

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

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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

Non-accelerated filer ☒

~~Non –accelerated filer~~ oEmerging Growth company ☐

Smaller reporting company x☒

~~Emerging Growth company~~ x

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~~ ¨. Yes ☐ No ý☒

As of March 31, 2023, 24,850,261 shares of common stock, $.001 par value per share, of the registrant were issued and outstanding.


PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

~~Title of each class~~	Condensed Consolidated Balance Sheets (Unaudited)	~~Outstanding, October 31, 2017~~
~~Common Stock, $0.001 par value~~	March 31, 2023 and December 31, 2022	~~24,724,392~~

~~TECOGEN INC.~~

~~QUARTERLY REPORT ON FORM 10-Q~~

~~FOR THE PERIOD ENDED~~ ~~SEPTEMBER 30, 2017~~

~~TABLE OF CONTENTS~~



~~PART I~~ ~~- FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~			1

	~~Condensed Consolidated Balance Sheets (Unaudited)~~
	~~September 30, 2017 and December 31, 2016~~	1

	Condensed Consolidated Statements of Operations ~~and Comprehensive Income~~ (Unaudited)
			Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022		2

			Condensed Consolidated Statements of ~~Operations and Comprehensive Loss~~Stockholders' Equity (Unaudited)
			~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022		3

			Condensed Consolidated Statements of Cash Flows (Unaudited)
			~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 202 3 and ~~2016~~202 2		34

			Notes to Unaudited Condensed Consolidated Financial Statements		65

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		2123

Item 4.			Controls and Procedures		2124

PART II - OTHER INFORMATION

Item 1.			Legal Proceedings		2124

Item 1A.			Risk Factors		2224

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		24

Item 3.			Defaults in Senior Securities		24

Item 4.			Mine Safety Disclosures		24

Item 5.			Other Information		24

Item 6.			Exhibits		2425

Signatures			Signature Page		26

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)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,629,103	$	1,913,969
Accounts receivable, net	6,758,360		6,714,122
Employee retention credit	46,148		713,269
Unbilled revenue	1,788,902		1,805,330
Inventories, net	11,862,782		10,482,729

Prepaid and other current assets	265,019		401,189
Total current assets	22,350,314		22,030,608
Long-term assets:
Property, plant and equipment, net	1,290,228		1,407,720
Right of use assets	1,084,033		1,245,549
Intangible assets, net	947,885		997,594

Goodwill	2,406,156		2,406,156
Other assets	164,815		165,230
TOTAL ASSETS	$	28,243,431	$	28,252,857

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:



Accounts payable	4,167,461		3,261,952
Accrued expenses	2,240,523		2,384,447
Deferred revenue, current	2,108,082		1,115,627
Lease obligations, current	646,805		687,589

Unfavorable contract liability, current	223,230		236,705
Total current liabilities	9,386,101		7,686,320
Long-term liabilities:

Deferred revenue, net of current portion	231,969		371,823
Lease obligations, net of current portion	496,526		623,452

Unfavorable contract liability, net of current portion	535,706		583,512
Total liabilities	10,650,302		9,265,107

Commitments and contingencies

Stockholders’ equity:
Tecogen Inc. stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 issued and outstanding at March 31, 2023 and December 31, 2022	24,850		24,850
Additional paid-in capital	57,428,356		57,351,008

Accumulated deficit	(39,771,577)		(38,281,548)
Total Tecogen Inc. stockholders’ equity	17,681,629		19,094,310
Non-controlling interest	(88,500)		(106,560)
Total stockholders’ equity	17,593,129		18,987,750
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	28,243,431	$	28,252,857

September 30, 2017
December 31, 2016
ASSETS
Current assets:

Cash and cash equivalents $ 2,077,047
$ 3,721,765
Accounts receivable, net 11,094,287
8,630,418
Unbilled revenue 3,063,089
2,269,645
Inventory, net 6,118,835
4,774,264
Due from related party 496,655
260,988
Prepaid and other current assets 742,701
401,876
Total current assets 23,592,614
20,058,956
Property, plant and equipment, net 15,502,974
517,143
Intangible assets, net 2,430,178
1,065,967
Excess of cost over fair value of net assets acquired 12,602,409
—
Goodwill 40,870
40,870
Other assets 2,462,870
2,058,425
TOTAL ASSETS $ 56,631,915
$ 23,741,361

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 5,356,449
$ 3,367,481
Accrued expenses 1,676,307
1,378,258
Deferred revenue 1,477,124
876,765
Loan due to related party 850,000
—
Interest payable, related party 39,403
—
Total current liabilities 9,399,283
5,622,504
Long-term liabilities:

Deferred revenue, net of current portion 386,494
459,275
Senior convertible promissory note, related party 3,149,086
3,148,509
Unfavorable contract liability 10,358,283
—
Total liabilities 23,293,146
9,230,288
Commitments and contingencies (Note 9)

Stockholders’ equity:

Tecogen Inc. stockholders’ equity:

Common stock, $0.001 par value; 100,000,000 shares authorized; 24,724,392 and 19,981,912 issued and outstanding at September 30, 2017 and December 31, 2016, respectively 24,724
19,982
Additional paid-in capital 56,081,026
37,334,773
Accumulated other comprehensive loss-investment securities (184,998 ) —
Accumulated deficit (23,065,226 ) (22,843,682 )
Total Tecogen Inc. stockholders’ equity 32,855,526
14,511,073
Noncontrolling interest 483,243
—
Total stockholders’ equity 33,338,769
14,511,073
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 56,631,915
$ 23,741,361

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

TECOGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ~~AND COMPREHENSIVE INCOME~~

(unaudited)


	Three Months Ended							Three Months Ended
	September 30, 2017			September 30, 2016				March 31, 2023		March 31, 2022
Revenues							Revenues
Products	$	2,425,616		$	2,850,901		Products	$	1,710,136	$	3,939,481
Services	4,519,467			3,765,554			Services	3,136,173		2,917,280
Energy production	1,556,115			—			Energy production	533,509		581,562
Total revenues	8,501,198			6,616,455			Total revenues	5,379,818		7,438,323
Cost of sales							Cost of sales
Products	1,538,515			1,715,462			Products	1,212,568		2,644,756
Services	2,981,454			2,126,175			Services	1,737,602		1,366,752
Energy production	723,198			—			Energy production	337,739		336,027
Total cost of sales	5,243,167			3,841,637			Total cost of sales	3,287,909		4,347,535
Gross profit	3,258,031			2,774,818			Gross profit	2,091,909		3,090,788
Operating expenses							Operating expenses
General and administrative	2,427,352			2,003,838			General and administrative	2,792,483		2,473,903
Selling	503,415			367,412			Selling	520,070		501,091
Research and development	241,725			154,075			Research and development	229,102		140,135
Gain on disposition of assets							Gain on disposition of assets	—		(33,945)
Gain on termination of unfavorable contract liability							Gain on termination of unfavorable contract liability	—		(71,375)
Total operating expenses	3,172,492			2,525,325			Total operating expenses	3,541,655		3,009,809
Income from operations	85,539			249,493
Income (loss) from operations							Income (loss) from operations	(1,449,746)		80,979
Other income (expense)							Other income (expense)
Interest and other income	14,849			3,914
Other income (expense), net							Other income (expense), net	830		(14,150)
Interest expense	(45,242		)	(45,539		)	Interest expense	(415)		(828)
Total other expense, net	(30,393		)	(41,625		)
Consolidated net income	55,146			207,868
Income attributable to the noncontrolling interest	(27,935		)	—
Net income attributable to Tecogen Inc.	27,211			207,868
Other comprehensive income - unrealized gain on securities	39,361			—
Comprehensive income	$	66,572		$	207,868

Net income per share - basic	$	0.00		$	0.01
Net income per share - diluted	$	0.00		$	0.01

Unrealized gain on investment securities							Unrealized gain on investment securities	—		37,497
Total other income (expense), net							Total other income (expense), net	415		22,519
Income (loss) before provision for state income taxes							Income (loss) before provision for state income taxes	(1,449,331)		103,498
Provision for state income taxes							Provision for state income taxes	22,638		3,930
Consolidated net income (loss)							Consolidated net income (loss)	(1,471,969)		99,568
Income attributable to the non-controlling interest							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.	$	(1,490,029)	$	89,409

Net income (loss) per share - basic							Net income (loss) per share - basic	$	(0.06)	—
Net income (loss) per share - diluted							Net income (loss) per share - diluted	$	(0.06)	—
Weighted average shares outstanding - basic	24,720,613			19,640,812			Weighted average shares outstanding - basic	24,850,261		24,850,261
Weighted average shares outstanding - diluted	24,930,624			20,229,120			Weighted average shares outstanding - diluted	24,850,261		25,028,616

TECOGEN INC.

Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements

Note 1.Description of Business and Basis of Presentation

Description of ~~business~~Business

Tecogen Inc., (together with its subsidiaries, “we,” “our,” or ~~the Company, we, our~~“us,” or ~~us produces commercial~~“Tecogen”) designs, manufactures, markets, and ~~industrial, natural-gas-fueled 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 ~~reduce~~provide customers with substantial energy ~~costs, decrease greenhouse gas~~savings, resiliency from utility power outages and for significantly reducing a customer’s carbon footprint. Our products are sold with our patented Ultera® emissions technology which nearly eliminates all criteria pollutants such as nitrogen oxide ("NOx") and ~~alleviate congestion~~carbon monoxide ("CO"). We developed Ultera® for other applications including stationary engines and forklifts. We were incorporated in the State of Delaware on ~~the national power grid. The Company’s products supply electric power or mechanical power for cooling, while heat from the engine is recovered~~September 15, 2000.

We have wholly-owned subsidiaries American DG Energy, Inc. ("ADGE") and ~~purposefully used at~~Tecogen CHP Solutions, Inc., and we own a ~~facility. The Company also installs, owns, operates~~51% interest in American DG New York, LLC ("ADGNY"), a joint venture. ADGE and ~~maintains complete~~ADGNY distribute, own, and operate clean, on-site energy systems ~~and other complementary systems at customer sites and sells~~that produce electricity, hot water, heat and ~~cooling~~cooling. ADGE owns the equipment that it installs at a customer’s facility and sells the energy ~~under long-term contracts at prices guaranteed~~produced 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 ~~the Company’s~~our customers are located in regions with the highest utility rates, typically California, the Midwest and the Northeast. ~~The Company's~~

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 ~~listed~~quoted on ~~NASDAQ~~OTC Markets Group, Inc.'s OTCQX Best Market tier and trades under the ~~ticker~~ symbol ~~TGEN.~~"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 (see Note 3. "Acquisition of American DG Energy Inc.").~~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 of 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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2023.

