UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


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

For the quarterly period ended March 31, ~~2021~~2022


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

Commission file number 001-36103

TECOGEN INC. (OTCQX:TGEN)

(Exact name of Registrant as specified in its charter)


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 and Zip Code)


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:


Large accelerated filer o			Accelerated filer o
Non-accelerated filer ☒			Emerging Growth company ☐
Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 3, 2021,~~March 31, 2022, 24,850,261 shares of common stock, $.001 par value per share, of the registrant were issued and outstanding.

TECOGEN INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, ~~2021~~2022

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets (Unaudited)
	March 31, ~~2021~~2022 and December 31, ~~2020~~2021	1




	Condensed Consolidated Statements of Operations (Unaudited)
	Three Months Ended March ~~31, 2021~~ 3 1 , 202 2 and ~~2020~~2021	2

	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
	Three Months Ended March 31 ~~2021~~, 202 2 and ~~2020~~2021	3

	Condensed Consolidated Statements of Cash Flows (Unaudited)
	Three Months Ended ~~Three Months Ended~~ March ~~31, 2021~~ 3 1 , 202 2 and ~~2020~~202 1	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

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	25

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, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,705,941	$	1,490,219	Cash and cash equivalents	$	5,460,870	$	3,614,463
Accounts receivable, net	Accounts receivable, net	8,032,521		8,671,163		Accounts receivable, net	7,631,611		8,482,286
Unbilled revenue	Unbilled revenue	4,144,435		4,267,249		Unbilled revenue	2,906,931		3,258,189
Inventory, net		6,841,942		7,168,596
Employee retention credit						Employee retention credit	1,276,021		1,276,021
Inventories, net						Inventories, net	7,756,737		7,764,989

Prepaid and other current assets	Prepaid and other current assets	579,836		597,144		Prepaid and other current assets	576,787		578,801
Total current assets	Total current assets	23,304,675		22,194,371		Total current assets	25,608,957		24,974,749
Long-term assets:	Long-term assets:					Long-term assets:
Property, plant and equipment, net	Property, plant and equipment, net	2,139,390		2,283,846		Property, plant and equipment, net	1,705,974		1,782,944
Right of use assets	Right of use assets	2,208,807		1,632,574		Right of use assets	1,716,737		1,869,210
Intangible assets, net	Intangible assets, net	1,305,703		1,360,319		Intangible assets, net	1,140,925		1,181,023

Goodwill	Goodwill	2,406,156		2,406,156		Goodwill	2,406,156		2,406,156
Other assets	Other assets	235,479		196,387		Other assets	185,222		148,140
TOTAL ASSETS	TOTAL ASSETS	$	31,600,210	$	30,073,653	TOTAL ASSETS	$	32,763,971	$	32,362,222

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Note payable		$	0	$	837,861

Accounts payable	Accounts payable	3,383,490		4,183,105		Accounts payable	4,402,772		3,508,354
Accrued expenses	Accrued expenses	2,133,038		1,993,471		Accrued expenses	2,478,523		2,343,728
Deferred revenue	Deferred revenue	1,095,352		1,294,157		Deferred revenue	1,446,048		1,957,752
Lease obligations, current	Lease obligations, current	583,531		506,514		Lease obligations, current	653,176		641,002

Unfavorable contract liability, current						Unfavorable contract liability, current	295,065		330,032
Total current liabilities	Total current liabilities	7,195,411		8,815,108		Total current liabilities	9,275,584		8,780,868
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Note payable, net of current portion		1,874,269		1,036,339

Deferred revenue, net of current portion	Deferred revenue, net of current portion	216,197		115,329		Deferred revenue, net of current portion	215,931		208,456
Lease obligations, long-term		1,719,922		1,222,492
Unfavorable contract liability, net		1,527,665		1,617,051
Lease obligations, net of current portion						Lease obligations, net of current portion	1,147,982		1,315,275

Unfavorable contract liability, net of current portion						Unfavorable contract liability, net of current portion	816,690		929,474
Total liabilities	Total liabilities	12,533,464		12,806,319		Total liabilities	11,456,187		11,234,073

Commitments and contingencies (Note 12)	Commitments and contingencies (Note 12)	0		0		Commitments and contingencies (Note 12)	0		0

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Tecogen Inc. stockholders’ equity:	Tecogen Inc. stockholders’ equity:					Tecogen Inc. stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 and 24,850,261 issued and outstanding at March 31, 2021 and December 31, 2020, respectively		24,850		24,850
Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 issued and outstanding at March 31, 2022 and December 31, 2021						Common stock, $0.001 par value; 100,000,000 shares authorized; 24,850,261 issued and outstanding at March 31, 2022 and December 31, 2021	24,850		24,850
Additional paid-in capital	Additional paid-in capital	56,853,513		56,814,428		Additional paid-in capital	57,112,566		57,016,859

Accumulated deficit	Accumulated deficit	(37,762,914)		(39,529,621)		Accumulated deficit	(35,744,212)		(35,833,621)
Total Tecogen Inc. stockholders’ equity	Total Tecogen Inc. stockholders’ equity	19,115,449		17,309,657		Total Tecogen Inc. stockholders’ equity	21,393,204		21,208,088
Non-controlling interest	Non-controlling interest	(48,703)		(42,323)		Non-controlling interest	(85,420)		(79,939)
Total stockholders’ equity	Total stockholders’ equity	19,066,746		17,267,334		Total stockholders’ equity	21,307,784		21,128,149
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	31,600,210	$	30,073,653	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	32,763,971	$	32,362,222

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

TECOGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


		Three Months Ended				Three Months Ended
		March 31, 2021		March 31, 2020				March 31, 2022		March 31, 2021
Revenues	Revenues						Revenues
Products	Products	$	2,122,722	$	3,051,760		Products	$	3,939,481	$	2,122,722
Services	Services	3,281,144		4,160,090			Services	2,917,280		3,281,144
Energy production	Energy production	653,295		750,850			Energy production	581,562		653,295
Total revenues	Total revenues	6,057,161		7,962,700			Total revenues	7,438,323		6,057,161
Cost of sales	Cost of sales						Cost of sales
Products	Products	1,174,287		1,802,883			Products	2,644,756		1,174,287
Services	Services	1,537,603		2,883,246			Services	1,366,752		1,537,603
Energy production	Energy production	394,063		484,404			Energy production	336,027		394,063
Total cost of sales	Total cost of sales	3,105,953		5,170,533			Total cost of sales	4,347,535		3,105,953
Gross profit	Gross profit	2,951,208		2,792,167			Gross profit	3,090,788		2,951,208
Operating expenses	Operating expenses						Operating expenses
General and administrative	General and administrative	2,453,853		2,689,461			General and administrative	2,473,903		2,453,853
Selling	Selling	510,203		855,788			Selling	501,091		510,203
Research and development	Research and development	126,150		364,336			Research and development	140,135		126,150

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	Total operating expenses	3,090,206		3,909,585			Total operating expenses	3,009,809		3,090,206
Loss from operations		(138,998)		(1,117,418)
Income (loss) from operations							Income (loss) from operations	80,979		(138,998)
Other income (expense)	Other income (expense)						Other income (expense)
Interest and other income (expense), net		(1,203)		11,727
Other income (expense), net							Other income (expense), net	(14,150)		(1,203)
Interest expense	Interest expense	(4,640)		(59,985)			Interest expense	(828)		(4,640)
Gain on extinguishment of debt	Gain on extinguishment of debt	1,887,859		0			Gain on extinguishment of debt	—		1,887,859
Gain on sale of investment securities	Gain on sale of investment securities	6,046		0			Gain on sale of investment securities	—		6,046
Unrealized gain (loss) on investment securities		37,497		(19,681)
Unrealized gain on investment securities							Unrealized gain on investment securities	37,497		37,497
Total other income (expense), net	Total other income (expense), net	1,925,559		(67,939)			Total other income (expense), net	22,519		1,925,559
Income (loss) before provision for state income taxes		1,786,561		(1,185,357)
Income before provision for state income taxes							Income before provision for state income taxes	103,498		1,786,561
Provision for state income taxes	Provision for state income taxes	8,058		5,222			Provision for state income taxes	3,930		8,058
Consolidated net income (loss)		1,778,503		(1,190,579)
(Income) loss attributable to non-controlling interest		(11,796)		(11,808)
Net income (loss) attributable to Tecogen Inc.		$	1,766,707	$	(1,202,387)
Consolidated net income							Consolidated net income	99,568		1,778,503
Income attributable to the non-controlling interest							Income attributable to the non-controlling interest	(10,159)		(11,796)
Net income attributable to Tecogen Inc.							Net income attributable to Tecogen Inc.	$	89,409	$	1,766,707

Net income (loss) per share - basic		$	0.07	$	(0.05)
Net income (loss) per share - diluted		$	0.07	$	(0.05)
Net income per share - basic							Net income per share - basic	$	0.00	$	0.07
Net income per share - diluted							Net income per share - diluted	$	0.00	$	0.07
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	24,850,261		24,850,250			Weighted average shares outstanding - basic	24,850,261		24,850,261
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	25,122,271		24,850,250			Weighted average shares outstanding - diluted	25,028,616		25,122,271

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

TECOGEN INC.

~~TECOGEN INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021

(unaudited)

Three months ended March 31, 2021 Common Stock Shares Common
Stock
0.001
Par Value Additional
Paid-In
Capital Accumulated
Deficit Non-controlling
Interest Total
Balance at December 31, 2020 24,850,261 $ 24,850 $ 56,814,428 $ (39,529,621) $ (42,323) $ 17,267,334
Stock based compensation expense — — 39,085 — — 39,085
Distributions to non-controlling interest — — — — (18,176) (18,176)
Net income — — — 1,766,707 11,796 1,778,503
Balance at March 31, 2021 24,850,261 $ 24,850 $ 56,853,513 $ (37,762,914) $ (48,703) $ 19,066,746

Three months ended March 31, 2020 Common Stock Shares Common
Stock
0.001
Par Value Additional
Paid-In
Capital Accumulated
Deficit Non-controlling
Interest Total
Balance at December 31, 2019 24,849,261 $ 24,849 $ 56,622,285 $ (33,379,114) $ 85,257 $ 23,353,277
Exercise of stock options 1,000 1 1,199 — — 1,200
Stock issuance costs — — (401) — — (401)
Distributions to non-controlling interest — — — — (23,070) (23,070)
Stock based compensation expense — — 42,236 — — 42,236
Net loss — — — (1,202,387) 11,808 (1,190,579)
Balance at March 31, 2020 24,850,261 $ 24,850 $ 56,665,319 $ (34,581,501) $ 73,995 $ 22,182,663


	Tecogen Inc. Stockholders
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 March 31, 2021	Common Stock Shares	Common Stock 0.001 Par Value		Additional Paid-In Capital		Accumulated Deficit		Non-controlling Interest		Total
Balance at December 31, 2020	24,850,261	$	24,850	$	56,814,428	$	(39,529,621)	$	(42,323)	$	17,242,484
Stock based compensation expense	—	—		39,085		—		—		39,085
Distributions to non-controlling interest	—	—		—		—		(18,176)		(18,176)
Net income	—	—		—		1,766,707		11,796		1,778,503
Balance at March 31, 2021	24,850,261	$	24,850	$	56,853,513	$	(37,762,914)	$	(48,703)	$	19,066,746

