UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022March 31, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-36103

Clean Energy Solutions.jpg
TECOGEN INC. (OTCQX:TGEN)
(Exact name of Registrant as specified in its charter)
Delaware04-3536131
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
45 First Avenue
Waltham, Massachusetts 02451
(Address of Principal Executive Offices and Zip Code)
(781) 466-6402
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý   No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer o
Accelerated filer o
Non-accelerated filer
Emerging Growth company
Smaller reporting company
        
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 
As of June 30, 2022,March 31, 2023, 24,850,261 shares of common stock, $.001 par value per share, of the registrant were issued and outstanding.



TECOGEN INC.




QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2022MARCH 31, 2023
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION

References in this Form 10-Q to "we", "us", "our"', the "Company" and "Tecogen" refers to Tecogen Inc. and its consolidated subsidiaries, unless otherwise noted.


TECOGEN INC.




PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, 2022December 31, 2021 March 31, 2023December 31, 2022
ASSETSASSETSASSETS
Current assets:Current assets:  Current assets:  
Cash and cash equivalentsCash and cash equivalents$2,831,107 $3,614,463 Cash and cash equivalents$1,629,103 $1,913,969 
Accounts receivable, netAccounts receivable, net8,880,828 8,482,286 Accounts receivable, net6,758,360 6,714,122 
Employee retention creditEmployee retention credit46,148 713,269 
Unbilled revenueUnbilled revenue2,141,132 3,258,189 Unbilled revenue1,788,902 1,805,330 
Employee retention credit receivable713,269 1,276,021 
Inventories, netInventories, net8,203,093 7,764,989 Inventories, net11,862,782 10,482,729 
Prepaid and other current assetsPrepaid and other current assets601,419 578,801 Prepaid and other current assets265,019 401,189 
Total current assetsTotal current assets23,370,848 24,974,749 Total current assets22,350,314 22,030,608 
Long-term assets:Long-term assets:Long-term assets:
Property, plant and equipment, netProperty, plant and equipment, net1,710,644 1,782,944 Property, plant and equipment, net1,290,228 1,407,720 
Right of use assetsRight of use assets1,561,757 1,869,210 Right of use assets1,084,033 1,245,549 
Intangible assets, netIntangible assets, net1,099,510 1,181,023 Intangible assets, net947,885 997,594 
GoodwillGoodwill2,406,156 2,406,156 Goodwill2,406,156 2,406,156 
Other assetsOther assets184,809 148,140 Other assets164,815 165,230 
TOTAL ASSETSTOTAL ASSETS$30,333,724 $32,362,222 TOTAL ASSETS$28,243,431 $28,252,857 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY  LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:Current liabilities:  Current liabilities:  
Accounts payableAccounts payable3,260,479 3,508,354 Accounts payable4,167,461 3,261,952 
Accrued expensesAccrued expenses2,269,239 2,343,728 Accrued expenses2,240,523 2,384,447 
Deferred revenue1,263,919 1,957,752 
Deferred revenue, currentDeferred revenue, current2,108,082 1,115,627 
Lease obligations, currentLease obligations, current665,310 641,002 Lease obligations, current646,805 687,589 
Unfavorable contract liability, currentUnfavorable contract liability, current274,501 330,032 Unfavorable contract liability, current223,230 236,705 
Total current liabilitiesTotal current liabilities7,733,448 8,780,868 Total current liabilities9,386,101 7,686,320 
Long-term liabilities:Long-term liabilities:  Long-term liabilities:  
Deferred revenue, net of current portionDeferred revenue, net of current portion313,131 208,456 Deferred revenue, net of current portion231,969 371,823 
Lease obligations, net of current portionLease obligations, net of current portion974,751 1,315,275 Lease obligations, net of current portion496,526 623,452 
Unfavorable contract liability, net of current portionUnfavorable contract liability, net of current portion769,721 929,474 Unfavorable contract liability, net of current portion535,706 583,512 
Total liabilitiesTotal liabilities9,791,051 11,234,073 Total liabilities10,650,302 9,265,107 
Commitments and contingencies (Note 12)00
Commitments and contingenciesCommitments and contingencies
Stockholders’ equity:Stockholders’ equity:  Stockholders’ equity:  
Tecogen Inc. stockholders’ equity:Tecogen Inc. stockholders’ equity:  Tecogen Inc. stockholders’ equity:  
Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 issued and outstanding at June 30, 2022 and December 31, 202124,850 24,850 
Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 issued and outstanding at March 31, 2023 and December 31, 2022Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 issued and outstanding at March 31, 2023 and December 31, 202224,850 24,850 
Additional paid-in capitalAdditional paid-in capital57,202,459 57,016,859 Additional paid-in capital57,428,356 57,351,008 
Accumulated deficitAccumulated deficit(36,600,430)(35,833,621)Accumulated deficit(39,771,577)(38,281,548)
Total Tecogen Inc. stockholders’ equityTotal Tecogen Inc. stockholders’ equity20,626,879 21,208,088 Total Tecogen Inc. stockholders’ equity17,681,629 19,094,310 
Non-controlling interestNon-controlling interest(84,206)(79,939)Non-controlling interest(88,500)(106,560)
Total stockholders’ equityTotal stockholders’ equity20,542,673 21,128,149 Total stockholders’ equity17,593,129 18,987,750 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITYTOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$30,333,724 $32,362,222 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$28,243,431 $28,252,857 

 The accompanying notes are an integral part of these consolidated financial statements. 
1

TECOGEN INC.




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months EndedThree Months Ended
June 30, 2022June 30, 2021 March 31, 2023March 31, 2022
RevenuesRevenuesRevenues
ProductsProducts$3,010,115 $2,445,927 Products$1,710,136 $3,939,481 
ServicesServices3,050,191 3,328,314 Services3,136,173 2,917,280 
Energy productionEnergy production354,287 370,861 Energy production533,509 581,562 
Total revenuesTotal revenues6,414,593 6,145,102 Total revenues5,379,818 7,438,323 
Cost of salesCost of salesCost of sales
ProductsProducts2,015,466 1,390,725 Products1,212,568 2,644,756 
ServicesServices1,473,586 1,679,386 Services1,737,602 1,366,752 
Energy productionEnergy production222,092 232,353 Energy production337,739 336,027 
Total cost of salesTotal cost of sales3,711,144 3,302,464 Total cost of sales3,287,909 4,347,535 
Gross profitGross profit2,703,449 2,842,638 Gross profit2,091,909 3,090,788 
Operating expensesOperating expensesOperating expenses
General and administrativeGeneral and administrative2,824,832 2,438,452 General and administrative2,792,483 2,473,903 
SellingSelling503,601 580,871 Selling520,070 501,091 
Research and developmentResearch and development194,853 132,883 Research and development229,102 140,135 
Gain on disposition of assetsGain on disposition of assets(2,500)— Gain on disposition of assets— (33,945)
Gain on termination of unfavorable contract liabilityGain on termination of unfavorable contract liability— (71,375)
Total operating expensesTotal operating expenses3,520,786 3,152,206 Total operating expenses3,541,655 3,009,809 
Loss from operations(817,337)(309,568)
Income (loss) from operationsIncome (loss) from operations(1,449,746)80,979 
Other income (expense)Other income (expense)Other income (expense)
Other income (expense), netOther income (expense), net(1,265)(1,125)Other income (expense), net830 (14,150)
Interest expenseInterest expense(12,733)(5,088)Interest expense(415)(828)
Employee retention credit— 713,268 
Unrealized gain on investment securitiesUnrealized gain on investment securities— 18,749 Unrealized gain on investment securities— 37,497 
Total other income (expense), netTotal other income (expense), net(13,998)725,804 Total other income (expense), net415 22,519 
Income (loss) before provision for state income taxesIncome (loss) before provision for state income taxes(831,335)416,236 Income (loss) before provision for state income taxes(1,449,331)103,498 
Provision for state income taxesProvision for state income taxes6,500 7,933 Provision for state income taxes22,638 3,930 
Consolidated net income (loss)Consolidated net income (loss)(837,835)408,303 Consolidated net income (loss)(1,471,969)99,568 
Income attributable to the non-controlling interestIncome attributable to the non-controlling interest(18,383)(8,672)Income attributable to the non-controlling interest(18,060)(10,159)
Net income (loss) attributable to Tecogen Inc.Net income (loss) attributable to Tecogen Inc.$(856,218)$399,631 Net income (loss) attributable to Tecogen Inc.$(1,490,029)$89,409 
Net income (loss) per share - basicNet income (loss) per share - basic$(0.03)$0.02 Net income (loss) per share - basic$(0.06)— 
Net income (loss) per share - dilutedNet income (loss) per share - diluted$(0.03)$0.02 Net income (loss) per share - diluted$(0.06)— 
Weighted average shares outstanding - basicWeighted average shares outstanding - basic24,850,261 24,850,261 Weighted average shares outstanding - basic24,850,261 24,850,261 
Weighted average shares outstanding - dilutedWeighted average shares outstanding - diluted24,850,261 25,125,210 Weighted average shares outstanding - diluted24,850,261 25,028,616 
 
The accompanying notes are an integral part of these consolidated financial statements.

2

TECOGEN INC.




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended
 June 30, 2022June 30, 2021
Revenues
Products$6,949,596 $4,568,649 
Services5,967,471 6,609,458 
     Energy production935,849 1,024,156 
Total revenues13,852,916 12,202,263 
Cost of sales
Products4,660,221 2,565,012 
Services2,840,338 3,216,989 
     Energy production558,119 626,416 
Total cost of sales8,058,678 6,408,417 
Gross profit5,794,238 5,793,846 
Operating expenses
General and administrative5,298,735 4,892,305 
Selling1,004,692 1,091,074 
Research and development334,988 259,033 
Gain on disposition of assets(36,445)— 
Gain on termination of unfavorable contract liability(71,375)— 
Total operating expenses6,530,595 6,242,412 
Loss from operations(736,357)(448,566)
Other income (expense)
Interest and other income (expense), net(15,416)(2,328)
Interest expense(13,561)(9,728)
Gain on extinguishment of debt— 1,887,859 
Employee retention credit— 713,268 
Gain on sale of investment securities— 6,046 
Unrealized gain (loss) on investment securities37,497 56,246 
Total other income (expense), net8,520 2,651,363 
Income (loss) before provision for state income taxes(727,837)2,202,797 
Provision for state income taxes10,430 15,991 
Consolidated net income (loss)(738,267)2,186,806 
Income attributable to non-controlling interest(28,542)(20,468)
Net income (loss) attributable to Tecogen Inc.$(766,809)$2,166,338 
Net income (loss) per share - basic$(0.03)$0.09 
Net income (loss) per share - diluted$(0.03)$0.09 
Weighted average shares outstanding - basic24,850,261 24,850,261 
Weighted average shares outstanding - diluted24,850,261 25,102,470 

The accompanying notes are an integral part of these consolidated financial statements.











3

TECOGEN INC.





CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the For the Three Months Ended March 31, 2023 and Six Months June 30, 2022 and 2021
(unaudited)



Three months ended June 30, 2022Common Stock SharesCommon
Stock
0.001
Par Value
Additional
Paid-In
Capital
Accumulated
Deficit
Non-controlling
Interest
Total
Balance at March 31, 202224,850,261 $24,850 $57,112,566 $(35,744,212)$(85,420)$21,307,784 
Stock based compensation expense89,893 89,893 
Distributions to non-controlling interest(17,169)(17,169)
Net loss(856,218)18,383 (837,835)
Balance at June 30, 202224,850,261 $24,850 $57,202,459 $(36,600,430)$(84,206)$20,542,673 
Six months ended June 30, 2022Common Stock SharesCommon
Stock
0.001
Par Value
Additional
Paid-In
Capital
Accumulated
Deficit
Non-controlling
Interest
Total
Balance at December 31, 202124,850,261 $24,850 $57,016,859 $(35,833,621)$(79,939)$21,128,149 
Stock based compensation expense185,600 185,600 
Distributions to non-controlling interest(32,809)(32,809)
Net loss(766,809)28,542 (738,267)
Balance at June 30, 202224,850,261 $24,850 $57,202,459 $(36,600,430)$(84,206)$20,542,673 
Three months ended June 30, 2021Common Stock SharesCommon
Stock
0.001
Par Value
Additional
Paid-In
Capital
Accumulated
Deficit
Non-controlling
Interest
Total
Balance at March 31, 202124,850,261 $24,850 $56,853,513 $(37,762,914)$(48,703)$19,066,746 
Stock based compensation expense— — 54,681 — — 54,681 
Distributions to non-controlling interest— — — — (15,636)(15,636)
Net income— — — 399,631 8,672 408,303 
Balance at June 30, 202124,850,261 $24,850 $56,908,194 $(37,363,283)$(55,667)$19,514,094 
Six months ended June 30, 2021Common Stock SharesCommon
Stock
0.001
Par Value
Additional
Paid-In
Capital
Accumulated
Deficit
Non-controlling
Interest
Total
Balance at December 31, 202024,850,261 $24,850 $56,814,428 $(39,529,621)$(42,323)$17,267,334 
Stock based compensation expense— — 93,766 — — 93,766 
Distributions to non-controlling interest— — — — (33,812)(33,812)
Net income— — — 2,166,338 20,468 2,186,806 
Balance at June 30, 202124,850,261 $24,850 $56,908,194 $(37,363,283)$(55,667)$19,514,094 


