Net Cash Flow From Operations, as defined, to the members as follows: First, the Company shall distribute to Ridgewood 100% of Net Cash Flow From Operations until Ridgewood has received the full amount of any unpaid portion of Ridgewood's Priority Return From Operations, as defined, for any preceding fiscal year, Second, the Company shall distribute to Ridgewood 100% of Net Cash Flow From Operations until Ridgewood has received Ridgewood's Priority Return From Operations for the current fiscal year. Third, the Company shall distribute 100% of Net Cash Flow From Operations to the members, other than Ridgewood, in accordance with the respective interests of such members until such members have collectively received an amount equal to the amount distributed to Ridgewood during the current fiscal year. Fourth, the Company shall thereafter distribute any remaining balance of Net Cash Flow From Operations 25% to Ridgewood and 75% to the remaining members, in accordance with the respective interest of such members, until such time as Ridgewood has received aggregate distributions equal to Ridgewood's Initial Capital Contribution, as defined. At such time, the distribution percentages shall be amended to 50% Ridgewood and 50% to the remaining members. d. Distributions of Net Cash Flow From Capital Events: The Company shall distribute Net Cash Flow From Capital Events, as defined, 50% to Ridgewood and 50% to the remaining members, in accordance with the respective interests of such members. Net Cash Flow from Capital Events is defined as any cash received from any source other than Net Cash Flow From Operations. 2. Summary of Significant Accounting Policies Critical accounting policies and estimates The preparation of financial statements requires the Company 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 Company evaluates its estimates, including bad debts, recoverable value of fixed assets, intangible assets and recordable liabilities for litigation and other contingencies. The Company 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 Company adopted SFAS 141 on July 1, 2001, with no material impact on the 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. The Company adopted SFAS 142 effective January 1, 2002, with no material impact on the 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 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 adjusted 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 Company will adopt SFAS 143 effective January 1, 2003 and has assessed that this standard will not have a material impact on the Company. 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 Company adopted SFAS 144 effective January 1, 2002, with no material impact on the 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 Company will adopt SFAS 145 effective January 1, 2003 and has assessed that this standard will not have a material impact on the Company. 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 Company will adopt SFAS 146 effective January 1, 2003 and has assessed that this standard will not have a material impact on the Company. 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 Company adopted the disclosure provisions of FIN 45 during the fourth quarter of 2002 with no material impact to the financial statements. Cash and cash equivalents The Company considers all highly liquid investments with maturities when purchased of three months or less as cash and cash equivalents. Revenue recognition Power generation revenue is recorded in the month of delivery, based on the estimated volumes sold to customers at rates stipulated in the power sales contract. Adjustments are made to reflect actual volumes delivered when the actual volumetric information subsequently becomes available. Billings to customers for power generation generally occurs during the month following delivery. Final billings typically do not vary significantly from estimates. Renewable attribute revenue is derived from the sale of the renewable portfolio standard attributes ("RPS Attributes"). As discussed in Note 8, qualified renewable electric generation facilities produce RPS Attributes when they generate electricity. RPS Attributes have various classes, with each class assigned a limited life. Renewable attribute revenue is recorded in the month the attributes are sold at an agreed upon unit price. Interest income is recorded when earned. Inventories Inventories, consisting of wood, are stated at cost, with cost being determined on the first-in, first-out method. Impairment of Long-Lived Assets and Intangibles In accordance with the provisions of SFAS No. 144, the Company 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. Property, plant and equipment Property, plant and equipment, consisting of land and machinery and equipment, are stated at cost. Machinery and equipment, consists principally of electrical generating equipment. Renewals and betterments that increase the useful lives of the assets are capitalized. Repair and maintenance expenditures are expensed as incurred. Depreciation is recorded using the straight-line method over the estimated useful life of the assets, ranging from 5 to 20 years with a weighted average of 18 and 19 years at December 31, 2002 and 2001, respectively. For the years ended December 31, 2002, 2001 and 2000, the Company recorded depreciation expense of $233,319, $192,750 and $171,489, respectively. Intangible assets Intangible assets are amortized over 5 to 20 years on a straight-line basis. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable For the years ended December 31, 2002, 2001 and 2000, the Company recorded amortization expense of $11,145, $13,282 and $13,282, respectively. Significant Customers During 2002, the Company's three largest customers accounted for 67%, 32% and 1% of total revenues. During 2001, the Company's three largest customers accounted for 75%, 23% and 2% of total revenues. During 2000, the Company's three largest customers accounted for 55%, 33% and 12% of total revenues. Income taxes No provision is made for income taxes in the accompanying financial statements as the income or loss of the Company is passed through and included in the tax returns of the members. Reclassification Certain items in previously issued financial statements have been reclassified for comparative purposes. 3. Notes Payable Notes payable consist of the following at December 31, 2002 and 2001: 2002 2001 ----------- ---------- Note payable to IES (a member), due on demand with interest at 5% ............................... $3,550,500 $2,900,500 Note payable to Ridgewood (a member), due on demand with interest at 5% ... 