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

TECOGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


		Three Months Ended					Three Months Ended
		March 31, 2021		March 31, 2020			March 31, 2022		March 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income (loss)		$	1,778,503	$	(1,190,579)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, accretion and amortization, net		124,066		90,152
Consolidated net income						Consolidated net income	$	99,568	$	1,778,503
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, net						Depreciation and amortization, net	107,061		124,066
Gain on extinguishment of debt	Gain on extinguishment of debt	(1,887,859)		0		Gain on extinguishment of debt	—		(1,887,859)

Stock-based compensation	Stock-based compensation	39,085		42,236		Stock-based compensation	95,707		39,085

Gain on disposition of assets						Gain on disposition of assets	(33,945)		—
Gain on sale of investment securities	Gain on sale of investment securities	(6,046)		0		Gain on sale of investment securities	—		(6,046)
Unrealized (gain) loss on investment securities		(37,497)		19,681
Abandonment of intangible assets		7,400		179,944
Non-cash interest expense		0		9,750
Changes in operating assets and liabilities, net of effects of acquisitions:
Unrealized gain on investment securities						Unrealized gain on investment securities	(37,497)		(37,497)
Gain on termination of unfavorable contract liability						Gain on termination of unfavorable contract liability	(71,375)		—
Impairment of intangible asset						Impairment of intangible asset	—		7,400

Changes in operating assets and liabilities						Changes in operating assets and liabilities
(Increase) decrease in:	(Increase) decrease in:					(Increase) decrease in:

Accounts receivable	Accounts receivable	638,643		2,462,957		Accounts receivable	850,674		638,643
Unbilled revenue	Unbilled revenue	122,814		395,976		Unbilled revenue	351,259		122,814
Inventory	Inventory	326,655		(1,066,117)		Inventory	8,252		326,655

Prepaid expenses and other current assets	Prepaid expenses and other current assets	17,307		80,242		Prepaid expenses and other current assets	2,014		17,307
Other assets	Other assets	(583,419)		397,703		Other assets	152,888		(583,419)
Increase (decrease) in:	Increase (decrease) in:					Increase (decrease) in:
Accounts payable	Accounts payable	(799,615)		263,215		Accounts payable	894,418		(799,615)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	153,225		(296,684)		Accrued expenses and other current liabilities	134,795		153,225
Deferred revenue	Deferred revenue	(97,937)		(270,145)		Deferred revenue	(504,229)		(97,937)
Other liabilities	Other liabilities	574,447		0		Other liabilities	(155,119)		574,447

Net cash provided by operating activities	Net cash provided by operating activities	369,772		1,118,331		Net cash provided by operating activities	1,894,471		369,772
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	Purchases of property and equipment	(16,098)		(53,674)		Purchases of property and equipment	(80,873)		(16,098)
Proceeds from the sale of investment securities	Proceeds from the sale of investment securities	11,637		0		Proceeds from the sale of investment securities	—		11,637
Purchases of intangible assets	Purchases of intangible assets	(5,682)		(43,250)		Purchases of intangible assets	(16,220)		(5,682)
Proceeds from disposition of assets						Proceeds from disposition of assets	64,669		—

Distributions to non-controlling interest						Distributions to non-controlling interest	(15,640)		(18,176)
Net cash used in investing activities						Net cash used in investing activities	(48,064)		(28,319)
CASH FLOWS FROM FINANCING ACTIVITIES:						CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable						Proceeds from note payable	—		1,874,269

Payment of stock issuance costs		0		(401)
Distributions to non-controlling interest		(18,176)		(23,070)
Net cash provided used in investing activities		(28,319)		(120,395)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable		1,874,269		0
Proceeds (payments) on revolving line of credit, net		0		(955,174)

Proceeds from the exercise of stock options		0		1,200

Net cash provided by (used in) financing activities		1,874,269		(953,974)
Net cash provided by financing activities						Net cash provided by financing activities	—		1,874,269
Change in cash and cash equivalents	Change in cash and cash equivalents	2,215,722		43,962		Change in cash and cash equivalents	1,846,407		2,215,722
Cash and cash equivalents, beginning of the period	Cash and cash equivalents, beginning of the period	1,490,219		877,676		Cash and cash equivalents, beginning of the period	3,614,463		1,490,219
Cash and cash equivalents, end of the period	Cash and cash equivalents, end of the period	$	3,705,941	$	921,638	Cash and cash equivalents, end of the period	$	5,460,870	$	3,705,941

Supplemental disclosures of cash flows information:	Supplemental disclosures of cash flows information:					Supplemental disclosures of cash flows information:
Cash paid for interest	Cash paid for interest	$	0	$	36,326	Cash paid for interest	$	413	$	—
Cash paid for taxes	Cash paid for taxes	$	8,058	$	5,222	Cash paid for taxes	$	3,930	$	8,058

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

TECOGEN INC.

Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements

Note 1. Description of Business and Basis of Presentation

Description of Business

Tecogen Inc., or we, our or us, produces commercial and industrial engine-driven, combined heat and power (CHP) products that reduce energy costs, decrease greenhouse gas emissions and alleviate congestion on the national power grid. Our products supply electric power or mechanical power for cooling, while heat from the engine is recovered and purposefully used at a facility. We also install, own, operate and maintain complete energy systems and other complementary systems at customer sites and sell electricity, hot water, heat and cooling energy under long-term contracts at prices guaranteed to the customer to be below conventional utility rates.

The majority of our customers are located in regions with the highest utility rates, typically California, the Midwest and the Northeast.

Our common stock is quoted on OTC Markets Group, Inc.'s OTCQX Best Market tier and trades under the symbol "TGEN."

On May 18, 2017, the Company acquired 100% of the outstanding common stock of American DG Energy Inc., formerly a related entity, in a stock-for-stock merger.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

The condensed consolidated balance sheet at December 31, ~~2020~~2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in Tecogen's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

The accompanying unaudited condensed consolidated financial statements include our accounts and the accounts of entities in which we have a controlling financial interest. Those entities include our wholly-owned subsidiaries American DG Energy Inc., Tecogen CHP Solutions, Inc., and a joint venture, American DG New York, LLC, in which American DG Energy Inc. holds a 51% interest. Investments in partnerships and companies in which we do not have a controlling financial interest but where we have significant influence are accounted for under the equity method. Any intercompany transactions have been eliminated in consolidation.

Our operations are comprised of 23 business segments. Our Products ~~and Services~~ segment designs, manufactures and sells industrial and commercial cogeneration systems as described above. Our Services segment provides operation and maintenance services to customers for our products. Our Energy Production segment sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.

~~Reclassification~~

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Taxes

The provisions for income taxes in the accompanying unaudited consolidated statements of operations differ from that which would be expected by applying the federal statutory tax rate primarily due to losses for which no benefit is recognized.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

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.

Section 2301(c)(2)(B) of the CARES Act permits an employer to use an alternative quarter to calculate gross receipts and the employer may determine if the decline in gross receipt tests is met for a calendar quarter in 2021 by comparing its gross receipts for the immediately preceding calendar quarter with those for the corresponding calendar quarter in 2019. Accordingly, for the first quarter of 2021, we elected to use our gross receipts for the fourth calendar quarter of 2020 compared to our gross receipts for the fourth calendar quarter of 2019. As a result of our election to use an alternative quarter, we qualified for the ERC in the first, second and third quarters of 2021 because our gross receipts decreased by more than 20% from the first, second and third quarters of 2019. As a result of averaging 100 or fewer full-time employees in 2019, all wages paid to employees in the first, second and third quarters of 2021, excluding the wages that were applied to the Paycheck Protection Loan Second Draw, were eligible for the ERC. Wages used towards PPP loan forgiveness cannot be used as qualified wages for purposes of the ERC

Accounting Standards Codification 105, "Generally Accepted Accounting Principles," describes the decision-making framework when no guidance exists in US GAAP for a particular transaction. Specifically, ASC 105-10-05-2 instructs companies to look for guidance for a similar transaction within US GAAP and apply that guidance by analogy. As such, forms of government assistance, such as the ERC, provided to business entities would not be within the scope of ASC 958, but it may be applied by analogy under ASC 105-10-05-2. We accounted for the Employee Retention Credit as a government grant in accordance with Accounting Standards Update 2013-06, Not-for-Profit Entities (Topic 958) ("ASU 2013-06") by analogy under ASC 105-10-05-2.Under this standard, government grants are recognized when the conditions on which they depend are substantially met. The conditions for recognition of the ERC include, but are not limited to:

•An entity has been adversely affected by the COVID-19 pandemic

•We have not used qualifying payroll for both the Paycheck Protection Program and the ERC

•We incurred payroll costs to retain employees

•The process for filing for the credit is an administrative task and not a barrier to receiving the credits

A current receivable in the amount of $1,276,021 is included in our condensed consolidated balance sheet as of March 31, 2022. On April 14, 2022, we received $564,027 from the Internal Revenue Service representing the ERC claim for the third quarter of 2021 and $1,275 of accrued interest. We are still awaiting payment from the Internal Revenue Service for the ERC claim from the first and second quarters of 2021.

Note 2. Revenue

Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products, services and energy production. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services or energy to customers.

Shipping and handling fees billed to customers in a sales transaction are recorded in revenue and shipping and handling costs incurred are recorded in cost of sales. We have elected to exclude from revenue any ~~value add~~value-added sales and other taxes which we collect concurrent with revenue-producing activities. These accounting policy elections are consistent with the manner in which we historically recorded shipping and handling fees and value-added taxes. Incremental costs incurred by us to obtain a contract with a customer are negligible, if any, and are expensed ratably in proportion to the related revenue recognized.

Disaggregated Revenue

In general, our business segmentation is aligned according to the nature and economic characteristics of our products and customer relationships and provides meaningful disaggregation of each business segment's results of operations.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

The following table further disaggregates our revenue by major source by segment for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.


Three Months Ended		March 31, 2021
									Three Months Ended March 31, 2022
		Products and Services		Energy Production		Total			Products and Services		Energy Production		Total
Products	Products	$	2,122,722	$	0	$	2,122,722	Products	$	3,939,481	$	—	$	3,939,481
Installation services	Installation services	517,696		0		517,696		Installation services	20,109		—		20,109
Maintenance services	Maintenance services	2,763,448		0		2,763,448		Maintenance services	2,897,171		—		2,897,171
Energy production	Energy production	0		653,295		653,295		Energy production	—		581,562		581,562
Total revenue	Total revenue	$	5,403,866	$	653,295	$	6,057,161	Total revenue	$	6,856,761	$	581,562	$	7,438,323

Three Months Ended March 31, 2020
Products and Services Energy Production Total
Products $ 3,051,760 $ 0 $ 3,051,760
Installation services 1,694,142 0 1,694,142
Maintenance services 2,465,948 0 2,465,948
Energy production 0 750,850 750,850
Total revenue $ 7,211,850 $ 750,850 $ 7,962,700


	Three Months Ended March 31, 2021
	Products and Services		Energy Production		Total
Products	$	2,122,722	$	—	$	2,122,722
Installation services	517,696		—		517,696
Maintenance services	2,763,448		—		2,763,448
Energy production	—		653,295		653,295
Total revenue	$	5,403,866	$	653,295	$	6,057,161

Product and Services Segment

Products. Our Product revenues include cogeneration systems that supply electricity and hot water, chillers that provide air-conditioning and hot water and engineered accessories, which consist of ancillary products and parts necessary to install a cogeneration unit including integration into the customers’ existing electrical and mechanical systems. ~~Prior~~We refer to ~~January 1, 2021,~~the package of engineered accessories ~~had been reported in our financial statements under Installation Services. Engineered accessories revenue~~ and ~~cost~~engineering and design services necessary for the customers' installation of ~~sales from prior periods have been reclassified to conform with the current year presentation.~~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 athe 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-~~

upstart-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.

