Tecogen JV Valued at $58.2 Million in Third Round Financing

The auto emissions firm Ultra Emissions Technologies Ltd. (ULTRATEK), an affiliate of Tecogen (TGEN – $4.18), was valued at $58.2 million in recent third round funding.

ULTRATEK raised $6.25 million in this financing, bringing the total cash on hand to approximately $12.5 million. Very interesting to know is that the new investors paid a substantial premium to prior funding rounds. During the initial round money was raised at $2 per share, while the second round – exercise of warrants – was conducted at $1 per share. This round, investors paid $7.1656 per share!

The ability to eliminate criteria pollutants – those that contribute to smog and negatively impact human health – is critical to the global environment and to the auto industry, as the confidence of these new investors demonstrates.

Dr. Elias Samaras, ULTRATEK Co-CEO said: “I view this as a strong demonstration of the faith sophisticated investors place in our expert team and their efforts toward developing a patented and robust emissions control solution for gasoline vehicles.”

	CO	NMOG	NOx	NOx + NMOG
Standard Vehicle	332	5.234	5.763	10.997
With Ultera	20	1.001	5.072	6.074
% Reduction	94%	81%	12%	45%
Drive Cycle Test Results – Emissions (mg/mile). Source: Company Presentation.

Lemonade from Lemons

ULTRATEK’s mission is to develop and adapt Tecogen’s patented Ultera ultra-low emissions control technology for the gasoline transportation markets. It’s an opportunity born from a crisis.

When Volkswagen was faced with a large-scale scandal related to its emission testing back in October 2015, few would have thought that such a crisis could result in future benefit. Tecogen did. It saw the opportunity and seized it.

While Volkswagen’s emissions scandal was related to diesel vehicles, Tecogen recognized a potential opportunity for using its existing emissions control technology to benefit the gasoline vehicle market, where the reliability of emissions output testing had also come under question.

To study the opportunity, Tecogen formed Ultra Emissions Technologies Ltd., a joint venture with a group of strategic investors, in December of 2015.

Tecogen’s know-how in manufacturing and installing high efficiency, ultra-clean systems, is derived from its year long experience with the Ultera, which reduces emissions of natural gas driven engines to near-zero levels.

Rigorous Testing

Since its launch, ULTRATEK has been meticulous about its test result analysis and the rigor with which the tests are performed.

Phase I testing results, announced in August 2016, revealed that the patented emissions control system was highly effective at delivering further emissions reduction in criteria pollutants. An added benefit, the use of the Ultera system did not increase the fuel usage of the test vehicle.

Phase II testing is under way and focuses on two gasoline powered vehicle models, one for both U.S. and European use and one for European markets only. Testing is being conducted at AVL’s California Technology Center. AVL is the world’s largest independent company for development, simulation and testing technology of power trains (hybrid, combustion engines, transmission, electric drive, batteries and software) for passenger cars, trucks and large engines.

ULTRATEK Co-CEO and Tecogen President and COO, Robert Panora, said: “We expect to complete this round of testing by late October. Following careful analysis of Phase 2 results, the ULTRATEK team will evaluate and determine suitable next steps and share them when appropriate.”

Conclusion

About 872,223 shares were issued during this third round of financing. ULTRATEK now has a little over 8.1 million shares outstanding (including 250,000 warrants), giving the clean energy company a valuation of $58.2 million. In addition, based on the outcome of Phase 2 testing, which we have every reason to believe will be favorable, ULTRATEK’s valuation is likely to grow.

Knowing that Tecogen owns 43.09% of ULTRATEK’s shares, its stake is worth about $25 million. Given Tecogen’s $83 million market capitalization, the Company’s core business is valued at only $58.7 million, which is extremely low. Buy recommendation.

Smallcaps.us Advice: Buy	Price Target: $9.41	Latest Company Report (pdf)
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