The condensed consolidated balance sheet at December 31, ~~2016~~2022 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 Inc.'s Annual Report on Form 10-K and American DG Energy Inc.'s~~Tecogen's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

~~There have been no significant changes in accounting principles, practices or methods for making estimates.~~

The accompanying unaudited condensed consolidated financial statements include our accounts and the accounts of ~~the Company and~~ entities in which ~~it has~~we have a controlling financial interest. Those entities include ~~the Company's~~our wholly-owned subsidiaries American DG Energy Inc. ~~and Ilios~~, Tecogen CHP Solutions, Inc., and a joint venture, American DG New York, LLC, in which American DG Energy Inc. holds a ~~51.0%~~51% interest. Investments in partnerships and companies in which ~~the Company does~~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.

The Company’s operations are comprised of two business segments. Our Products and Services segment designs, manufactures and sells industrial and commercial cogeneration systems as described above. Our Energy Production segment sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.

~~Reclassification~~

~~Certain prior period amounts have been reclassified to conform with current year presentation.~~

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

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.

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.

~~Significant New Accounting Standards~~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.

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 ~~Updates Not Yet Effective~~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 ~~Recognition~~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.

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 ~~May 2014,~~general, our business segmentation is aligned according to the ~~Financial Accounting Standards Board ("FASB") issued an accounting standard update related to~~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 ~~from contracts with customers, which, along with amendments issued in 2015~~by major source by segment for the three months ended March 31, 2023 and ~~2016, will supersede~~2022.


	Three Months Ended March 31, 2023
	Products		Services		Energy Production		Total
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

TECOGEN INC.

Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements


	Three Months Ended March 31, 2022
	Products		Services		Energy Production		Total
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. 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. 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.

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

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 bill the customer and recognize revenue for the various forms of energy delivered, based on 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 ~~U.S. GAAP guidance~~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 that amount to which we have the right to invoice the customer under the contract. Payment terms on invoices under these contracts are generally 30 days.

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 three months ended March 31, 2023 that was included in unbilled revenue at the end of the period. Approximately $16,428 was billed in this ~~topic~~period that had been recognized as revenue in previous periods.

Revenue recognized during the three ended months March 31, 2023 that was included in deferred revenue at the beginning of the period was approximately $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 ~~eliminate industry-specific guidance. The underlying principle~~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 March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2.3 million. We expect to recognize revenue ~~when promised goods or services are transferred to customers in an amount that reflects~~of approximately 98.5% of the ~~consideration that is expected to be received for those goods or services. This accounting standard update, as amended, will be effective for~~remaining performance obligations over the ~~Company beginning~~next 24 months, 90.1% recognized in the first ~~quarter of fiscal 2018. The new revenue standard may be applied retrospectively~~12 months and 8.4% recognized over the subsequent 12 months, and the remainder recognized thereafter.

TECOGEN INC.

Notes to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption ("modified retrospective basis"). The Company expects to adopt this accounting standard update on a modified retrospective basis in the first quarter of fiscal 2018, and has engaged an outside expert to assist with the evaluation of the impact of this accounting standard update on its consolidated financial statements and its implementation.Condensed Consolidated Financial Statements

~~Leases~~In February 2016, the FASB issued an accounting standard update related to leases requiring lessees to recognize operating and financing lease liabilities on the balance sheet, as well as corresponding right-of-use assets. The new lease standard also makes some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In addition, disclosures will be required to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019 on a modified retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

Note 2.3. Income (Loss) Per Common Share

Basic and diluted income (loss) per share for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively, were as follows:


	Three Months Ended
	March 31, 2023		March 31, 2022
Numerator:
Net income (loss) available to stockholders	$	(1,490,029)	$	89,409

Denominator:
Weighted average shares outstanding - Basic	24,850,261		24,850,261
Effect of dilutive securities:
Stock options	—		178,355
Weighted average shares outstanding - Diluted	24,850,261		25,028,616

Basic income (loss) per share	$	(0.06)	$	—
Diluted income (loss) per share	$	(0.06)	$	—

Anti-dilutive shares underlying stock options outstanding	1,744,351		928,271


Note 4.			Inventories, net

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Net income (loss) attributable to stockholders $ 27,211
$ 207,868
$ (221,544 ) $ (1,100,839 )
Weighted average shares outstanding - Basic 24,720,613
19,640,812
22,643,406
19,071,497
Basic income (loss) per share $ 0.00
$ 0.01
$ (0.01 ) $ (0.06 )
Weighted average shares outstanding - Diluted 24,930,624
20,229,120
22,643,406
19,071,497
Diluted income (loss) per share $0.00 $0.01 $ (0.01 ) $ (0.06 )
Anti-dilutive shares underlying stock options outstanding

235,736
1,130,158
Anti-dilutive convertible debentures

889,830
889,830
Anti-dilutive warrants outstanding

250,000
250,000
Inventories at March 31, 2023 and December 31, 2022 consisted of the following:

Note ~~3. Acquisition of American DG Energy Inc.~~

On May 18, 2017, we completed our acquisition, by means of a stock-for-stock merger, of 100% of the outstanding common shares of American DG Energy Inc. (“American DG Energy" or "ADGE”), a company which installs, owns, operates and maintains complete distributed generation of electricity systems, or DG systems or energy systems, and other complementary systems at customer sites and sells electricity, hot water, heat and cooling energy under long-term contracts at prices guaranteed to the customer to be below conventional utility rates, by means of a merger of one of our wholly owned subsidiaries with and into ADGE such that ADGE became a wholly owned subsidiary of Tecogen. We acquired ADGE to, among other reasons, expand our product offerings and benefit directly from the long-term contracted revenue streams generated by these installations. We gained control of ADGE on May 18, 2017 by issuing common stock to the prior stockholders of ADGE.

We have included the financial results of ADGE in our condensed consolidated financial statements from the date of acquisition. For the three and nine months ended September 30, 2017, ADGE contributed $1,556,115 and $2,330,307 to our total revenues and $832,917 and $1,276,566 to our gross profit, respectively.

Acquisition related costs included in general and administrative expenses totaled $37,445 and $374,042, respectively for the three and nine months ended September 30, 2017. Stock issuance related costs totaling $367,101 were netted against additional paid in capital during the nine months ended September 30, 2017.

The merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986. Subject to the terms and conditions of the merger agreement, at the

~~TECOGEN INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~closing of the merger, each outstanding share of ADGE common stock was converted into the right to receive approximately 0.092 shares of common stock of Tecogen (the "Exchange Ratio").~~

Also in connection with the merger, Tecogen, at the effective time of the merger, assumed the (a) outstanding stock options of ADGE and (b) outstanding warrants to purchase common stock of ADGE, each as adjusted pursuant to the Exchange Ratio and subject to the terms of the merger agreement.

The fair value of the 4,662,937 shares of common stock issued as part of the consideration for the acquisition was determined based on the closing market price of Tecogen’s stock on the date of acquisition. Additionally, as there is no required service condition in the assumed equity-based awards, 100% of the estimated fair value of the replacement equity-based awards at the date of the merger is considered attributable to pre-combination service and accordingly is included in the consideration.

The following table summarizes the consideration paid for ADGE and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date of the noncontrolling interest in American DG New York, LLC, a consolidated subsidiary of ADGE.

Consideration
  Tecogen common stock - 4,662,937 shares $ 18,745,007
  Assumed fully vested equity awards 114,896

$ 18,859,903

Recognized amounts of identifiable assets acquired and liabilities assumed
  Financial assets $ 1,551,590
  Inventory 108,333
  Prepaid and other current assets 358,628
  Property, plant and equipment 15,430,250
  Investment securities 519,568
  Identifiable intangibles assets 1,456,166
  Financial liabilities (1,857,859 )
  Unfavorable contract liability (10,838,571 )
  Other liabilities (939 )
    Total identifiable net assets 6,727,166
Noncontrolling interest in American DG New York, LLC (469,672 )
Excess of cost over fair value of net assets acquired 12,602,409

$ 18,859,903

Amounts recognized in respect of inventory, property, plant and equipment, identifiable intangible assets, unfavorable contract liability and noncontrolling interest are provisional, pending completion of the necessary valuations and analysis.

Excess of cost over fair value of net assets acquired of $12.6 million arising from the acquisition is primarily attributable to the going concern element of ADGE’s business, including its assembled workforce and the long-term contractual nature of its business, as well as expected cost synergies from the merger related primarily to the elimination of administrative overhead and duplicative personnel. None of the excess purchase price over net assets acquired recognized is expected to be deductible for income tax purposes.

Identified intangible assets and the unfavorable contract liability, both of which relate to existing customer contracts, and the estimated amortization are more fully described in Note 5, "Intangible Assets and Liabilities Other Than Goodwill and Excess of Cost Over Fair Value of Net Assets Acquired".

The fair value of the noncontrolling interest in American DG New York, LLC, a consolidated subsidiary of ADGE, was estimated using the income approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within level 3 of the fair value hierarchy described in ASC Section 820-10-35. Key assumptions include a discount rate of 5.61% and the run out of existing contracts at current levels of profitability.

~~TECOGEN INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Unaudited Pro Forma Financial Information~~

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Tecogen and ADGE as though the companies were combined as of the beginning of fiscal 2016. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the acquisition including amortization charges and credits from acquired intangible assets and liabilities (certain of which are preliminary), and depreciation adjustments related to fair value as though the aforementioned companies were combined as of the beginning of fiscal 2016. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2016.

Nine months ended September 30,
2017 2016
Total revenues $ 25,030,586
$ 21,240,102
Net income (loss) (998,323 ) (2,236,396 )
Basic earnings (loss) per share (0.04 ) (0.09 )
Diluted earnings (loss) per share (0.04 ) (0.09 )

One-time acquisition-related expenses related to the merger incurred during the three-month and nine-month periods ended September 30, 2017 are not included in the unaudited pro forma financial information as they are not expected to have a continuing impact on the consolidated results.

The unaudited pro forma financial information does not include the revenues or results of operations of a subsidiary previously owned and consolidated by American DG Energy as that subsidiary was disposed of in 2016 prior to the acquisition by Tecogen and was considered to be a discontinued operation by American DG Energy. Additionally, the unaudited pro forma financial information does not include a gain recognized on deconsolidation of that same subsidiary by American DG Energy and an amount of interest cost related to American DG Energy's long-term debt which was extinguished contemporaneously with the disposition of the subsidiary.

~~Note 4.~~5. Property, Plant and Equipment, net

Property, plant and equipment at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 consisted of the following:

* Lesser of estimated useful life of asset or lease term

Depreciation and amortization expense on property and equipment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 was ~~$425,911~~$117,492 and ~~$751,960, and $42,084 and $125,255,~~$126,792, respectively.