Installation Services. We provide ~~both complete turnkey installation services and what we refer to as light installation services. Complete turnkey~~ installation services typically ~~include~~including all necessary engineering and design, labor, subcontract labor and service to install a cogeneration unit including integration into the customers’ existing electrical and mechanical systems. ~~Light installation services typically include some engineering and design necessary for the customers’ installation of a cogeneration unit.~~

Under light installation contracts, revenue related to engineering and design services is recognized at the point where the customer can benefit from the service, generally as completed. Generally, billings under light installation contracts are made when shipped and/or completed, with payment terms generally being 30 days.

Under complete turnkey installation service contracts revenue is recognized over time using the percentage-of-completion method determined on a cost to cost basis. Our performance obligation under such contracts is satisfied progressively over time as enhancements are made to customer owned and controlled properties. We measure progress towards satisfaction of the performance obligation based on an cost-based input method which we believe appropriately measures and is the most accurate depiction of the transfer of products and services to the customer under these contracts. When the financial

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

metrics of a contract indicate a loss, our policy is to record the entire expected loss as soon as it is known. Contract costs and profit recognized to date under the percentage-of-completion method in excess of billings are recognized as contract assets and are recorded as unbilled revenue. Billings in excess of contract costs and profit are recognized as contract liabilities and are recorded as deferred revenue. Generally billings under complete turnkey installation contracts are made when contractually determined milestones of progress have been achieved, with payment terms generally being 30 days.

Maintenance Services. Maintenance services are provided under either long-term maintenance contracts or time and material maintenance contracts. Revenue under time and material maintenance contracts is recognized when the maintenance service is completed. Revenue under long-term maintenance contracts is recognized either ratably over the term of the contract where the contract price is fixed or when the periodic maintenance activities are completed where the invoiced cost to the customer is based on run hours or kilowatts produced in a given period. We use an output method to measure progress towards completion of our performance obligation which results in the recognition of revenue on the basis of a direct measurement of the value to the customer of the services transferred to date relative to the remaining services promised under the contract. We use the practical expedient at ASC 606-10-55-18 of recognizing revenue in an amount equal to the amount we have the right to invoice the customer under the contract. Payment terms for maintenance services are generally 30 days.

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 invoice the customer and recognize revenue for the various forms of energy delivered, based on actual meter readings which capture the quantity of the various forms of energy delivered in a given month, under a contractually defined formula which takes into account the current month's cost of energy from the local power utility.

As the various forms of energy delivered by us under energy production contracts are simultaneously delivered and consumed by the customer, our performance obligation under these contracts is considered to be satisfied over time. We use an output method to measure progress towards completion of our performance obligation which results in the recognition of revenue on the basis of a direct measurement of the value to the customer of the services transferred to date relative to the remaining services promised under the contract. We use the practical expedient at ASC 606-10-55-18 of recognizing revenue in an amount equal to the amount that we have the right to invoice the customer under the contract. Payment terms on invoices under these contracts are generally 30 days.

Contract Balances

The timing of revenue recognition, billings and cash collections result in billed accounts receivable, unbilled revenue (contract assets) and deferred revenue, consisting of customer deposits and billings in excess of revenue recognized (contract liabilities) on the condensed consolidated ~~condensed~~ balance sheets.

~~Revenue recognized~~We did not recognize any revenue during the ~~quarter~~three months ended March 31, ~~2021~~2022 that was included in unbilled revenue at the ~~beginning~~end of the ~~period was approximately $0.3 million.~~period. Approximately ~~$0.4 million~~$1,064,545 was billed in this period that had been recognized as revenue in previous periods.

Revenue recognized during the ~~quarter~~three ended months March 31, ~~2021~~2022 that was included in deferred revenue at the beginning of the period was approximately ~~$0.4 million.~~$434,571.

Remaining Performance Obligations

Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations with an original contract term of greater than one year, excluding certain maintenance contracts and all energy production contracts where a direct measurement of the value to the customer is used as a method of measuring progress towards completion of our performance obligation. Exclusion of these remaining performance obligations is due in part to the inability to quantify values based on unknown future levels of delivery and in some cases rates used to invoice customers. Remaining performance obligations therefore consist of unsatisfied or partially satisfied performance obligations related to fixed price maintenance contracts and installation contracts.

As of March 31, ~~2021,~~2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately ~~$1.3~~$2.2 million. We expect to recognize revenue of approximately ~~90.9%~~92.9% of the remaining performance obligations over the next 24 months, ~~83.5%~~90.4% recognized in the first 12 months and ~~7.4%~~2.5% recognized over the subsequent 12 months, and the remainder recognized thereafter.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

Note 3. Income ~~(loss)~~ Per Common Share

Basic and diluted income ~~(loss)~~ per share for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, were as follows:


			Three months ended March 31,						Three Months Ended
		2021	2020				March 31, 2022		March 31, 2021
Numerator:	Numerator:							Numerator:
Net income (loss) available to stockholders			$	1,766,707	$	(1,202,387)
Net income available to stockholders								Net income available to stockholders	$	89,409	$	1,766,707

Denominator:	Denominator:							Denominator:
Weighted average shares outstanding - Basic	Weighted average shares outstanding - Basic		24,850,261		24,850,250			Weighted average shares outstanding - Basic	24,850,261		24,850,261
Effect of dilutive securities:	Effect of dilutive securities:							Effect of dilutive securities:
Stock options	Stock options		272,010		0			Stock options	178,355		272,010
Weighted average shares outstanding - Diluted	Weighted average shares outstanding - Diluted		25,122,271		24,850,250			Weighted average shares outstanding - Diluted	25,028,616		25,122,271

Basic income (loss) per share			$	0.07	$	(0.05)
Diluted income (loss) per share			$	0.07	$	(0.05)
Basic income per share								Basic income per share	$	0.00	$	0.07
Diluted income per share								Diluted income per share	$	0.00	$	0.07

Anti-dilutive shares underlying stock options outstanding	Anti-dilutive shares underlying stock options outstanding		0		20,158			Anti-dilutive shares underlying stock options outstanding	928,271		777,296


Note 4.			Inventories, net

Inventories at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of the following:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Raw materials	Raw materials	$	6,358,894	$	6,227,591	Raw materials	$	7,211,826	$	7,072,991
Less: reserves	Less: reserves	(381,000)		(381,000)		Less: reserves	(381,000)		(381,000)
Raw materials, net	Raw materials, net	$	5,977,894	$	5,846,591	Raw materials, net	$	6,830,826	$	6,691,991
Work-in-process	Work-in-process	414,201		329,702		Work-in-process	402,715		549,802
Finished goods	Finished goods	449,847		992,303		Finished goods	523,196		523,196
Total inventories, net	Total inventories, net	$	6,841,942	$	7,168,596	Total inventories, net	$	7,756,737	$	7,764,989

Note 5. Property, Plant and Equipment, net

Property, plant and equipment at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of the following:


		Estimated Useful Life (in Years)	March 31, 2021		December 31, 2020			Estimated Useful Life (in Years)	March 31, 2022		December 31, 2021
Energy systems	Energy systems	1 - 15 years	$	3,378,327	$	3,526,514	Energy systems	1 - 15 years	$	3,478,824	$	3,556,488
Machinery and equipment	Machinery and equipment	5 - 7 years	1,464,123		1,448,024		Machinery and equipment	5 - 7 years	1,506,919		1,463,153
Furniture and fixtures	Furniture and fixtures	5 years	193,698		193,698		Furniture and fixtures	5 years	196,007		193,698
Computer software	Computer software	3 - 5 years	192,865		192,865		Computer software	3 - 5 years	192,865		192,865
Leasehold improvements	Leasehold improvements	*	450,792		450,792		Leasehold improvements	*	466,789		466,789
			5,679,805		5,811,893				5,841,404		5,872,993
Less - accumulated depreciation and amortization	Less - accumulated depreciation and amortization		(3,540,415)		(3,528,047)		Less - accumulated depreciation and amortization		(4,135,430)		(4,090,049)
			$	2,139,390	$	2,283,846			$	1,705,974	$	1,782,944

* Lesser of estimated useful life of asset or lease term

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

Depreciation and amortization expense on property and equipment for the three months ended March 31, 2022 and 2021 was $126,792 and ~~2020 was~~ $160,556, ~~and $175,660,~~ respectively.

Note 6. Intangible Assets and Liabilities Other Than Goodwill

As of March 31, ~~2021~~2022 and December 31, ~~2020 the Company~~2021 we had the following amounts related to intangible assets and liabilities other than goodwill:

March 31, 2021 December 31, 2020
Intangible assets Cost Accumulated Amortization Total Cost Accumulated Amortization Total
Product certifications $ 726,160 $ (491,950) $ 234,210 $ 726,159 $ (478,357) $ 247,802
Patents 853,296 (244,810) 608,486 855,014 (220,764) 634,250
Developed technology 240,000 (128,000) 112,000 240,000 (124,000) 116,000
Trademarks 26,896 0 26,896 26,896 0 26,896
In Process R&D 263,936 0 263,936 263,936 0 263,936
Favorable contract asset 384,465 (324,290) 60,175 384,465 (313,030) 71,435
$ 2,494,753 $ (1,189,050) $ 1,305,703 $ 2,496,470 $ (1,136,151) $ 1,360,319
Intangible liability
Unfavorable contract liability $ 2,534,818 $ (1,007,153) $ 1,527,665 $ 2,534,818 $ (917,767) $ 1,617,051


	March 31, 2022						December 31, 2021
Intangible assets	Cost		Accumulated Amortization		Total		Cost		Accumulated Amortization		Total
Product certifications	$	777,465	$	(546,094)	$	231,371	$	765,850	$	(532,676)	$	233,174
Patents	875,626		(337,696)		537,930		871,021		(314,997)		556,024
Developed technology	240,000		(144,000)		96,000		240,000		(140,000)		100,000
Trademarks	26,896		—		26,896		26,896		—		26,896
In Process R&D	263,936		(37,705)		226,231		263,936		(28,279)		235,657
Favorable contract asset	384,465		(361,968)		22,497		384,465		(355,193)		29,272

	$	2,568,388	$	(1,427,463)	$	1,140,925	$	2,552,168	$	(1,371,145)	$	1,181,023

Intangible liability
Unfavorable contract liability	$	2,903,419	$	(1,791,664)	$	1,111,755	$	3,056,655	$	(1,797,149)	$	1,259,506

The aggregate amortization expense related to intangible assets and liabilities exclusive of contract related intangibles for the three months ended March 31, 2022 and 2021 was $50,795 and ~~2020 was $42,890 and $22,816, respectively.~~$42,890. The net credit to cost of sales related to the amortization of the contract related intangible ~~assets~~asset and ~~liabilities~~liability for the three months ended March 31, 2022 and 2021 was $70,526 and ~~2020 was~~ $79,053, ~~and $107,998, respectively. During the three months ended March 31, 2021 and 2020, we abandoned certain patent applications amounting to $7,400 and $179,944,~~ respectively ~~and recorded an abandonment charge in general and administrative expenses in each respective period~~

Favorable/Unfavorable Contract Assets and Liabilities

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

Amortization of intangibles including contract related amounts is calculated using the straight-line method over the remaining useful life or contract term. Aggregate future amortization over the next five years and thereafter as of March 31, 2022 is estimated to be as follows:


~~Year 1~~	$	~~(120,704)~~
~~Year 2~~	~~(106,386)~~
~~Year 3~~	~~(53,634)~~
~~Year 4~~	~~(21,374)~~
~~Year 5 and thereafter~~	~~53,239~~
~~Total~~	$	~~(248,859)~~


	Non-contract Related Intangibles		Contract Related Intangibles		Total
Year 1	$	199,518	$	(288,741)	$	(89,223)
Year 2	195,929		(239,891)		(43,962)
Year 3	179,372		(147,725)		31,647
Year 4	175,602		(114,043)		61,559
Year 5	170,801		(79,359)		91,442
Thereafter	185,113		(234,302)		(49,189)
Total	$	1,106,335	(1,104,061)		$	2,274

We recognized a gain on termination of unfavorable contract liability of $71,375 in three months ended March 31, 2022 due to the closing of certain energy production sites.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements


Note 7.			Sale of Energy Producing Assets and Goodwill Impairment

During the first quarter of 2019 we recognized 2 individual sales of energy producing assets, for a total of 8 power purchase agreements, including the associated energy production contracts for total consideration of $7 million.

