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What changed in TECOGEN INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TECOGEN INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+275 added−259 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-23)

Top changes in TECOGEN INC.'s 2023 10-K

275 paragraphs added · 259 removed · 188 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+18 added−22 removed103 unchanged
Biggest changeRecent Developments Assumption of Aegis Energy Services Maintenance Agreements On March 15, 2023, we entered into an Agreement with Aegis Energy Services, LLC (“Aegis”) regarding the assignment and assumption of certain maintenance agreements, the purchase and sale of certain assets, and related matters (the “Agreement”) pursuant to which we agreed to assume Aegis’ rights and obligations arising on or after April 1, 2023 (the anticipated closing date) under Maintenance Agreements for 202 cogeneration systems, and acquire certain vehicles and inventory used in connection with the performance of maintenance services.
Biggest changeRecent Developments Assumption of Aegis Energy Services Maintenance Agreements On March 15, 2023, we entered into an agreement ("Agreement") with Aegis Energy Services, LLC (“Aegis”) pursuant to which Aegis agreed to assign to us and we agreed to assume certain Aegis maintenance agreements, we agreed to purchase certain assets, and related matters (“Acquisition”). On April 1, 2023, the Acquisition closed.
These poisons or contaminants are most commonly sulfur compounds. • 9,702,306: “Internal Combustion Engine Controller.” This patent granted in July of 2017 relates to the unique control methodology used in the InVerde e+ CHP unit that maximizes engine fuel economy under variable speed operation. • 9,470,126: "Assembly and method for reducing ammonia in exhaust of internal combustion engines." This patent, granted in October 2016, is related to the Ultera emission control system applicable to all our products. • 9,856,767: “Systems and methods for reducing emissions in exhaust of vehicles and producing electricity." This patent, filed in November 2015 and published in March 2016, relates to the development of the Ultera emission control system for vehicle applications. 9 TECOGEN INC. • 9,121,326: “Assembly and method for reducing nitrogen oxides, carbon monoxide and hydrocarbons in exhausts of internal combustion engines.” This patent, granted in September 2015, is related to the Ultera emission control system applicable to all our products. • 9,651,534: "Assembly and Method for reducing nitrogen oxides, carbon monoxide, hydrocarbons and hydrocarbon gas in exhausts of internal combustion engines and producing and electrical output." This patent granted in April 2017, is related to the Ultera emission control system applicable to all our products. • 8,578,704: “Assembly and method for reducing nitrogen oxides, carbon monoxide, and hydrocarbons in exhausts of internal combustion engines.” This patent, granted in November 2013, is for the Ultera emission control system applicable to all our products. • 7,243,017: “Method for controlling internal combustion engine emissions.” This patent, granted in July 2007, applies to the specific algorithms used in our engine controller for metering fuel usage to obtain the correct combustion mixture and is technology used by most of our engines. • 7,239,034: “Engine driven power inverter system with cogeneration.” This patent, granted in July 2007, pertains to the utilization of an engine-driven CHP module combined with an inverter and applies to our InVerde product specifically.
These poisons or contaminants are most commonly sulfur compounds. • 9,702,306: “Internal Combustion Engine Controller.” This patent granted in July of 2017 relates to the unique control methodology used in the InVerde e+ CHP unit that maximizes engine fuel economy under variable speed operation. • 9,470,126: "Assembly and method for reducing ammonia in exhaust of internal combustion engines." This patent, granted in October 2016, is related to the Ultera emission control system applicable to all our products. • 9,856,767: “Systems and methods for reducing emissions in exhaust of vehicles and producing electricity." This patent, filed in November 2015 and published in March 2016, relates to the development of the Ultera emission control system for vehicle applications. • 9,121,326: “Assembly and method for reducing nitrogen oxides, carbon monoxide and hydrocarbons in exhausts of internal combustion engines.” This patent, granted in September 2015, is related to the Ultera emission control system applicable to all our products. • 9,651,534: "Assembly and Method for reducing nitrogen oxides, carbon monoxide, hydrocarbons and hydrocarbon gas in exhausts of internal combustion engines and producing and electrical output." This patent granted in April 2017, is related to the Ultera emission control system applicable to all our products. • 8,578,704: “Assembly and method for reducing nitrogen oxides, carbon monoxide, and hydrocarbons in exhausts of internal combustion engines.” This patent, granted in November 2013, is for the Ultera emission control system applicable to all our products. • 7,243,017: “Method for controlling internal combustion engine emissions.” This patent, granted in July 2007, applies to the specific algorithms used in our engine controller for metering fuel usage to obtain the correct combustion mixture and is technology used by most of our engines. • 7,239,034: “Engine driven power inverter system with cogeneration.” This patent, granted in July 2007, pertains to the utilization of an engine-driven CHP module combined with an inverter and applies to our InVerde product specifically.
