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American DG Energy Inc (NYSEMKT:ADGE) Is Today's Microcap Runner

American DG Energy Inc (NYSEMKT:ADGE) Is Today's Microcap Runner
Written by
Alex Carlson
Published on
May 5, 2016
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American DG Energy Inc (NYSEMKT:ADGE) accomplished this week what all microcap companies should be doing, but rarely don't. That's paying off convertible debt and avoid shareholder dilution. As a result, shares of ADGE rocketed off the lows and made a major turnaround. We feel this marks a turning point for ADGE and its shareholders.American DG Energy supplies low-cost energy to its customers through distributed power generating systems. The company provides institutional, commercial and small industrial facilities with clean, reliable power, cooling, heat and hot water at lower costs than charged by local utilities - without any capital or start-up costs to the energy user - through its On-Site Utility energy solutions. American DG Energy is headquartered in Waltham, Massachusetts.This week's transactions eliminated $9.3 million in convertible debentures ($8.5 million net of prepaid interest) that, if converted, would have caused significant dilution to American DG Energy's existing shareholder base. American DG Energy exchanged approximately 14.72 million shares in EuroSite Power Inc (OTCMKTS:EUSP), a nearly 22% stake in its European subsidiary, for elimination of a portion of the outstanding 6% convertible debentures due May 2018. With this swap of EuroSite Power shares in exchange for partial extinguishment of the convertible debt, American DG Energy reduced the convertible debt outstanding to $9.2 million. The company is also pursuing a similar debt exchange transaction for the remaining convertible debt outstanding and expects to complete that subsequent transaction in the coming weeks. American DG Energy's co-Chief Executive Officer John Hatsopoulos said:

"These transactions put American DG on more secure financial footing. Although we still have a lot of work to do righting the installed base, we now have the space and time to carefully implement our site improvement initiatives. Right now, the Company has enough money to complete our planned site improvements and backlog of projects. Although we cannot currently finance any new projects, management continues to explore all alternatives for the business going forward."

ADGE reported total revenues of $8,556,917 for 2015, compared to $8,567,553 for 2014. GAAP diluted loss per share (EPS) was $0.11 for 2015, compared with a GAAP diluted loss per share of $0.12 for 2014. Reflecting the Company's ongoing efforts to optimize its On-Site Utility production, gross margin excluding depreciation and site impairments improved in 2015 to 33.1% versus 31.0% in 2014, a 2.1% increase and a 6.8% improvement in gross margin. In total, as of December 31, 2015, ADGE operated 121 systems totaling 8,323kW of installed capacity with a total approximate lifetime contract value of $263.5 million. The company had a backlog of 20 systems, on a consolidated basis, as of December 31, 2015.EuroSite Power Limited is a subsidiary of ADGE and provides institutional, commercial and small industrial facilities with clean, reliable power, cooling, heat and hot water at lower costs than charged by conventional energy suppliers – without any capital or start-up costs to the energy user. EuroSite Power sells the energy produced from an onsite energy system to an individual customer as an alternative to the outright sale of energy equipment. On-Site Utility solution customers only pay for the energy produced by the system and receive a guaranteed discount rate on the price of the energy. All system capital, installation, operating expenses and support are paid by EuroSite Power.EuroSite Power reported total revenue value of all contracted EuroSite Power On-Site Utility energy agreements as of December 31, 2015 was approximately $101.1 million using various market assumptions and estimates made by management, compared to $96.6 million at year end 2014. When including agreements signed to date during 2016, total contracted value currently stands at approximately $105.95 million for 4,098 kW in total capacity.In March, EuroSite executed an agreement with Macquarie Equipment Finance (UK) Ltd., which will help the company grow. Macquarie's financing programme enables EuroSite Power to increase the range of options it can offer new customers for their energy installation needs. Under the terms of a typical On-Site Utility agreement, highly efficient combined heat and power (CHP) systems are installed and commissioned at a customer's facility at no upfront cost to the customer. The reliable clean power technology is owned, operated, and maintained by EuroSite Power and the customer is billed according to their usage, at a guaranteed discounted rate to local utility tariffs. As EuroSite Power assumes all the upfront expense of equipment purchase and installation, in the past the Company was constrained by availability of funds in its pursuit of appropriate customer projects.Currently trading with a market cap of just $20 million, ADGE is quite undervalued when you look at its subsidiary EUSP and its market cap of $49 million. Shares of ADGE are trading at just 1.4x sales and 1.1x book value. We believe the market has finally woken up to the fact that ADGE remains undervalued and the threat of dilution no longer exists. We will be updating Insider Financial as soon as we know more. For continuing coverage on ADGE and EUSP, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in ADGE or EUSP and have not been compensated for this article.

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