Tecogen Inc. Stockholders
Three Months ended March 31, 2023Common Stock SharesCommon
Stock
0.001
Par Value
Additional
Paid-In
Capital
Accumulated
Deficit
Non-controlling
Interest
Total
Balance at December 31, 202224,850,261 $24,850 $57,351,008 $(38,281,548)$(106,560)$18,987,750 
Stock based compensation expense— — 77,348 — — 77,348 
Net income (loss)— — — (1,490,029)18,060 (1,471,969)
Balance at March 31, 202324,850,261 $24,850 $57,428,356 $(39,771,577)$(88,500)$17,593,129 
Three Months ended March 31, 2022Common Stock SharesCommon
Stock
0.001
Par Value
Additional
Paid-In
Capital
Accumulated
Deficit
Non-controlling
Interest
Total
Balance at December 31, 202124,850,261 $24,850 $57,016,859 $(35,833,621)$(79,939)$21,128,149 
Stock based compensation expense— — 95,707 — — 95,707 
Distributions to non-controlling interest— — — — (15,640)(15,640)
Net income— — — 89,409 10,159 99,568 
Balance at March 31, 202224,850,261 24,850 57,112,566 $(35,744,212)$(85,420)$21,307,784 

The accompanying notes are an integral part of these consolidated financial statements.
43

TECOGEN INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months EndedThree Months Ended
June 30, 2022June 30, 2021 March 31, 2023March 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:CASH FLOWS FROM OPERATING ACTIVITIES:CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income (loss)Consolidated net income (loss)$(738,267)$2,186,806 Consolidated net income (loss)$(1,471,969)$99,568 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization, netDepreciation and amortization, net217,718 241,470 Depreciation and amortization, net105,920 107,061 
Gain on extinguishment of debt— (1,887,859)
Employee retention credit— (713,268)
Stock-based compensationStock-based compensation185,600 93,766 Stock-based compensation77,348 95,707 
Provision for doubtful accounts46,000 — 
Gain on disposition of assetsGain on disposition of assets(36,445)— Gain on disposition of assets— (33,945)
Gain on sale of investment securities— (6,046)
Unrealized gain on investment securitiesUnrealized gain on investment securities(37,497)(56,246)Unrealized gain on investment securities— (37,497)
Gain on termination of unfavorable contract liabilityGain on termination of unfavorable contract liability(71,375)— Gain on termination of unfavorable contract liability— (71,375)
Impairment of intangible asset— 7,400 
Changes in operating assets and liabilitiesChanges in operating assets and liabilitiesChanges in operating assets and liabilities
(Increase) decrease in:(Increase) decrease in:(Increase) decrease in:
Accounts receivableAccounts receivable(444,541)894,100 Accounts receivable(44,238)850,674 
Employee retention credit receivable562,752 — 
Employee retention creditEmployee retention credit667,121 — 
Unbilled revenueUnbilled revenue1,117,057 367,750 Unbilled revenue16,428 351,259 
InventoryInventory(438,102)357,072 Inventory(1,380,052)8,252 
Prepaid expenses and other current assetsPrepaid expenses and other current assets(22,618)(242,588)Prepaid expenses and other current assets136,170 2,014 
Other assetsOther assets308,282 (537,197)Other assets161,931 152,888 
Increase (decrease) in:Increase (decrease) in:Increase (decrease) in:
Accounts payableAccounts payable(247,876)(1,585,368)Accounts payable905,509 894,418 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities(74,490)290,342 Accrued expenses and other current liabilities(143,923)134,795 
Deferred revenueDeferred revenue(589,158)(45,118)Deferred revenue852,600 (504,229)
Other liabilitiesOther liabilities(316,217)531,335 Other liabilities(167,711)(155,119)
Net cash used in operating activities(579,177)(103,649)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities(284,866)1,894,471 
CASH FLOWS FROM INVESTING ACTIVITIES:CASH FLOWS FROM INVESTING ACTIVITIES:CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipmentPurchases of property and equipment(209,034)(47,504)Purchases of property and equipment— (80,873)
Proceeds from the sale of investment securities— 11,637 
Purchases of intangible assetsPurchases of intangible assets(29,505)(5,682)Purchases of intangible assets— (16,220)
Proceeds from disposition of assetsProceeds from disposition of assets67,169 — Proceeds from disposition of assets— 64,669 
Distributions to non-controlling interestDistributions to non-controlling interest(32,809)(33,812)Distributions to non-controlling interest— (15,640)
Net cash used in investing activitiesNet cash used in investing activities(204,179)(75,361)Net cash used in investing activities— (48,064)
CASH FLOWS FROM FINANCING ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payableProceeds from note payable— 1,874,269 Proceeds from note payable— — 
Net cash provided by financing activitiesNet cash provided by financing activities— 1,874,269 Net cash provided by financing activities— — 
Change in cash and cash equivalentsChange in cash and cash equivalents(783,356)1,695,259 Change in cash and cash equivalents(284,866)1,846,407 
Cash and cash equivalents, beginning of the periodCash and cash equivalents, beginning of the period3,614,463 1,490,219 Cash and cash equivalents, beginning of the period1,913,969 3,614,463 
Cash and cash equivalents, end of the periodCash and cash equivalents, end of the period$2,831,107 $3,185,478 Cash and cash equivalents, end of the period$1,629,103 $5,460,870 
Supplemental disclosures of cash flows information:Supplemental disclosures of cash flows information:  Supplemental disclosures of cash flows information:  
Cash paid for interestCash paid for interest$12,733 $— Cash paid for interest$— $413 
Cash paid for taxesCash paid for taxes$10,430 $15,991 Cash paid for taxes$22,638 $3,930 

The accompanying notes are an integral part of these consolidated financial statements. 
54

TECOGEN INC.
Notes to Condensed Consolidated Financial Statements


Note 1. Description of Business and Basis of Presentation
Description of Business
Tecogen Inc., (together with its subsidiaries, “we,” “our,” or we, our“us,” or us, produces commercial“Tecogen”) designs, manufactures, markets, and industrial engine-driven,maintains high efficiency, ultra-clean cogeneration products. These include natural gas engine driven combined heat and power (CHP) systems, chillers and heat pumps for multi-family residential, commercial, recreational and industrial use.We are known for products that reduceprovide customers with substantial energy costs, decrease greenhouse gas emissionssavings, resiliency from utility power outages and alleviate congestion on the national power grid.for significantly reducing a customer’s carbon footprint. Our products supply electric power or mechanical powerare sold with our patented Ultera® emissions technology which nearly eliminates all criteria pollutants such as nitrogen oxide ("NOx") and carbon monoxide ("CO"). We developed Ultera® for cooling, while heat fromother applications including stationary engines and forklifts. We were incorporated in the engine is recoveredState of Delaware on September 15, 2000.
We have wholly-owned subsidiaries American DG Energy, Inc. ("ADGE") and purposefully used atTecogen CHP Solutions, Inc., and we own a facility. We also install,51% interest in American DG New York, LLC ("ADGNY"), a joint venture. ADGE and ADGNY distribute, own, and operate and maintain completeclean, on-site energy systems and other complementary systems at customer sites and sellthat produce electricity, hot water, heat and coolingcooling. ADGE owns the equipment that it installs at a customer’s facility and sells the energy under long-term contracts at prices guaranteedproduced by its systems to the customer on a long-term contractual basis.
Our operations are comprised of three business segments:
our Products segment, which designs, manufactures and sells industrial and commercial cogeneration systems;
our Services segment, which provides operations and maintenance ("O&M") services and turn-key installation for our products under long term service contracts, and
our Energy Production segment, which sells energy in the form of electricity, heat, hot water and cooling to be below conventional utility rates.our customers under long-term energy sales agreements.
The majority of our customers are located in regions with the highest utility rates, typically California, the Midwest and the Northeast.
On July 20, 2022, we announced our intention to increase focus on opportunities relating to Controlled Environment Agriculture (CEA). Tecogen believes that CEA offers an exciting opportunity to apply the company’s expertise in clean cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security.
Our common stock is quoted on OTC Markets Group, Inc.'s OTCQX Best Market tier and trades under the symbol "TGEN."
On May 18, 2017, the Company acquired 100% of the outstanding common stock of American DG Energy Inc., formerly a related entity, in a stock-for-stock merger.
Basis of Presentation
    The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the sixthree months ended June 30, 2022March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.
    The condensed consolidated balance sheet at December 31, 20212022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
    For further information, refer to the consolidated financial statements and footnotes thereto included in Tecogen's Annual Report on Form 10-K for the year ended December 31, 2021.2022.
    The accompanying unaudited condensed consolidated financial statements include our accounts and the accounts of entities in which we have a controlling financial interest. Those entities include our wholly-owned subsidiaries American DG Energy Inc., Tecogen CHP Solutions, Inc., and a joint venture, American DG New York, LLC, in which American DG Energy Inc. holds a 51% interest. Investments in partnerships and companies in which we do not have a controlling financial interest but where we have significant influence are accounted for under the equity method. Any intercompany transactions have been eliminated in consolidation.
    Our operations are comprised of three business segments. Our Products segment designs, manufactures and sells industrial and commercial cogeneration systems as described above. Our Services segment provides operation and maintenance services to customers for our products. Our Energy Production segment sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
    The provisions for income taxes in the accompanying unaudited consolidated statements of operations differ from that which would be expected by applying the federal statutory tax rate primarily due to losses for which no benefit is recognized.
Employee Retention Credit
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.
6

TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

    Section 2301(c)(2)(B) of the CARES Act permits an employer to use an alternative quarter to calculate gross receipts and the employer may determine if the decline in gross receipt tests is met for a calendar quarter in 2021 by comparing its gross receipts for the immediately preceding calendar quarter with those for the corresponding calendar quarter in 2019. Accordingly, for the first quarter of 2021, we elected to use our gross receipts for the fourth calendar quarter of 2020 compared to our gross receipts for the fourth calendar quarter of 2019. As a result of our election to use an alternative quarter, we qualified for the ERC in the first, second and third quarters of 2021 because our gross receipts decreased by more than 20% from the first, second and third quarters of 2019. As a result of averaging 100 or fewer full-time employees in 2019, all wages paid to employees in the first, second and third quarters of 2021, excluding the wages that were applied to the Paycheck Protection LoanProgram Second Draw Loan, were eligible for the ERC. Wages used towards PPP loan forgiveness cannot be used as qualified wages for purposes of
During the ERC.
    Accounting Standards Codification 105, "Generally Accepted Accounting Principles," describes the decision-making framework when no guidance exists in US GAAP for a particular transaction. Specifically, ASC 105-10-05-2 instructs companies to look for guidance for a similar transaction within US GAAP and apply that guidance by analogy. As such, forms of government assistance, such as thethree months ended June 30, 2021, we recorded an ERC provided to business entities would not be within the scope of ASC 958, but it may be applied by analogy under ASC 105-10-05-2. We accountedbenefit for the Employee Retention Credit as a government grantfirst and second quarters of 2021 of $713,269 and, in accordance with Accounting Standards Update 2013-06, Not-for-Profit Entities (Topic 958) ("ASU 2013-06") by analogy under ASC 105-10-05-2.Under this standard, government grants are recognized when the conditions on which they depend are substantially met. The conditions for recognition of thethree months ended September 30, 2021 we recorded an ERC include, but are not limited to:
An entity has been adversely affected by the COVID-19 pandemic
We have not used qualifying payroll for both the Paycheck Protection Program and the ERC
We incurred payroll costs to retain employees
The process for filingbenefit for the credit is an administrative task and not a barrier to receiving the credits
    A current receivablethird quarter of 2021 of $562,752, respectively, in other income (expense), net in the amount of $713,269 is included in our condensed consolidated balance sheet asstatements of June 30, 2022.operations. On April 14, 2022, we received $564,027 from the Internal Revenue Service representing the ERC claim for the third quarter of 2021 and $1,275 of accrued interest. We are still awaiting paymentreceived $667,121 from the Internal Revenue Service foron January 12, 2023 in payment of the ERC claimsclaimed from the first and second quarters of 2021.

