FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 1999 Commission File Number 0-21304 RIDGEWOOD ELECTRIC POWER TRUST II (Exact name of registrant as specified in its charter.) Delaware 22-3206429 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 947 Linwood Avenue, Ridgewood, New Jersey 07450-2939 (Address of principal executive offices (Zip Code) (201) 447-9000 Registrant's telephone number, including area code: 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 [ ] PART I. - FINANCIAL INFORMATION Item 1. Financial Statements Ridgewood Electric Power Trust II Financial Statements March 31, 1999 Ridgewood Electric Power Trust II Balance Sheet - -------------------------------------------------------------------------------- March 31, December 31, 1999 1998 ----------- ------------- (unaudited) Assets: Investments in power generation projects ...... $ 10,649,584 $ 10,594,402 Notes receivable from sale of investment ...... 2,041,002 2,140,866 Due from affiliates ........................... 8,819 8,819 Other assets .................................. 2,830 3,588 ------------ ------------ Total assets ............................. $ 12,702,235 $ 12,747,675 ------------ ------------ Liabilities and Shareholders' Equity: Accounts payable and accrued expenses ......... $ 138,798 $ 100,897 Borrowings under line of credit agreements .... 450,000 300,000 Due to affiliates ............................. 176,322 214,373 ------------ ------------ Total liabilities ........................ 765,120 615,270 ------------ ------------ Shareholders' equity: Shareholders' equity (235.3775 shares issued and outstanding) ..................... 12,018,985 12,212,324 Managing shareholder's accumulated deficit .... (81,870) (79,919) ------------ ------------ Total shareholders' equity ............... 11,937,115 12,132,405 ------------ ------------ Total liabilities and shareholders' equity $ 12,702,235 $ 12,747,675 ------------ ------------ See accompanying note to financial statements. Ridgewood Electric Power Trust II Statement of Operations (unaudited) - -------------------------------------------------------------------------------- Three Months Ended ---------------------- March 31, March 31, 1999 1998 --------- -------- Revenue: Income from power generation projects ......... $137,247 $236,154 Interest income ............................... 42,855 55,422 -------- -------- Total revenue ............................ 180,102 291,576 -------- -------- Expenses: Management fee ................................ 55,607 95,721 Accounting and legal fees ..................... 14,203 25,656 Interest expense 6,013 --- Miscellaneous ................................. 14,262 12,680 -------- -------- Total expenses ........................... 90,085 134,057 -------- -------- Net income ................................ $ 90,017 $157,519 -------- -------- See accompanying note to financial statements. Ridgewood Electric Power Trust II Statement of Changes in Shareholders' Equity (unaudited) - -------------------------------------------------------------------------------- Managing Shareholders Shareholder Total ------------ ----------- ------------ Shareholders' equity, December 31, 1998 ...................... $ 12,212,324 $ (79,919) $ 12,132,405 Cash distributions .............. (282,454) (2,853) (285,307) Net income for the period ....... 89,115 902 90,017 ------------ ------------ ------------ Shareholders' equity, March 31, 1999 .................... $ 12,018,985 $ (81,870) $ 11,937,115 ------------ ------------ ------------ See accompanying note to financial statements Ridgewood Electric Power Trust II Statement of Cash Flows (unaudited) - -------------------------------------------------------------------------------- Three Months Ended ---------------------- March 31, March 31, 1999 1998 --------- --------- Cash flows from operating activities: Net income .............................. $ 90,017 $ 157,519 --------- --------- Adjustments to reconcile net income to net cash flows from operating activities: Investment in power generation projects (55,182) --- Proceeds from note receivable ......... 99,864 92,007 Changes in assets and liabilities: Decrease (increase) in other assets .. 758 (65) Increase (decrease) in accounts payable and accrued expenses ....... 37,901 (14,331) Decrease (increase) in due to affiliates, net .................... (38,051) 31,674) --------- --------- Total adjustments ....................... 45,290 109,285 --------- --------- Net cash provided by operating activities 135,307 266,804 --------- --------- Cash flows from financing activities: Cash distributions to shareholders ...... (285,307) (392,568) Borrowing under line of credit facility . 