Item 1. Business The Company Tecogen Inc. (together with its subsidiaries, “we,” “our,” or “us,” or “Tecogen”) designs, manufactures, markets, and maintains high efficiency, ultra-clean cogeneration products. These include natural gas engine driven combined heat and power (CHP) systems, chillers and heat pumps for multi-family residential, commercial, recreational and industrial use.
Item 1. Business The Company Tecogen Inc. (together with its subsidiaries, “we,” “our,” or “us,” or “Tecogen”) designs, manufactures, markets, and maintains high efficiency, ultra-clean cogeneration products. These include natural gas engine driven combined heat and power (CHP) systems and chillers for multi-family residential, commercial, recreational and industrial use.
This grant includes a requirement that we pay royalties on all sales of all products related to the grant, which obligation expired in 2022. As of December 31, 2022, royalties accrued in accordance with this grant agreement were less than $10,000 on an annual basis.
This grant includes a requirement that we pay royalties on all sales of all products related to the grant, which obligation expired in 2022. As of December 31, 2023, royalties accrued in accordance with this grant agreement were less than $10,000 on an annual basis.
We have succeeded in developing new technologies and products in collaboration with several entities, including: • Sacramento Municipal Utility District has provided test sites to us since 2010. • Southern California Gas Company and San Diego Gas & Electric Company, each a Sempra Energy subsidiary, have granted us research and development contracts since 2004. • Department of Energy’s Lawrence Berkeley National Laboratory, with whom we have had research and development contracts since 2005, including ongoing Microgrid development work related to the InVerde. • Eastern Municipal Water District in Southern California has co-sponsored demonstration projects to retrofit both a natural-gas powered municipal water pump engine and a biofuel powered pumping station engine with the Ultera low emissions technology since 2012. • Consortium for Electric Reliability Technology Solutions executed research and development contracts with us, and has provided a test site to us since 2005. 8 TECOGEN INC. • California Energy Commission with whom we had a research and development contract from 2004 until March 2013. • The AVL California Technology Center performed a support role in research and development contracts as well as internal research and development on our Ultera emission control system from August 2009 to November 2011.
We have succeeded in developing new technologies and products in collaboration with several entities, including: • Sacramento Municipal Utility District has provided test sites to us since 2010. • Southern California Gas Company and San Diego Gas & Electric Company, each a Sempra Energy subsidiary, have granted us research and development contracts since 2004. • Department of Energy’s Lawrence Berkeley National Laboratory, with whom we have had research and development contracts since 2005, including ongoing Microgrid development work related to the InVerde. • Eastern Municipal Water District in Southern California has co-sponsored demonstration projects to retrofit both a natural-gas powered municipal water pump engine and a biofuel powered pumping station engine with the Ultera low emissions technology since 2012. • Consortium for Electric Reliability Technology Solutions executed research and development contracts with us, and has provided a test site to us since 2005. • California Energy Commission with whom we had a research and development contract from 2004 until March 2013. • The AVL California Technology Center performed a support role in research and development contracts as well as internal research and development on our Ultera emission control system from August 2009 to November 2011.
The improved performance, consisting of up to 90% reductions in NMOG and CO results from increased oxidation of NMOG and CO due to a lower temperature environment in the second stage catalyst. • 10,774,724: “Dual Stage Internal Combustion Engine Aftertreatment System Using Exhaust Gas Intercooling and Charger Driven Air Ejector.” This patent, granted in September 2020, relates to the use of turbo compressors and exhaust gas intercoolers in turbocharged engines to reduce the complexity and cost of Ultera emissions reduction systems. • 9,995,195: “Emissions control systems and methods for vehicles.” This patent, granted in June 2018, is a method for vehicle cold start to enhance the removal of CO and hydrocarbons emissions, which are extremely problematic for cold engines.