2021 and $15,775 of accrued interest, which is reported in other income (expense) in our condensed consolidated statements of operations for the three months ended March 31, 2023. A current receivable in the amount of $46,148 is included in our condensed consolidated balance sheet as of March 31, 2023. We expect to receive the remaining balance in 2023.
Note 2. Revenue

Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products, services and energy production. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services or energy to customers.
Shipping and handling fees billed to customers in a sales transaction are recorded in revenue and shipping and handling costs incurred are recorded in cost of sales. We have elected to exclude from revenue any value-added sales and other taxes which we collect concurrent with revenue-producing activities. These accounting policy elections are consistent with the manner in which we historically recorded shipping and handling fees and value-added taxes. Incremental costs incurred by us to obtain a contract with a customer are negligible, if any, and are expensed ratably in proportion to the related revenue recognized.
Disaggregated Revenue

In general, our business segmentation is aligned according to the nature and economic characteristics of our products and customer relationships and provides meaningful disaggregation of each business segment's results of operations.
The following table further disaggregates our revenue by major source by segment for the three months ended June 30, 2022March 31, 2023 and 2021.2022.
Three Months Ended June 30, 2022
ProductsServicesEnergy ProductionTotal
Products$3,010,115 $— $— $3,010,115 
Maintenance services— 3,050,191 — 3,050,191 
Energy production— 0354,287 354,287 
    Total revenue$3,010,115 $3,050,191 $354,287 $6,414,593 


Three Months Ended March 31, 2023
ProductsServicesEnergy ProductionTotal
Products$1,710,136 $— $— $1,710,136 
Maintenance services— 3,136,173 — 3,136,173 
Energy production— — 533,509 533,509 
    Total revenue$1,710,136 $3,136,173 $533,509 $5,379,818 

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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2022
ProductsServicesEnergy ProductionTotal
Products$6,949,596 $— $— $6,949,596 
Installation services— 20,109 — 20,109 
Maintenance services— 5,947,362 — 5,947,362 
Energy production— 0935,849 935,849 
    Total revenue$6,949,596 $5,967,471 $935,849 $13,852,916 

Three Months Ended June 30, 2021
ProductsServicesEnergy ProductionTotal
Products$2,445,927 $— $— $2,445,927 
Installation services— 244,553 — 244,553 
Maintenance services— 3,083,761 — 3,083,761 
Energy production— 0370,861 370,861 
    Total revenue$2,445,927 $3,328,314 $370,861 $6,145,102 

Six Months Ended June 30, 2021
ProductsServicesEnergy ProductionTotal
Products$4,568,649 $— $— $4,568,649 
Installation services— 762,249 — 762,249 
Maintenance services— 5,847,209 — 5,847,209 
Energy production— — 1,024,156 1,024,156 
    Total revenue$4,568,649 $6,609,458 $1,024,156 $12,202,263 

Three Months Ended March 31, 2022
ProductsServicesEnergy ProductionTotal
Products$3,939,481 $— $— $3,939,481 
Installation services— 20,109 — 20,109 
Maintenance services— 2,897,171 — 2,897,171 
Energy production— — 581,562 581,562 
    Total revenue$3,939,481 $2,917,280 $581,562 $7,438,323 

Products Segment

Products. Our Product revenues include cogeneration systems that supply electricity and hot water, chillers that provide air-conditioning and hot water and engineered accessories, which consist of ancillary products and parts necessary to install a cogeneration unit including integration into the customers’ existing electrical and mechanical systems. We refer to the package of engineered accessories and engineering and design services necessary for the customers' installation of a cogeneration unit as light installation services.
We transfer control and generally recognize a sale when we ship a product from our manufacturing facility at which point the customer takes ownership of the product. Payment terms on product sales are generally 30 days.
We recognize revenue in certain circumstances before delivery to the customer has occurred (commonly referred to as bill and hold transactions). We recognize revenue related to such transactions once, among other things, the customer has made a written fixed commitment to purchase the product(s) under normal billing and credit terms, the customer has requested the product(s) be held for future delivery as scheduled and designated by them, risk of ownership has been assumed by the customer, and the product(s) are tagged as sold and segregated for storage awaiting further direction from the customer. Due to the infrequent nature and duration of bill and hold arrangements, the value associated with custodial storage services is deemed immaterial in the context of the contract and in total, and accordingly, none of the transaction price is allocated to such service.
Depending on the product and terms of the arrangement, we may defer the recognition of a portion of the transaction price received because we have to satisfy a future obligation (e.g., product start-up service). Amounts allocated to product start-up services are recognized as revenue when the start-up service has been completed. We use an observable selling price to determine standalone selling prices where available and either a combination of an adjusted market assessment approach, an expected cost plus a margin approach, and/or a residual approach to determine the standalone selling prices for separate performance obligations as a basis for allocating contract consideration when an observable selling price is not available.
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

Amounts received but not recognized pending completion of performance are recognized as contract liabilities and are recorded as deferred revenue along with deposits by customers.

Services Segment
Installation Services. We provide installation services typically including all necessary engineering and design, labor, subcontract labor and service to install a cogeneration unit including integration into the customers’ existing electrical and mechanical systems.
    Under complete turnkey installation service contracts revenue is recognized over time using the percentage-of-completion method determined on a cost to cost basis. Our performance obligation under such contracts is satisfied progressively over time as enhancements are made to customer owned and controlled properties. We measure progress towards satisfaction of the performance obligation based on an cost-based input method which we believe appropriately measures and is the most accurate depiction of the transfer of products and services to the customer under these contracts. When the financial metrics of a contract indicate a loss, our policy is to record the entire expected loss as soon as it is known. Contract costs and profit recognized to date under the percentage-of-completion method in excess of billings are recognized as contract assets and are recorded as unbilled revenue. Billings in excess of contract costs and profit are recognized as contract liabilities and are recorded as deferred revenue. Generally billings under complete turnkey installation contracts are made when contractually determined milestones of progress have been achieved, with payment terms generally being 30 days.
Maintenance Services. Maintenance services are provided under either long-term maintenance contracts or time and material maintenance contracts. Revenue under time and material maintenance contracts is recognized when the maintenance service is completed. Revenue under long-term maintenance contracts is recognized either ratably over the term of the contract where the contract price is fixed or when the periodic maintenance activities are completed where the invoiced cost to the customer is based on run hours or kilowatts produced in a given period. We use an output method to measure progress towards completion of our performance obligation which results in the recognition of revenue on the basis of a direct measurement of the value to the customer of the services transferred to date relative to the remaining services promised under the contract. We use the practical expedient at ASC 606-10-55-18 of recognizing revenue in an amount equal to the amount we have the right to invoice the customer under the contract. Payment terms for maintenance services are generally 30 days.
Installation Services. We provide both complete turnkey installation services which typically include all necessary engineering and design, labor, subcontract labor to install a cogeneration unit including integration into the customers’ existing electrical and mechanical systems. Under complete turnkey installation service contracts revenue is recognized over time using the percentage-of-completion method determined on a cost to cost basis. Our performance obligation under such contracts are satisfied progressively over time as enhancements are made to customer owned and controlled properties. We measure progress towards satisfaction of the performance obligation based on an input method based on cost which we believe is the most faithful depiction of the transfer of products and services to the customer under these contracts. When the financial metrics of a contract indicate a loss, our policy is to record the entire expected loss as soon as it is known. Contract costs and profit recognized to date under the percentage-of-completion method in excess of billings are recognized as contract assets and are recorded as unbilled revenue. Billings in excess of contract costs and profit are recognized as contract liabilities and are recorded as deferred revenue. Generally billings under complete turnkey installation contracts are made when contractually
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

determined milestones of progress have been achieved, with payment terms generally being 30 days. Our installation services revenue decreased significantly in three months March 31, 2023 and is likely to continue to remain low due to our strategy to focus on higher margin segments of our business.

Energy Production Segment

Energy Production. Revenue from energy contracts is recognized when electricity, heat, hot and/or chilled water is produced by our owned on-site cogeneration systems. Each month we invoicebill the customer and recognize revenue for the various forms of energy delivered, based on actual meter readings which capture the quantity of the various forms of energy delivered in a given month, under a contractually defined formula which takes into account the current month's cost of energy from the local power utility.
As the various forms of energy delivered by us under energy production contracts are simultaneously delivered and consumed by the customer, our performance obligation under these contracts is considered to be satisfied over time. We use an output method to measure progress towards completion of our performance obligation which results in the recognition of revenue on the basis of a direct measurement of the value to the customer of the services transferred to date relative to the remaining services promised under the contract. We use the practical expedient at ASC 606-10-55-18 of recognizing revenue in an amount equal to thethat amount thatto which we have the right to invoice the customer under the contract. Payment terms on invoices under these contracts are generally 30 days.

Contract Balances

    The timing of revenue recognition, billings and cash collections result in billed accounts receivable, unbilled revenue (contract assets) and deferred revenue, consisting of customer deposits and billings in excess of revenue recognized (contract liabilities) on the condensed consolidated balance sheets.
    We did not recognize any revenue during the sixthree months ended June 30, 2022March 31, 2023 that was included in unbilled revenue at the end of the period. Approximately $0$16,428 was billed in this period that had been recognized as revenue in previous periods.

    Revenue recognized during the sixthree ended months June 30, 2022March 31, 2023 that was included in deferred revenue at the beginning of the period was approximately $1,315,517.




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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

$136,640.
Remaining Performance Obligations

Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations with an original contract term of greater than one year, excluding certain maintenance contracts and all energy production contracts where a direct measurement of the value to the customer is used as a method of measuring progress towards completion of our performance obligation. Exclusion of these remaining performance obligations is due in part to the inability to quantify values based on unknown future levels of delivery and in some cases rates used to invoice customers. Remaining performance obligations therefore consist of unsatisfied or partially satisfied performance obligations related to fixed price maintenance contracts and installation contracts.
As of June 30, 2022,March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $0.8$2.3 million. We expect to recognize revenue of approximately 78.4%98.5% of the remaining performance obligations over the next 24 months, 61.8%90.1% recognized in the first 12 months and 16.6%8.4% recognized over the subsequent 12 months, and the remainder recognized thereafter.
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements


Note 3. Income (Loss) Per Common Share
Basic and diluted income (loss) per share for the three and six months ended June 30,March 31, 2023 and 2022, and 2021, respectively, were as follows: 
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Numerator:
Net income (loss) available to stockholders$(856,218)$399,631 $(766,809)$2,166,338 
Denominator:
Weighted average shares outstanding - Basic24,850,261 24,850,261 24,850,261 24,850,261 
Effect of dilutive securities:
Stock options— 274,949 — 252,209 
Weighted average shares outstanding - Diluted24,850,261 25,125,210 24,850,261 25,102,470 
Basic income (loss) per share$(0.03)$0.02 $(0.03)$0.09 
Diluted income (loss) per share$(0.03)$0.02 $(0.03)$0.09 
Anti-dilutive shares underlying stock options outstanding925,396 985,296 925,396 777,296 

Three Months Ended
March 31, 2023March 31, 2022
Numerator:
Net income (loss) available to stockholders$(1,490,029)$89,409 
Denominator:
Weighted average shares outstanding - Basic24,850,261 24,850,261 
Effect of dilutive securities:
Stock options— 178,355 
Weighted average shares outstanding - Diluted24,850,261 25,028,616 
Basic income (loss) per share$(0.06)$— 
Diluted income (loss) per share$(0.06)$— 
Anti-dilutive shares underlying stock options outstanding1,744,351 928,271 

Note 4.Inventories, net
Inventories at June 30, 2022March 31, 2023 and December 31, 20212022 consisted of the following:

June 30, 2022December 31, 2021March 31, 2023December 31, 2022
Raw materials$7,540,331 $7,072,991 
Less: reserves(381,000)(381,000)
Raw materials, netRaw materials, net$7,159,331 $6,691,991 Raw materials, net$9,354,413 $9,001,491 
Work-in-processWork-in-process401,601 549,802 Work-in-process1,133,323 498,139 
Finished goodsFinished goods642,161 523,196 Finished goods1,375,046 983,099 
Total inventories, netTotal inventories, net$8,203,093 $7,764,989 Total inventories, net$11,862,782 $10,482,729 

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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements


Note 5. Property, Plant and Equipment, net

Property, plant and equipment at June 30, 2022March 31, 2023 and December 31, 20212022 consisted of the following:
Estimated Useful
Life (in Years)
June 30, 2022December 31, 2021Estimated Useful
Life (in Years)
March 31, 2023December 31, 2022
Energy systemsEnergy systems1 - 15 years$3,478,824 $3,556,488 Energy systems1 - 15 years$2,810,232 $2,810,232 
Machinery and equipmentMachinery and equipment5 - 7 years1,613,029 1,463,153 Machinery and equipment5 - 7 years1,624,885 1,624,885 
Furniture and fixturesFurniture and fixtures5 years196,007 193,698 Furniture and fixtures5 years196,007 196,007 
Computer softwareComputer software3 - 5 years192,865 192,865 Computer software3 - 5 years192,865 192,865 
Leasehold improvementsLeasehold improvements*466,789 466,789 Leasehold improvements*466,789 466,789 
 5,947,514 5,872,993   5,290,778 5,290,778 
Less - accumulated depreciation and amortizationLess - accumulated depreciation and amortization (4,236,870)(4,090,049)Less - accumulated depreciation and amortization (4,000,550)(3,883,058)
 $1,710,644 $1,782,944  $1,290,228 $1,407,720 
* Lesser of estimated useful life of asset or lease term
Depreciation and amortization expense on property and equipment for the three and six months ended June 30,March 31, 2023 and 2022 was $117,492 and 2021 was $123,818 and $250,610 and $145,458 and $306,014,$126,792, respectively. During the six months ended June 30, 2022, we received proceeds of $67,169 from the disposition of certain assets, realizing a gain of $36,445.