In connection with these assets sales, we entered into agreements with the purchaser to maintain and operate the assets over the remaining periods of the associated energy production contracts (through August 2033 and January 2034, respectively) in exchange for monthly maintenance and operating fees. These agreements contain provisions whereby we have guaranteed to the purchaser a minimum level or threshold of cash flows from the associated energy production contracts. In October 2021 the minimum guarantee with respect to one of the energy purchase agreements was modified by reducing the guaranteed minimum collections by $35,000 per year, the guaranteed minimum collection amount associated with one site that was sold by the customer. Actual results are 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. AsBased upon an analysis of these energy producing assets expected future performance, as of March 31, ~~2021,~~2022 we ~~had a $2,752 payable relating~~do not expect to ~~this arrangement due to timing of~~make any material payments ~~from customers.~~under the guarantee. At March 31, 2022, our obligation under the energy production contracts was $3,911.

The foregoing agreements also contain provisions whereby we have agreed to make whole the purchaser in the event the counterparty to the energy production contract(s) defaults on or otherwise terminates before the stated expiration of the energy production contract. Should we be required to make whole the purchaser under such provisions, we would be entitled to seek recovery from the counterparty to the energy production contract(s) under a similar provision contained in those contracts in respect of early termination.

We are also responsible under the agreements for site decommissioning costs, if any, in excess of certain threshold amounts by site. Decommissioning of site assets is performed when, if and as requested by the counterparty to the energy production contract upon termination of the energy production contract.


Note 8.			Leases

Our leases principally consist of operating leases related to our corporate office, field offices, and our research, manufacturing and storage facilities. ~~Our lease terms do not include options to extend or terminate the lease provided and until we are reasonably certain that we will exercise that option.~~

At inception, we determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. Some of our lease agreements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. maintenance, labor charges, etc.). We account for each component separately based on the estimated standalone price of each component.

Operating leases are included in Right-of-use assets, Lease obligations, current and Lease obligations, long term on the condensed consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term and using an incremental borrowing rate consistent with the lease terms or implicit rates, when readily determinable. For those leases where it is reasonably certain at the commencement date 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, 2022 and 2021 was $196,979 and ~~2020 was~~and $195,273, ~~and $190,035,~~ respectively.

Supplemental information related to leases for the three months ended March 31, 2022 was as follows:


	Three Months Ended
	March 31, 2022			March 31, 2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	181,661		$	171,502
Right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	721,429
Weighted-average remaining lease term - operating leases	3.80 years			4.50 years
Weighted-average discount rate - operating leases	6		%	6		%

Supplemental information related to operating leases as of March 31, 2022 and December 31, 2021 was as follows:

~~Cash paid for amounts included in the measurement of operating lease liabilities~~

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements


	March 31, 2022		December 31, 2021
Operating leases
Right-of-use assets	$	1,716,737	$	1,869,210

Operating lease liability, current	$	653,176	$	641,002
Operating lease liability, long-term	1,147,982		1,315,275
Total operating lease liability	$	1,801,158	$	1,956,277

~~171,502~~

~~Weighted-average remaining lease term - operating leases~~

~~4.5 years~~

~~Weighted-average discount rate - operating leases~~

Future minimum lease commitments under non-cancellable operating leases as of March 31, ~~2021~~2022 were as follows:


	Operating Leases
Year 1	$	~~528,787~~552,222
Year 2	~~696,635~~745,244
Year 3	~~706,791~~299,248
Year 4	~~276,342~~108,785
Year 5	~~108,775~~102,978
Thereafter	~~331,128~~228,150
Total lease payments	~~2,648,458~~2,036,627
Less: imputed interest	~~345,005~~235,469
Total	$	~~2,303,453~~1,801,158

Note 9. Stock-Based Compensation

Stock-Based Compensation

We adopted a 2006 Stock Option and Incentive Plan, or the Plan, under which the Board of Directors may grant incentive or non-qualified stock options and stock grants to key employees, directors, advisors and consultants. The Plan was amended at various dates by the Board of Directors to increase the reserved shares of common stock issuable under the Amended Plan to 3,838,750 as of March 31, ~~2021,~~2022, and in June 2017 stockholders approved an amendment to extend the termination date of the Plan to January 1, 2026 and ratified all of our option grants issued after January 1, 2016 (the "Amended Plan").

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 March 31, ~~2021~~2022 was ~~1,007,312.~~42,643.

During the three months ended March 31, 2022, we granted nonqualified options to purchase an aggregate of 726,650 shares of common stock at $1.10 per share to certain officers and employees. These options have a vesting schedule of two years and expire in ten years. The fair value of the options issued in 2022 was $304,550. The weighted-average grant date fair value of stock options granted during 2022 was $0.42 per share.

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 3,800,000 shares of our common stock for issuance pursuant to awards under the 2022 Plan.

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 adoption of the 2022 Plan is subject to approval by our shareholders. As of March 31, 2022, there have been no grants issued under the 2022 Plan.

1112

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

Stock option activity for the three months ended March 31, ~~2021~~2022 was as follows:


Common Stock Options	Common Stock Options	Number of Options	Exercise Price Per Share	Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value		Common Stock Options	Number of Options	Exercise Price Per Share	Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
Outstanding, December 31, 2020		2,496,242	$0.71-$10.33	$	1.94	7.37 years	$	731,744
Outstanding, December 31, 2021									Outstanding, December 31, 2021	2,386,842	$0.71-$10.33	$	1.81	7.56 years	$	731,744
Granted	Granted	8,000	$1.75	$	1.75				Granted	726,650	$1.10-$1.13	$	1.10

Exercised	Exercised	0		0					Exercised	—
Canceled and forfeited	Canceled and forfeited	(253,500)	$2.60	$	2.60				Canceled and forfeited	(4,525)	$1.10-$4.50	$	1.63

Outstanding, March 31, 2021		2,250,742	$0.71-$10.33	$	1.87	7.95 years	$	1,435,158
Exercisable, March 31, 2021		591,908		$	4.03		$	23,258
Vested and expected to vest, March 31, 2021		2,001,917		$	1.97		$	1,223,373
Outstanding, March 31 2022									Outstanding, March 31 2022	3,108,967	$0.71-$10.33	$	1.64	7.90 years	$	1,751,592
Exercisable, March 31, 2022									Exercisable, March 31, 2022	731,592		$	3.52		$	139,485
Vested and expected to vest, March 31, 2022									Vested and expected to vest, March 31, 2022	2,752,361		$	1.72		$	1,509,777

Consolidated stock-based compensation expense for the three months ended March 31, 2022 and 2021 was $95,707 and ~~2020 was~~ $39,085, ~~and $42,236,~~ respectively. No tax benefit was recognized related to the stock-based compensation recorded during the period.

At March 31, ~~2021~~2022 the total compensation cost related to unvested stock option awards not yet recognized is ~~$489,928~~$676,437 and this amount will be recognized over a weighted average period of ~~1.97~~1.74 years.

Note 10. Fair Value Measurements

The fair value topic of the FASB Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. We currently do not have any Level 1 financial assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1. Level 2 inputs include quoted prices for identical assets or liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for substantially the full term of the asset or liability. We have Level 2 financial assets and liabilities as provided below.

Level 3 - Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability. We do not currently have any Level 3 financial assets or liabilities.

1213

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

The following tables presents the asset reported in "other assets" in the consolidated balance sheet measured at its fair value on a recurring basis as of March 31, ~~2021~~2022 and ~~2020~~2021 by level within the fair value hierarchy.

March 31, 2021 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
Total Level 1 Level 2 Level 3
Description
Recurring fair value measurements
Marketable equity securities
EuroSite Power Inc. $ 149,990 $ 0 $ 149,990 $ 0
Total recurring fair value measurements $ 149,990 $ 0 $ 149,990 $ 0
March 31, 2020 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
Total Level 1 Level 2 Level 3
Description
Recurring fair value measurements
Marketable equity securities
EuroSite Power Inc. $ 196,806 $ 0 $ 196,806 $ 0
Total recurring fair value measurements $ 196,806 $ 0 $ 196,806 $ 0


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

March 31, 2021			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.	$	149,990	$	—	$	149,990	$	—	$	37,497
Total recurring fair value measurements	$	149,990	$	—	$	149,990	$	—	$	37,497

We utilize a Level 2 category fair value measurement to value its investment in EuroSite Power, Inc. as a marketable equity security at period end. That measurement is equal to the quoted market closing price at period end. Since this security is not actively traded we classify it as Level 2.

The following table summarizes changes in Level 2 assets which are comprised of marketable equity securities for the ~~periods~~three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


Fair value at December 31, 2021	$	74,995
Unrealized gains	37,497
Fair value at March 31, 2022	$	112,492

Fair value at December 31, 2020	$	118,084
Sale of 93,187 shares	(5,591)
Unrealized ~~gain included in net income for the three months ended March 31, 2021~~gains	37,497
Fair value at March 31, 2021	$	149,990


~~Fair value at December 31, 2019~~	$	~~216,487~~
~~Unrealized loss included in net income for the three months ended March 31, 2020~~	~~(19,681)~~
~~Fair value at March 31, 2020~~	$	~~196,806~~

During the three months ended March 31, 2021, we received net proceeds of $11,637 from the sale of 93,187 shares of Eurosite Power, Inc. common stock, and recognized a realized gain of $6,046 which is included in the Consolidated Statement of Operations.

Note 11. ~~Revolving Line of Credit and Note~~Notes Payable

On May 4, 2018 we entered into a Credit Agreement with Webster Business Credit Corporation ("Webster") that provided a line of credit of up to $10 million to us on a revolving and secured basis, with availability based on certain accounts receivables, raw materials, and finished goods.

Borrowings under the Credit Agreement bore interest at a rate equal to, at our option, either (1) One Month LIBOR, plus 3.00%, or (2) Webster’s Base Rate, plus 1.5%. Webster’s Base Rate is defined as the highest of (a) the Federal Funds rate plus 0.5%, (b) Webster’s Prime Rate as adjusted by bank from time to time, and (c) One Month LIBOR, plus 2.75%.

