TECOGEN INC. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 12, 2020. The filing is an annual report, not a standalone fourth-quarter report. Financial statements received an unqualified audit opinion; the auditor did not opine on internal control effectiveness.
Business context
Tecogen designs, manufactures, sells, and services natural-gas-fueled combined heat and power (CHP), chiller, refrigeration, and water-heating systems, including its Ultera emissions technology. Its two segments are Products and Services and Energy Production, the latter selling electricity, heat, hot water, and cooling under long-term contracts. Products and Services generated 90.6% of 2019 revenue; Energy Production generated 9.4%.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $33.43 million | $35.88 million |
| Gross profit / margin | $12.48 million / 37.3% | $13.59 million / 37.9% |
| Operating loss | $4.66 million | $5.54 million |
| Net loss attributable to Tecogen | $4.71 million | $5.71 million |
| Loss per share, basic and diluted | $0.19 | $0.23 |
| Cash used in operations | $4.48 million | $3.86 million |
- Revenue declined 6.8%. Product revenue rose 2.8% to $12.98 million and Services revenue rose 2.7% to $17.31 million; Energy Production revenue fell 50.9% to $3.14 million, primarily following asset sales.
- Working capital was $14.46 million, versus $13.17 million. Cash and equivalents were $877,676, versus $272,552.
- At year-end, the balance sheet reported $2.40 million of revolving credit outstanding, net of unamortized issuance costs; the note gives a gross balance of $2.45 million. The secured facility has a maximum commitment of $10 million and matures May 2021.
- Investing activities provided $4.71 million, including $5 million of proceeds from an energy-site asset sale. Financing activities provided $383,000. Cash increased by $605,000 during the year.
- Product and installation backlog was $22.4 million, up from $16.6 million in MD&A; another section gives the 2018 comparison as $15.6 million.
Changes, outlook, and notable items
- Tecogen sold energy-producing assets and related contracts for total consideration of $7 million in transactions during late 2018 and the first quarter of 2019. The 2019 transactions generated a reported $1.08 million gain. The filing also records a $3.69 million goodwill impairment in 2019, following a $4.39 million impairment in 2018.
- Management said existing resources, operating cash flows, and the revolving credit line were expected to meet working-capital needs for the next 12 months, but also said growth could require additional debt or equity financing. No formal financial guidance was provided.
- The company reported a material weakness in IT security and user-access controls, concluding disclosure controls and internal control over financial reporting were ineffective at December 31, 2019. An ERP implementation was underway to address control weaknesses.
- Asset-sale service agreements include minimum cash-collection guarantees, potential payments if energy-contract counterparties default or terminate early, and certain decommissioning obligations. The company recorded a $112,311 remaining reserve for guaranteed cash-flow shortfalls after payments and additional provision.
- Other risks include recurring operating losses, negative operating cash flow, dependence on a borrowing facility and covenant compliance, long and variable product sales cycles, supplier concentration, volatile energy-rate economics, customer contract expirations, and regulatory or incentive changes. Management reported no material pending legal proceedings.
Key facts for investors to verify
- Review the full cash-flow and debt disclosures, including borrowing availability, covenants, and the May 2021 facility maturity.
- Assess whether the operating cash burn can be reduced and whether further financing may be needed.
- Verify the backlog conversion schedule, customer financing and permitting status, and the inconsistent 2018 backlog figure in the filing.
- Monitor remediation of the material weakness and progress of the ERP implementation.
- Evaluate remaining energy-production contract economics and exposure under asset-sale guarantees, including contract termination and decommissioning terms.