All Rails urls are returning error 500

All Rails urls are returning error 500

I have a Rails app that is running on a development VPS Ubuntu server with
Apache and Phusion Passenger. I've developed app on local machine, where
app is working flawless. I deployed app, run all the bundle installs, I am
runing the same gem, rails, rvm and rake versions as local machine and
I've successfuly migrated database (SQLite).
But on my VPS, which is also runing on the development enviroment, ALL of
the routes are returning 500 error. I Googled for two days now and I
cannot get it up and runing. My development log is returning ONLY one line
which is:
Connecting to database specified by database.yml
This is my database.yml which is set correcty, also db/development.sqlite3
is present on VPS server.
development:
adapter: sqlite3
database: db/development.sqlite3
pool: 5
timeout: 5000
I am desperate what to do now. I have sqlite installed, all the same gems
as local machine,.. What am I missing here?