150,000 -- --------- --------- Net cash used in financing activities ... (135,307) (392,568) --------- --------- Net decrease in cash and cash equivalents .. -- (125,764) Cash and cash equivalents, beginning of year -- 175,818 --------- --------- Cash and cash equivalents, end of period ... $ -- $ 50,054 --------- --------- See accompanying note to financial statements. Ridgewood Electric Power Trust II Note to Financial Statements (unaudited) - -------------------------------------------------------------------------------- 1. General In the opinion of management, the accompanying unaudited financial statements contain all adjustments, which consist of normal recurring adjustments, necessary for the fair presentation of the results for the interim periods. Additional footnote disclosure concerning accounting policies and other manners are disclosed in Ridgewood Electric Power Trust II's financial statements included in the 1998 Annual Report on Form 10-K, which should be read in conjunction with these financial statements. The results of operations for an interim period should not necessarily be taken as indicative of the results of operations that may be expected for a twelve month period. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Dollar amounts in this discussion are generally rounded to the nearest $1,000. Introduction The Trust carries its investment in the Projects it owns at fair value and does not consolidate its financial statements with the financial statements of the Projects. Revenue is recorded by the Trust as cash distributions are received from the Projects. Trust revenues may fluctuate from period to period depending on the operating cash flow generated by the Projects and the amount of cash retained to fund capital expenditures. Results of Operations Quarter ended March 31, 1999 compared to quarter ended March 31, 1998 As summarized below, total revenue decreased 38.4% to $180,000 in the first quarter of 1999 compared to $292,000 in the first quarter of 1998, primarily because the Berkshire Project ceased distributions to the Trust in the third quarter of 1998 and because interest income declined. Project 1999 1998 - ------- ---- ---- Monterey ............................... $137,000 $147,000 Berkshire .............................. -- 88,000 Pump Services .......................... -- 1,000 Interest income ........................ 43,000 56,000 -------- -------- Total .................................. $180,000 $292,000 ======== ======== The Monterey project had slightly lower operating results in the first quarter of 1999 reflecting higher maintenance and repair costs. Interest income declined primarily because interest represents a smaller portion of the constant monthly payment from the note received from the sale of the San Diego project. The lower Interest income also reflects lower Trust cash balances in 1999. The decline in revenue at Berkshire reflects the stoppage of distributions from the Project in the third quarter of 1998. Please refer to the Trust's Annual Report on Form 10-K for 1998 for an explanation of the situation at the Project. Total expenses decreased $44,000 (32.8%) to $90,000 in the first quarter of 1999 compared to $134,000 in the same period in 1998, primarily due a decrease in the management fee. The decline in the management fee reflects both the lower net assets of the Trust resulting from the write down of the carrying value of the Berkshire project and a scheduled reduction in annual management fee percentage from 2.5% to 1.5% of net assets effective February 1, 1999. All other 1999 Trust expenses were comparable to those of 1998. Quarter ended March 31, 1998 compared to quarter ended March 31, 1997 As summarized below, total revenue decreased 45.2% to $291,000 in the first quarter of 1998 compared to $531,000 in the first quarter of 1997, primarily due the absence of revenues related to the Columbia project and a project development limited partnership: Project 1998 1997 - ------- ---- ---- Monterey ................................. $147,000 $136,000 Berkshire ................................ 88,000 96,000 Columbia ................................. -- 165,000 San Diego ................................ -- 50,000 Pump Services ............................ 1,000 2,000 Project development ...................... -- 73,000 Interest income .......................... 56,000 9,000 -------- -------- Total .................................... $292,000 $531,000 ======== ======== The Monterey, Berkshire and Pump Services Projects had relatively unchanged operating results in the first quarter of 1998. The Trust received $50,000 of distributions from the San Diego project in the first quarter of 1997 prior to its sale. In the first quarter of 1998, the Trust recorded $50,000 of interest income from the note that it received from the sale of the San Diego project. The Columbia Project did not make a cash distribution in the first quarter of 1998 because its profit margin was negatively impacted by increased competition from other waste management companies operating in the region. In addition, the Trust received a $73,000 distribution in the first quarter of 1997 from a project development limited partnership for which the Trust had previously written off its investment. Interest and dividend income increased to $134,000 in 1997 compared to $1,000 in 1996. Interest income increased because cash was consolidated at the Trust level in early 1997 and invested in higher yielding investment accounts. Total expenses decreased $163,000 (45.1%) to $134,000 in the first quarter of 1998 compared to $297,000 in the same period in 1997, primarily due to the absence of a $281,000 write-off of certain electric power equipment recorded in 1997. This reduction was partially offset by $96,000 of management fees charged in the first quarter of 1998 that were not charged in the corresponding period in 1997. All other 1998 Trust expenses were comparable to 1997. Liquidity and Capital Resources In 1997, the Trust and Fleet Bank, N.A. (the "Bank") entered into a revolving line of credit agreement, whereby the Bank provides a three year committed line of credit facility of $750,000. Outstanding borrowings bear interest at the Bank's prime rate or, at the Trust's choice, at LIBOR plus 2.5%. The credit agreement requires the Trust to maintain a ratio of total debt to tangible net worth of no more than 1 to 1 and a minimum debt service coverage ratio of 2 to 1. The credit facility was obtained in order to allow the Trust to operate using a minimum amount of cash, maximize the amount invested in Projects and maximize cash distributions to shareholders. Borrowing under the credit facility increased from $300,000 at December 31, 1998 to $450,000 at March 31, 1999. In April 1999, the Managing Shareholder announced that distributions to shareholders would cease until the Trust had built up sufficient cash reserves to repay borrowing under the line of credit facility and pay legal costs associated with the proceeding with Pacific Gas and Electric Company (discussed at Legal Proceedings below). Obligations of the Trust are generally limited to payment of the management fee to the Managing Shareholder, payments for certain accounting and legal services to third persons and distributions to shareholders of available operating cash flow generated by the Trust's investments. The Trust anticipates that its cash flow from operations during 1999 will be adequate to fund its obligations. Year 2000 remediation Please refer to the Trust's disclosures at Item 7 - Management's Discussion and Analysis of its Annual Report on Form 10-K for 1998 for a discussion of year 2000 issues affecting the Trust. Since that report was filed, the only material change in the Trust's year 2000 compliance is that the changes to the Managing Shareholder's investor distribution system have been completed. Testing of those changes has been rescheduled to late May 1999 in conjunction with a regularly scheduled set of distributions. No other material changes in the Trust's remediation efforts or its plans for year 2000 compliance have occurred. PART II - OTHER INFORMATION Item 1. Legal Proceedings As previously reported in the Trust's Annual Report on Form 10-K for 1998, Pacific Gas and Electric Company, the purchaser of the electricity generated by the Trust's Monterey Project, has sued the Trust's subsidiary that owns the Project in the Superior Court of California for the City and County of San Francisco. Discovery is underway. Item 5. Other Information. Ridgewood Power Corporation has been the managing shareholder of the Trust. It organized the Trust and acted as managing shareholder until April 1999. On or about April 20, 1999 it was merged into Ridgewood Power LLC, a New Jersey limited liability company, which thus became the Managing Shareholder of the Trust. Ridgewood Power LLC was organized in early April 1999 and has no business other than acting as the successor to Ridgewood Power Corporation. No material change in the Trust's operations or business will result from the merger. Robert E. Swanson has been the President, sole director and sole stockholder of Ridgewood Power Corporation since its inception in February 1991 and is now the controlling member, sole manager and President of the Managing Shareholder. Mr. Swanson currently is the sole equity owner of the Managing Shareholder but is considering a transfer of 53% of the equity ownership to two family trusts. If that transfer is made, he will have the power on behalf of those trusts to vote or dispose of the membership equity interests owned by them and accordingly will continue to have sole control of the Managing Shareholder. Further, Mr. Swanson is designated as the sole manager of the Managing Shareholder in its operating agreement. Ridgewood Power LLC is also the managing shareholder of the other five business trusts organized by Ridgewood Power Corporation to participate in the independent electric power industry. Similarly, Ridgewood Power Management Corporation, which operates certain Projects on behalf of the Trust, was merged on or about April 20, 1999 into a new New Jersey limited liability company, Ridgewood Power Management LLC. The ownership and control of Ridgewood Power Management LLC are the same as those of Ridgewood Power LLC and its only business is to be the successor to Ridgewood Power Management Corporation. No material change in the operation of the Projects is expected as a result of that merger. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 27. Financial Data Schedule SIGNATURES Pursuant to the requirement 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 II Registrant May 17, 1999 By /s/ Martin V. Quinn Date Martin V. Quinn Senior Vice President and Chief Financial Officer (signing on behalf of the Registrant and as principal financial officer)