The Credit Agreement contained certain affirmative and negative covenants applicable to us, which included, among other things, restrictions on our ability to (i) incur additional indebtedness, (ii) make certain investments, (iii) acquire other entities, (iv) dispose of assets and (v) make certain payments including those related to dividends or repurchase of equity. The Credit Agreement also contains financial covenants including maintaining a fixed charge coverage ratio of not less than 1.10:1.00 and we may not make any financed capital expenditures in excess of $500,000 in the aggregate in any fiscal year.

The $145,011 of costs incurred in connection with the issuance of the revolving credit facility were capitalized and were being amortized to interest expense on a straight-line basis over three years based on the contractual term of the Agreement. For the three months ended March 31, 2020 we amortized $12,499 of the deferred debt issuance cost.

On May 11, 2020, we terminated our Credit Agreement with Webster, together with several related agreements including, a Revolving Note Security Agreement, Blocked Account Agreement, and Master Letter of Credit Agreement. We paid an early termination fee of $25,000 to terminate the Credit Agreement. As of May 11, 2020, the outstanding balance under the line of credit and accrued and unpaid interest was $0.Paycheck Protection Program Loan

On April 17, 2020, we obtained an unsecured loan through Webster Bank, N.A. in the amount of $1,874,200 in connection with the Paycheck Protection Program pursuant to the Coronavirus Aid, Relief, and Economic Security Act, as amended ("CARES Act”) administered by the United States Small Business Administration ("SBA"). The loan was guaranteed by the SBA. Interest on the loan balance was at the rate of 1% per year, and as a result of the enactment of the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”), repayment of the loan balance could be deferred until August 2021, at which time the balance would be payable in 18 monthly installments of $106,356 with the final payment due in January 2023 if not forgiven in accordance with the CARES Act and the terms of the Promissory Note executed by us in connection with the loan. The loan could be prepaid at any time without penalty. The loan agreement and promissory note include customary provisions for a loan of this type, including prohibitions on our payment of dividends or repurchase of shares of our common stock while the loan remains outstanding. The loan agreement and promissory note also defines events of default

TECOGEN INC.

Notes to ~~include, among other things, payment defaults, breaches of provisions of the loan agreement or the promissory note and cross-defaults on other loans, if applicable.~~Condensed Consolidated Financial Statements

On January 19, 2021, we received a letter dated January 12, 2021 from Webster Bank, NA confirming that the Paycheck Protection Program Loan issued to us pursuant to the CARES Act, ~~as amended,~~ in the original principal amount of $1,874,200 together with accrued interest of $13,659 was forgiven in full as of January 11, 2021. We have accounted for the loan forgiveness of $1,887,859 as debt extinguishment in accordance with Accounting Standards Update 2020-09, Debt (Topic 470) ("ASU 2020-09") and reported as a separate component of other income (expense), net in the condensed consolidated statements of operations for the three months ended March 31, 2021. The loan forgiveness is ~~expected to be~~ nontaxable for both state and federal purposes and has been treated ~~accordingly.~~accordingly in our condensed consolidated financial statements.

Paycheck Protection Program Second Draw Loan

On February 5, 2021, we obtained a Paycheck Protection Program Second Draw unsecured loan through Webster Bank, N.A. in the amount of $1,874,269 pursuant to the CARES Act. ~~The loan is guaranteed by~~

On September 20, 2021, we received a letter dated September 13, 2021 from Webster Bank, NA confirming that the ~~SBA. Interest on~~Paycheck Protection Program Second Draw Loan issued to us pursuant to the CARES Act, in the original principal amount of $1,874,269 together with accrued interest of $11,386 was forgiven in full as of September 8, 2021. We have accounted for the loan ~~balance is at the rate~~forgiveness of ~~1% per year, and repayment of the loan balance is deferred until June 5, 2022. If not forgiven~~$1,885,655 as debt extinguishment in accordance with Accounting Standards Update 2020-09, Debt (Topic 470) ("ASU 2020-09") and reported as a separate component of other income (expense), net in the ~~CARES Act, as amended,~~condensed consolidated statements of operations for the ~~loan is repayable in forty-four (44) monthly installments of $43,400 beginning July 5, 2022 with final payment due on February 5, 2026.~~three months ended March 31, 2021. The loan may be prepaid at any time without penalty. The loan agreement and promissory note include customary provisions for a loan of this type, including prohibitions on our payment of dividends or repurchase of shares of our common stock while the loan remains outstanding. The loan agreement and promissory note defines events of default to include, among other things, payment defaults, breaches of provisions of the loan agreement or the promissory note and cross-defaults on other loans, if applicable.

We anticipate that 100% of the loan proceeds will be used for covered expenses, payroll, rent, and utilities (which are costs expected to be eligible for loan forgiveness under the CARES Act and the Promissory Note) during the 24 week Covered Period following the disbursement of the loan as permitted under the PPP Flexibility Act in order to maximize the amount forgivable under the loan. There can be no assurance our application for forgiveness will be granted and in what amount. Such forgiveness is ~~subject to an application to,~~nontaxable for both state and ~~approval by, the SBA~~federal purposes and ~~may also be subject to further requirements~~has been treated accordingly in ~~any regulations and guidelines the SBA may adopt.~~our condensed consolidated financial statements.

Note 12. Commitments and Contingencies

We ~~guarantee~~guaranteed certain obligations of a former subsidiary of ~~American DG Energy, to~~ADGE, EuroSite Power ~~Inc, a former subsidiary of the Company.~~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 March 31,~~guarantee. In October 2021, ~~of approximately $42,846 due ratably~~the loan was paid in ~~equal installments through September 2021, and certain guarantees of performance in respect of certain customer contracts. Based on current conditions, we do not believe there~~full. We have no further obligation to ~~be any amounts probable of payment by us~~Eurosite Power Inc. under any of the guarantees and have estimated the value associated with the non-contingent aspect of the guarantees is approximately $7,000 which is recorded as a liability in the accompanying financial statements.this guarantee.

Note 13. Segments

As of March 31, ~~2021,~~2022, we were organized into 2three operating segments through which senior management evaluates our business. These segments, as described in more detail in Note 1, are organized around the products and services provided to customers and represent our reportable segments. The following table presents information by reportable segment for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


										Products and Services		Energy Production		Corporate, other and elimination (1)		Total
Three months ended March 31, 2022									Three months ended March 31, 2022

Revenue - external customers									Revenue - external customers	$	6,856,761	$	581,562	$	—	$	7,438,323
Intersegment revenue									Intersegment revenue	95,253		—		(95,253)		—
Total revenue									Total revenue	$	6,952,014	$	581,562	$	(95,253)	$	7,438,323
Gross profit									Gross profit	$	2,845,253	$	245,535	$	—	$	3,090,788
Identifiable assets									Identifiable assets	$	28,785,826	$	3,978,145	$	—	$	32,763,971

Three months ended March 31, 2021									Three months ended March 31, 2021

Revenue - external customers									Revenue - external customers	$	5,403,866	$	653,295	$	—	$	6,057,161
Intersegment revenue									Intersegment revenue	131,516		—		(131,516)		—
Total revenue									Total revenue	$	5,535,382	$	653,295	$	(131,516)	$	6,057,161
Gross profit									Gross profit	$	2,691,976	$	259,232	$	—	$	2,951,208
Identifiable assets									Identifiable assets	$	26,997,887	$	4,602,323	$	—	$	31,600,210

	Products and Services		Energy Production		Corporate, other and elimination (1)		Total

Three months ended March 31, 2021

Revenue - external customers	$	5,403,866	$	653,295	$	0	$	6,057,161
Intersegment revenue	131,516		0		(131,516)		0
Total revenue	$	5,535,382	$	653,295	$	(131,516)	$	6,057,161
Gross profit	$	2,691,976	$	259,232	$	0	$	2,951,208
Identifiable assets	$	26,997,887	$	4,602,323	$	0	$	31,600,210

Three months ended March 31, 2020

Revenue - external customers	$	7,211,850	$	750,850	$	0	$	7,962,700
Intersegment revenue	148,660		0		(148,660)		0
Total revenue	$	7,360,510	$	750,850	$	(148,660)	$	7,962,700
Gross profit	$	2,525,721	$	266,446	$	0	$	2,792,167
Identifiable assets	$	19,018,898	$	3,244,076	$	16,192,488	$	38,455,462

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

Note 14. Subsequent Events

We have evaluated subsequent events through the date of this filing and determined that no material subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.

TECOGEN INC.

Notes to Condensed Consolidated Financial Statements

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on our business and results of operations are forward-looking statements. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Such forward-looking statements include, among other things, statements regarding the impact of the coronavirus pandemic on demand for our products and services, the availability of incentives, rebates, and tax benefits relating to our products, changes in the regulatory environment relating to our products, competing technological developments, and the availability of financing to fund our operations and growth. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (“~~2020~~2021 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 ~~2020~~2021 Form 10-K filed with the Securities and Exchange Commission (“SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q. Each of the terms “Tecogen,” “we,” “our,” and “us” as used herein refer collectively to Tecogen Inc. and our wholly owned subsidiaries, unless otherwise stated. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and you should not rely on those forward-looking statements as representing ours views as of any date subsequent to the date of the filing of this Form 10-Q.

Recent Developments

~~Paycheck Protection Program Loans~~

Employee Retention Credit

On ~~April 17,~~March 27, 2020, ~~we obtained an unsecured loan in the principal amount of $1,874,200 from Webster Bank, NA ("Webster") under the Paycheck Protection Program adopted pursuant to~~ the Coronavirus Aid, Relief, and Economic ~~Recovery~~Security Act ~~as amended ("~~(“CARES ~~Act"~~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 ~~loan was forgivable if~~Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the ~~proceeds were utilized by us~~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 ~~payroll, utilities, and rent expenses. On January 19, 2021 we received confirmation from Webster that~~ the ~~Paycheck Protection Program Loan~~ERC in the ~~original principal amount~~first, second and third quarters of ~~$1,874,200 together with accrued interest~~2021 because our gross receipts decreased by more than 20% from the first, second and third quarters of ~~$13,659 was forgiven~~2019. As a result of averaging 100 or fewer full-time employees in ~~full effective as~~2019, all wages paid to employees in the first, second and third quarters of ~~January 11, 2021. The~~2021 were eligible for the ERC. Wages used towards PPP loan forgiveness cannot be used as qualified wages for purposes of ~~$1,887,859 was accounted for as debt extinguishment and is reported as a separate component of other income in~~ the ~~consolidated statements of earnings for the three months ended March 31, 2021.~~ERC

~~On February 5, 2021, we obtained a Paycheck Protection Program Second Draw unsecured loan through Webster~~A current receivable in the amount of ~~$1,874,269~~$1,276,021 is included in ~~connection~~our condensed consolidated balance sheet as of March 31, 2022. On April 14, 2022, we received $564,027 from the Internal Revenue Service representing the ERC claim for the third quarter of 2021 and $1,275 of accrued interest. We are still awaiting payment from the Internal Revenue Service for the ERC claim from the first and second quarters of 2021.

Air Cooled Chiller Development

During Q3 2021 we began development of a hybrid air-cooled chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller. Using the inverter design from our InVerde e+ cogeneration module, the system can simultaneously take two inputs, one from the grid or a renewable energy source and one from our natural gas engine. This allows a customer to seek the optimum blend of operational cost savings and greenhouse gas benefits while providing added resiliency from two power sources. We expect to have a prototype completed by Q4 2022 and expect to see incremental revenue in 2023. A provisional patent based on this concept has been filed with the ~~Paycheck Protection Program pursuant to the CARES Act. The loan is guaranteed by the United States Small Business Administration.~~US Patent and Trademark Office.