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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements


Note 6. Intangible Assets and Liabilities Other Than Goodwill

As of June 30, 2022March 31, 2023 and December 31, 20212022 we had the following amounts related to intangible assets and liabilities other than goodwill:
June 30, 2022December 31, 2021March 31, 2023December 31, 2022
Intangible assetsIntangible assetsCostAccumulated AmortizationTotalCostAccumulated AmortizationTotalIntangible assetsCostAccumulated AmortizationTotalCostAccumulated AmortizationTotal
Product certificationsProduct certifications$777,465 $(559,162)$218,303 $765,850 $(532,676)$233,174 Product certifications$777,465 $(597,499)$179,966 $777,465 $(584,863)$192,602 
PatentsPatents888,911 (360,300)528,611 871,021 (314,997)556,024 Patents888,910 (427,515)461,395 888,910 (405,140)483,770 
Developed technologyDeveloped technology240,000 (148,000)92,000 240,000 (140,000)100,000 Developed technology240,000 (160,000)80,000 240,000 (156,000)84,000 
TrademarksTrademarks26,896 — 26,896 26,896 — 26,896 Trademarks26,896 — 26,896 26,896 — 26,896 
In Process R&DIn Process R&D263,936 (47,131)216,805 263,936 (28,279)235,657 In Process R&D263,936 (75,410)188,526 263,936 (65,984)197,952 
Favorable contract assetFavorable contract asset384,465 (367,570)16,895 384,465 (355,193)29,272 Favorable contract asset384,465 (373,363)11,102 384,465 (372,091)12,374 
$2,581,673 $(1,482,163)$1,099,510 $2,552,168 $(1,371,145)$1,181,023 $2,581,672 $(1,633,787)$947,885 $2,581,672 $(1,584,078)$997,594 
Intangible liabilityIntangible liabilityIntangible liability
Unfavorable contract liabilityUnfavorable contract liability$2,903,419 $(1,859,197)$1,044,222 $3,056,655 $(1,797,149)$1,259,506 Unfavorable contract liability$2,618,168 $(1,859,232)$758,936 $2,618,168 $(1,797,951)$820,217 

The aggregate amortization expense related to intangible assets and liabilities exclusive of contract related intangibles for the three and six months ended June 30,March 31, 2023 and 2022 was $49,361 and 2021 was $50,469 and $100,491 and $51,187 and $94,077, respectively.$50,795. The net credit to cost of sales related to the amortization of the contract related intangible asset and liability for the three and six months ended June 30,March 31, 2023 and 2022 was $60,933 and 2021 was $62,857 and $133,383 and $79,569 and $158,622, respectively. During the six months ended June 30, 2021 we abandoned certain patent applications amounting to $7,400 and recorded an impairment charge in general and administrative expenses in the period.$70,526, respectively

Favorable/Unfavorable Contract Assets and Liabilities

The favorable contract asset and unfavorable contract liability in the foregoing table represent the estimated fair value of American DG Energy's customer contracts (both positive for favorable contracts and negative for unfavorable contracts) which were acquired by us in May 2017.

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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

Amortization of intangibles including contract related amounts is calculated using the straight-line method over the remaining useful life or contract term. Aggregate future amortization over the next five years and thereafter as of June 30, 2022March 31, 2023 is estimated to be as follows:
Non-contract Related IntangiblesContract Related IntangiblesTotal
Year 1$200,712 $(272,512)$(71,800)
Year 2192,689 (230,226)(37,537)
Year 3180,127 (140,487)39,640 
Year 4176,234 (100,629)75,605 
Year 5172,622 (78,509)94,113 
Thereafter147,209 (218,842)(71,633)
Total$1,069,593 (1,041,205)$28,388 

We recognized a gain on termination of unfavorable contract liability of $71,375 in the six months ended June 30, 2022 due to the closing of certain energy production sites.
Non-contract Related IntangiblesContract Related IntangiblesTotal
Year 1$198,951 $(223,230)$(24,279)
Year 2181,065 (146,940)34,125 
Year 3177,295 (97,376)79,919 
Year 4172,495 (62,692)109,803 
Year 5136,158 (55,026)81,132 
Thereafter55,025 (173,672)(118,647)
Total$920,989 (758,936)$162,053 

Note 7.Sale of Energy Producing Assets and Goodwill Impairment
    During the first quarter of 2019 we recognized 2two individual sales of energy producing assets, for a total of 8eight power purchase agreements, including the associated energy production contracts for total consideration of $7 million.
    In connection with these assets sales, we entered into agreements with the purchaser to maintain and operate the assets over the remaining periods of the associated energy production contracts (through August 2033 and January 2034, respectively) in exchange for monthly maintenance and operating fees. These agreements contain provisions whereby we have guaranteed to the purchaser a minimum level or threshold of cash flows from the associated energy production contracts. In October 2021 the minimum guarantee with respect to one of the energy purchase agreements was modified by reducing the guaranteed minimum collections by $35,000 per year, the guaranteed minimum collection amount associated with one site that was sold by the customer. Actual results are
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

compared to the minimum threshold bi-annually and we are contractually obligated to reimburse any shortfall to the purchaser. To the extent actual cash flow results exceed the minimum threshold, we are entitled to fifty percent of such excess under the agreements. Based upon an analysis of these energy producing assets expected future performance, as of June 30, 2022March 31, 2023, we do not expect to make any material payments under the guarantee.
At June 30, 2022, our obligationMarch 31, 2023, we were due $22,229 under the energy production contracts, was $3,911.representing outstanding accounts receivable balances that were due from the purchaser's customers which were past due at December 31, 2022 and have since been collected. We expect to receive these funds in the third quarter of 2023 when the bi-annnual reconciliation for the period ended June 30, 2023 is prepared.
    The foregoing agreements also contain provisions whereby we have agreed to make whole the purchaser in the event the counterparty to the energy production contract(s) defaults on or otherwise terminates before the stated expiration of the energy production contract. Should we be required to make whole the purchaser under such provisions, we would be entitled to seek recovery from the counterparty to the energy production contract(s) under a similar provision contained in those contracts in respect of early termination.
    We are also responsible under the agreements for site decommissioning costs, if any, in excess of certain threshold amounts by site. Decommissioning of site assets is performed when, if and as requested by the counterparty to the energy production contract upon termination of the energy production contract.    
Note 8.Leases
    Our leases principally consist of operating leases related to our corporate office, field offices, and our research, manufacturing and storage facilities.
    At inception, we determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. Some of our lease agreements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. maintenance, labor charges, etc.). We account for each component separately based on the estimated standalone price of each component.
    Operating leases are included in Right-of-use assets, Lease obligations, current and Lease obligations, long term on the condensed consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term and using an incremental borrowing rate consistent with the lease terms or implicit rates, when readily determinable. For those leases where it is reasonably certain at the commencement date
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

that we will exercise the option to extend the lease, then the lease term will include the lease extension term. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
    Lease expense for operating leases, which principally consist of fixed payments for base rent, is recognized on a straight-line basis over the lease term. Lease expense for the three and six months ended June 30,March 31, 2023 and 2022 was $189,715 and 2021 was $210,155 and $407,074 and $198,943 and $394,216,$196,979, respectively.
    
Supplemental information related to leases for the sixthree months ended June 30, 2022March 31, 2023 was as follows:
Six Months Ended June 30,Three Months Ended
20222021March 31, 2023March 31, 2022
Cash paid for amounts included in the measurement of operating lease liabilitiesCash paid for amounts included in the measurement of operating lease liabilities$365,509 $352,579 Cash paid for amounts included in the measurement of operating lease liabilities$184,072 $181,661 
Right-of-use assets obtained in exchange for operating lease liabilitiesRight-of-use assets obtained in exchange for operating lease liabilities$— $825,848 Right-of-use assets obtained in exchange for operating lease liabilities$— $— 
Weighted-average remaining lease term - operating leasesWeighted-average remaining lease term - operating leases3.70 years4.30 yearsWeighted-average remaining lease term - operating leases3.60 years3.80 years
Weighted-average discount rate - operating leasesWeighted-average discount rate - operating leases%%Weighted-average discount rate - operating leases%%
Supplemental information related to operating leases as of June 30, 2022March 31, 2023 and December 31, 20212022 was as follows:
June 30, 2022December 31, 2021
Operating leases
Right-of-use assets$1,561,757 $1,869,210 
Operating lease liability, current$665,310 $641,002 
Operating lease liability, long-term974,751 1,315,275 
Total operating lease liability$1,640,061 $1,956,277 
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TECOGEN INC.
Notes to Condensed Consolidated Financial Statements

March 31, 2023December 31, 2022
Operating leases
Right-of-use assets$1,084,033 $1,245,549 
Operating lease liability, current$646,805 $687,589 
Operating lease liability, long-term496,526 623,452 
Total operating lease liability$1,143,331 $1,311,041 

    Future minimum lease commitments under non-cancellable operating leases as of June 30, 2022March 31, 2023 were as follows:
 Operating Leases
Year 1$368,272691,899 
Year 2743,118146,956 
Year 3250,659120,763 
Year 4105,42694,023 
Year 598,78353,092 
Thereafter223,851157,648 
Total lease payments1,790,1091,264,381 
Less: imputed interest150,048121,050 
Total$1,640,0611,143,331 
The lease on our headquarters located in Waltham, Massachusetts which consists of approximately 43,000 square feet of manufacturing, storage and office space, expires on March 31, 2024. Currently, our monthly base rent is $44,254. On March 31, 2023, we entered into two lease agreements for two adjoining buildings, located in Billerica, Massachusetts, containing approximately 26,412 square feet of manufacturing, storage and offices space to serve as our headquarters and manufacturing facilities. Under the terms of the leases, which have initial lease terms of five (5) years with two successive options to renew for additional terms of five (5) years, both leases commence on January 1, 2024 and require payment of the base rent, plus real estate taxes and common maintenance expenses. Our costs for initial improvements required to the leased premises is estimated to range between $1,000,000 and $1,250,000. The estimated straight-line rent expense for the initial term of the lease is approximately $24,800. In accordance with ASC 842-20-30-1, we will record the lease liability and right-of-use asset using the discount rate for the lease upon the lease commencement date.

Note 9. Stock-Based Compensation

Stock-Based Compensation
We adopted a 2006 Stock Option and Incentive Plan, or the Plan, under which the Board of Directors may grant incentive or non-qualified stock options and stock grants to key employees, directors, advisors and consultants. The Plan was amended at various dates by the Board of Directors to increase the reserved shares of common stock issuable under the Amended Plan to 3,838,750 as of June 30, 2022,March 31, 2023, and in June 2017 stockholders approved an amendment to extend the termination date of the Plan to January 1, 2026 and ratified all of our option grants issued after January 1, 2016 (the "Amended Plan").2026.
Stock options vest based upon the terms within the individual option grants, with an acceleration of the unvested portion of such options upon a change in control event, as defined in the Amended Plan. The options are not transferable except by will or domestic relations order. The option price per share under the Amended Plan cannot be less than the fair
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Notes to Condensed Consolidated Financial Statements

market value of the underlying shares on the date of the grant. The number of shares remaining available for future issuance under the Amended Plan as of June 30, 2022March 31, 2023 was 66,518.150,893.
During the sixthree months ended June 30, 2022,March 31, 2023, we granted nonqualifieddid not grant any options to purchase an aggregate of 726,650 shares of common stock at $1.10 per share to certain officers and employees. These options have a vesting schedule of two years and expire in ten years. The fair value ofunder the options issued in 2022 was $304,550. The weighted-average grant date fair value of stock options granted during 2022 was $0.42 per share.Amended Plan.
We adopted the 2022 Stock Incentive Plan (the "2022 Plan"), under which the Board of Directors may grant incentive or non-qualified stock options and stock grants to key employees, directors, advisors and consultants. We have reserved
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Notes to Condensed Consolidated Financial Statements

3,800,000 shares of our common stock for issuance pursuant to awards under the 2022 Plan. The adoption of the 2022 Plan was approved by our shareholders on June 9, 2022.
Under the 2022 Plan, stock options vest based upon the terms within the individual option grants, with an acceleration of the unvested portion of such options upon a change in control event, as defined in the 2022 Plan. The options are not transferable except by will or domestic relations order. The option price per share under the 2022 Plan cannot be less than the fair market value of the underlying shares on the date of the grant.
    During the six months ended June 30, 2022, we granted nonqualified options to purchase an aggregate of 125,000 shares of common stock at $1.20 per share to certain directors. These options have a vesting schedule of four years and expire in ten years. The fair value of the options issued in 2022 was $62,500. The weighted-average grant date fair value of stock options granted during 2022 was $0.50 per share. The number of shares remaining available for future issuance under the 2022 Plan as of June 30,March 31, 2023 was 3,600,000.
During the three months ended March 31, 2023, we did not grant any options to purchase shares of common stock under the 2022 was 3,675,000.Plan.
Stock option activity for the sixthree months ended June 30, 2022March 31, 2023 was as follows: 
Common Stock OptionsCommon Stock OptionsNumber of
Options
Exercise
Price
Per
Share
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
Common Stock OptionsNumber of
Options
Exercise
Price
Per
Share
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
December 31, 20212,386,842 $0.71-$10.33$1.81 7.56 years$697,935 
Outstanding, December 31, 2022Outstanding, December 31, 20223,204,297 $0.71-$10.33$1.61 7.30 years$882,074 
GrantedGranted851,650 $1.10-$1.20$1.11 Granted— 
ExercisedExercised— Exercised— 
Canceled and forfeitedCanceled and forfeited(28,400)$1.10-$4.50$1.53 Canceled and forfeited(4,500)$1.10-$1.13$1.11 
Outstanding, June 30, 20223,210,092  $0.71-$10.33$1.63 7.73 years$617,001 
Exercisable, June 30, 20221,303,217 $2.47 $249,903 
Vested and expected to vest, June 30, 20222,924,061 $1.68  $561,936 
Outstanding, March 31 2023Outstanding, March 31 20233,199,797  $0.71-$10.33$1.61 7.05 years$741,404 
Exercisable, March 31, 2023Exercisable, March 31, 20231,768,222 $2.08 $375,744 
Vested and expected to vest, March 31, 2023Vested and expected to vest, March 31, 20232,985,061 $1.65  $686,555 
Consolidated stock-based compensation expense for the three and six months ended June 30,March 31, 2023 and 2022 was $77,348 and 2021 was $89,893 and $185,600 and $54,681 and $93,766,$95,707, respectively. No tax benefit was recognized related to the stock-based compensation recorded during the period.
At June 30, 2022March 31, 2023 the total compensation cost related to unvested stock option awards not yet recognized is $640,245$421,659 and this amount will be recognized over a weighted average period of 1.711.46 years.