The improved performance, consisting of up to 90% reductions in NMOG and CO results from increased oxidation of NMOG and CO due to a lower temperature environment in the second stage catalyst. • 10,774,724: “Dual Stage Internal Combustion Engine Aftertreatment System Using Exhaust Gas Intercooling and Charger Driven Air Ejector.” This patent, granted in September 2020, relates to the use of turbo 8 TECOGEN INC. compressors and exhaust gas intercoolers in turbocharged engines to reduce the complexity and cost of Ultera emissions reduction systems. • 9,995,195: “Emissions control systems and methods for vehicles.” This patent, granted in June 2018, is a method for vehicle cold start to enhance the removal of CO and hydrocarbons emissions, which are extremely problematic for cold engines.
We believe this application to be a new and significant application for the Ultera technology in light of the widely publicized widespread outages in California which have occurred over the recent years.
We believe this application to be a new and significant application for the Ultera technology in light of the widely publicized widespread outages in California which have occurred in recent years.
Overall, we compete with end users’ other options for electrical power, heating, and cooling on the basis of our technology’s ability to: • Provide a more efficient solution that provides operational savings for a facility's energy needs including cooling, electricity and hot water; • Provide power when a utility grid is not available or goes out of service; 7 TECOGEN INC. • Reduce emissions of criteria pollutants (NOx and CO) to near-zero levels and cut the emission of greenhouse gases such as carbon dioxide due to increased efficiencies compared to the electric grid; • Provide reliable on-site power generation, heating and cooling services.
Overall, we compete with end users’ other options for electrical power, heating, and cooling on the basis of our technology’s ability to: • Provide a more efficient solution that provides operational savings for a facility's energy needs including cooling, electricity and hot water; • Provide power when a utility grid is not available or goes out of service; • Reduce emissions of criteria pollutants (NOx and CO) to near-zero levels and cut the emission of greenhouse gases such as carbon dioxide due to increased efficiencies compared to the electric grid; • Provide reliable on-site power generation, heating and cooling services.
However, under the Controlled Substances Act (CSA) cannabis continues to be categorized as a Schedule I drug, so that cannabis growers continue to face significant uncertainty regarding their ability to conduct business. First passed by Congress in 2014, the Rohrabcher-Farr Amendment is an amendment to the annual appropriations bill that, among other things, funds the Department of Justice.
However, under the Controlled Substances Act (CSA) cannabis continues to be categorized as a Schedule I drug, so that cannabis growers continue to face significant uncertainty regarding their ability to conduct business. First passed by Congress in 2014, the Rohracher-Farr Amendment is an amendment to the annual appropriations bill that, among other things, funds the Department of Justice.
To date we have shipped over 3,150 units, some of which have been operating for almost 35 years. We established a service center in Toronto, Canada in August 2020 to support our existing population of chillers and cogeneration units including 26 cogeneration units sold in this territory during 2020 to serve public housing facilities.
To date we have shipped over 3,200 units, some of which have been operating for almost 35 years. We established a service center in Toronto, Canada in August 2020 to support our existing population of chillers and cogeneration units including 26 cogeneration units sold in this territory during 2020 to serve public housing facilities.
In this size range we have other reciprocating engine competitors, although we have strong competitive advantages when it comes to ease of utility interconnection, ease of install in tight spaces and our microgrid capabilities. We believe that Capstone Turbine Corporation is the only microturbine manufacturer with a commercial presence in CHP.
In this size range we have other reciprocating engine competitors, although we have strong competitive advantages when it comes to ease of utility interconnection, ease of installation in tight spaces and our microgrid capabilities. We believe that Capstone Turbine Corporation is the only microturbine manufacturer with a commercial presence in CHP.
Our TecoDrive engine, permanent magnet generator, cogeneration and chiller products, InVerde, Ilios heat pumps, Ultera emissions control system, and our hybrid-drive air-cooled chiller were all created and optimized in-house with support from third-parties. We continue to seek alliances with utilities, government agencies, universities, research facilities, and manufacturers.