TECOGEN INC.

Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements

Note 5.6. Intangible Assets and Liabilities Other Than Goodwill ~~and Excess of Cost Over Fair Value of Net Assets Acquired~~

As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016 the Company~~2022 we had the following amounts related to intangible assets and liabilities other than ~~goodwill and excess of cost over fair value of net assets acquired:~~goodwill:


	March 31, 2023						December 31, 2022
Intangible assets	Cost		Accumulated Amortization		Total		Cost		Accumulated Amortization		Total
Product certifications	$	777,465	$	(597,499)	$	179,966	$	777,465	$	(584,863)	$	192,602
Patents	888,910		(427,515)		461,395		888,910		(405,140)		483,770
Developed technology	240,000		(160,000)		80,000		240,000		(156,000)		84,000
Trademarks	26,896		—		26,896		26,896		—		26,896
In Process R&D	263,936		(75,410)		188,526		263,936		(65,984)		197,952
Favorable contract asset	384,465		(373,363)		11,102		384,465		(372,091)		12,374

	$	2,581,672	$	(1,633,787)	$	947,885	$	2,581,672	$	(1,584,078)	$	997,594

Intangible liability
Unfavorable contract liability	$	2,618,168	$	(1,859,232)	$	758,936	$	2,618,168	$	(1,797,951)	$	820,217

September 30, 2017 December 31, 2016
Intangible assets Cost Accumulated Amortization Total Cost Accumulated Amortization Total
Product certifications $ 602,202
$ (272,503 ) $ 329,699
$ 544,651
$ (233,992 ) $ 310,659
Patents 656,105
(146,983 ) 509,122
681,155
(123,012 ) 558,143
Developed technology 240,000
(72,000 ) 168,000
240,000
(60,000 ) 180,000
Trademarks 19,215
—
19,215
17,165
—
17,165
Favorable contract asset 1,456,166
(52,024 ) 1,404,142
—
—
—
$ 2,973,688
$ (543,510 ) $ 2,430,178
$ 1,482,971
$ (417,004 ) $ 1,065,967

Intangible liability
Unfavorable contract liability $ 10,838,571
$ (480,288 ) $ 10,358,283
$ —
$ —
$ —

The aggregate amortization expense related to intangible assets and liabilities exclusive of contract related intangibles for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 was ~~$74,482~~$49,361 and ~~$73,511, respectively.~~$50,795. The net credit to cost of sales related to the amortization of the contract related intangible ~~assets~~asset and ~~liabilities~~liability for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 was ~~$428,264~~$60,933 and ~~$-0-, respectively.~~$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 ~~the Company on~~us in May 18, 2017 (see Note 3. "Acquisition of American DG Energy Inc."). These contracts are long-term and provide customers with an alternative source of electrical power in addition to that provided by the local power utility, at rates that are lower than local utilities. This alternative electrical power is typically produced by ADGE owned, operated and maintained natural gas powered systems installed at the customers' sites, with ADGE bearing all costs of operation and maintenance. In addition to the alternative source of electrical power provided by ADGE’s systems, customers can opt to add and take advantage of the heat generated in the electrical production process in the form of hot water and/or space heating. Pricing to the customer for electrical power produced and supplied by ADGE under the contracts is under a fixed formula which requires the customer to pay for the kilowatts of electrical power provided at a fixed percentage discount to the local utility’s electric rate for that period. As a result, as utility rates for electrical power change, the amount ADGE is able to charge the customer under the contract also changes. There has been a sharp decrease in electric rates over the past several years, subsequent to the vast majority of customer contract dates, causing the billable value of the electrical power generated by ADGE’s systems to decrease, resulting in a deterioration of expected profitability. As of the date of acquisition, utility electric rates were significantly below the level anticipated at the time the fixed percentage discounts contained in the vast majority of ADGE’s customer contracts were contracted for, thus these contract terms, although they produce cash flow, were considered to be off market in the vast majority of ADGE’s customer contracts. Additionally, the demand and volume of kilowatts produced and billed for vary by contract and by period and in certain instances have been significantly below what was originally expected such that had it been known at the time the contract(s) were negotiated, it would have influenced ADGE’s determination of the level of the fixed percentage discount in those contracts.2017.

The determination of fair value requires development of an estimate of the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Contracts are considered to be assets or liabilities by virtue of the rights and obligations inherent in the contract terms. Typically, contracts with terms considered to be at market are considered to have no fair value as in order to be entitled to the rights under the contract performance must occur for which a market rate of return is earned due to the at market terms. The fair value of a contract is primarily a measurement of its off market terms. The obligation to perform under a contract with terms that are unfavorable to market results in a liability to the extent its terms are off market. The resulting liability is an estimate of the price that would need to be paid to a willing market participant to assume the obligations under the contract in order for them to receive a market rate of return for their remaining performance obligation under the contract. The exact

~~TECOGEN INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

opposite holds true in instances where the terms of a contract are considered to be favorable to market. In that case an asset would exist as an estimate of the price that would be received from a willing market participant in order to be entitled to the rights under the contract.

In determining the estimate of fair value of ADGE’s customer contracts, the measure of at market, and thus the baseline to measure the amount related to any of the off market terms or conditions with respect to the contracts, was considered best determined, given the nature of the services provided under the contracts, by utilizing a benchmark level of margin, in this case 35% of revenue which is consistent with the average return on revenue of US investor owned public utilities. It is believed that a market participant would have utilized a similar margin in arriving at a buy price for the contract(s).

Amortization of intangibles including contract related amounts is calculated using the ~~straight line~~straight-line method over the remaining useful life or contract term. Aggregate future amortization over the next five years and thereafter as of March 31, 2023 is estimated to be as follows:


	Non-contract Related Intangibles		Contract Related Intangibles		Total
Year 1	$	198,951	$	(223,230)	$	(24,279)
Year 2	181,065		(146,940)		34,125
Year 3	177,295		(97,376)		79,919
Year 4	172,495		(62,692)		109,803
Year 5	136,158		(55,026)		81,132
Thereafter	55,025		(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 two individual sales of energy producing assets, for a total of eight 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. Actual results are

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

Year 1 $ (993,749 )
Year 2 (911,514 )
Year 3 (847,307 )
Year 4 (858,084 )
Year 5 (840,273 )
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 March 31, 2023, we do not expect to make any material payments under the guarantee.

~~Note 6. Goodwill~~At March 31, 2023, we were due $22,229 under the energy production contracts, representing outstanding accounts receivable balances that were due from the purchaser's customers which were past due at December 31, 2022 and ~~Excess of Cost Over Fair Value of Net Assets Acquired~~

~~Changes~~have since been collected. We expect to receive these funds in the ~~carrying amount~~third quarter of ~~goodwill and~~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 ~~cost over fair~~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.

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 ~~net assets acquired~~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 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 months ended March 31, 2023 and 2022 was $189,715 and and $196,979, respectively.

Supplemental information related to leases for the three months ended March 31, 2023 was as follows:


	Three Months Ended
	March 31, 2023			March 31, 2022
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 liabilities	$	—		$	—
Weighted-average remaining lease term - operating leases	3.60 years			3.80 years
Weighted-average discount rate - operating leases	6		%	6		%

Supplemental information related to operating leases as of March 31, 2023 and December 31, 2022 was as follows:

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements


	March 31, 2023		December 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-term	496,526		623,452
Total operating lease liability	$	1,143,331	$	1,311,041

Future minimum lease commitments under non-cancellable operating leases as of March 31, 2023 were as follows:


	Operating Leases
Year 1	$	691,899
Year 2	146,956
Year 3	120,763
Year 4	94,023
Year 5	53,092
Thereafter	157,648
Total lease payments	1,264,381
Less: imputed interest	121,050
Total	$	1,143,331

Goodwill Excess of cost over fair value of net assets acquired
Balance at December 31, 2016 $ 40,870
$ —
Acquisitions —
12,602,409
Balance at September 30, 2017 $ 40,870
$ 12,602,409

~~Excess~~The lease on our headquarters located in Waltham, Massachusetts which consists of ~~cost over fair value~~approximately 43,000 square feet of ~~net assets acquired at September 30, 2017 has not~~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 ~~yet been allocated~~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 ~~respective segments pending completion~~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 ~~necessary analysis.~~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 7.9. Stock-Based Compensation

Stock-Based Compensation

~~The Company~~We adopted ~~the~~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 of the Company.~~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 ~~September 30,~~March 31, 2023, and in June 2017 orstockholders approved an amendment to extend the ~~Amended Plan.~~termination date of the Plan to January 1, 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 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 ~~September 30, 2017~~March 31, 2023 was ~~2,250,536.~~150,893.

During the three months ended March 31, 2023, we did not grant any options to purchase shares of common stock under the 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

TECOGEN INC.

Notes to ~~Unaudited~~ 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. The number of shares remaining available for future issuance under the Plan as of 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 Plan.

Stock option activity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was as follows:

Common Stock Options
Number of
Options

Exercise
Price
Per
Share

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Life

Aggregate
Intrinsic
Value
Outstanding, December 31, 2016 1,117,918
$0.79-$5.39 $ 3.10
5.00 years $ 1,415,150
Granted 45,000
$3.22-$3.72 3.35

Assumed in merger 156,124
$3.15-$30.33 —
10.35

Exercised (79,543 ) $0.79-$2.00 1.62

Canceled and forfeited (106,112 ) $2.60-$30.33 9.67

Outstanding, September 30, 2017 1,133,387
$0.79-$25.11 $ 3.62
5.25 years $ 484,535
Exercisable, September 30, 2017 883,631
$ 3.42
$ 201,957
Vested and expected to vest, September 30, 2017 1,095,925
$ 3.59
$ 605,063

Consolidated stock-based compensation expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 was ~~$138,329~~$77,348 and ~~$117,065,~~$95,707, respectively. No tax benefit was recognized related to the stock-based compensation recorded during the ~~periods.~~period.

At March 31, 2023 the total compensation cost related to unvested stock option awards not yet recognized is $421,659 and this amount will be recognized over a weighted average period of 1.46 years.

Note 8.10. 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. ~~The Company~~We currently ~~does~~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.