Note 10. Fair Value Measurements
    The fair value topic of the FASB Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
 Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. We currently do not have any Level 1 financial assets or liabilities.
 Level 2 - Observable inputs other than quoted prices included in Level 1. Level 2 inputs include quoted prices for identical assets or liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for substantially the full term of the asset or liability. We have Level 2 financial assets and liabilities as provided below.
 Level 3 - Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability. We do not currently have any Level 3 financial assets or liabilities.
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Notes to Condensed Consolidated Financial Statements

    The following tables presents the asset reported in "other assets" in the consolidated balance sheet measured at its fair value on a recurring basis as of June 30,March 31, 2023 and 2022 and 2021 by level within the fair value hierarchy.
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Notes to Condensed Consolidated Financial Statements

June 30, 2022Quoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputsUnrealized
March 31, 2023March 31, 2023Quoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputsUnrealized
DescriptionDescriptionTotalLevel 1Level 2Level 3 GainsDescriptionTotalLevel 1Level 2Level 3 Gains
Recurring fair value measurementsRecurring fair value measurementsRecurring fair value measurements
Marketable equity securitiesMarketable equity securitiesMarketable equity securities
EuroSite Power Inc.EuroSite Power Inc.$112,492 $— $112,492 $— $37,497 EuroSite Power Inc.$93,744 $— $93,744 $— $— 
Total recurring fair value measurementsTotal recurring fair value measurements$112,492 $— $112,492 $— $37,497 Total recurring fair value measurements$93,744 $— $93,744 $— $— 
June 30, 2021Quoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputsUnrealized
March 31, 2022March 31, 2022Quoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputsUnrealized
DescriptionDescriptionTotalLevel 1Level 2Level 3GainsDescriptionTotalLevel 1Level 2Level 3Gains
Recurring fair value measurementsRecurring fair value measurementsRecurring fair value measurements
Marketable equity securitiesMarketable equity securitiesMarketable equity securities
EuroSite Power Inc.EuroSite Power Inc.$168,739 $— $168,739 $— $56,246 EuroSite Power Inc.$112,492 $— $112,492 $— $37,497 
Total recurring fair value measurementsTotal recurring fair value measurements$168,739 $— $168,739 $— $56,246 Total recurring fair value measurements$112,492 $— $112,492 $— $37,497 
      
    We utilize a Level 2 category fair value measurement to value ourits investment in EuroSite Power, Inc. as a marketable equity security at period end. That measurement is equal to the quoted market closing price at period end. Since this security is not actively traded we classify it as Level 2.
    The following table summarizes changes in Level 2 assets which are comprised of marketable equity securities for the sixthree months ended June 30, 2022March 31, 2023 and 2021:2022:


Fair value at December 31, 2022$93,744 
Unrealized gains— 
Fair value at March 31, 2023$93,744 
Fair value at December 31, 2021$74,995 
Unrealized gains37,497 
Fair value at June 30,March 31, 2022$112,492 
Fair value at December 31, 2020$Note 11.118,084 Segments
Sale of 93,187 shares(5,591)
Unrealized gains56,246 
Fair value at June 30, 2021$168,739 


Note 11.Notes Payable

Paycheck Protection Program Loan

    On April 17, 2020, we obtained an unsecured loan through Webster Bank, N.A. in the amount of $1,874,200 in connection with the Paycheck Protection Program pursuant to the Coronavirus Aid, Relief, and Economic Security Act, as amended ("CARES Act”) administered by the United States Small Business Administration ("SBA").
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Notes to Condensed Consolidated Financial Statements

    On January 19, 2021, we received a letter dated January 12, 2021 from Webster Bank, NA confirming that the Paycheck Protection Program Loan issued to us pursuant to the CARES Act, in the original principal amount of $1,874,200 together with accrued interest of $13,659 was forgiven in full as of January 11, 2021. We have accounted for the loan forgiveness of $1,887,859 as debt extinguishment in accordance with Accounting Standards Update 2020-09, Debt (Topic 470) ("ASU 2020-09") and reported it as a separate component of other income (expense), net in the condensed consolidated statements of operations for the six months ended June 30, 2021. The loan forgiveness is nontaxable for both state and federal purposes and has been treated accordingly in our condensed consolidated financial statements.
Paycheck Protection Program Second Draw Loan
    On February 5, 2021, we obtained a Paycheck Protection Program Second Draw unsecured loan through Webster Bank, N.A. in the amount of $1,874,269 pursuant to the CARES Act.
    On September 20, 2021, we received a letter dated September 13, 2021 from Webster Bank, NA confirming that the Paycheck Protection Program Second Draw Loan issued to us pursuant to the CARES Act, in the original principal amount of $1,874,269 together with accrued interest of $11,386 was forgiven in full as of September 8, 2021. We have accounted for the loan forgiveness of $1,885,655 as debt extinguishment in accordance with Accounting Standards Update 2020-09, Debt (Topic 470) ("ASU 2020-09") and reported it as a separate component of other income (expense), net in the condensed consolidated statements of operations for the year ended December 31, 2021. The loan forgiveness is nontaxable for both state and federal purposes and has been treated accordingly in our condensed consolidated financial statements.
Note 12. Commitments and Contingencies
We guaranteed certain obligations of a former subsidiary of ADGE, EuroSite Power Inc. These guarantees include a payment performance guarantee in respect of collateralized equipment financing loans, with a remaining principal amount outstanding subject to the guarantee. In October 2021, the loan was paid in full. We have no further obligation to Eurosite Power Inc. under this guarantee.
Note 13. Segments
    As of June 30, 2022,March 31, 2023, we were organized into 3three operating segments through which senior management evaluates our business. These segments, as described in more detail in Note 1, are organized around the products and services provided to customers and represent our reportable segments. The following table presents information by reportable segment for the three and six months ended June 30, 2022March 31, 2023 and 2021:2022:
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Notes to Condensed Consolidated Financial Statements

ProductsServicesEnergy ProductionCorporate, other and elimination (1)TotalProductsServicesEnergy ProductionCorporate, other and elimination (1)Total
Three months ended June 30, 2022
Three Months Ended March 31, 2023Three Months Ended March 31, 2023
Revenue - external customersRevenue - external customers$3,010,115 $3,050,191 $354,287 $— $6,414,593 Revenue - external customers$1,710,136 $3,136,173 $533,509 $— $5,379,818 
Intersegment revenueIntersegment revenue— 62,415 — (62,415)— Intersegment revenue— 88,214 — (88,214)$— 
Total revenue Total revenue$3,010,115 $3,112,606 $354,287 $(62,415)$6,414,593 Total revenue$1,710,136 $3,224,387 $533,509 $(88,214)$5,379,818 
Gross profitGross profit$994,649 $1,576,605 $132,195 $— $2,703,449 Gross profit$497,567 $1,398,572 $195,770 $— $2,091,909 
Identifiable assetsIdentifiable assets$11,237,886 $9,799,483 $3,855,043 $5,441,312 $30,333,724 Identifiable assets$12,023,164 $9,750,153 $3,433,439 $3,036,675 $28,243,431 
Six months ended June 30, 2022
Three Months Ended March 31, 2022Three Months Ended March 31, 2022
Revenue - external customersRevenue - external customers$6,949,596 $5,967,471 $935,849 $— $13,852,916 Revenue - external customers$3,939,481 $2,917,280 $581,562 $— $7,438,323 
Intersegment revenueIntersegment revenue— 157,669 — (157,669)— Intersegment revenue— 95,253 — (95,253)— 
Total revenue Total revenue$6,949,596 $6,125,140 $935,849 $(157,669)$13,852,916 Total revenue$3,939,481 $3,012,533 $581,562 $(95,253)$7,438,323 
Gross profitGross profit$2,289,375 $3,127,133 $377,730 $— $5,794,238 Gross profit$1,294,726 $1,550,527 $245,535 $— $3,090,788 
Identifiable assetsIdentifiable assets$11,237,886 $9,799,483 $3,855,043 $5,441,312 $30,333,724 Identifiable assets$10,204,104 $9,827,069 $3,978,145 $8,754,653 $32,763,971 
Three months ended June 30, 2021
Revenue - external customers$2,445,927 $3,328,314 $370,861 $— $6,145,102 
Intersegment revenue— 56,988 — (56,988)— 
Total revenue$2,445,927 $3,385,302 $370,861 $(56,988)$6,145,102 
Gross profit$1,055,202 $1,648,928 $138,508 $— $2,842,638 
Identifiable assets$9,081,448 $11,575,860 $4,346,635 $6,315,299 $31,319,242 
Six months ended June 30, 2021
Revenue - external customers$4,568,649 $6,609,458 $1,024,156 $— $12,202,263 
Intersegment revenue— 188,504 — (188,504)— 
Total revenue$4,568,649 $6,797,962 $1,024,156 $(188,504)$12,202,263 
Gross profit$2,003,637 $3,392,469 $397,740 $— $5,793,846 
Identifiable assets$9,081,448 $11,575,860 $4,346,635 $6,315,299 $31,319,242 
(1) Corporate, intersegment revenue, other and elimination includes various corporate assets.
(1) Corporate, intersegment revenue, other and elimination includes various corporate assets.
Note 14.
Note 12.Subsequent Events
    We have evaluated subsequent events through the date of this filing, and, except as described below, have determined that no material subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.

On March 15, 2023, we entered into an Agreement with Aegis Energy Services, LLC (“Aegis”) regarding the assignment and assumption of certain maintenance agreements, the purchase and sale of certain assets, and related matters (the “Agreement”) pursuant to which we agreed to assume Aegis’ rights and obligations arising on or after April 1, 2023 under Maintenance Agreements for 202 cogeneration systems, and acquire certain vehicles and inventory used in connection with the performance of maintenance services. On April 1, 2023, we closed on the agreement with Aegis and acquired certain Aegis vehicles for $170,000, and hired eight (8) former Aegis employees who will continue to provide maintenance services relating to the cogeneration systems. As agreed, Aegis will provide transitional services relating to the assumed Maintenance Agreements. between the closing and June 30, 2023, we will acquire from Aegis inventory used to provide maintenance services in exchange for a credit of $300,000 to be used for purchases by Aegis of our cogeneration equipment on or before June 30, 2023. Following the closing, for a period of up to seven years, we will pay Aegis a portion of the revenue collected for maintenance services provided pursuant to the assumed Maintenance Agreements. We also have the right to assume Aegis’ remaining Maintenance Agreements for cogeneration systems on the same terms and conditions but effective December 31, 2023 to the extent that Aegis is permitted to assign such agreements to us in accordance with the terms of such agreements. Management is in the process of evaluating the accounting impact of the Aegis agreement.


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Management's Discussion and AnalysisNotes to Condensed Consolidated Financial Statements



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on our business and results of operations are forward-looking statements. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Such forward-looking statements include, among other things, statements regarding the impact of the coronavirus pandemic on demand for our products and services, the availability of incentives, rebates, and tax benefits relating to our products, changes in the regulatory environment relating to our products, competing technological developments, and the availability of financing to fund our operations and growth. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 (“202120221 Form 10-K”), as supplemented, and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” The following discussion should be read in conjunction with the 2021 Form 10-K filed with the Securities and Exchange Commission (“SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q. Each of the terms “Tecogen,” “we,” “our,” and “us” as used herein refer collectively to Tecogen Inc. and our wholly owned subsidiaries, unless otherwise stated. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and you should not rely on those forward-looking statements as representing ours views as of any date subsequent to the date of the filing of this Form 10-Q.

Recent Developments

Employee Retention CreditAssumption of Aegis Energy Services Maintenance Agreements
On March 27, 2020,15, 2023, we entered into an Agreement with Aegis Energy Services, LLC (“Aegis”) regarding the Coronavirus Aid, Relief,assignment and Economic Security Act (“CARES Act”assumption of certain maintenance agreements, the purchase and sale of certain assets, and related matters (the “Agreement”) was signed into law providing numerous tax provisionspursuant to which we agreed to assume Aegis’ rights and other stimulus measures, including an employee retentionobligations arising on or after April 1, 2023 under Maintenance Agreements for 202 cogeneration systems, and acquire certain vehicles and inventory used in connection with the performance of maintenance services. On April 1, 2023, we closed on the agreement with Aegis and acquired certain Aegis vehicles for $170,000, and hired eight (8) former Aegis employees who will continue to provide maintenance services relating to the cogeneration systems. As agreed, Aegis will provide transitional services relating to the assumed Maintenance Agreements between the closing and June 30, 2023, and we will acquire from Aegis inventory used to provide maintenance services in exchange for a credit (“ERC”), which isof $300,000 to be used for purchases by Aegis of our cogeneration equipment on or before June 30, 2023. Following the closing, for a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Actperiod of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availabilityup to seven years, we will pay Aegis a portion of the ERC.revenue collected for maintenance services provided pursuant to the assumed Maintenance Agreements. We also have the right to assume Aegis’ remaining Maintenance Agreements for cogeneration systems on the same terms and conditions but effective December 31, 2023 to the extent that Aegis is permitted to assign such agreements to us in accordance with the terms of such agreements.
    As a result of our election to use an alternative quarter, we qualified for the ERC in the first, second and third quarters of 2021 because our gross receipts decreased by more than 20% from the first, second and third quarters of 2019. As a result of averaging 100 or fewer full-time employees in 2019, all wages paid to employees in the first, second and third quarters of 2021 were eligible for the ERC. Wages used towards PPP loan forgiveness cannot be used as qualified wages for purposes of the ERC
    A current receivable in the amount of $713,269 is included in our condensed consolidated balance sheet as of June 30, 2022. On April 14, 2022, we received $564,027 from the Internal Revenue Service representing the ERC claim forTecochill Hybrid-Drive Air-Cooled Chiller Development
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TECOGEN INC.
During the third quarter of 2021 and $1,275 of accrued interest. We are still awaiting payment from the Internal Revenue Service for the ERC claim from the first and second quarters of 2021.