3,550,500 2,900,500 ---------- ---------- $7,101,000 $5,801,000 ---------- ---------- 4. Operating Status One project has temporarily suspended its operations. It is management's intent to restart the Jonesboro plant in the fourth quarter of 2003. Based on forecasts related to the operation of the Facilities, management believes that the Company will be able to recover the carrying value of its long-lived assets and meet its financial obligations. The members intend to continue providing the necessary financial support to the Company for the foreseeable future and to not demand payment, within the next twelve months, of the notes payable discussed in Note 3. During the first quarter of 2003, Ridgewood and IES each contributed $600,000 to the Company. 5. Related Party Transactions The Company is required to pay certain members a fee for management services of $100,000 per year. Additional management fees of up to $200,000 per year may be payable contingent upon achieving Ridgewood's Priority Return from Operations, as defined. No contingent management fee has been accrued as of December 31, 2002 or 2001. Amounts of $400,000 and $300,000 for 2002 and 2001, respectively, are recorded in management fee payable in the Balance Sheets. Under an Operating Agreement with Ridgewood Electric Power Trust IV and Ridgewood Electric Power Trust V ("the Trusts"), Ridgewood Power Management LLC ( "Ridgewood Management"), an entity related to the managing shareholder of the Trusts through common ownership, provides management, purchasing, engineering, planning and administrative services to the Company. Ridgewood Management charges the Company at its cost for these services and for the allocable amount of certain overhead items. Allocations of costs are on the basis of identifiable direct costs, time records or in proportion to amounts invested in projects managed by Ridgewood Management. During the years ended December 31, 2002, 2001 and 2000, Ridgewood Management charged the Company $310,607, $205,120 and $203,191, respectively, for overhead items allocated in proportion to the amount invested in projects managed. Ridgewood Management also charged the Company for all of the remaining direct operating and non-operating expenses incurred during the periods At December 31, 2002 and 2001, the Company had outstanding payables and receivables, with the following affiliates: As of December 31, Due From Due To -------------- ------------------------ 2002 2001 2002 2001 ---- ----- ---------- ----------- Ridgewood Power Management ...... $ -- $ -- $ 894,057 $ 184,328 Ridgewood Electric Power Trust IV -- -- 238,179 402,436 Ridgewood Electric Power Trust V -- -- 1,187,732 352,436 IES ............................. -- -- 474,909 304,803 From time to time, the Company records short-term payables and receivables from other affiliates in the ordinary course of business. The amounts payable and receivable with the other affiliates do not bear interest 6. Fair Value of Financial Instruments At December 31, 2002 and 2001, the carrying value of the Company's cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximates their fair value. Due to the nature of the Company's relationship with IES and Ridgewood, the fair value of the notes payable is not determinable. 7. Dispute with ISO From June through December 1999, the Facilities periodically operated on dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the ISO to run at high prices during power emergencies. The Facilities have claimed the ISO owes them approximately $14 million for the electricity products they provided in those periods and the ISO has claimed that no material revenues at all are due to the projects. As a result, on October 24, 2000, the Company filed a complaint against the ISO in the Superior Court of Delaware alleging, among other things, that the ISO's actions resulted in a breach of an express or implied contract, violated certain consumer protection laws and amounted to fraud. The ISO removed the litigation to Federal District Court in Delaware. As a result of various pre-trial motions filed by the parties, such litigation was filed as a complaint by the Company before FERC. In April 2002, FERC ruled on this complaint in favor of the ISO. The Company has determined it will not appeal nor otherwise contest the ruling by FERC. 8. Approval of Qualification On May 9, 2002, the Company's West Enfield plant and the Jonesboro plant each filed an "Application for Statement of Qualification" with the Massachusetts Division of Energy Resources (the "Division") to qualify as new renewable electric generation facilities under the Massachusetts Renewable Portfolio Standard Regulations ("RPS"). Pursuant to these regulations, qualified renewable electric generation facilities produce renewable portfolio standard attributes ("RPS Attributes") when they generate electricity. RPS Attributes are then sold to and used by entities that are providing electricity to end-use customers in Massachusetts. The RPS regulations, and the statute under which they were promulgated, are intended to spur use and development of new renewable generation facilities. On July 8, 2002, the Company received official notice from the Division that the Application for Statement of Qualification filed pursuant to the Massachusetts Renewable Energy Portfolio Standard Regulations ("Regulations") by both the Jonesboro and West Enfield plants had been approved as of July 3, 2002. Pursuant to such approval, the Division found that the Plants meet the eligibility requirements of the Regulations and therefore may market and sell renewable attributes associated with the electric generation of the Plants. Because the West Enfield plant qualifies under the RPS, pursuant to the power sales contract, Select Energy paid an additional amount for the RPS Attributes associated with the electric energy it purchased from the West Enfield plant, which amounted to approximately $2,008,488 for the year ended December 31, 2002. 9. Subsequent event On February 13, 2003, the Company sold the RPS Attributes generated from the power produced in fourth quarter of 2002 for $1,236,720. On behalf of the Company, Trust IV and Trust V are currently negotiating a transaction with a power marketer that does business in Massachusetts for the sale of the RPS Attributes generated by the Company, in the calendar year 2003. EX-99 4 exhibit99-t5.txt OFFICERS CERTIFICATION Exhibit 99.1 CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,as amended, and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Ridgewood Electric Power Trust V. Date: June 24, 2003 /s/ Robert E. Swanson -------------------------------- Robert E. Swanson Chief Executive Officer Date: June 24, 2003 /s/ Christopher I. Naunton -------------------------------- Christopher I. Naunton Chief Financial Officer This certification accompanies this periodic report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----