The following ~~table~~tables presents the asset reported in "other assets" in the consolidated balance sheet measured at its fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2023 and 2022 by level within the fair value hierarchy.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2017 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
Total Level 1 Level 2 Level 3 Total gains (losses)
Recurring fair value measurements
Available-for-sale equity securities
EuroSite Power Inc. $ 334,570
$ —
$ —
$ 334,570
$ (184,998 )
Total recurring fair value measurements $ 334,570
$ —
$ —
$ 334,570
$ (184,998 )


March 31, 2023			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Unrealized
Description	Total		Level 1		Level 2		Level 3		Gains
Recurring fair value measurements
Marketable equity securities
EuroSite Power Inc.	$	93,744	$	—	$	93,744	$	—	$	—
Total recurring fair value measurements	$	93,744	$	—	$	93,744	$	—	$	—

March 31, 2022			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Unrealized
Description	Total		Level 1		Level 2		Level 3		Gains
Recurring fair value measurements
Marketable equity securities
EuroSite Power Inc.	$	112,492	$	—	$	112,492	$	—	$	37,497
Total recurring fair value measurements	$	112,492	$	—	$	112,492	$	—	$	37,497

~~The Company utilizes~~ We utilize a Level 32 category fair value measurement to value its investment in EuroSite Power, Inc. as ~~an available-for-sale~~a marketable equity security at period end. That measurement is ~~determined by management based on~~equal to the ~~lowest~~quoted market closing ~~sales~~ price ~~in a 15 day trading period prior to~~at period end. Since this security is not actively traded we classify it as Level 2.

~~TECOGEN INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The following table summarizes changes in ~~level 3~~Level 2 assets which are comprised of ~~available-for-sale~~marketable equity securities for the ~~period:~~three months ended March 31, 2023 and 2022:

Fair value at acquisition on May 18, 2017 $ 519,568
Unrealized loss recognized in other comprehensive loss (184,998 )
Fair value at September 30, 2017 $ 334,570

~~Note 9. Commitments and Contingencies~~

The Company guarantees certain obligations of a former subsidiary of American DG Energy, 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 at September 30, 2017 of approximately $301,000 due ratably in equal installments through September 2021, and certain guarantees of performance in respect of certain customer contracts. Based on current conditions, the Company does not believe there to be any amounts probable of payment by the Company under any of the guarantees and has estimated the value associated with the non-contingent aspect of the guarantees is approximately $10,000 which is recorded as liability in the accompanying financial statements.

~~Legal Proceedings~~

Tecogen is not currently a party to any material litigation arising from its operations, and it is not aware of any pending or threatened litigation against it relating to its operations that could have a material adverse effect on its business, operating results or financial condition. However, it is or has been a party to a claim in the Superior Court of the Commonwealth of Massachusetts and named as a defendant in a case in the United States District Court for the District of Massachusetts, described below, related ~~to the Merger.~~

~~Massachusetts Superior Court Action~~

On or about February 6, 2017, ADGE, John Hatsopoulos, George N. Hatsopoulos, Charles T. Maxwell, Deanna M. Petersen, Christine Klaskin, John Rowe, Joan Giacinti, Elias Samaras, Tecogen, and Merger Sub were served with a Verified Complaint by William C. May ("May"), individually and on behalf of the other shareholders of ADGE as a class. The action was commenced in the Business Litigation Session of the Superior Court of the Commonwealth of Massachusetts, Civil Action No. 17-0390. The complaint alleged class action claims arising out of the proposed Merger. On May 31, 2017, May voluntarily dismissed the action and consolidated his claims with the pending federal action in the United States District Court for the District of Massachusetts. If the complaint in the federal court is dismissed, it is possible that May or another plaintiff will recommence an action in state court with similar claims to those asserted by May.

~~United States District Court Action~~

On or about February 15, 2017, a lawsuit was filed in the United States District Court for the District of Massachusetts by Lee Vardakas (“Vardakas”), individually and on behalf of other stockholders of ADGE, naming ADGE, John N. Hatsopoulos, George N. Hatsopoulos, Benjamin Locke, Charles T. Maxwell, Deanne M. Petersen, Christine M. Klaskin, John Rowe, Joan Giacinti, Elias Samaras, Tecogen., Merger Sub., and Cassel Salpeter and Co., LLC, as defendants. The action is captioned ~~Vardakas v. American DG Energy, Inc., Case No. 17-CV-10247(LTS). At the time Vardakas commenced the action, his complaint challenged the proposed Merger between Tecogen and ADGE.~~

~~On May 18, 2017, ADGE’s and Tecogen’s shareholders approved the Merger.~~

Following the consummation of the Merger (and the appointment of May, from the Massachusetts Superior Court Action, as lead plaintiff), Vardakas filed an Amended Class Action Complaint (the “Amended Complaint”). The Amended Complaint discontinued the claims against Cassel Salpeter & Co., LLC but asserted against the remaining defendants claims under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 14a-9; claims against certain defendants for control person liability under § 20(a) of the Exchange Act (collectively, the “Federal Securities Law Claims”); and common law claims for breach of fiduciary duty and aiding and abetting (the “State Law Claims”). The Federal Securities Law Claims allege, in substance, that defendants made material nondisclosure in the proxy statement about the process leading to the Merger and about the fairness opinion relied upon by ADGE’s Board of Directors in recommending the Merger to shareholders. The State Law Claims assert, in substance, that defendants breached their fiduciary duties in negotiating and approving the Merger, which, plaintiff claims, deprived ADGE’s nonaffiliated shareholders of fair value for their shares.

On July 19, 2017, defendants moved to dismiss the Amended Complaint. In their motion papers, defendants contend that the Federal Securities Law Claims are not sufficiently pleaded and fail to state a viable claim. Defendants also assert that

~~TECOGEN INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

if the Federal Securities Law Claims are dismissed, the district court must also dismiss the State Law Claims because it would lack subject matter jurisdiction. The parties are awaiting a decision from the court.

The Company believes that the lawsuit is without merit and intends to defend vigorously. The Amended Complaint does not specify the amount of damages claimed and the likelihood of an unfavorable outcome is not reasonably estimable.

~~Note 10. Related Party Transactions~~

The Company has two affiliated companies, namely Ultra Emissions Technologies Ltd, and TTcogen LLC. These companies are related because either several of the major stockholders of those companies have a significant ownership position in the Company or they are joint ventures between Tecogen and other parties.

In January of 2017, prior to its acquisition of American DG Energy, the Company purchased a large quantity of used equipment from American DG Energy for approximately $985,000. Tecogen plans to sell this equipment to specific customers in the coming quarters.

In connection with the acquisition of American DG Energy, the Company assumed a loan from John N. Hatsopoulos, the Company's Co-Chief Executive Officer and a Company Director. The loan is in the amount of $850,000 and bears interest at 6%, payable quarterly, and matures and becomes due and payable on May 25, 2018.

~~Ultra Emissions Technologies Ltd.~~

On December 28, 2015, the Company entered into a joint venture agreement relating to the formation of a joint venture company (the “JV”) organized to develop and commercialize Tecogen’s patented technology (“Ultera^® Technology”) designed to reduce harmful emissions generated by engines using fossil fuels. The joint venture company, called Ultra Emissions Technologies Limited, was organized under the laws of the Island of Jersey, Channel Islands.

The Company received a 50% equity interest in the JV in exchange for a fully paid-up worldwide license to use Tecogen’s Ultera emissions control technology in the field of mobile vehicles burning fossil fuels. The other half of the joint venture equity interests were purchased for $3,000,000 by a small group of offshore investors. Warrants to purchase additional equity securities in the JV were granted to all parties pro rata. If the venture is not successful, all licensed intellectual property rights will revert to Tecogen.

On August 2, 2016, Tecogen exercised 2,000,000 warrants (the "Ultratek Warrants"), in the JV, at $1.00 per share, for an aggregate amount of $2 million. The funds used to exercise the Ultratek Warrants were acquired by the Company from the holders of certain Company warrants (the "Tecogen Warrant Holders"), when they partially exercised their Tecogen warrants (the "Tecogen Warrants"), in July of 2016. The Tecogen Warrant Holders exercised a total of 675,000 Tecogen Warrants with a $4.00 exercise price, resulting in cash proceeds of $2,700,000 to the Company, which the Company then used in part to invest in the JV. An additional $8,500,000 was raised from other outside investors for a total equity investment in the JV to date of $13,500,000. Due to this investment, Tecogen's ownership has decreased to 43%.

The JV is expected to have losses as it performs the necessary research and development with the Ultera technology. The Company accounts for its interest in the JV using the equity method. Income and losses will be recorded consistent with an agreement between the JV shareholders as to how income and losses will be allocated. These allocations are consistent with the allocation of cash distributions and liquidating distributions of the JV. The shareholder agreement calls for Tecogen's investment to be returned before any other shareholder if the venture does not achieve commercialization. As a result, as of September 30, 2017, Tecogen has not recorded any of the losses of the JV as the cumulative losses of the JV have not exceeded the other owners' investments to date. As of ~~September 30, 2017, $94,777 is due to Tecogen from Ultratek.~~

On May 19, 2016, the Company along with Tedom a.s., a corporation incorporated in the Czech Republic and a European combined heat and power product manufacture ("Tedom"), entered into a joint venture, where the Company will hold a 50% participating interest and the remaining 50% interest will be with Tedom. As part of the joint venture, the parties agreed to create a Delaware limited liability company, TTcogen LLC ("TTcogen"), to carry out the business of the venture. Tedom granted TTcogen the sole and exclusive right to market, sell, offer for sale, and distribute certain products as agreed to by the parties throughout the United States. The product offerings of the joint venture expand the current Tecogen product offerings to the MicroCHP of 35kW to large 4,000kW plants. Tecogen agreed to refer all appropriate sale leads to TTcogen regarding the products agreed to by the parties and Tecogen shall have the first right to repair and maintain the products sold by TTcogen.

The Company accounts for its interest in TTcogen's operations using equity method accounting. Any initial operating losses of TTcogen are to be borne and funded by Tedom. To the extent any such losses are borne and funded solely by Tedom, the

~~TECOGEN INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

On September 22, 2017, the Company provided written notice to Tedom and Tedom USA Inc., a Delaware subsidiary of Tedom (“Tedom USA”) in exercise of its rights under the Join Venture Agreement dated May 19, 2016 ("JVA") and its corresponding LLC Operating Agreement ("LLC Operating Agreement"), of the immediate termination of the JVA and LLC Operating Agreement. This notice begins the dissolution process under the LLC Operating Agreement. The termination notice was the result of a material and incurable breach of certain provisions thereunder by Tedom and/or Tedom USA. The Company intends to work together with Tedom to come to an amicable decision to create a new path forward for TTcogen and the relationship between the Company and Tedom and/or facilitate an amicable wind up of TTcogen's affairs as provided for in the LLC Operating Agreement and in accordance with the terms therewith.