TECOGEN INC.

COVID-19 Update

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 ~~financial~~ 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 ~~adversely~~ impact our business, results of operations, financial condition and stock price. The impact of the pandemic remains uncertain and will depend on the growth in the number of infections, fatalities, the duration of the pandemic, steps taken to combat the pandemic, and the development and availability of effective treatments.

~~Significant portions of our business are deemed “essential services” under various state shelter-in-place orders, and we have been able to maintain critical manufacturing and service operations.~~ We have made every effort to keep our employees who operate our business safe and minimize unnecessary risk of exposure to the virus, and as part of our pandemic response plan, during a relatively short period in April 2020 our sales, engineering, and select administrative functions were operated remotely while our manufacturing team continued to function at our manufacturing facility. Our service centers continued tovirus.

~~TECOGEN INC.~~

Impact of the Russian Invasion of Ukraine

~~operate due to~~

Presently the company has 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 essential services designation, however from time to time our service personnel have been unable to perform maintenance services for customers that temporarily ceased or reduced operations at facilities served by our equipment, and certain customers closed their operations, reducing the amount of energy produced and sold to customers during these periods. During the pandemicEnergy Production Segment. However, we have also ~~experienced slower payments from certain customers. These business interruptions resulted in reductions in service and installation revenue, energy~~seen higher electricity prices as much of the electricity production ~~revenue, and margins~~ in the ~~affected portions~~United States is generated from fossil fuels. If the electricity prices continue to rise, the economic savings generated by our products are likely to increase. In addition to the direct result of ~~our business.~~changes in natural gas and electricity prices, the war in Ukraine may result in higher cybersecurity risks, increased or ongoing supply chain challenges, and volatility related to the trading prices of commodities.

Overview

Tecogen designs, manufactures and sells industrial and commercial cogeneration systems that produce combinations of electricity, hot water and air conditioning using automotive engines that have been adapted to run on natural gas. In some cases, our customers may choose to have us engineer and install the system for them rather than simply purchase the cogeneration and/or chiller units, which we refer to as "turnkey" projects. Cogeneration systems are efficient because, in addition to supplying mechanical energy to power electric generators or compressors – displacing utility supplied electricity – they provide an opportunity for the facility to incorporate the engine’s waste heat into onsite processes, such as space and potable water heating. We produce standardized, modular, small-scale products, with a limited number of product configurations that are adaptable to multiple applications. We refer to these combined heat and power products as CHP (electricity plus heat) and ~~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 3,000 units. Our products have long useful lives with proper maintenance. Some of our units have been operating for over 35 years.

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

Our operations are comprised of ~~two~~three business segments. Our Products ~~and Services~~ segment 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 sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements.

TECOGEN INC.

Results of Operations

~~Three Months ended March 31,~~First Quarter of 2022 Compared to First Quarter of 2021 ~~compared to the Three Months ended March 31, 2020~~

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			Three Months Ended
		March 31, 2021	March 31, 2020		March 31, 2022		March 31, 2021
Revenues	Revenues	100.0%	100.0%	Revenues	100.0%		100.0%
Cost of sales	Cost of sales	51.3%	64.9%	Cost of sales	58.4%		51.3%
Gross profit	Gross profit	48.7%	35.1%	Gross profit	41.6%		48.7%
Operating expenses	Operating expenses			Operating expenses
General and administrative	General and administrative	40.5%	33.8%	General and administrative	33.3%		40.5%
Selling	Selling	8.4%	10.7%	Selling	6.7%		8.4%
Research and development	Research and development	2.1%	4.6%	Research and development	1.9%		2.1%
Gain on disposition of assets				Gain on disposition of assets	(0.5)	%	—%
Gain on termination of unfavorable contract liability				Gain on termination of unfavorable contract liability	(1.0)	%	—%
Total operating expenses	Total operating expenses	51.0%	49.1%	Total operating expenses	40.5%		51.0%
Loss from operations		(2.3)%	(14.0)%
Income (loss) from operations				Income (loss) from operations	1.1	%	(2.3)	%
Total other income (expense), net	Total other income (expense), net	31.8%	(0.9)%	Total other income (expense), net	0.3%		31.8	%
Consolidated net income (loss)		29.4%	(15.0)%
Income attributable to the noncontrolling interest		(0.2)%	(0.1)%
Net income (loss) attributable to Tecogen, Inc.		29.2%	(15.1)%
Consolidated net income				Consolidated net income	1.3%		29.4	%
Income attributable to the non-controlling interest				Income attributable to the non-controlling interest	(0.1)	%	(0.2)	%
Net income attributable to Tecogen, Inc.				Net income attributable to Tecogen, Inc.	1.2%		29.2	%

Revenues

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


		Three Months Ended March 31,									Three Months Ended March 31,
		2021		2020		Increase (Decrease) $		Increase (Decrease) %			2022		2021		Increase (Decrease) $		Increase (Decrease) %
REVENUES:	REVENUES:									REVENUES:
Products	Products									Products
Cogeneration	Cogeneration	$	46,645	$	3,236,460	$	(3,189,815)	(98.6)	%	Cogeneration	$	2,174,004	$	46,645	$	2,127,359	4,560.7	%
Chiller	Chiller	1,457,293		(485,981)		1,943,274		399.9	%	Chiller	1,607,408		1,457,293		150,115		10.3	%
Engineered accessories	Engineered accessories	618,784		301,281		317,503		105.4	%	Engineered accessories	158,069		618,784		(460,715)		(74.5)	%
Total product revenues	Total product revenues	2,122,722		3,051,760		(929,038)		(30.4)	%	Total product revenues	3,939,481		2,122,722		1,816,759		85.6	%

Services	Services									Services
Maintenance services	Maintenance services	2,763,448		2,465,948		297,500		12.1	%	Maintenance services	2,897,171		2,763,448		133,723		4.8	%
Installation services	Installation services	517,696		1,694,142		(1,176,446)		(69.4)	%	Installation services	20,109		517,696		(497,587)		(96.1)	%
Total service revenues	Total service revenues	3,281,144		4,160,090		(878,946)		(21.1)	%	Total service revenues	2,917,280		3,281,144		(363,864)		(11.1)	%
Products and services	Products and services	5,403,866		7,211,850		(1,807,984)		(25.1)	%	Products and services	6,856,761		5,403,866		1,452,895		26.9	%
Energy production revenues	Energy production revenues	653,295		750,850		(97,555)		(13.0)	%	Energy production revenues	581,562		653,295		(71,733)		(11.0)	%
Total revenues	Total revenues	$	6,057,161	$	7,962,700	$	(1,905,539)	(23.9)	%	Total revenues	$	7,438,323	$	6,057,161	$	1,381,162	22.8	%

~~Total revenues for the three months ended March 31, 2021 were $6,057,161 compared to $7,962,700 for the same period in 2020, a decrease of $1,905,539 or 23.9% year over year.~~

TECOGEN INC.

Total revenues for the three months ended March 31, 2022 were $7,438,323 compared to $6,057,161 for the same period in 2021, an increase of $1,381,162 or 22.8% year over year.

Products ~~and Services~~

Product revenues in the three months ended March 31, ~~2021~~2022 were ~~$2,122,722~~$3,939,481 compared to ~~$3,051,760~~$2,122,722 for the same period in ~~2020, a decrease~~2021, an increase of ~~$929,038,~~$1,816,759, or ~~30.4%.This decrease~~85.6%. The increase in revenue during the three months ended March 31, 2022 is due primarily to ~~a decrease~~an increase in cogeneration sales of ~~$3,189,815 due to decreased unit volume, partially offset by~~$2,127,359 and an increase in chiller sales of ~~$1,943,274 due to increased unit volume and increased~~$150,115, offset partially by a decrease in sales of engineered accessories of ~~$317,503. (Chiller sales in the first quarter of 2020 were negatively impacted by the return of chiller products of approximately $655,000.)~~$460,715. 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 in which revenue is recognized upon shipment and were impacted by COVID-19 as energy and other construction projects were delayed due to the COVID-19 pandemic.~~sales.

Services

Service revenues in the three months ended March 31, ~~2021~~2022 were ~~$3,281,144,~~$2,917,280, compared to ~~$4,160,090~~$3,281,144 for the same period in ~~2020,~~2021, a decrease of ~~$878,946,~~$363,864, or ~~21.1%~~11.1%. The decrease in revenue during the ~~first~~ three months ofended March 31, 2021 is due primarily to a decrease in installation revenues of ~~$1,176,446,~~$497,587, offset partially by an increase of ~~$297,500~~$133,723, or 4.8%, in service contract revenues. While service contract revenue generally remains relatively constant, installation activity ~~can vary widely depending on the status of various projects. Certain installation projects, particularly those in New York City, continue~~is likely to ~~experience stoppages~~remain low due to ~~COVID-19 in the first quarter~~our strategy of ~~2021 accounting for the decrease in installation revenues.~~focusing on higher margin segments of our business.

Energy Production

Energy production revenues in the three months ended March 31, ~~2021~~2022 were ~~$653,295,~~$581,562, compared to ~~$750,850~~$653,295 for the same period in ~~2020,~~2021, a decrease of ~~$97,555,~~$71,733, or ~~13.0%~~11.0%. The decrease in energy production revenue is a consequence of certain energy production sites that have either closed permanently or have experienced temporary closures due to the impact of COVID-19. Several of our hotel, athletic and education customer's have experienced temporary closures and other sites have seen a change to remote work and learning environments, resulting in decreased energy production revenues. Energy production revenue at sites permanently closed due to COVID-19 represented 9.4% of energy production revenue during the three months ended March 31, 2020. For sites that have not permanently closed due to COVID-19, energy production revenues at these sites decreased 4.0% in the three months ended March 31, 2021 compared to the same period in 2020.and seasonality.

Cost of Sales

Cost of sales in the three months ended March 31, ~~2021~~2022 was ~~$3,105,953~~$4,347,536 compared to ~~$5,170,533~~$3,105,952 for the same period in ~~2020, a decrease~~2021, an increase of ~~$2,064,580,~~$1,241,584, or ~~39.9%~~40.0%. The ~~decrease~~increase in cost of sales is due to increased product revenue volume and the ~~reduction~~impact of ~~Products and Energy Production revenues and their related cost of sales.~~inflation on material costs. During the three months ended March 31, ~~2021~~2022 our gross margin ~~increased~~decreased to ~~48.7%~~41.6% compared to ~~35.1%~~48.7% for the same period in ~~2020,~~2021, a ~~13.6%~~7.1% percentage point ~~increase. The increase in the gross margin percentage is~~decrease due to ~~less competition in the chiller market enabling us to achieve~~ higher ~~sales prices for our chiller products and an overall change in sales mix to increased higher margin service contract revenue.~~material costs.

Products ~~and Services~~

Cost of sales for products in the three months ended March 31, 2022 was $2,644,756compared to $1,174,287 for the same period in 2021, an increase of $1,470,469, or 125.2% due to increased product revenue volume and higher material costs. During the three months ended March 31, 2022, our products gross margin was 32.9% compared to 44.7% for the same period in 2021, an 11.8% percentage point decrease. The decrease in margin is primarily a function of increased material costs.

