TECOGEN INC. Form 8-K/A#1 Summary
Business Context and Reporting Period
This Current Report on Form 8-K/A#1 was filed on March 7, 2019, covering events that occurred on March 5, 2019. Tecogen Inc. (the "Corporation") and its subsidiary, American DG Energy Inc. ("ADGE"), entered into a series of agreements to sell energy generation assets to an unrelated third party, SDCL TG Cogen LLC ("SDCL"), while retaining operational management rights.
Key Financial Metrics and Transaction Details
- Transaction Value: ADGE sold all equity interests in a newly formed subsidiary, CogenTwo LLC, to SDCL for $5 million.
- Use of Proceeds: The $5 million proceeds were deposited into ADGE's account with the Lender (Webster Business Credit Corporation) and applied directly against the outstanding balance of the Credit Agreement dated May 4, 2018.
- Asset Structure: The transaction involved the contribution of six energy generation and sale agreements to CogenTwo prior to the sale.
- Operational Retention: Tecogen Inc. executed a 15-year Billing and Asset Management Agreement to manage the transferred on-site utilities. Tecogen guarantees minimum collections and receives 50% of collections in excess of agreed minimums.
- Historical Context: This follows a similar December 2018 transaction where ADGE sold CogenOne LLC (containing two agreements) to SDCL for $2 million.
Material Changes Versus Prior Period
The filing reports a material disposition of assets and a reduction in debt. The Corporation amended its Credit Agreement to waive restrictions permitting the sale. Unlike the prior period where the company held direct ownership of the six energy agreements, these assets are now owned by SDCL, with Tecogen acting as the billing and asset manager. The filing does not provide comparative revenue, profit, or cash flow metrics for the reporting period versus the prior period, as this is a current report focused on a specific transaction rather than a periodic financial statement.
Guidance, Outlook, and Risks
- Management Commentary: The Corporation issued a press release on March 7, 2019, regarding these transactions. Unaudited Pro Forma Condensed Consolidated Financial Statements showing the impact of the sales are filed as Exhibit 99.02.
- Contingencies and Guarantees: Tecogen Inc. executed a Guaranty of ADGE's obligations under the Membership Interest Purchase Agreement. Additionally, under the Billing and Asset Management Agreement, Tecogen guarantees the payment of certain minimum collections from the transferred utilities.
- Risks: The company's future revenue from these assets is now contingent on the performance of the on-site utilities and the collection of amounts in excess of minimums, rather than direct ownership of the generation assets.
Investor Verification Checklist
- Verify the exact amount of debt reduction achieved by applying the $5 million proceeds against the Credit Agreement.
- Review the Unaudited Pro Forma Financial Statements (Exhibit 99.02) to understand the impact on the balance sheet and future cash flows.
- Examine the specific terms of the "minimum collections" guaranteed by Tecogen in the Billing and Asset Management Agreement (Exhibit 10.52) to assess downside risk.
- Confirm the status of the December 2018 CogenOne transaction and how the aggregation of collection activities affects financial reporting.