~~Note 11. Segments~~

~~As of September 30, 2017, the Company was~~March 31, 2023, we were organized into ~~two~~three operating ~~divisions~~segments through which senior management evaluates ~~the Company’s~~our business. These ~~divisions,~~segments, as described in more detail in Note 1, are organized around the products and services provided to customers and represent ~~the Company’s~~our reportable segments. ~~Prior to the acquisition of ADGE (see Note 3. “Acquisition of American DG Energy Inc.”), the Company’s operations were comprised of a single segment.The~~The following table presents information by reportable segment for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016 and the nine months ended September 30, 2017 and 2016~~:2022:

Products and Services Energy Production Corporate, other and elimination (1) Total
Three months ended September 30, 2017

Revenue - external customers $ 6,945,083
$ 1,556,115
$ —
$ 8,501,198
Intersegment revenue 250,525
—
(250,525 ) —
   Total revenue 7,195,608
1,556,115
(250,525 ) 8,501,198
Gross profit 2,425,114
832,917
—
3,258,031
Identifiable assets 19,179,530
16,028,115
21,424,270
56,631,915

Three months ended September 30, 2016

Revenue - external customers $ 6,616,455
$ —
$ —
$ 6,616,455
Intersegment revenue —
—
—
—
   Total revenue 6,616,455
—
—
6,616,455
Gross profit 2,774,818
—
—
2,774,818
Identifiable assets 15,112,139
—
8,078,531
23,190,670

Nine months ended September 30, 2017

Revenue - external customers $ 20,608,196
$ 2,330,307
$ —
$ 22,938,503
Intersegment revenue 442,343
—
(442,343 ) —
   Total revenue 21,050,539
2,330,307
(442,343 ) 22,938,503
Gross profit 7,882,758
1,276,566
—
9,159,324
Identifiable assets 19,179,530
16,028,115
21,424,270
56,631,915

Nine months ended September 30, 2016

Revenue - external customers $ 17,379,278
$ —
$ —
$ 17,379,278
Intersegment revenue —
—
—
—
   Total revenue 17,379,278
—
—
17,379,278
Gross profit 6,597,056
—
—
6,597,056
Identifiable assets 15,112,139
—
8,078,531
23,190,670

(1) Corporate, intersegment revenue, other and elimination includes various corporate assets. Excess of cost over fair value of net assets acquired at September 30, 2017 has not as of yet been allocated to the respective segments pending completion of the necessary analysis.

TECOGEN INC.

Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements


	Products		Services		Energy Production		Corporate, other and elimination (1)		Total
Three Months Ended March 31, 2023

Revenue - external customers	$	1,710,136	$	3,136,173	$	533,509	$	—	$	5,379,818
Intersegment revenue	—		88,214		—		(88,214)		$	—
Total revenue	$	1,710,136	$	3,224,387	$	533,509	$	(88,214)	$	5,379,818
Gross profit	$	497,567	$	1,398,572	$	195,770	$	—	$	2,091,909
Identifiable assets	$	12,023,164	$	9,750,153	$	3,433,439	$	3,036,675	$	28,243,431

Three Months Ended March 31, 2022

Revenue - external customers	$	3,939,481	$	2,917,280	$	581,562	$	—	$	7,438,323
Intersegment revenue	—		95,253		—		(95,253)		—
Total revenue	$	3,939,481	$	3,012,533	$	581,562	$	(95,253)	$	7,438,323
Gross profit	$	1,294,726	$	1,550,527	$	245,535	$	—	$	3,090,788
Identifiable assets	$	10,204,104	$	9,827,069	$	3,978,145	$	8,754,653	$	32,763,971

(1) Corporate, intersegment revenue, other and elimination includes various corporate assets.

~~Note 12.~~


Note 12.			Subsequent Events

By unanimous written consent on October 24, 2017, the shareholders of Tecogen Inc.'s (the "Company") joint venture, Ultra Emissions Technologies S.ar.L, ("Ultratek"), voted to dissolve Ultratek, thus terminating the joint venture agreement dated December 28, 2015 and the license agreement between the Company and Ultratek, dated December 28, 2015. This joint venture agreement and license agreement is described in its entirety on the Company's Form 8-K that was filed with the Securities and Exchange Commission on December 31, 2015.

Pursuant to the unanimous shareholder consent dissolving Ultratek, the Company will be receiving its full $2,000,000 investment into Ultratek back upon the completion of the liquidation process. Further, upon termination of the license agreement all intellectual property immediately reverts back to the Company. The Company has also agreed to purchase all of the assets of Ultratek upon dissolution, including new intellectual property that Ultratek developed, for a total purchase price of $400,000.

~~The Company has~~ We have evaluated ~~subsequent~~ events through the date of this filing, and, except as described below, have determined that no ~~additional~~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.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

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

~~Forward-looking statements are made throughout this~~This Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~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. ~~Without limiting~~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 ~~foregoing,~~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 ~~“believes,~~such as “future,” “anticipates,” ~~“plans,~~“believes,” “estimates,” “expects,” ~~“seeks,~~“intends,” ~~“estimates”~~“plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar ~~expressions~~terms. Forward-looking statements are ~~intended to identify~~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 ~~current~~products and ~~future cash requirements,~~services, the availability of incentives, rebates, and tax benefits relating to our ~~expectations regarding suppliers of cogeneration units, and statements regarding potential financing activities~~products, changes in the ~~future.~~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, 2022 (“20221 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 ~~the Company~~we may elect to update forward-looking statements in the future, itwe specifically ~~disclaims~~disclaim any obligation to do so, even if ~~the Company’s~~our estimates change, and ~~readers~~you should not rely on those forward-looking statements as representing ~~the Company’s~~ours views as of any date subsequent to the date of the filing of this ~~Quarterly Report. There~~Form 10-Q.

Recent Developments

Assumption of Aegis Energy Services Maintenance Agreements

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, and 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.

Tecochill Hybrid-Drive Air-Cooled Chiller Development

TECOGEN INC.

During the third quarter of 2021 we began development of 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 introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and expect to see incremental revenue in 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.

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.

Employee Retention Credit

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

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 ~~important factors that could cause~~infections, fatalities, the ~~actual results~~duration of the ~~Company~~pandemic, steps taken to ~~differ materially~~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, we 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. However, we have also seen higher electricity prices as much of the electricity production in the United States is generated from ~~those indicated~~fossil fuels. If the electricity prices continue to rise, the economic savings generated by ~~such forward-looking statements, including those detailed under~~our products are likely to increase. In addition to the ~~heading “Risk Factors”~~direct result of changes in ~~this Quarterly Report.~~

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 Inc., or the Company, or~~ 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 ~~specially~~ adapted to run on natural gas. In some cases, our customers may choose to have ~~the Company~~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 ~~portable~~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 ~~MCHP (mechanical power~~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 3,150 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.~~, or American DG or ADGE, on~~ ("ADGE") in May ~~18,~~ 2017, we ~~now also sell energy in the form~~added an additional source of revenue. Through ADGE, we install, own, operate and maintain complete distributed generation of electricity ~~heat,~~systems, or DG systems or energy systems, and other complementary systems at customer sites, and sell electricity, hot water, heat and cooling ~~to our customers~~energy under long-term energy sales agreements (with a standard term of 10 to 15 years). Our typical sales model is to own and install energy systems in our customers’ buildings and sell the energy produced by those systems backcontracts at prices guaranteed to the ~~customers at a cost set by a negotiated formula in our~~ customer ~~contracts.~~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 ~~customers’~~customer's local energy utility that month. ~~Our revenues commence as new energy systems become operational. As of September 30, 2017, we had 93 energy systems operational.~~

~~The Company’s~~Our operations are comprised of ~~two~~three business segments. Our Products ~~and Services~~ segment ~~("Segment 1")~~

designs, manufactures and sells industrial and commercial cogeneration systems as described above. Our Services segment provides O&M services for our products under long term service contracts. Our Energy Production segment ~~("Segment 2")~~ sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.

TECOGEN INC.

~~In addition to being a smaller reporting company, Tecogen is an emerging growth company as that term is defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act).~~

Results of Operations

~~Third~~

First Quarter of ~~2017~~2023 Compared to ~~Third~~First Quarter of ~~2016~~2022

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 Ended
	March 31, 2023		March 31, 2022
Revenues	100.0	%	100.0	%
Cost of sales	61.1	%	58.4	%
Gross profit	38.9	%	41.6	%
Operating expenses
General and administrative	51.9	%	33.3	%
Selling	9.7	%	6.7	%
Research and development	4.3	%	1.9	%


Total operating expenses	65.8	%	40.5	%
Income (loss) from operations	(26.9)	%	1.1	%
Total other income (expense), net	—	%	0.3	%
Income (loss) before income taxes	(26.9)	%	1.4	%
Provision for state income taxes	0.4	%	0.1	%
Consolidated net income (loss)	(27.4)	%	1.3	%
Income attributable to the non-controlling interest	(0.3)	%	(0.1)	%
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 Ended March 31,
	2023		2022		Increase (Decrease) $		Increase (Decrease) %
REVENUES:
Products
Cogeneration	$	543,693	$	2,174,004	$	(1,630,311)	(75.0)	%
Chiller	1,068,934		1,607,408		(538,474)		(33.5)	%
Engineered accessories	97,509		158,069		(60,560)		(38.3)	%
Total product revenues	1,710,136		3,939,481		(2,229,345)		(56.6)	%
Services
Maintenance services	3,136,173		2,897,171		239,002		8.2	%
Installation services	—		20,109		(20,109)		(100.0)	%
Total service revenues	3,136,173		2,917,280		218,893		7.5	%
Products and services	4,846,309		6,856,761		(2,010,452)		(29.3)	%
Energy production revenues	533,509		581,562		(48,053)		(8.3)	%
Total revenues	$	5,379,818	$	7,438,323	$	(2,058,505)	(27.7)	%

Total revenues infor the ~~third quarter of 2017~~three months ended March 31, 2023 were ~~$8,501,198~~$5,379,818 compared to ~~$6,616,455~~$7,438,323 for the same period in ~~2016, an increase~~2022, a decrease of ~~$1,884,743~~$2,058,505 or ~~28.5%.~~27.7% year over year.

~~Segment 1 - Product and Services~~TECOGEN INC.