Services

Cost of sales for services in the three months ended March 31, ~~2021~~2022 was ~~$2,711,890~~$1,366,752 compared to ~~$4,686,129~~$1,537,603 for the same period in ~~2020,~~2021, a decrease of ~~$1,974,239,~~$170,851, or ~~42.1%~~11.1%. During the first three months of 2021, our product and service gross margin was 49.8% compared to 35.0% for the same period in 2020, a 14.8% percentage point increase. The increase in services gross margin is due primarily to a shift in revenue mix to proportionately higher service maintenance revenues and lower installation activities in the three months ended March 31, ~~2021~~2022, our services gross margin was unchanged at 53.1% compared to the same period in ~~2020.~~2021.

Energy Production

Cost of sales for energy production in the three months ended March 31, ~~2021~~2022 was ~~$394,063~~$336,027 compared to ~~$484,404~~$394,062 for the same period in ~~2020,~~2021, a decrease of ~~$90,341,~~$58,035, or ~~18.6%~~14.7%. During the ~~first~~ three months ~~of 2021~~ended March 31, 2022 our energy production gross margin increased to ~~39.7%~~42.3% compared to ~~35.5%~~39.7% for the same period in ~~2020,~~2021, a ~~4.2%~~2.6% percentage point increase. The increase in the energy production gross margin is due to ~~the reduced cost of natural gas and decreased therms used~~increased runtime at our energy production sites in the three months ended March 31, ~~2021~~2022 compared to the same period in ~~2020.~~2021.

Operating Expenses

Operating expenses decreased $80,397, or 2.6%, to $3,009,809 in the three months ended March 31, 2022 compared to $3,090,206 in the same period in 2021. The total operating expenses were lower due to the gain on the disposition of assets and the recognition of a gain on the termination of unfavorable contract liabilities due to the closing of certain energy production sites which reduced operating expense by $33,945 and $71,375, respectively.

TECOGEN INC.

~~Operating Expenses~~

~~Operating expenses decreased $819,379, or 21.0%, to $3,090,206 in the three months ended March 31, 2021 compared to $3,909,585 in the same period in 2020.~~


		Three Months Ended									Three Months Ended
Operating Expenses	Operating Expenses	March 31, 2021		March 31, 2020		Increase (Decrease) $		Increase (Decrease) %		Operating Expenses	March 31, 2022		March 31, 2021		Increase (Decrease) $		Increase (Decrease) %
General and administrative	General and administrative	$	2,453,853	$	2,689,461	$	(235,608)	(8.8)	%	General and administrative	$	2,473,903	$	2,453,853	$	20,050	0.8	%
Selling	Selling	510,203		855,788		(345,585)		(40.4)	%	Selling	501,091		510,203		(9,112)		(1.8)	%
Research and development	Research and development	126,150		364,336		(238,186)		(65.4)	%	Research and development	140,135		126,150		13,985		11.1	%
Gain on disposition of assets										Gain on disposition of assets	(33,945)		—		(33,945)
Gain on termination of unfavorable contract liability										Gain on termination of unfavorable contract liability	(71,375)		—		(71,375)
Total	Total	$	3,090,206	$	3,909,585	$	(819,379)	(21.0)	%	Total	$	3,009,809	$	3,090,206	$	(80,397)	(2.6)	%

General and administrative expenses consist of executive staff, accounting and legal expenses, office space, general insurance and other administrative expenses. General and administrative expenses for the three months ended March 31, ~~2021~~2022 were ~~$2,453,853~~$2,473,903 compared to ~~$2,689,461~~$2,453,853 for the same period in ~~2020, a decrease~~2021, an increase of ~~$235,608~~$20,050 or ~~8.8%~~0.8%. General and administrative expenses decreased due to management's continued efforts to control overhead costs, resulting in decreased payroll and payroll related costs and lower legal fees due to a decrease in abandoned patent application write-downs which decreased to $7,400 in the three months ended March 31, 2021 compared to $179,944 in three months ended March 31, 2020.

Selling expenses consist of sales staff, commissions, marketing, travel and other selling related expenses. Selling expenses for the three months ended March 31, ~~2021~~2022 were ~~$510,203~~$501,091 compared to ~~$855,788~~$510,203 for the same period in ~~2020,~~2021, a decrease of ~~$345,585~~$9,112 or ~~40.4%~~1.8%. The decrease is due to lower sales commissions which decreased $251,923 due to lower product sales, decreased royalty expense which decreased $22,263 due to decreased InVerde cogeneration sales and decreased travel and related expenses which decreased $12,709 due to COVID-19 travel curtailment.

Research and development expenses consist of engineering and technical staff, materials, outside consulting and other related expenses. Research and development expenses for the three months ended March 31, ~~2021~~2022 were ~~$126,150~~$140,135 compared to ~~$364,336~~$126,150 for the same period in ~~2020, a decrease~~2021, an increase of ~~$238,186~~$13,985 or ~~65.4%, as certain R&D projects were curtailed or stopped entirely as a consequence of COVID-19. There has been no change in our focus regarding research and development activities.~~11.1%.

~~Loss~~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 Unfavorable Contract Liability associated with the closing of certain energy production sites.

Income from Operations

~~Our loss~~Income from operations for the three months ended March 31, ~~2021~~2022 was ~~$138,998~~$80,979 compared to a loss of ~~$1,117,418~~$138,998 for the same period in ~~2020, a decrease~~2021, an increase of ~~$978,420. The decrease in our loss from operations~~$219,977. This increase is due primarily to the ~~$819,379~~higher revenue for our Products Segment and a $80,397 decrease in operating ~~expenses and improved gross margins for both our Products and Services Segment and our Energy Production Segment.~~expenses.

Other Income (Expense), net

Other income, net for the three months ended March 31, ~~2021~~2022 was ~~$1,925,559~~$22,519 compared to other expense, net of ~~$67,939~~$1,925,559 for the same period in ~~2020, an increase~~2021, a decrease of ~~$1,993,498.~~$1,903,040. The ~~increase~~decrease in other income is due primarily to the gain on the extinguishment of debt of $1,885,655 recognized in the three months ended March 31, 2021 ~~is due primarily to the gain on extinguishment of debt of $1,887,859~~ as a result of the Paycheck Protection Program Loan forgiveness, and to a lesser extent, a $55,345 decrease in interest expense and the unrealized gain on investment securities of $37,497. The reduction in interest expense is due to the May 2020 termination of our Credit Agreement with Webster Business Credit Corporation. See Note 11. ~~"Revolving Line of Credit and Note Payable"~~ ~~to our Unaudited Condensed Consolidated Financial Statements for the period ended March 31, 2021.~~forgiveness.

Provision for State Income Taxes

The provision for state income taxes for the three months ended March 31, 2022 and 2021 was $3,930 and ~~2020 was~~ $8,058, ~~and $5,222,~~ respectively and represents estimated income tax payments, net of refunds, to various states.

~~TECOGEN INC.~~

Non-controlling Interest

Income attributable to the non-controlling interest was ~~$11,796~~$10,159 for the three months ended March 31, ~~2021~~2022 which represents the non-controlling interest portion of American DG Energy's 51% owned subsidiary, American DG New York, LLC. For the same period in ~~2020,~~2021, income attributable to the non-controlling interest was ~~$11,808.~~$11,796.

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

The net income ~~(loss)~~ attributable to Tecogen for the three months ended March 31, ~~2021~~2022 was net income of ~~$1,766,707~~$89,409 compared to a net ~~loss~~income of ~~$1,202,387~~$1,766,707 for the same period in ~~2020, an improvement~~2021, a decrease of ~~$2,969,094,~~$1,677,298, or ~~246.9%~~94.9%. The ~~improvement~~decrease is due

TECOGEN INC.

primarily to the extinguishment of debt ~~lower operating expenses~~associated with the forgiveness of the Paycheck Protection Program Second Draw loan and ~~improved gross margins.~~

~~Net Income (Loss) per Share~~

~~The net income (loss) per share, basic and diluted, for~~recognition of the Employee Retention Credit in the three months ended March 31, 2021 was net income per share of $0.07 compared to net loss per share of $0.05 for the same period in 2020. Weighted average shares outstanding used to calculate basic and diluted earnings per share for the three months ended March 31, 2021 were 24,850,261 and 25,122,271 shares, respectively, and for the same period in 2020 were 24,850,250 and 24,850,250 shares, respectively.2021.

Liquidity and Capital Resources

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


		Three Months Ended							Three Months Ended
Cash Provided by (Used in)	Cash Provided by (Used in)	March 31, 2021		March 31, 2020		Increase (Decrease)		Cash Provided by (Used in)	March 31, 2022		March 31, 2021		Increase (Decrease)
Operating activities	Operating activities	$	369,771	$	1,118,331	$	(748,560)	Operating activities	$	1,894,471	$	369,772	$	1,524,699
Investing activities	Investing activities	(28,318)		(120,395)		92,077		Investing activities	(48,064)		(28,319)		(19,745)
Financing activities	Financing activities	1,874,269		(953,974)		2,828,243		Financing activities	—		1,874,269		(1,874,269)
Change in cash and cash equivalents	Change in cash and cash equivalents	$	2,215,722	$	43,962	$	2,171,760	Change in cash and cash equivalents	$	1,846,407	$	2,215,722	$	(369,315)

Consolidated working capital at March 31, ~~2021~~2022 was ~~$16,109,264~~$16,333,373 compared to ~~$13,379,263~~$16,193,881 at December 31, ~~2020,~~2021, an increase of ~~$2,730,001, or 20.4%.~~$139,492. Included in working capital were cash and cash equivalents of ~~$3,705,941~~$5,460,870 at March 31, ~~2021,~~2022, compared to ~~$1,490,219~~$3,614,463 at December 31, ~~2020,~~2021, an increase of ~~$2,215,722,~~$1,846,407, or ~~148.7%~~51.1%. The increase in working capital was the result of the receipt in February 2021 of a Second Draw Paycheck Protection Program loan in the amount of $1,874,269 and the forgiveness of the initial Paycheck Protection Program loan during the quarter.

Cash Flows from Operating Activities

Cash provided by operating activities for the three months ended March 31 ~~2021~~2022 was ~~$369,772~~$1,894,471 compared to ~~$1,118,331~~$369,772 of cash provided by operating activities for the same period in ~~2020 a decrease~~2021, an increase of ~~$748,560,~~$1,524,699, or ~~66.9%~~412.3% Our accounts receivable and unbilled revenue balances decreased to ~~$8,032,521~~$7,631,611 and ~~$4,144,435,~~$2,906,931, respectively, at March 31, ~~2021~~2022 compared to ~~$8,671,163~~$8,482,286 and ~~$4,267,249~~$3,258,189 at December 31, ~~2020,~~2021, providing ~~$638,643~~$850,674 and ~~$122,814~~$351,259 of cash due to timing of billing, shipments, and collections. We have experienced payment delays from certain of our customers due to COVID-19. In addition, our inventory decreased by $326,655 in three months ended March 31, 2021 due to management's decision to reduce inventories.respectively.

Accounts payable ~~decreased~~increased to ~~$3,383,490~~$4,402,772 as of March 31, ~~2021~~2022 from ~~$4,183,105~~$3,508,354 at December 31, ~~2020, using $799,615~~2021, providing $894,418 in cash flow from operations. The ~~decrease~~increase in accounts payable was due to ~~reduced operating expenses and lower inventory procurement.~~increased material purchases due to higher product revenues. Deferred revenue ~~decreased~~increased as of March 31, ~~2021~~2022 compared to December 31, ~~2020, using $97,937~~2021, providing $504,229 of cash from operations. We expect accounts payable and deferred revenue to fluctuate with routine changes in operations.