Air Cooled Chiller Development
    During Q3 2021 we began development of a hybrid air-cooled chiller.the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller. Using the inverter design from our InVerde e+ cogeneration module, the system can simultaneously take two inputs, one from the grid or a renewable energy source and one from our natural gas engine. This allows a customer to seek the optimum blend of operational cost savings and greenhouse gas benefits while providing added resiliency from two power sources. We expect to have a prototype completed by Q1introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and expect to see incremental revenue in 2024.the fourth quarter of 2023. A patent application based on this concept has been filed with the US Patent and Trademark Office.


Controlled Environment Agriculture: NetZero Greens

On July 20, 2022, we announced our intention to increase our focus on opportunities relating to Controlled Environment Agriculture (CEA). Tecogen believes that CEA offers an exciting opportunity to apply the company’s expertise in clean cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security. We believe that CEA offers an exciting opportunity to apply our expertise in clean cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security. We propose to address this challenge by developing a highly efficient energy solution for CEA grown produce using our cogeneration products in conjunction with solar energy generation, energy storage, and other technologies.

CEA facilities enable multiple crop cycles (15 to 20 cycles) in one year compared to one or two crop cycles in conventional farming. In addition, growing produce close to the point of sale reduces food spoilage during transportation. Food crops grown in greenhouses typically have lower yields per square foot than in CEA facilities, and the push to situate facilities close to consumers in cities requires minimizing land area and maximizing yield per square foot. Yields are increased in CEA facilities by supplementing or replacing natural light with grow lights in a climate-controlled environment - which requires significant energy use.
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TECOGEN INC.In recent years our cogeneration equipment has been used in numerous cannabis cultivation facilities because our systems significantly reduce operating costs, reduce the facility GHG footprint and offer resiliency to grid outages. Our experience providing clean energy solutions to cannabis cultivation facilities has given us significant insight into requirements relating to energy-intensive indoor agriculture applications that we expect to be transferable to CEA facilities for food production.
Management's DiscussionEmployee Retention Credit
On March 27, 2020, the Coronavirus Aid, Relief, and AnalysisEconomic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.
As a result of our election to use an alternative quarter, we qualified for the ERC in the first, second and third quarters of 2021 because our gross receipts decreased by more than 20% from the first, second and third quarters of 2019. As a result of averaging 100 or fewer full-time employees in 2019, all wages paid to employees in the first, second and third quarters of 2021, excluding the wages applied to the Paycheck Protection Program Second Draw Loan, were eligible for the ERC.
During the three months ended June 30, 2021, we recorded an ERC benefit for the first and second quarters of 2021 of $713,269 and, in the three months ended September 30, 2021 we recorded an ERC benefit for the third quarter of 2021 of $562,752, respectively, in other income (expense), net in the our condensed consolidated statements of operations. On April 14, 2022, we received $564,027 from the Internal Revenue Service representing the ERC claim for the third quarter of 2021 and $1,275 of accrued interest. We received $667,121 from the Internal Revenue Service on January 12, 2023 in payment of the ERC claimed from the first and second quarters of 2021 and $15,775 of accrued interest, which is reported in other income (expense) in our condensed consolidated statements of operations for the three months ended March 31, 2023. A current receivable in the amount of $46,148 is included in our condensed consolidated balance sheet as of March 31, 2023. We expect to receive the remaining balance in 2023.
COVID-19 Update
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TECOGEN INC.
During the first quarter of fiscal 2020, a novel strain of coronavirus (“COVID-19”) began spreading rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response. Such measures included restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders. The COVID-19 pandemic has significantly impacted supply chains, curtailed global economic activity, and caused significant volatility and disruption in global markets. The COVID-19 pandemic and the measures taken by U.S. Federal, state and local governments in response have materially adversely affected and could in the future materially impact our business, results of operations, financial condition and stock price. The impact of the pandemic remains uncertain and will depend on the growth in the number of infections, fatalities, the duration of the pandemic, steps taken to combat the pandemic, and the development and availability of effective treatments. We have made every effort to keep our employees who operate our business safe and minimize unnecessary risk of exposure to the virus.

Impact of the Russian Invasion of Ukraine

Presently, the company haswe have no operations or customers in Russia or the Ukraine. The higher energy prices for natural gas as a result of the war may affect the performance of our Energy Production Segment.segment. However, we have also seen higher electricity prices as much of the electricity production in the United States is generated from fossil fuels. If the electricity prices continue to rise, the economic savings generated by our products are likely to increase. In addition to the direct result of changes in natural gas and electricity prices, the war in Ukraine may result in higher cybersecurity risks, increased or ongoing supply chain challenges, and volatility related to the trading prices of commodities.

Overview

Tecogen designs, manufactures and sells industrial and commercial cogeneration systems that produce combinations of electricity, hot water and air conditioning using automotive engines that have been adapted to run on natural gas. In some cases, our customers may choose to have us engineer and install the system for them rather than simply purchase the cogeneration and/or chiller units, which we refer to as "turnkey" projects. Cogeneration systems are efficient because, in addition to supplying mechanical energy to power electric generators or compressors – displacing utility supplied electricity – they provide an opportunity for the facility to incorporate the engine’s waste heat into onsite processes, such as space and potable water heating. We produce standardized, modular, small-scale products, with a limited number of product configurations that are adaptable to multiple applications. We refer to these combined heat and power products as CHP (electricity plus heat) and Engine driven chillers (cooling plus heat).heat ).

Our products are sold directly to end-users by our in-house marketing team and by established sales agents and representatives. We have agreements in place with distributors and sales representatives. Our existing customers include hospitals and nursing homes, colleges and universities, health clubs and spas, hotels and motels, office and retail buildings, food and beverage processors, multi-unit residential buildings, laundries, ice rinks, swimming pools, factories, municipal buildings, military installations and indoor growing facilities. We have an installed base of more than 3,0003,150 units. Our products have long useful lives with proper maintenance. Some of our units have been operating for over 35 years.

With the acquisition of American DG Energy Inc. ("ADGE") in May 2017, we added an additional source of revenue. Through ADGE, we install, own, operate and maintain complete distributed generation of electricity systems, or DG systems or energy systems, and other complementary systems at customer sites, and sell electricity, hot water, heat and cooling energy under long-term contracts at prices guaranteed to the customer to be below conventional utility rates. Each month we obtain readings from our energy meters to determine the amount of energy produced for each customer. We use a contractually defined formula to multiply these readings by the appropriate published price of energy (electricity, natural gas or oil) from each customer's local energy utility, to derive the value of our monthly energy sale, which includes a negotiated discount. Our revenues per customer on a monthly basis vary based on the amount of energy produced by our energy systems and the published price of energy (electricity, natural gas or oil) from our customer's local energy utility that month.

Our operations are comprised of three business segments. Our Products segment designs, manufactures and sells industrial and commercial cogeneration systems as described above. Our Services segment provides operation and maintenanceO&M services for our products under long term service contracts. Our Energy Production segment sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.


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TECOGEN INC.
Management's Discussion and Analysis
Results of Operations

SecondFirst Quarter of 20222023 Compared to SecondFirst Quarter of 20212022

The following table sets forth for the periods indicated, the percentage of net sales represented by certain items reflected in our condensed consolidated statements of operations:

Three Months EndedThree Months Ended
June 30, 2022June 30, 2021March 31, 2023March 31, 2022
RevenuesRevenues100.0%100.0%Revenues100.0 %100.0 %
Cost of salesCost of sales57.9%53.7%Cost of sales61.1 %58.4 %
Gross profitGross profit42.1%46.3%Gross profit38.9 %41.6 %
Operating expensesOperating expensesOperating expenses
General and administrativeGeneral and administrative44.0%39.7%General and administrative51.9 %33.3 %
SellingSelling7.9%9.5%Selling9.7 %6.7 %
Research and developmentResearch and development3.0%2.2%Research and development4.3 %1.9 %
Gain on disposition of assets—%—%
Total operating expensesTotal operating expenses54.9%51.3%Total operating expenses65.8 %40.5 %
Income (loss) from operationsIncome (loss) from operations(12.7)%(5.0)%Income (loss) from operations(26.9)%1.1 %
Total other income (expense), netTotal other income (expense), net(0.2)%11.8 %Total other income (expense), net— %0.3 %
Income (loss) before income taxesIncome (loss) before income taxes(26.9)%1.4 %
Provision for state income taxesProvision for state income taxes0.4 %0.1 %
Consolidated net income (loss)Consolidated net income (loss)(13.1)%6.6 %Consolidated net income (loss)(27.4)%1.3 %
Income attributable to the non-controlling interestIncome attributable to the non-controlling interest(0.3)%(0.1)%Income attributable to the non-controlling interest(0.3)%(0.1)%
Net income (loss) attributable to Tecogen, Inc.Net income (loss) attributable to Tecogen, Inc.(13.3)%6.5 %Net income (loss) attributable to Tecogen, Inc.(27.7)%1.2 %

Revenues

The following table presents revenue for the periods indicated, by segment and the change from the prior year:

Three Months EndedThree Months Ended March 31,
June 30, 2022June 30, 2021Increase (Decrease) $Increase (Decrease) %20232022Increase (Decrease) $Increase (Decrease) %
REVENUES:REVENUES:REVENUES:
ProductsProductsProducts
CogenerationCogeneration$953,864 $1,050,316 $(96,452)(9.2)%Cogeneration$543,693 $2,174,004 $(1,630,311)(75.0)%
ChillerChiller1,738,051 1,089,018 649,03359.6 %Chiller1,068,934 1,607,408 (538,474)(33.5)%
Engineered accessoriesEngineered accessories318,200 306,593 11,6073.8 %Engineered accessories97,509 158,069 (60,560)(38.3)%
Total Product revenues3,010,115 2,445,927 564,18823.1 %
Total product revenuesTotal product revenues1,710,136 3,939,481 (2,229,345)(56.6)%
ServicesServicesServices
Maintenance servicesMaintenance services3,050,191 3,083,761 (33,570)(1.1)%Maintenance services3,136,173 2,897,171 239,0028.2 %
Installation servicesInstallation services— 244,553 (244,553)(100.0)%Installation services— 20,109 (20,109)(100.0)%
Total Service revenues3,050,191 3,328,314 (278,123)(8.4)%
Products and Services6,060,306 5,774,241 286,0655.0 %
Energy Production revenues354,287 370,861 (16,574)(4.5)%
Total service revenuesTotal service revenues3,136,173 2,917,280 218,8937.5 %
Products and servicesProducts and services4,846,309 6,856,761 (2,010,452)(29.3)%
Energy production revenuesEnergy production revenues533,509 581,562 (48,053)(8.3)%
Total revenuesTotal revenues$6,414,593 $6,145,102 $269,4914.4 %Total revenues$5,379,818 $7,438,323 $(2,058,505)(27.7)%

    Total revenues for the three months ended June 30, 2022March 31, 2023 were $6,414,593$5,379,818 compared to $6,145,102$7,438,323 for the same period in 2021, an increase2022, a decrease of $269,491$2,058,505 or 4.4%27.7% year over year.

2019


TECOGEN INC.
Management's Discussion and Analysis
    Products

Products
    Product revenues in the three months ended June 30, 2022March 31, 2023 were $3,010,115$1,710,136 compared to $2,445,927$3,939,481 for the same period in 2021, an increase2022, a decrease of $564,188,$2,229,345, or 23.1%56.6%. The increasedecrease in revenue during the three months ended June 30, 2022March 31, 2023 is due primarily to an increasea decrease in cogeneration sales of $1,630,311, a decrease in chiller sales of $649,033 $538,474,and, an increasea decrease in sales of engineered accessories of $11,607, offset partially by a $96,452 decrease in cogeneration sales.$60,560. Our product sales mix, as well as product revenue, can vary significantly from period to period as our products are high dollar, low volume sales.

Services

    Service revenues in the three months ended June 30, 2022March 31, 2023 were $3,050,191,$3,136,173, compared to $3,328,314$2,917,280 for the same period in 2021, a decrease2022, an increase of $278,123,$218,893, or 8.4%7.5%. The decreaseincrease in revenue during the three months ended June 30, 2022March 31, 2023 is due primarily to an increase of $239,002, or 8.2%, in service contract revenues, offset partially by a decrease in installation revenues of $244,553 and, to a lesser extent, by a decrease of $33,570, or 1.1%, in service contract revenues.$20,109. While service contract revenue generally remains relatively constant, installation activity is likely to remain low due to our strategy of focusing on higher margin segments of our business.