Our TecoDrive engine, permanent magnet generator, cogeneration and chiller products, InVerde, pumps, Ultera emissions control system, and our hybrid-drive air-cooled chiller were all created and optimized in-house with support from third-parties. We continue to seek alliances with utilities, government agencies, universities, research facilities, and manufacturers.
As of December 31, 2022, our Ultera CHP and fuel cell technologies are the only technologies that we know of which comply with California's air quality standards for CO and NOx, represented in the chart by the colored horizontal lines, shown as the world's strictest air quality standards on the lower right of the chart.
As of December 31, 2023, our Ultera CHP and fuel cell technologies are the only technologies that we know of which comply with California's air quality standards for CO and NOx, represented in the chart by the colored horizontal lines, shown as the world's strictest air quality standards on the lower right of the chart.
Government & Regulation Several kinds of federal, state and local government regulations affect our products and services, including but not exclusive to: • product safety certifications and interconnection requirements; • air pollution regulations which govern the emissions allowed in engine exhaust; • state and federal incentives for CHP technology; • various local building and permitting codes and third-party certifications; • electric utility pricing and related regulations; and • federal and state laws regarding the legalization of cannabis for medicinal and recreational use.
Government & Regulation Several kinds of federal, state and local government regulations affect our products and services, including but not exclusive to: • product safety certifications and interconnection requirements; • air pollution regulations which govern the emissions allowed in engine exhaust; • state and federal incentives for CHP technology; • various local building and permitting codes and third-party certifications; • electric utility pricing and related regulations; and • federal and state laws regarding the legalization of cannabis for medicinal and recreational use. 10 TECOGEN INC.
Our factory service 5 TECOGEN INC. agreements have directly impacted these positive results and represent an important long-term annuity-like stream of revenue for us. New equipment sold beginning in 2016 and select upgrades to the existing installed equipment fleet include industrial internet solution which enables us to collect, analyze, and manage valuable asset data continuously and in real-time.
Our factory service agreements have directly impacted these positive results and represent an important long-term annuity-like stream of revenue for us. New equipment sold beginning in 2016 and select upgrades to the existing installed equipment fleet include industrial internet solution which enables us to collect, analyze, and manage valuable asset data continuously and in real-time.
Markets and Customers Worldwide, stationary power generation applications vary from huge central stationary generating facilities (traditional electric utility providers) to back-up generators as small as 2 kW. Historically, power generation in most developed countries such as the United States has been part of a regulated central utility system utilizing high-temperature steam turbines powered by fossil-fuels.
Markets and Customers Worldwide, stationary power generation applications vary from huge central stationary generating facilities (traditional electric utility providers) to back-up generators as small as 2 kW. Historically, power generation in most developed countries such as the United States has been part of a regulated central utility system utilizing high-temperature steam turbines powered 5 TECOGEN INC. by fossil-fuels.
As a result our product has significant competitive advantages in applications that operate year round such as controlled environment agriculture, indoor ice rinks, and hospitals. Through our factory service centers in California, Connecticut, Florida, Massachusetts, Michigan, New Jersey, New York, and Toronto, Canada, our specialized technical staff maintains our products via long-term service contracts.
As a result our product has significant competitive advantages in applications that operate year round such as controlled environment agriculture, indoor ice rinks, and hospitals. Through our factory service centers in California, Connecticut, Florida, Massachusetts, Michigan, New Jersey, New York, and Ontario, our specialized technical staff maintains our products via long-term service contracts.
We 1 TECOGEN INC. propose to address this challenge by developing a highly efficient energy solution for CEA grown produce using our cogeneration products in conjunction with solar energy generation, energy storage, and other technologies. CEA facilities enable multiple crop cycles (15 to 20 cycles) in one year compared to one or two crop cycles in conventional farming.
We propose to address this challenge by developing a highly efficient energy solution for CEA grown produce using our cogeneration products in conjunction with solar energy generation, energy storage, and other technologies. CEA facilities enable multiple crop cycles (15 to 20 cycles) in one year compared to one or two crop cycles in conventional farming.