Products

Product revenues in the ~~third quarter of 2017~~three months ended March 31, 2023 were ~~$2,425,616~~$1,710,136 compared to ~~$2,850,901~~$3,939,481 for the same period in ~~2016,~~2022, a decrease of ~~$425,285~~$2,229,345, or ~~14.9%~~56.6%. ~~This~~The decrease ~~was~~in revenue during the ~~aggregate of~~three months ended March 31, 2023 is due primarily to a decrease in cogeneration sales of ~~$797,528 and an increase~~$1,630,311, a decrease in chiller ~~and heat pump~~ sales of ~~$372,243.~~$538,474,and, a decrease in sales of engineered accessories of $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 ~~third quarter of 2017~~three months ended March 31, 2023 were ~~$4,519,467~~$3,136,173, compared to ~~$3,765,554~~$2,917,280 for the same period in ~~2016,~~2022, an increase of ~~$753,913~~$218,893, or ~~20.0%~~7.5%. ~~This~~The increase in revenue during the ~~third quarter~~three months ended March 31, 2023 is due primarily to an increase ~~in installation activity~~ of ~~$757,554 and a decrease of $3,641~~$239,002, or 8.2%, in service contract ~~revenues.~~revenues, offset partially by a decrease in installation revenues of $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.

~~Segment 2 -~~ Energy Production

Energy production revenues in the ~~third quarter of 2017~~three months ended March 31, 2023 were ~~$1,556,115, which represents energy revenues earned~~$533,509, compared to $581,562 for the ~~entire quarter as American DG Energy was acquired during Q2 2017.~~

same period in 2022, a decrease of $48,053, or 8.3%. The decrease in energy production revenue is a consequence of certain energy production sites that have permanently closed.

Cost of Sales

Cost of sales in the ~~third quarter of 2017~~three months ended March 31, 2023 was ~~$5,243,167~~$3,287,909 compared to ~~$3,841,637~~$4,347,535 for the same period in ~~2016, an increase~~2022, a decrease of ~~$1,401,530,~~$1,059,626, or ~~36.5%~~24.4%.

~~Segment 1 - Product and Services~~

~~Cost~~ The decrease in cost of sales ~~for~~is due to decreased product ~~and services in~~revenue volume, offset partially by the ~~third quarter~~impact of ~~2017 was $4,519,969~~inflation on material costs. During the three months ended March 31, 2023 our gross margin decreased to 38.9% compared to ~~$3,841,637~~41.6% for the same period in ~~2016, an increase~~2022, a 2.7% percentage point decrease due to higher material costs.

Products

Cost of ~~$678,332 or 17.7%. During~~sales for products in the ~~third quarter our overall gross margin~~three months ended March 31, 2023 was ~~34.9%~~$1,212,568 compared to ~~41.9%~~$2,644,756 for the same period in ~~2016,~~2022, a decrease of ~~16.7%. This decrease is~~$1,432,188, or 54.2% due to decreased product revenue volume, offset partially by higher material costs. During the three months ended March 31, 2023, our products gross margin was 29.1% compared to 32.9% for the same period in 2022, a ~~change~~3.8% percentage point decrease. The decrease in ~~product mix.~~margin is primarily a function of increased material costs.

Services

~~Segment 2 -~~Cost of sales for services in the three months ended March 31, 2023 was $1,737,602 compared to $1,366,752 for the same period in 2022, an increase of $370,850, or 27.1%. During the three months ended March 31, 2023, our services gross margin decreased to 44.6% compared to 53.1% in the same period in 2022, a 8.5% percentage point decrease. The decrease in margin is primarily due to increased material and labor costs.

Energy Production

Cost of sales for energy production in the ~~third quarter of 2017~~three months ended March 31, 2023 was ~~$723,198 which represents the cost associated with energy revenues earned during the quarter. During this period our gross margin for energy production was 53.5%.~~

~~Operating Expenses~~

General and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. General and administrative expenses in the quarter ending September 30, 2017 were $2,427,352$337,739 compared to ~~$2,003,838~~$336,027 for the same period in ~~2016,~~2022, an increase of ~~$423,514~~$1,712, or ~~21.1%~~0.5%. ~~The increase was due~~During the three months ended March 31, 2023 our energy production gross margin decreased to ~~increased costs from the addition of American DG Energy's operations.~~

~~Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the third quarter of 2017 were $503,415~~36.7% compared to ~~$367,412~~42.2% for the same period in ~~2016, an increase of $136,003 or 37.0%. This difference~~2022, a 5.5% percentage point decrease. The decrease in the energy production gross margin is due to ~~a larger sales force and increased public relations and trade show costs.~~

~~Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses~~decreased runtime at our energy production sites in the ~~quarter ending September 30, 2017 were $241,725~~three months ended March 31, 2023 compared to ~~$154,075 for~~ the same period in ~~2016, an increase of $87,650~~2022.

Operating Expenses

Operating expenses increased $531,846, or ~~56.9%. This increase was due~~17.7%, to $3,541,655 in the ~~Company's cost sharing~~three months ended March 31, 2023 compared to $3,009,809 in ~~connection with a research and development grant, which pertains to~~ the ~~potential commercialization of the Company's Ultera emissions technology for certain non-stationary applications.~~same period in 2022.

TECOGEN INC.


	Three Months Ended
Operating Expenses	March 31, 2023		March 31, 2022		Increase (Decrease) $		Increase (Decrease) %
General and administrative	$	2,792,483	$	2,473,903	$	318,580	12.9	%
Selling	520,070		501,091		18,979		3.8	%
Research and development	229,102		140,135		88,967		63.5	%
Gain on disposition of assets	—		(33,945)		33,945		(100.0)	%
Gain on termination of unfavorable contract liability	—		(71,375)		71,375		(100.0)	%
Total	$	3,541,655	$	3,009,809	$	531,846	17.7	%

~~Income from Operations~~

Income from operations for the third quarter of 2017 was $85,539 compared to $249,493 for the same period in 2016, a decrease of $163,954. The decrease was a result of lower margins due to change in product mix. Income for the third quarter of 2017 included one-time merger related expenses of $37,445 and depreciation and amortization expense on the energy producing sites of $160,061.

~~Other Income (Expense), net~~

Other expense, net for the three months ended September 30, 2017 was $30,393 compared to $41,625 for the same period in 2016. Other income (expense) includes interest and other income of $14,849, and interest expense on notes payable of $45,242 for the third quarter of 2017. For the same period in 2016, interest and other income was $3,914 and interest expense was $45,539.

~~Noncontrolling Interest~~

The income attributable to the noncontrolling interest was $27,935 for the three months ended September 30, 2017 which represents the noncontrolling interest portion of American DG Energy's 51% owned subsidiary, ADGNY, LLC.

~~Net Income Attributable to Tecogen Inc.~~

Net income attributable to Tecogen for the three months ended September 30, 2017 was $27,211 compared to $207,868 for the same period in 2016, a decrease of $180,657, year over year. The decrease was the result of a change in product mix.

~~Other Comprehensive Income~~

The unrealized gain on securities of $39,361 for the third quarter of 2017 represents a market fluctuation impacting the fair value of American DG Energy's remaining common stock ownership in its former partially owned subsidiary, EuroSite Power Inc. as of September 30, 2017.

~~First Nine Months of 2017 Compared to First Nine Months of 2016~~

~~Revenues~~

~~Total revenues for the first nine months of 2017 were $22,938,503 compared to $17,379,278 for the same period in 2016, an increase of $5,559,225 or 32.0%.~~

~~Segment 1 - Product and Services~~

Product revenues in the first nine months of 2017 were $8,349,159 compared to $7,525,909 for the same period in 2016, an increase of $823,250 or 10.9%. This increase was the net of an increase in cogeneration sales of $648,863 and an increase in chiller and heat pump sales of $174,387. Service revenues for the first nine months of 2017 were $12,259,037 compared to $9,853,369 for the same period in 2016, an increase of $2,405,668 or 24.4%. This increase in the first nine months of 2017 is due to an increase in installation activity of $2,095,758 and an increase of $309,910 in service contract revenues.

~~Segment 2 - Energy Production~~

Energy production revenues in the first nine months of 2017 were $2,330,307, which represents energy revenues earned from May 19, 2017, the date after acquisition of American DG Energy through September 30, 2017.

~~Cost of Sales~~

~~Cost of sales for the first nine months of 2017 was $13,779,179 compared to $10,782,222 for the same period in 2016, an increase of $2,996,957, or 27.8%.~~

~~TECOGEN INC.~~

~~Segment 1 - Product and Services~~

Cost of sales for product and services in the first nine months of 2017 was $12,725,438 compared to $10,782,222 for the same period in 2016, an increase of $1,943,216 or 18.0%. During the first nine months of 2017, our product and services gross margin was 38.3% compared to 38.0% for the same period in 2016, a 0.8% improvement. The increase in margin was a result of material cost savings in production and ongoing product development. ~~Product gross margin for the~~ first nine months of 2017 was 37.0% compared to 33.1% for the same period in 2016, a 11.8% improvement. Service gross margin for the first nine months of 2017 was 39.1% compared to 41.7%, a decrease of 6.2% due to normal fluctuations in cost.

~~Segment 2 - Energy Production~~

Cost of sales for energy production in the first nine months of 2017 was $1,053,741 which represents the cost associated with energy revenues earned from May 19, 2017, the date after acquisition of American DG Energy through September 30, 2017; this represents approximately 42% of the second quarter's revenue plus the entire third quarter's revenue for American DG Energy. During this period our gross margin for energy production was 54.8%; higher than expected, due to seasonality and a retroactive rate change which reduced fuel costs.

~~Operating Expenses~~

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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 were ~~$7,042,500~~$2,792,483 compared to ~~$5,898,230~~$2,473,903 for the same period in ~~2016,~~2022, an increase of ~~$1,144,270~~$318,580 or ~~19.4%~~12.9%. ~~The increase was mainly due to a combination of costs incurred in connection with the merger and related litigation as well as increased costs from the addition of American DG Energy's operations.~~

Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 were ~~$1,558,378~~$520,070 compared to ~~$1,217,533~~$501,091 for the same period in ~~2016,~~2022, an increase of ~~$340,845~~$18,979 or ~~28.0%~~3.8%. ~~This difference is due to the mix of in-house sales versus representation commissions and increased public relations and trade show costs.~~

Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 were ~~$641,064~~$229,102 compared to ~~$524,696~~$140,135 for the same period in ~~2016,~~2022, an increase of ~~$116,368~~$88,967 or ~~22.2%~~63.5%. ~~This increase~~

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.

A gain of $71,375 was recognized in three months ended March 31, 2022 due to a reduction in the ~~Company's cost sharing in connection~~Unfavorable Contract Liability associated with ~~a research and development grant in process.~~the closing of certain energy production sites.

