Joint Venture and Investment Activities (Notes) |
12 Months Ended |
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Dec. 31, 2016 | |
| Equity Method Investments and Joint Ventures [Abstract] | |
| Joint Venture and Investment Activities |
Joint Venture and Investment Activities
On December 28, 2015, Tecogen entered into a joint venture agreement relating to the formation of a joint venture company (“Ultra Emissions”) organized to develop and commercialize Tecogen’s patented technology (“Ultera® Technology”) designed to reduce harmful emissions generated by engines using fossil fuels. The joint venture company, called Ultra Emissions Technologies Ltd., was organized under the laws of the Island of Jersey, Channel Islands.
Tecogen received a 50% equity interest in the Ultra Emissions in exchange for a fully paid-up worldwide license to use Tecogen’s Ultera emissions control technology in the field of mobile vehicles burning fossil fuels. The other half of Ultra Emissions' equity interests were purchased for $3,000,000 by a small group of offshore investors. Warrants to purchase additional equity securities in the Ultra Emissions were granted to all parties pro rata. If the venture is not successful, all licensed intellectual property rights will revert to Tecogen.
Robert Panora, Tecogen’s President, Chief Operating Officer, and one of the inventors of the Ultera technology will serve as Ultra Emissions co-Chief Executive Officer along with Dr. Elias Samaras. Dr. Samaras is the founder, President and Managing Director of Digital Security Technologies S.A. and the Chief Executive Officer of EuroSite Power Inc.
Ultra Emissions is expected to have losses as it performs the necessary research and development with the Ultera technology. On August 2, 2016, Tecogen exercised 2,000,000 warrants (the "Ultratek Warrants"), in the Ultra Emissions, at $1.00 per share, for an aggregate amount of $2 million. The funds used to exercise the Ultratek Warrants were acquired by the Company from the holders of certain Company warrants (the "Tecogen Warrant Holders"), when they partially exercised their Tecogen warrants (the "Tecogen Warrants"), in July of 2016. The Tecogen Warrant Holders exercised a total of 675,000 Tecogen Warrants with a $4.00 exercise price, resulting in cash proceeds of $2,700,000 to the Company, which the Company then used some of the proceeds to invest in the Ultra Emissions. An additional $6,500,000 was raised by the joint venture from other outside investors for a total equity investment to date of $13,500,000. Due to this additional capital raise, Tecogen's ownership has decreased to 43%.
The Company is accounting for its interest in the Ultra Emissions using the equity method. Income and losses will be recorded consistent with an agreement between the Ultra Emissions shareholders as to how income and losses will be allocated. These allocations are consistent with the allocation of cash distributions and liquidating distributions of the Ultra Emissions. The shareholder agreement calls for Tecogen's investment to be returned before any other shareholder if the venture does not achieve commercialization. As a result, as of December 31, 2016, Tecogen has not recorded any of the income or losses of the Ultra Emissions.
TTcogen LLC
On May 19, 2016, the Company along with Tedom a.s., a corporation incorporated in the Czech Republic and a European combined heat and power product manufacturer, ("Tedom") entered into a joint venture, where the Company will hold a 50% participating interest and the remaining 50% interest will be with Tedom. As part of the joint venture, the parties agreed to create a Delaware limited liability company, TTcogen LLC ("TTcogen"), to carry out the business of the venture. Tedom granted TTcogen the sole and exclusive right to market, sell, offer for sale, and distribute certain products as agreed to by the parties throughout the United States. The product offerings of the joint venture expand the current Tecogen product offerings to the MicroCHP of 35kW to large 4,000kW plants. Tecogen agreed to refer all appropriate sales leads to TTcogen regarding the products agreed to by the parties and Tecogen shall have the first right to repair and maintain the products sold by TTcogen.
The TTcogen operations will be accounted for using equity method accounting. Any losses on the initial operation of the entity will not be consolidated in Tecogen's financial statements. Since Tecogen does not guarantee obligations of TTcogen, losses or liabilities of the joint venture are not recorded in the Company's consolidated financial statements. Using the equity method accounting, as the venture becomes profitable with the expected growth, realized gains from profits will be added to the investment asset account on the consolidated balance sheet.
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