    Energy Production

    Energy production revenues in the three months ended June 30, 2022March 31, 2023 were $354,287,$533,509, compared to $370,861$581,562 for the same period in 2021,2022, a decrease of $16,574,$48,053, or 4.5%8.3%. The decrease in energy production revenue is a consequence of certain energy production sites that have permanently closed and seasonality.

closed.
Cost of Sales

    Cost of sales in the three months ended June 30, 2022March 31, 2023 was $3,711,144$3,287,909 compared to $3,302,464$4,347,535 for the same period in 2021, an increase2022, a decrease of $408,680,$1,059,626, or 12.4%24.4%. The increasedecrease in cost of sales is due to increaseddecreased product revenue volume, andoffset partially by the impact of inflation on material costs. During the three months ended June 30, 2022March 31, 2023 our gross margin decreased to 42.1%38.9% compared to 46.3%41.6% for the same period in 2021,2022, a 4.2%2.7% percentage point decrease due to higher material costs.

    Products

Cost of sales for products in the three months ended June 30, 2022March 31, 2023 was $2,015,466$1,212,568 compared to $1,390,725$2,644,756 for the same period in 2021, an increase2022, a decrease of $624,741,$1,432,188, or 44.9%54.2% due to increaseddecreased product revenue volume, andoffset partially by higher material costs. During the three months ended June 30, 2022,March 31, 2023, our products gross margin was 33.0%29.1% compared to 43.1%32.9% for the same period in 2021, an 10.1%2022, a 3.8% percentage point decrease. The decrease in margin is primarily a function of increased material costs.

Services

Cost of sales for services in the three months ended June 30, 2022March 31, 2023 was $1,473,586$1,737,602 compared to $1,679,386$1,366,752 for the same period in 2021, a decrease2022, an increase of $205,800,$370,850, or 12.3%27.1%. During the three months ended June 30, 2022,March 31, 2023, our services gross margin increaseddecreased to 51.7%44.6% compared to 49.5% for53.1% in the same period in 2021,2022, a 2.2%8.5% percentage point increasedecrease. The decrease in margin is primarily due to lower installation revenues.

increased material and labor costs.
    Energy Production     

    Cost of sales for energy production in the three months ended June 30, 2022March 31, 2023 was $222,092$337,739 compared to $232,353$336,027 for the same period in 2021, a decrease2022, an increase of $10,261,$1,712, or 4.4%0.5%. During the three months ended June 30, 2022March 31, 2023 our energy production gross margin was 37.4%decreased to 36.7% compared to 37.3%42.2% for the same period in 2021,2022, a 0.1%5.5% percentage point increase.

Operating Expenses

    Operating expenses increased $368,580, or 11.7%,decrease. The decrease in the energy production gross margin is due to $3,520,786decreased runtime at our energy production sites in the three months ended June 30, 2022March 31, 2023 compared to $3,152,206the same period in 2022.
Operating Expenses
Operating expenses increased $531,846, or 17.7%, to $3,541,655 in the three months ended March 31, 2023 compared to $3,009,809 in the same period in 2021. The total operating expenses were higher primarily due to higher salary costs, taxes and costs related to the air-cooled chiller development.2022.
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TECOGEN INC.
Management's Discussion and Analysis
Three Months EndedThree Months Ended
Operating ExpensesOperating ExpensesJune 30, 2022June 30, 2021Increase (Decrease) $Increase (Decrease) %Operating ExpensesMarch 31, 2023March 31, 2022Increase (Decrease) $Increase (Decrease) %
General and Administrative$2,824,832 $2,438,452 $386,380 15.8 %
General and administrativeGeneral and administrative$2,792,483 $2,473,903 $318,580 12.9 %
SellingSelling503,601 580,871 (77,270)(13.3)%Selling520,070 501,091 18,979 3.8 %
Research and Development194,853 132,883 61,970 46.6 %
Research and developmentResearch and development229,102 140,135 88,967 63.5 %
Gain on disposition of assetsGain on disposition of assets(2,500)— (2,500)Gain on disposition of assets— (33,945)33,945 (100.0)%
Gain on termination of unfavorable contract liabilityGain on termination of unfavorable contract liability— (71,375)71,375 (100.0)%
TotalTotal$3,520,786 $3,152,206 $368,580 11.7 %Total$3,541,655 $3,009,809 $531,846 17.7 %


    General and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. General and administrative expenses for the three months ended June 30, 2022March 31, 2023 were $2,824,832$2,792,483 compared to $2,438,452$2,473,903 for the same period in 2021,2022, an increase of $386,380$318,580 or 15.8%12.9%.

    Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the three months ended June 30, 2022March 31, 2023 were $503,601$520,070 compared to $580,871$501,091 for the same period in 2021, a decrease2022, an increase of $77,270$18,979 or 13.3%3.8%.

    Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses for the three months ended June 30, 2022March 31, 2023 were $194,853$229,102 compared to $132,883$140,135 for the same period in 2021,2022, an increase of $61,970$88,967 or 46.6%63.5%.

The gain on asset dispositions for three months ended March 31, 2022 of $33,945 represents the excess of insurance proceeds received over the net book value of assets for auto and property claims filed during the period.
LossA gain of $71,375 was recognized in three months ended March 31, 2022 due to a reduction in the Unfavorable Contract Liability associated with the closing of certain energy production sites.
Income (loss) from Operations

    Loss    Our loss from operations for the three months ended June 30, 2022March 31, 2023 was $817,337$1,449,746 compared to a lossincome from operations of $309,568$80,979 for the same period in 2021, an increase2022, a decrease of $507,769.$1,530,725. This increasedecrease is due primarily to the lower gross profit marginsrevenue for our Products Segment, decreased margins and a $368,580$531,846 increase in operating expenses.

Other Income (Expense), net

    Other expense,income, net for the three months ended June 30, 2022March 31, 2023 was $13,998$415 compared to other income, net of $725,804$22,519 for the same period in 2021,2022, a decrease of $739,802. The decrease in other income is$22,104, due primarily to the Employee Retention Creditunrealized gain on investment securities of $713,268$37,497, recognized in the three months ended June 30, 2021.

March 31, 2022.
Provision for State Income Taxes

    The provision for state income taxes for the three months ended June 30,March 31, 2023 and 2022 was $22,638 and 2021 was $6,500 and $7,933,$3,930, respectively and represents estimated income tax payments, net of refunds, to various states.

Non-controlling Interest

    Income attributable to the non-controlling interest was $18,383$18,060 for the three months ended June 30, 2022March 31, 2023 which represents the non-controlling interest portion of American DG Energy's 51% owned subsidiary, American DG New York, LLC. For the same period in 2021,2022, income attributable to the non-controlling interest was $8,672.

$10,159.
Net Income (Loss)(loss) Attributable to Tecogen Inc

Inc.
    The net lossincome attributable to Tecogen for the three months ended June 30, 2022March 31, 2023 was $856,218a net loss of $1,490,029 compared to a net income of $399,631$89,409 for the same period in 2021,2022, a decrease of $1,255,849,$1,579,438, or 314.3%1,766.5%. TheThis decrease is due primarily to the recognition of the Employee Retention Credit in the three months ended June 30, 2021, lower gross profit marginsrevenue for our Products Segment, decreased margins and thea $531,846 increase in operating expenses.


21


22

TECOGEN INC.
Management's Discussion and Analysis
Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

    The following table sets forth for the periods indicated, the percentage of net sales represented by certain items reflected in our condensed consolidated statements of operations:

Six Months Ended
June 30, 2022June 30, 2021
Revenues100.0%100.0%
Cost of sales58.2%52.5%
Gross profit41.8%47.5%
Operating expenses
General and administrative38.2%40.1%
Selling7.3%8.9%
Research and development2.4%2.1%
Gain on disposition of assets(0.3)%—%
Gain on termination of unfavorable contract liability(0.5)%—%
Total operating expenses47.1%51.2%
Loss from operations(5.3)%(3.7)%
Total other income (expense), net0.1 %21.7%
Consolidated net income (loss)(5.3)%17.9%
Income attributable to the noncontrolling interest(0.2)%(0.2)%
Net income (loss) attributable to Tecogen, Inc.(5.5)%17.8%

Revenues

The following table presents revenue for the periods indicated, by segment and the change from the prior year:
Six Months Ended
June 30, 2022June 30, 2021Increase (Decrease) $Increase (Decrease) %
REVENUES:
Products
Cogeneration$3,127,868 $1,096,961 $2,030,907 185.1 %
Chiller3,345,459 2,546,311 799,148 31.4 %
Engineered accessories476,269 925,377 (449,108)(48.5)%
Total Product revenues6,949,596 4,568,649 2,380,947 52.1 %
Services
Maintenance services5,947,362 5,847,209 100,153 1.7 %
Installation services20,109 762,249 (742,140)(97.4)%
Total Service revenues5,967,471 6,609,458 (641,987)(9.7)%
Products and Services12,917,067 11,178,107 1,738,960 15.6 %
Energy Production revenues935,849 1,024,156 (88,307)(8.6)%
Total revenues$13,852,916 $12,202,263 $1,650,653 13.5 %


    Total revenues for the six months ended June 30, 2022 were $13,852,916 compared to $12,202,263 for the same period in 2021, an increase of $1,650,653 or 13.5% year over year.

23

TECOGEN INC.
Management's Discussion and Analysis
    Products

    Product revenues in the six months ended June 30, 2022 were $6,949,596 compared to $4,568,649 for the same period in 2021, an increase of $2,380,947, or 52.1%. The increase in revenue during the six months ended June 30, 2022 is due to an increase in cogeneration sales of $2,030,907 and an increase in chiller sales of $799,148, offset partially by a $449,108 decrease in sales of engineered accessories. Our product sales mix, as well as product revenue, can vary significantly from period to period as our products are high dollar, low volume sales.

    Services

    Service revenues in the six months ended June 30, 2022 were $5,967,471, compared to $6,609,458 for the same period in 2021, a decrease of $641,987, or 9.7%. The decrease in revenue during the six months ended June 30, 2022 is due primarily to a decrease in installation revenues of $742,140, offset partially by an increase of $100,153, or 1.7%, in service contract revenues. While service contract revenue generally remains relatively constant, installation activity is likely to remain low due to our strategy of focusing on higher margin segments of our business.

    Energy Production

    Energy production revenues in the six months ended June 30, 2022 were $935,849, compared to $1,024,156 for the same period in 2021, a decrease of $88,307, or 8.6%. The decrease in energy production revenue is a consequence of certain energy production sites that have permanently closed and seasonality.

Cost of Sales

    Cost of sales in the six months ended June 30, 2022 was $8,058,678 compared to $6,408,417 for the same period in 2021, an increase of $1,650,261, or 25.8%. The increase in cost of sales is due to increased product revenue volume and the impact of inflation on material costs. During the six months ended June 30, 2022 our gross margin decreased to 41.8% compared to 47.5% for the same period in 2021, a 5.7% percentage point decrease due to higher material costs.

    Products

    Cost of sales for products in the six months ended June 30, 2022 was $4,660,221 compared to $2,565,012 for the same period in 2021, an increase of $2,095,209, or 81.7% due to increased product revenue volume and higher material costs. During the six months ended June 30, 2022, our products gross margin was 32.9% compared to 43.9% for the same period in 2021, an 11.0% percentage point decrease. The decrease in margin is primarily a function of increased material costs.

    Services

    Cost of sales for services in the six months ended June 30, 2022 was $2,840,338 compared to $3,216,989 for the same period in 2021, a decrease of $376,651, or 11.7%. During the six months ended June 30, 2022, our services gross margin increased to 52.4% compared to 51.3% for the same period in 2021, a 1.1% percentage point increase due to lower installation revenues.

    Energy Production     

    Cost of sales for energy production in the six months ended June 30, 2022 was $558,119 compared to $626,416 for the same period in 2021, a decrease of $68,297, or 10.9%. During the six months ended June 30, 2022 our energy production gross margin was 40.4% compared to 38.8% for the same period in 2021, a 1.6% percentage point increase.

Operating Expenses
    Operating expenses increased $288,183, or 4.6%, to $6,530,595 in the six months ended June 30, 2022 compared to $6,242,412 in the same period in 2021. The total operating expenses were higher primarily due to higher salary costs, taxes and costs related to the air-cooled chiller development.
24

TECOGEN INC.
Management's Discussion and Analysis
Six Months Ended
Operating ExpensesJune 30, 2022June 30, 2021Increase (Decrease) $Increase (Decrease) %
General and Administrative$5,298,735 $4,892,305 $406,430 8.3 %
Selling1,004,692 1,091,074 (86,382)(7.9)%
Research and Development334,988 259,033 75,955 29.3 %
Gain on disposition of assets(36,445)— (36,445)— %
Gain on termination of unfavorable contract liability(71,375)— (71,375)— %
Total$6,530,595 $6,242,412 $288,183 4.6 %


    General and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. General and administrative expenses for the six months ended June 30, 2022 were $5,298,735 compared to $4,892,305 for the same period in 2021, an increase of $406,430 or 8.3%.
    Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the six months ended June 30, 2022 were $1,004,692 compared to $1,091,074 for the same period in 2021, a decrease of $86,382 or 7.9%.
    Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses for the six months ended June 30, 2022 were $334,988 compared to $259,033 for the same period in 2021, an increase of $75,955 or 29.3%.

Loss from Operations

    Loss from operations for the six months ended June 30, 2022 was $736,357 compared to a loss of $448,566 for the same period in 2021, an increase of $287,791. This increase is due primarily to lower gross profit margins for our Products Segment and a $288,183 increase in operating expenses.