~~Loss~~Income (loss) from Operations

~~Loss~~ Our loss from operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$82,618~~$1,449,746 compared to ~~a loss~~income from operations of ~~$1,043,403~~$80,979 for the same period in ~~2016, an improvement~~2022, a decrease of ~~$960,785. The improvement was~~$1,530,725. This decrease is due primarily to ~~increased product~~the lower revenue for our Products Segment, decreased margins and services revenues, as well as the addition of our energy production revenue stream. The loss for the nine months ended September 30, 2017 included one-time merger related expenses of $156,298 and depreciation and amortization expense of $402,939.

a $531,846 increase in operating expenses.

Other Income (Expense), net

Other ~~expense,~~income, net for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$93,993~~$415 compared to ~~$122,398~~other income, net of $22,519 for the same period in ~~2016. Other~~2022, a decrease of $22,104, due primarily to the unrealized gain on investment securities of $37,497, recognized in the three months ended March 31, 2022.

Provision for State Income Taxes

The provision for state income ~~(expense) includes interest and other income of $21,033, and interest expense on notes payable of $115,026~~taxes for the ~~nine~~three months ended ~~September 30, 2017. For the same period in 2016, interest~~March 31, 2023 and ~~other~~2022 was $22,638 and $3,930, respectively and represents estimated income ~~was $9,575 and interest expense was $131,973.~~tax payments, net of refunds, to various states.

~~Noncontrolling~~Non-controlling Interest

~~The income~~ Income attributable to the ~~noncontrolling~~non-controlling interest was ~~$44,933~~$18,060 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 which represents the ~~noncontrolling~~non-controlling interest portion of American DG Energy's 51% owned subsidiary, ~~ADGNY,~~American DG New York, LLC. For the same period in ~~2016, the loss~~2022, income attributable to the ~~noncontrolling~~non-controlling interest was ~~$64,962 which was the result of Tecogen's ownership in its former partially owned subsidiary Ilios Inc.~~

~~TECOGEN INC.~~

Net ~~Loss~~Income (loss) Attributable to Tecogen Inc.

~~Net loss~~ The net income attributable to Tecogen for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$221,544~~a net loss of $1,490,029 compared to a ~~loss~~net income of ~~$1,100,839~~$89,409 for the same period in ~~2016, an improvement~~2022, a decrease of ~~$879,295. The improvement was~~$1,579,438, or 1,766.5%. This decrease is due primarily to the ~~result of the Company's merger with American DG Energy~~lower revenue for our Products Segment, decreased margins and a $531,846 increase in ~~addition to 10.9% growth in product revenue and 24.4% growth in services revenue.~~operating expenses.

~~Other Comprehensive Loss~~

The unrealized loss on securities of $184,998 for the nine months ended September 30, 2017 represents the market fluctuation impacting the fair value of American DG Energy's remaining common stock ownership in its former partially owned subsidiary, EuroSite Power Inc. as of September 30, 2017.

Liquidity and Capital Resources

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


	Three Months Ended
Cash Provided by (Used in)	March 31, 2023		March 31, 2022		Increase (Decrease)
Operating activities	$	(284,866)	$	1,894,471	$	(2,179,337)
Investing activities	—		(48,064)		48,064
Financing activities	—		—		—
Cash Provided by (Used in)	$	(284,866)	$	1,846,407	$	(2,131,273)

Consolidated working capital at ~~September 30, 2017~~March 31, 2023 was ~~$14,193,331~~$12,964,213 compared to ~~$14,436,452~~$14,344,288 at December 31, ~~2016,~~2022, a decrease of ~~$243,121.~~$1,380,075. Included in working capital were cash and cash equivalents of ~~$2,077,047~~$1,629,103 at ~~September 30, 2017,~~March 31, 2023, compared to ~~$3,721,765 in cash and cash equivalents~~$1,913,969 at December 31, ~~2016,~~2022, a decrease of ~~$1,644,718. The decrease in working capital and cash was the result of longer collection periods and pre-buying for production.~~

Cash Flows from Operating Activities

Cash used inby operating activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$1,996,871~~$284,866 compared to ~~$2,914,863~~$1,894,471 of cash provided by operating activities for the same period in ~~2016.~~2022, a decrease of $2,179,337, or 115.0% Our accounts receivable ~~balance increased to $11,094,287~~and unbilled revenue balances were $6,758,360 and $1,788,902, respectively, at ~~September 30, 2017~~March 31, 2023 compared to ~~$8,630,418~~$6,714,122 and $1,805,330 at December 31, ~~2016,~~2022, using ~~$1,908,655~~$44,238 of cash ~~due to timing~~and providing $16,428 of ~~billing, shipments, and collections. In addition, amounts due~~cash, respectively. During the three months ended March 31, 2023 we collected the majority of the outstanding Employee Retention Credit receivables, providing $667,121 of cash from ~~related parties increased by $236,971 using cash due to timing of billing and collections. Our inventory~~operations.



Delaware			04-3536131
(State or Other Jurisdiction of Incorporation or Organization)			(IRS Employer Identification No.)



45 First Avenue
Waltham, Massachusetts			02451
(Address of Principal Executive ~~Offices)~~			(Offices and Zip Code)


	Three Months Ended
	March 31, 2023		March 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income (loss)	$	(1,471,969)	$	99,568
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization, net	105,920		107,061



Stock-based compensation	77,348		95,707

Gain on disposition of assets	—		(33,945)

Unrealized gain on investment securities	—		(37,497)
Gain on termination of unfavorable contract liability	—		(71,375)


Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable	(44,238)		850,674
Employee retention credit	667,121		—
Unbilled revenue	16,428		351,259
Inventory	(1,380,052)		8,252
Prepaid expenses and other current assets	136,170		2,014
Other assets	161,931		152,888
Increase (decrease) in:
Accounts payable	905,509		894,418
Accrued expenses and other current liabilities	(143,923)		134,795
Deferred revenue	852,600		(504,229)
Other liabilities	(167,711)		(155,119)
Net cash provided by (used in) operating activities	(284,866)		1,894,471
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	—		(80,873)

Purchases of intangible assets	—		(16,220)
Proceeds from disposition of assets	—		64,669

Distributions to non-controlling interest	—		(15,640)
Net cash used in investing activities	—		(48,064)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable	—		—




Net cash provided by financing activities	—		—
Change in cash and cash equivalents	(284,866)		1,846,407
Cash and cash equivalents, beginning of the period	1,913,969		3,614,463
Cash and cash equivalents, end of the period	$	1,629,103	$	5,460,870

Supplemental disclosures of cash flows information:
Cash paid for interest	$	—	$	413
Cash paid for taxes	$	22,638	$	3,930



	Nine Months Ended
	September 30, 2017			September 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net loss	$	(176,611	)	$	(1,165,801	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net	402,939			198,766
Provision (recovery) of inventory reserve	43,609			(90,000		)
Stock-based compensation	138,329			117,065
Non-cash interest expense	577			37,923
Loss on sale of assets	2,909			640
Provision (recovery) for losses on accounts receivable	8,000			(6,000		)
Changes in operating assets and liabilities, net of effects of acquisitions
(Increase) decrease in:
Short term investments	—			294,802
Accounts receivable	(1,908,655		)	(2,664,462		)
Unbilled revenue	(776,365		)	(1,024,276		)
Inventory, net	(1,279,847		)	714,896
Due from related party	(236,971		)	744,266
Prepaid expenses and other current assets	(18,673		)	(100,398		)
Other non-current assets	(32,251		)	—
Increase (decrease) in:
Accounts payable	1,641,206			(279,196		)
Accrued expenses and other current liabilities	(233,824		)	122,809
Deferred revenue	407,379			184,103
Interest payable, related party	21,378			—
Net cash used in operating activities	(1,996,871		)	(2,914,863		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(315,205		)	(130,499		)
Purchases of intangible assets	(34,551		)	(71,223		)
Cash acquired in acquisition	971,454			—
Cash paid for investment in Ultra Emissions Technologies Ltd	—			(2,000,000		)
Payment of stock issuance costs	(367,101		)	—
Distributions to noncontrolling interest	(31,362		)	—
Net cash provided by (used in) investing activities	223,235			(2,201,722		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from demand notes payable, related party	—			150,000
Payment of stock issuance costs	—			(28,548		)
Proceeds from debt issuance costs	—			(2,034		)
Proceeds from the exercise of stock options	128,918			312,698
Proceeds from exercise of warrants	—			2,700,000
Net cash provided by financing activities	128,918			3,132,116
Net decrease in cash and cash equivalents	(1,644,718		)	(1,984,469		)
Cash and cash equivalents, beginning of the period	3,721,765			5,486,526
Cash and cash equivalents, end of the period	$	2,077,047		$	3,502,057



Supplemental disclosures of cash flows information:
Cash paid for interest	$	95,550	$	94,049
Exchange of stock for non-controlling interest in Ilios	$	—	$	330,852
Issuance of stock to acquire American DG Energy	$	18,745,007	$	—
Issuance of Tecogen stock options in exchange for American DG Energy options	$	114,896	$	—



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


(781) 466-6402
(Registrant's telephone number, including area code)



Large accelerated filer o	Accelerated filer o
Non-accelerated filer ☒	~~Non –accelerated filer~~ oEmerging Growth company ☐
Smaller reporting company x☒
		~~Emerging Growth company~~ x



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	2,077,047		$	3,721,765
Accounts receivable, net	11,094,287			8,630,418
Unbilled revenue	3,063,089			2,269,645
Inventory, net	6,118,835			4,774,264
Due from related party	496,655			260,988
Prepaid and other current assets	742,701			401,876
Total current assets	23,592,614			20,058,956
Property, plant and equipment, net	15,502,974			517,143
Intangible assets, net	2,430,178			1,065,967
Excess of cost over fair value of net assets acquired	12,602,409			—
Goodwill	40,870			40,870
Other assets	2,462,870			2,058,425
TOTAL ASSETS	$	56,631,915		$	23,741,361

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,356,449		$	3,367,481
Accrued expenses	1,676,307			1,378,258
Deferred revenue	1,477,124			876,765
Loan due to related party	850,000			—
Interest payable, related party	39,403			—
Total current liabilities	9,399,283			5,622,504
Long-term liabilities:
Deferred revenue, net of current portion	386,494			459,275
Senior convertible promissory note, related party	3,149,086			3,148,509
Unfavorable contract liability	10,358,283			—
Total liabilities	23,293,146			9,230,288
Commitments and contingencies (Note 9)

Stockholders’ equity:
Tecogen Inc. stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 24,724,392 and 19,981,912 issued and outstanding at September 30, 2017 and December 31, 2016, respectively	24,724			19,982
Additional paid-in capital	56,081,026			37,334,773
Accumulated other comprehensive loss-investment securities	(184,998		)	—
Accumulated deficit	(23,065,226		)	(22,843,682		)
Total Tecogen Inc. stockholders’ equity	32,855,526			14,511,073
Noncontrolling interest	483,243			—
Total stockholders’ equity	33,338,769			14,511,073
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	56,631,915		$	23,741,361