This approach has significant advantages over utilizing a single larger cogeneration or chiller unit, allowing placement in constrained urban 3 TECOGEN INC. settings and redundancy to mitigate service outages. Redundancy is particularly relevant in regions where the electric utility has formulated tariff structures that include high “peak demand” charges.
This approach has significant advantages over utilizing a single larger cogeneration or chiller unit, allowing placement in constrained urban settings and redundancy to mitigate service outages. Redundancy is particularly relevant in regions where the electric utility has formulated tariff structures that include high “peak demand” charges.
We have made, and will continue to make, the necessary research and development and capital expenditures to comply with these emissions standards. Human Capital Resources We believe our success in delivering energy efficient, ultra clean cogeneration systems, chillers and energy production services relies on our culture, values, and the creativity and commitment of our people.
We have made, and will continue to make, the necessary research and development and capital expenditures to comply with these emissions standards. 11 TECOGEN INC. Human Capital Resources We believe our success in delivering energy efficient, ultra clean cogeneration systems, chillers and energy production services relies on our culture, values, and the creativity and commitment of our people.
However, CHP products are given a heat credit which effectively increases the allowable limit. In 2018, permitting was completed making these certification levels the lowest we have achieved. We believe no other engines have been certified to these levels since the current regulations in the Los Angeles region became effective.
However, CHP products are 4 TECOGEN INC. given a heat credit which effectively increases the allowable limit. In 2018, permitting was completed making these certification levels the lowest we have achieved. We believe no other engines have been certified to these levels since the current regulations in the Los Angeles region became effective.
(1) California has the strictest air quality standards for engines in the world (2) Conventional Energy Source is U.S. power plant and gas boiler. Average U.S. power plant NOx emission rate of 0.9461 lb/MWh from (USEPA eGrid 2012), CO data not available.
(5) (2) (4) (4) (3) (1) (1) California has the strictest air quality standards for engines in the world (2) Conventional Energy Source is U.S. power plant and gas boiler. Average U.S. power plant NOx emission rate of 0.9461 lb/MWh from (USEPA eGrid 2012), CO data not available.
Most of these states also have high peak demand rates, which favor utilization of our modular units in groups so as to assure redundancy and peak demand savings. 6 TECOGEN INC. Governmental agencies in some of these regions may also provide generous rebates that can improve the economic viability of our systems.
Most of these states also have high peak demand rates, which favor utilization of our modular units in groups so as to assure redundancy and peak demand savings. Governmental agencies in some of these regions may also provide generous rebates that can improve the economic viability of our systems.
The hybrid-drive air-cooled chiller will take simultaneous inputs from the electrical grid and the natural gas engine so that it can operate with the lowest cost and/or greenhouse gas footprint at any time based on changing conditions.
The hybrid-drive air-cooled chiller will take simultaneous inputs from the electrical grid 7 TECOGEN INC. and the natural gas engine so that it can operate with the lowest cost and/or greenhouse gas footprint at any time based on changing conditions.
We are striving to create a world-class employee experience – one that offers opportunity for personal and professional growth, and enables work-life balance that aligns with our core values. Employee Health and Safety Employee health and safety continues to be a priority in every aspect of our business.
We are striving to create employee experience that offers opportunity for personal and professional growth, and enables work-life balance that aligns with our core values. Employee Health and Safety Employee health and safety continues to be a priority in every aspect of our business.
Written in 2013, the Cole memo had directed US Attorneys not to allocate resources to prosecute "individuals whose actions are in clear and unambiguous compliance with existing state laws" regarding the cannabis market. 11 TECOGEN INC.
Written in 2013, the Cole memo had directed US Attorneys not to allocate resources to prosecute "individuals whose actions are in clear and unambiguous compliance with existing state laws" regarding the cannabis market.
Market drivers include the price of natural gas, local electricity rates, environmental regulations, and governmental energy policies, as well as customers’ desire to become more environmentally responsible. Our cooling and refrigeration products provide both cooling and high grade waste heat. This is of particular advantage in facilities that control both temperature and humidity.
Market drivers include the price of natural gas, local electricity rates, environmental regulations, and governmental energy policies, as well as customers’ desire to become more environmentally responsible. 2 TECOGEN INC. Our cooling and refrigeration products provide both cooling and make use of high grade waste heat. This is of particular advantage in facilities that control both temperature and humidity.