Cash Flows from Investing Activities

During the three months ended March 31, ~~2021 our investing activities~~2022 we used ~~$28,319~~$48,064 in cash ~~for the purchases~~from investing activities. We used $80,873 of cash to purchase property, plant and equipment, ~~of $16,098, and purchases of~~$16,220 to acquire intangible assets, ~~of $5,682, along with distributions~~and distributed $15,640 to the 49% non-controlling interest holders of American DG New York LLC, ~~of $18,176,~~ partially offset by the receipt of $64,669 in insurance proceeds for the disposition of assets. For the three months ended March 31, 2021 cash used in investing activities was $28,319. During the three months ended March 31, 2021 we used $16,098 of cash to purchase property, plant and equipment, $5,682 to acquired intangible assets and, distributed $18,176 to the non-controlling interest holders of American DG New York LLC, partially offset by receipt of $11,637 in proceeds from the sale of investment ~~securities. For the three months ended March 31, 2020 cash used in investing activities~~

~~TECOGEN INC.~~

was $120,395. The decrease in cash used by investing activities in the three months ended March 31, 2020 is due to a $37,576 decrease in purchases of property, plant and equipment, a $37,568 decrease in investment in intangible assets and a $4,894 decrease in distribution to the non-controlling interest holders of American DG New York LLC.securities

Cash Flows from Financing Activities

During the three months ended March 31, ~~2021~~2022 our financing activities provided ~~$1,874,269~~$0 compared to ~~the use of cash of $953,974~~$1,874,269 for the same period in ~~2020. Our financing~~2021. Financing activities ~~during~~for the ~~first~~ three months ended March 31, 2021 included the proceeds of ~~2021 consisted solely of our receipt~~ $1,874,269 received under the Paycheck Protection Program Second ~~Draw loan. Financing activities for the first three months of 2020 included net payments on the line of credit of $955,174 as well as proceeds from the exercise of stock options of $1,200.~~Draw.

Backlog

As of March 31, ~~2021,~~2022, our backlog of product and installation projects, excluding service contracts, was ~~$8.7~~$9.4 million, consisting of ~~$4.2~~$6.4 million of purchase orders received by us and ~~$4.4~~$2.9 million of projects in which the customer's internal approval process is complete, financial resources have been allocated and the customer has made a firm verbal commitment that the order is in the process of execution. Backlog at the beginning of any period is not necessarily indicative of future performance. Our presentation of backlog may differ from other companies in our industry.

TECOGEN INC.

Paycheck Protection Program ~~Loans~~Loan

On ~~January 19, 2021,~~April 17, 2020, we ~~received a letter dated January 12, 2021~~obtained an unsecured loan in the principal amount of $1,874,200 from Webster Bank, NA ~~confirming that~~("Webster") under the Paycheck Protection Program ~~Loan to us~~adopted pursuant to the Coronavirus Aid, Relief and Economic Recovery Act, as amended ("CARES Act"),. On January 19, 2021 we received confirmation from Webster that the Paycheck Protection Program Loan in the original principal amount of $1,874,200 together with accrued interest of $13,659 was forgiven in full effective as of January 11, 2021. The loan forgiveness of $1,887,859 was accounted for as a debt extinguishment and is reported as a separate component of other income (expense), net in the condensed consolidated statements of earnings for the three months ended March 31, 2021.

Paycheck Protection Program Second Draw Loan

On February 5, 2021, we obtained a Paycheck Protection Program Second Draw unsecured loan through Webster ~~Bank, N.A.~~ in the amount of $1,874,269 in connection with the Paycheck Protection Program pursuant to the CARES Act. ~~The loan is guaranteed by~~On September 20, 2021, we received a letter dated September 13, 2021 from Webster Bank, NA confirming that the ~~SBA. Interest on the loan balance is at the rate of 1% per year, and repayment of the loan balance is deferred until June 5, 2022. If not forgiven in accordance with~~Paycheck Protection Program Second Draw Loan issued to us pursuant to the CARES Act, as amended, in the ~~loan is repayable~~original principal amount of $1,874,269 together with accrued interest of $11,386 was forgiven in ~~forty-four (44) monthly installments~~full as of ~~$43,400 beginning July 5, 2022 with final payment due on February 5, 2026.~~September 8, 2021. The loan ~~may be prepaid at any time without penalty.~~forgiveness of $1,885,655 was accounted for as debt extinguishment and is reported as a separate component of other income (expense), net in the condensed consolidated statements of earnings for the year ended December 31, 2021.

Employee Retention Credit

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The ~~loan agreement~~Taxpayer Certainty and ~~promissory note include customary provisions for~~Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

As a ~~loan of this type, including prohibitions on our payment of dividends or repurchase of shares~~result of our common stock while the loan remains outstanding. The loan agreement and promissory note defines events of default to include, among other things, payment defaults, breaches of provisions of the loan agreement or the promissory note and cross-defaults on other loans, if applicable.

~~We intend~~election to use an alternative quarter, we qualified for the ~~loan proceeds solely for payroll, rent~~ERC in the first, second and ~~utilities during~~third quarters of 2021 because our gross receipts decreased by more than 20% from the ~~24-week covered period following~~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 ~~disbursement~~first, second and third quarters of 2021, excluding the ~~loan. If~~wages applied to the ~~loan proceeds are used to pay such costs, we expect the loan to be~~Paycheck Protection Program Second Draw Loan, were eligible for ~~loan forgiveness under~~ the ~~CARES Act. In order to obtain forgiveness~~ERC.

A current receivable in the amount of $1,276,021 is included in our condensed consolidated balance sheet as of March 31, 2022. On April 14, 2022, we received $564,027 from the ~~loan, we will be required to apply to,~~Internal Revenue Service representing the ERC claim for the third quarter of 2021 and ~~obtain~~$1,275 of accrued interest. We are still awaiting payment from the ~~approval~~Internal Revenue Service for the ERC claim from the first and second quarters of ~~the SBA. There can be no assurance that our application for forgiveness of the loan will be granted in whole or in part.~~2021.

Liquidity

At March 31, ~~2021,~~2022, we had cash and cash equivalents of ~~$3,705,941,~~$5,460,870, an increase of ~~$2,215,722~~$1,846,407 or ~~148.7%~~51.1% from the cash and cash equivalents balance at December 31, ~~2020.~~2021. During the three months ended March 31, ~~2021,~~2022, our revenues continued to be negatively impacted due to COVID-19, resulting in customer order delays or deferrals; service delays due to customer facility closures, in some cases for extended periods, and a reduction in our energy production revenues due to

customer facility closures, in some cases for extended periods, a reduction in our energy production revenues due to business closures and increased remote work and learning environments. The extent to which the coronavirus will continue to impact our business, our financial results, and our cash flows will depend on future developments which are highly uncertain and cannot be predicted.

~~TECOGEN INC.~~

Based on our current operating plan, we believe existing resources, including cash and cash flows from operations, together ~~with the $1,874,269 of proceeds from our Second Draw Paycheck Protection Program loan,~~anticipated Employee Retention Credit will be sufficient to meet our working capital requirements for the next twelve months. The funds made available to us through the Paycheck Protection Program have provided liquidity for our business, ~~but~~and there can be no assurance that additional financing on such favorable terms will be available to us in the future. We will need to generate sufficient cash from operations to finance the company during the periods beyond twelve months in the future. If sufficient funds from operating activities are not available to finance our business, we may need to raise additional capital through debt financing or an equity offering to meet our operating and capital needs.

TECOGEN INC.

Significant Accounting Policies and Critical Estimates

Our significant accounting policies are discussed in the Notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The accounting policies and estimates that can have a significant impact upon our operating results, financial position and footnote disclosures are described in the above notes and in the Annual Report.

Significant New Accounting Standards or Updates Not Yet Effective

The Company's critical accounting policies have remained consistent as discussed in our Annual Report on

Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on March ~~18, 2021.~~10, 2022.

See Note 1, Description of Business and Basis of Presentation, to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Seasonality

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

Off-Balance Sheet Arrangements

Currently, we do not have any material off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures:

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer ("Certifying Officers") conducted evaluations of our disclosure controls and procedures. As defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Securities Exchange Act"), the term "disclosure controls and procedures" means controls and procedures of an issuer that are designed to ensure the information required to be disclosed by the issuer in the reports that it files or submits under the Section 13(a) or 15(d) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under Section 13(a) or 15(d) of the Securities Exchange Act is accumulated and communicated to the issuer's management, including the Certifying Officers, to allow timely decisions regarding required disclosure.

~~TECOGEN INC.~~

Our disclosure controls and procedures are designed to provide reasonable assurance that the control system’s objectives will be met. Our management, including our Chief Executive Officer and Chief ~~Accounting~~Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report, have concluded that our disclosure controls and procedures were not effective due to a material weakness with respect to a small number of individuals dealing with general controls over information technology. Management will continue to evaluate the above weaknesses and we are taking steps to remediate the weaknesses as resources become available. ~~In addition, effective March 29, 2021, we appointed Mr. Roger Deschenes as our Chief Accounting Officer and Treasurer. Mr. Deschenes replaces Mr. Locke as our Principal Financial Officer.~~

Changes in Internal Control over Financial Reporting:

There were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. However, we are continuing the process of implementing a new computer system to remediate our material weaknesses with respect to the small number of individuals dealing with general controls over information technology. Management had the system partially implemented as of year end 2020 and continues to work on its implementation, however, due to certain changes in our accounting personnel, the completion of the implementation has been delayed.

PART II - OTHER INFORMATION

TECOGEN INC.

Item 1. Legal Proceedings

As of the date of the filing of this Report, we are not a party to any material pending legal proceedings and know of no contemplated governmental proceeding involving us. However, from time to time, we may be involved in ordinary routine litigation incidental to our business.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Item1A - Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2020~~2021 ("~~2020~~2021 Form 10-K") The risks discussed in our ~~2020~~2021 Form 10-K could materially affect our business, financial condition and future results. The risks described in our ~~2020~~2021 Form 10-K are not the only risks ~~facing us.~~we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

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

None.

Item 3. Defaults in Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

TECOGEN INC.

Item 6. Exhibits


Exhibit No.			Description of Exhibit
10.1			Tecogen Inc. 2022 Stock Incentive Plan adopted as of March 8, 2022 incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the SEC on March 9, 2022.
10.2			Tecogen Inc. Policy Regarding Compensation of Non-Employee Directors filed with the Current Report on Form 8-K filed with the SEC on March 9, 2022.
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
31.2*			Certification of Chief ~~Accounting~~Financial 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 ~~Accounting~~Financial Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**			XBRL Instance Document
101.SCH**			XBRL Taxonomy Extension Schema
100.CAL**			XBRL Taxonomy Extension Calculation Linkbase
100.DEF**			XBRL Taxonomy Extension Definition Linkbase
101.LAB**			XBRL Taxonomy Extension Label Linkbase
101.PRE**			XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

** Furnished herewith

+ Compensatory plan or arrangement

TECOGEN INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.


	TECOGEN INC.
	(Registrant)

Dated: May ~~13, 2021~~12, 2022	By:	/s/ Benjamin M. Locke
	Benjamin M. Locke
	Chief Executive Officer
	(Principal Executive Officer)

Dated: May ~~13, 2021~~12, 2022	By:	/s/ ~~Roger P. Deschenes~~Abinand Rangesh
	~~Roger P. Deschenes~~Abinand Rangesh
	Chief ~~Accounting~~Financial Officer ~~and Treasurer~~
	(Principal Financial Officer)