Other Income (Expense), net

    Other expense, net for the six months ended June 30, 2022 was $8,520 compared to other income of $2,651,363 for the same period in 2021, a decrease of $2,642,843. The decrease in other income is due primarily to the gain on extinguishment of debt of $1,887,859 as a result of the Paycheck Protection Program Loan forgiveness and the recognition of the Employee Retention Credit of $713,268 for the first and second calendar quarters of 2021 recognized in the six months ended June 30,
2021.

Provision for State Income Taxes

    The provision for state income taxes for the six months ended June 30, 2022 and 2021 was $10,430 and $15,991, respectively and represents estimated income tax payments, net of refunds, to various states.

Non-controlling Interest

    Income attributable to the non-controlling interest was $28,542 for the six months ended June 30, 2022 which represents the non-controlling interest portion of American DG Energy's 51% owned subsidiary, American DG New York, LLC. For the same period in 2021, income attributable to the non-controlling interest was $20,468.

Net Income (Loss) Attributable to Tecogen Inc

    The net loss attributable to Tecogen for the six months ended June 30, 2022 was $766,809 compared to a net income of $2,166,338 for the same period in 2021, a decrease of $2,933,147, or 135.4%. The decrease is due primarily to the gain on extinguishment of debt of as a result of the Paycheck Protection Program Loan forgiveness and the recognition of the Employee Retention Credit in the six months ended June 30, 2021, lower gross profit margins for our Products Segment and the increase in operating expenses in the six months ended June 30, 2022.
25

TECOGEN INC.
Management's Discussion and Analysis

Liquidity and Capital Resources

The following table presents a summary of our net cash flows from operating, investing and financing activities:

Six Months EndedThree Months Ended
Cash Provided by (Used in)Cash Provided by (Used in)June 30, 2022June 30, 2021Increase (Decrease)Cash Provided by (Used in)March 31, 2023March 31, 2022Increase (Decrease)
Operating activitiesOperating activities$(579,177)$(103,649)$(475,528)Operating activities$(284,866)$1,894,471 $(2,179,337)
Investing activitiesInvesting activities(204,179)(75,361)(128,818)Investing activities— (48,064)48,064 
Financing activitiesFinancing activities— 1,874,269 (1,874,269)Financing activities— — — 
Change in cash and cash equivalents$(783,356)$1,695,259 $(2,478,615)
Cash Provided by (Used in)Cash Provided by (Used in)$(284,866)$1,846,407 $(2,131,273)

Consolidated working capital at June 30, 2022March 31, 2023 was $15,637,400$12,964,213 compared to $16,193,881$14,344,288 at December 31, 2021,2022, a decrease of $556,481.$1,380,075. Included in working capital were cash and cash equivalents of $2,831,107$1,629,103 at June 30, 2022,March 31, 2023, compared to $3,614,463$1,913,969 at December 31, 2021,2022, a decrease of $783,356,$284,866, or 21.7%14.9%.

Cash Flows from Operating Activities

    Cash used by operating activities for the sixthree months ended June 30, 2022March 31, 2023 was $579,177$284,866 compared to $103,649$1,894,471 of cash usedprovided by operating activities for the same period in 2021, an increase2022, a decrease of $475,528,$2,179,337, or 458.8%.115.0% Our accounts receivable and unbilled revenue balances were $8,880,828$6,758,360 and $2,141,132,$1,788,902, respectively, at June 30, 2022March 31, 2023 compared to $8,482,286$6,714,122 and $3,258,189$1,805,330 at December 31, 2021,2022, using $444,541$44,238 of cash and providing $1,117,057$16,428 of cash, respectively. Inventories increased $438,102 duringDuring the sixthree months ended June 30, 2022 due to increased safety stock.March 31, 2023 we collected the majority of the outstanding Employee Retention Credit receivables, providing $667,121 of cash from operations.
Accounts payable decreasedincreased to $3,260,479$4,167,461 as of June 30, 2022March 31, 2023 from $3,508,354$3,261,952 at December 31, 2021, using $247,8762022, providing $905,509 in cash flow from operations. The decreaseincrease in accounts payable was due to vendor payment timing.increased material purchases. Deferred revenue increased as of June 30, 2022March 31, 2023 compared to December 31, 2021, using $589,1582022, due to increased customer deposits, providing $852,600 of cash from operations. We expect accounts payable and deferred revenue to fluctuate with routine changes in operations.

Cash Flows from Investing Activities

During the sixthree months ended June 30,March 31, 2023 there were no cash flows from investing activities. For the three months ended March 31, 2022 cash used in investing activities was $48,064. During the three months ended March 31, 2022 we used $204,179 in cash from investing activities. We used $209,034$80,873 of cash to purchase property, plant and equipment, $29,505$16,220 to acquireacquired intangible assets and, distributed $32,809$15,640 to the 49% non-controlling interest holders of American DG New York LLC, partially offset by the receipt of $67,169$64,669 in insurance and other proceeds from the disposition of assets. For the six months ended June 30, 2021 cash used in investing activities was $75,361. During the six months ended June 30, 2021 we used $47,504 of cash to purchase property, plant and equipment, $5,682 to acquired intangible assets, and, distributed $33,812 to the non-controlling interest holders of American DG New York LLC, partially offset by receipt of $11,637 in proceeds from the sale of investment securities.

including insurance proceeds.
Cash Flows from Financing Activities

During the sixthree months ended June 30,March 31, 2023 and 2022 ourthere we no cash flows from financing activities provided $0 compared to $1,874,269 for the same period in 2021. Financing activities for the six months ended June 30, 2021 included the proceeds of $1,874,269 received under the Paycheck Protection Program Second Draw.

activities.
Backlog

As of June 30, 2022,March 31, 2023, our backlog of product and installation projects, excluding service contracts, was $10.7$7.1 million, consisting of $3.8$5.2 million of purchase orders received by us and $6.9$1.9 million of projects in which the customer's internal approval process is complete, financial resources have been allocated and the customer has made a firm verbal commitment that the order is in the process of execution. As of March 31, 2022, our backlog of product and installation projects, excluding service contracts, was $9.4 million consisting of $6.4 million of purchase orders received by us and $2.9 million of projects in which the customer's internal approval process is complete. Backlog at the beginning of any period is not necessarily indicative of future performance. Our presentation of backlog may differ from other companies in our industry.


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Management's Discussion and Analysis
Paycheck Protection Program Loan

    On April 17, 2020, we obtained an unsecured loan in the principal amount of $1,874,200 from Webster Bank, NA ("Webster") under the Paycheck Protection Program adopted pursuant to the Coronavirus Aid, Relief and Economic Recovery Act, as amended ("CARES Act"). On January 19, 2021 we received confirmation from Webster that the Paycheck Protection Program Loan in the original principal amount of $1,874,200 together with accrued interest of $13,659 was forgiven in full effective as of January 11, 2021. The loan forgiveness of $1,887,859 was accounted for as a debt extinguishment and is reported as a separate component of other income (expense), net in the condensed consolidated statements of earnings for the six months ended June 30, 2021.
Paycheck Protection Program Second Draw Loan
    On February 5, 2021, we obtained a Paycheck Protection Program Second Draw unsecured loan through Webster in the amount of $1,874,269 in connection with the Paycheck Protection Program pursuant to the CARES Act. On September 20, 2021, we received a letter dated September 13, 2021 from Webster Bank, NA confirming that the Paycheck Protection Program Second Draw Loan issued to us pursuant to the CARES Act, as amended, in the original principal amount of $1,874,269 together with accrued interest of $11,386 was forgiven in full as of September 8, 2021. The loan forgiveness of $1,885,655 was accounted for as debt extinguishment and is reported as a separate component of other income (expense), net in the condensed consolidated statements of earnings for the year ended December 31, 2021.

Employee Retention Credit

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a
refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.
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TECOGEN INC.
As a result of our election to use an alternative quarter, we qualified for the ERC in the first, second and third quarters of 2021 because our gross receipts decreased by more than 20% from the first, second and third quarters of 2019. As a result of averaging 100 or fewer full-time employees in 2019, all wages paid to employees in the first, second and third quarters of 2021, excluding the wages applied to the Paycheck Protection Program Second Draw Loan, were eligible for the ERC.
A current receivable in the amount of $713,269$46,148 is included in our condensed consolidated balance sheet as of June 30, 2022. On April 14, 2022, we received $564,027 fromMarch 31, 2023. We expect to receive the Internal Revenue Service representing the ERC claim for the third quarter of 2021 and $1,275 of accrued interest. We are still awaiting payment from the Internal Revenue Service for the ERC claim from the first and second quarters of 2021.

remaining balance in 2023.
Liquidity

At June 30, 2022,March 31, 2023, we had cash and cash equivalents of $2,831,107,$1,629,103, a decrease of $783,356$284,866 or 21.7%14.9% from the cash and cash equivalents balance at December 31, 2021. During the sixthree months ended June 30, 2022,March 31, 2023, our revenues continued to be negatively impacted due to COVID-19, resulting in customer order delays or deferrals; service delays due to customer facility closures, in some cases for extended periods, and a reduction in our energy production revenues due to customer facility closures, in some cases for extended periods, a reduction in our energy production revenues due to business closures and increased remote work and learning environments. The extent to which the coronavirus will continue to impact our business, our financial results, and our cash flows will depend on future developments which are highly uncertain and cannot be predicted.

Based on our current operating plan, we believe existing resources, including cash and cash flows from operations, together anticipated Employee Retention Credit will be sufficient to meet our working capital requirements for the next twelve months. The funds made available to us through the Paycheck Protection Program and Employee Retention Credit have provided liquidity for our business, and there can be no assurance that additional financing on such favorable terms will be available to us in the future. We will need to generate sufficient cash from operations to finance the company during the periods beyond twelve months in the future. If sufficient funds from operating activities are not available to finance our business, we may need to raise additional capital through debt financing or an equity offering to meet our operating and capital needs.

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TECOGEN INC.
Management's Discussion and Analysis

Significant Accounting Policies and Critical Estimates

Our significant accounting policies are discussed in the Notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. The accounting policies and estimates that can have a significant impact upon our operating results, financial position and footnote disclosures are described in the above notes and in the Annual Report.

Significant New Accounting Standards or Updates Not Yet Effective    
    The Company's critical accounting policies have remained consistent as discussed in our Annual Report on
Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on March 10, 2022.23, 2023.
    See Note 1, Description of Business and Basis of Presentation, to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Seasonality

The majority of our chilling systems sold will be operational for the summer. Demand for our service team is higher in the warmer months when cooling is required. Chiller units are generally shut down in the winter and started up again in the spring. The chiller "busy season' for the service team generally runs from May through the end of September. Our cogeneration sales are not generally affected by seasonality.

Off-Balance Sheet Arrangements

Currently, we do not have any material off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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TECOGEN INC.
Item 4. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures:
As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer ("Certifying Officers") conducted evaluations of our disclosure controls and procedures. As defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Securities Exchange Act"), the term "disclosure controls and procedures" means controls and procedures of an issuer that are designed to ensure the information required to be disclosed by the issuer in the reports that it files or submits under the Section 13(a) or 15(d) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under Section 13(a) or 15(d) of the Securities Exchange Act is accumulated and communicated to the issuer's management, including the Certifying Officers, to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are designed to provide reasonable assurance that the control system’s objectives will be met. Our management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report, have concluded that our disclosure controls and procedures were not effective due to a material weakness with respect to a small number of individuals dealing with general controls over information technology. Management will continue to evaluate the above weaknesses and we are taking steps to remediate the weaknesses as resources become available.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


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TECOGEN INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
    AsOn November 23, 2022, we were served with a suit filed against us on August 24, 2022 in the Ontario Superior Court of Justice for damages in the dateamount of CDN $1,000,000, alleging that a Tecogen cogenerator installed by us at the filing of this Report,plaintiffs facility caught fire, causing damage to the cogenerator and the plaintiff's facility. For the year ended December 31, 2022, we reserved $150,000 for anticipated costs which may not be covered by insurance. We are not a party to any other material pending legal proceedings and know of no contemplated governmental proceeding involving us. However, from time to time, we may be involved in ordinary routine litigation incidental to our business.proceeding.
Item 1A. Risk Factors    
    In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Item1A - Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 20212022 ("20212022 Form 10-K") The risks discussed in our 2021 Form 10-K could materially affect our business, financial condition and future results. The risks described in our 20212022 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

Item 2. Unregistered Sales of equity Securities and Use of Proceeds

None.

Item 3. Defaults in Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information    

None.
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TECOGEN INC.
Item 6. Exhibits
Exhibit No.Description of Exhibit
10.1*
10.2*
31.1*
31.2*
32.1**
101.INS**XBRL Instance Document
101.SCH**XBRL Taxonomy Extension Schema
100.CAL**XBRL Taxonomy Extension Calculation Linkbase
100.DEF**XBRL Taxonomy Extension Definition Linkbase
101.LAB**XBRL Taxonomy Extension Label Linkbase
101.PRE**XBRL Taxonomy Extension Presentation Linkbase

*    Filed herewith
**    Furnished herewith
+    Compensatory plan or arrangement





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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
 TECOGEN INC.
 (Registrant)
 
Dated: August 11, 2022By:/s/ Benjamin Locke
Benjamin Locke
Chief Executive Officer
(Principal Executive Officer)
Dated: August 11, 2022May 10, 2023By:/s/ Abinand Rangesh
Abinand Rangesh
Chief Executive and Financial Officer
(Principal Executive and Financial Officer)

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