	Tecogen Inc. Stockholders
Three Months ended March 31, 2023	Common Stock Shares	Common Stock 0.001 Par Value		Additional Paid-In Capital		Accumulated Deficit		Non-controlling Interest		Total
Balance at December 31, 2022	24,850,261	$	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, 2023	24,850,261	$	24,850	$	57,428,356	$	(39,771,577)	$	(88,500)	$	17,593,129

Three Months ended March 31, 2022	Common Stock Shares	Common Stock 0.001 Par Value		Additional Paid-In Capital		Accumulated Deficit		Non-controlling Interest		Total
Balance at December 31, 2021	24,850,261	$	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, 2022	24,850,261	24,850		57,112,566		$	(35,744,212)	$	(85,420)	$	21,307,784



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017			2016
Net income (loss) attributable to stockholders	$	27,211	$	207,868	$	(221,544	)	$	(1,100,839	)
Weighted average shares outstanding - Basic	24,720,613		19,640,812		22,643,406			19,071,497
Basic income (loss) per share	$	0.00	$	0.01	$	(0.01	)	$	(0.06	)
Weighted average shares outstanding - Diluted	24,930,624		20,229,120		22,643,406			19,071,497
Diluted income (loss) per share	$0.00		$0.01		$	(0.01	)	$	(0.06	)
Anti-dilutive shares underlying stock options outstanding					235,736			1,130,158
Anti-dilutive convertible debentures					889,830			889,830
Anti-dilutive warrants outstanding					250,000			250,000


	March 31, 2023		December 31, 2022


Raw materials, net	$	9,354,413	$	9,001,491
Work-in-process	1,133,323		498,139
Finished goods	1,375,046		983,099
Total inventories, net	$	11,862,782	$	10,482,729



Consideration
Tecogen common stock - 4,662,937 shares	$	18,745,007
Assumed fully vested equity awards	114,896
	$	18,859,903

Recognized amounts of identifiable assets acquired and liabilities assumed
Financial assets	$	1,551,590
Inventory	108,333
Prepaid and other current assets	358,628
Property, plant and equipment	15,430,250
Investment securities	519,568
Identifiable intangibles assets	1,456,166
Financial liabilities	(1,857,859		)
Unfavorable contract liability	(10,838,571		)
Other liabilities	(939		)
Total identifiable net assets	6,727,166
Noncontrolling interest in American DG New York, LLC	(469,672		)
Excess of cost over fair value of net assets acquired	12,602,409
	$	18,859,903


	Estimated Useful Life (in Years)	September 30, 2017			December 31, 2016				Estimated Useful Life (in Years)	March 31, 2023		December 31, 2022
Energy systems	1 - 15 years	$	12,823,745		$	—		Energy systems	1 - 15 years	$	2,810,232	$	2,810,232
Machinery and equipment	5 - 7 years	1,127,264			1,009,893			Machinery and equipment	5 - 7 years	1,624,885		1,624,885
Furniture and fixtures	5 years	103,971			141,874			Furniture and fixtures	5 years	196,007		196,007
Computer software	3 - 5 years	196,417			102,415			Computer software	3 - 5 years	192,865		192,865
Leasehold improvements	*	440,519			437,341			Leasehold improvements	*	466,789		466,789
		14,691,916			1,691,523					5,290,778		5,290,778
Less - accumulated depreciation and amortization		(2,017,401		)	(1,174,380		)	Less - accumulated depreciation and amortization		(4,000,550)		(3,883,058)
		12,674,515			517,143					$	1,290,228	$	1,407,720
Construction in progress		2,828,459			—
		$	15,502,974		$	517,143



Year 1	$	(993,749	)
Year 2	(911,514		)
Year 3	(847,307		)
Year 4	(858,084		)
Year 5	(840,273		)



	Goodwill		Excess of cost over fair value of net assets acquired
Balance at December 31, 2016	$	40,870	$	—
Acquisitions	—		12,602,409
Balance at September 30, 2017	$	40,870	$	12,602,409


Common Stock Options	Number of Options	Exercise Price Per Share	Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
Outstanding, December 31, 2022	3,204,297	$0.71-$10.33	$	1.61	7.30 years	$	882,074
Granted	—

Exercised	—
Canceled and forfeited	(4,500)	$1.10-$1.13	$	1.11

Outstanding, March 31 2023	3,199,797	$0.71-$10.33	$	1.61	7.05 years	$	741,404
Exercisable, March 31, 2023	1,768,222		$	2.08		$	375,744
Vested and expected to vest, March 31, 2023	2,985,061		$	1.65		$	686,555


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 gains	37,497
Fair value at March 31, 2022	$	112,492



Fair value at acquisition on May 18, 2017	$	519,568
Unrealized loss recognized in other comprehensive loss	(184,998		)
Fair value at September 30, 2017	$	334,570


Exhibit No.		Description of Exhibit
10.1*		Lease, dated March 31, 2023, between Alibrandi Realty Associates, LLC and Tecogen Inc., Building 1
10.2*		Lease, dated March 31, 2023, between Alibrandi Realty Associates, LLC and Tecogen Inc., Building 3
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~Exhibit No.~~		~~Description of Exhibit~~
~~2.1~~101.INS**		~~Agreement and Plan of Merger, dated November 1, 2016, among the Company, Tecogen, Inc. and Tecogen.ADGE Acquisition Corp~~.^(q)
~~2.2~~	~~Amendment 1 to the Agreement and Plan of Merger, dated as of March 23, 2017, by and among registrant, American DG Energy Inc. and Tecogen.ADGE Acquisition Corp~~.^(r)
~~3.1~~	~~Amended and Restated Certificate of Incorporation~~.^(a)
~~3.2~~	~~Amended and Restated Bylaws~~.^(a)
~~4.1~~	~~Specimen Stock Certificate of Tecogen, Inc~~. ^(a)
~~4.2~~	~~Form of Restricted Stock Purchase Agreement~~.^(b)
~~4.3+~~	~~Form of Stock Option Agreement~~.^(a)
~~4.5~~	~~Warrant to Subscribe for Shares between Ultra Emissions Technology, Ltd and registrant~~.^(m)
~~4.6~~	~~Tecogen Ultratek Warrant signed August 2, 2016~~.^(j)
~~10.1~~	~~Form of Line of Credit Agreement Between American DG Energy and Mr. John Hatsopoulos, dated December 22, 2016~~.^(p)
~~10.8~~	~~Second Amendment to Lease between Atlantic-Waltham Investment II, LLC dated Jan 16, 2013~~.^(a)
~~10.21~~	~~Senior Convertible Promissory Note, dated December 23, 2013, by Tecogen Inc. in favor of Michaelson Capital Special Finance Fund LP~~. ^(a)
~~10.26~~	~~Tecogen 2006 Stock Incentive Plan, as amended on January 24, 2014 with stockholder approval on July 15, 2014~~.^(e)
~~10.27~~	~~Non-Revolving Line of Credit Agreement between the Company and John N. Hatsopoulos, dated June 15, 2015~~.^(e)
~~10.31~~	~~Joint Venture Shareholder Agreement between Tecogen Inc. and Ultra Emissions Technology Limited, dated December 28, 2015~~. ⁽ⁿ⁾
~~10.32~~	~~License Agreement between Tecogen Inc. and Ultra Emissions Technology Limited, dated December 28, 2015~~. ⁽ⁿ⁾
~~10.33~~	~~Form of Subscription Agreement between Tecogen and the several investors purchasing shares of Tecogen Common Stock and Warrants, dated December 28, 2015~~. ⁽ⁿ⁾
~~10.34~~	~~Form of Warrants issued pursuant to the Subscription Agreement described in Exhibit 10.33 hereto~~. ⁽ⁿ⁾
~~10.35~~	~~Form of Share Exchange Agreement between Tecogen and certain shareholders of Ilios Inc., dated April 11, 2016 and April 13, 2016~~. ^(o)
~~10.36~~	~~Amendment No. 1 to the Senior Convertible Promissory Note effective April 1, 2016~~.^(g)
~~10.37~~	~~Tedom Joint Venture Agreement dated May 19, 2016~~. ^(h)
~~10.38~~	~~Tedom Joint Venture LLC Agreement dated May 19, 2016~~. ^(h)
~~10.39~~	~~Form of a Warrant Amendment dated June 27, 2016~~.⁽ⁱ⁾
~~10.40+~~	~~Employment Agreement dated December 1, 2016 between registrant and David A. Garrison~~. ^(l)
31.1*	~~Rule 13a-14(a) Certification of Co-Chief Executive Officer~~
31.2*	~~Rule 13a-14(a) Certification of Co-Chief Executive Officer~~
31.3*	~~Rule 13a-14(a) Certification of Chief Accounting Officer~~
32.1*	~~Section 1350 Certifications of Co-Chief Executive Officers and Chief Accounting Officer~~
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


^(a) * Filed herewith ** Furnished herewith + Compensatory plan or arrangement 25	~~incorporated by reference from the Company's Registration Statement on Form S-1/A (Registration No. 333-193791), filed with the SEC on June 27, 2014.~~


^(b)	~~incorporated by reference from the Company's Registration Statement on Form S-1 (Registration No. 333-178697), originally filed with the SEC on December 22, 2011.~~


^(c)	~~incorporated by reference from the Company's 10-Q Report for the period ending June 30, 2014, originally filed with the SEC on August 14, 2014.~~


^(d)	~~incorporated by reference from the Company's form 8-K Report originally filed with the SEC on August 6, 2015.~~


^(e)	~~incorporated by reference from the Company's 10-Q Report for the period ending June 30, 2015, originally filed with the SEC on August 6, 2015.~~


^(f)	~~incorporated by reference from the Company's form 8-K Report originally filed with the SEC on August 13, 2015.~~


^(g)	~~incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on April 15, 2015.~~


^(h)	~~incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on May 24, 2016.~~


⁽ⁱ⁾	~~incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on June 30, 2016.~~


^(j)	~~incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on August 8, 2016.~~


_(k)	~~incorporated by reference from the Company's Registration Statement on Form S-4 (Registration No. 333-215231),~~


^(l)	~~incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on December 2, 2016.~~


^(m)	~~Incorporated by reference to the registrant's Annual Report on Form 10-K, as filed with the SEC on March 29, 2016.~~


⁽ⁿ⁾	~~Incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on December 31, 2015.~~


^(o)	~~Incorporated by reference from the Company's form 8-K Reports originally filed with the SEC on April 15, 2016.~~