During the year ended December 31, 2021 no customer accounted for more than 10% of our revenues. We typically sell our chiller products through our manufacturing representatives with assistance from our internal sales team. Our combined heat and power products are typically sold direct to end customers by our internal sales team.
During the years ended December 31, 2023 and December 31, 2022, no customer accounted for more than 10% of our revenues. We typically sell our chiller products through our manufacturing representatives with assistance from our internal sales team. Our combined heat and power products are typically sold direct to end customers by our internal sales team.
Our products can often reduce the customer’s operating costs (for the portion of the facility loads to which they are applied) by approximately 30% to 60% based on our estimates, which provides an excellent rate of return on the equipment’s capital cost in many areas of the country with high electricity rates.
We estimate that our products can often reduce the customer’s operating costs (for the portion of the facility loads to which they are applied) by approximately 30% to 60%, which provides an excellent rate of return on the equipment’s capital cost in many areas of the country with high electricity rates.
We believe that as environmental regulation becomes more stringent in the United States, our emissions technology may be used in markets including generators, fork trucks and biogas engines. (5) (2) (4) (4) (3) (1) 4 TECOGEN INC.
We believe that as environmental regulation becomes more stringent in the United States, our emissions technology may be used in markets including generators, fork trucks and biogas engines. 3 TECOGEN INC.
Trademarks We have registered the brand names of our equipment and logos used on our equipment. These registered and pending trademarks include Tecogen, Tecochill, Tecopower, Ultera, InVerde, Ilios, InVerde e+, NetZeroGreens and the associated logos. We will continue to trademark our product names and symbols. 10 TECOGEN INC.
Trademarks We have registered the brand names of our equipment and logos used on our equipment. These registered and pending trademarks include Tecogen, Tecochill, Tecopower, Ultera, InVerde, InVerde e+ and the associated logos. We will continue to trademark our product names and symbols.
Management believes that this chiller will address a significant market segment that is currently not addressed by our existing Tecochill product. For the years ended December 31, 2022 and 2021, we spent $732,873 and $542,079, respectively, on research and development activities.
Management believes that this chiller will address a significant market segment that is currently not addressed by our existing Tecochill product. For the years ended December 31, 2023 and 2022, we spent $840,011 and $732,873, respectively, on research and development activities.
Energy Production Our Energy Production segment sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements which represented 7.1% and 7.1% our consolidated revenues for the years ended December 31, 2022 and 2021, respectively. See Note 17 "Segments" of the Notes to the Consolidated Financial Statements.
Energy Production Our Energy Production segment sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term sales agreements which represented 7.0% of our consolidated revenues for the years ended December 31, 2023 and 2022. See Note 18. "Segments" of the Notes to the Consolidated Financial Statements.
Nine of our New Jersey service employees are represented by a collective bargaining agreement which expires on December 31, 2025 and thereafter renews annually unless terminated by either party by written notice within sixty days prior to the expiration date. Available Information Our internet website address is http://www.tecogen.com.
Nine of our New Jersey service employees are represented by a collective bargaining agreement which expires on December 31, 2025 and thereafter renews annually unless terminated by either party by written notice within sixty days prior to the expiration date.
Our commercial product lines include: • the InVerde e+ ® and TecoPower ® cogeneration units; these systems supply electricity and hot water; • Tecochill ® air-conditioning and refrigeration chillers; these systems produce chilled water and hot water; • Tecochill ® hybrid-drive air-cooled chiller; gas engine-driven chillers that provide air conditioning and hot water; • Tecofrost ® gas engine-driven refrigeration compressors; these systems circulate refrigerant and provide hot water as a byproduct; • Ilios ® high-efficiency water heaters; These provide hot water at a significantly higher efficiency than a conventional boiler (250% vs 75%); and, • Ultera ® emissions control technology.
Our commercial product lines include: • the InVerde e+ ® and TecoPower ® cogeneration units; these systems supply electricity and hot water; • Tecochill ® air-conditioning and refrigeration chillers; these systems produce chilled water and hot water; • Tecochill ® hybrid-drive air-cooled chiller; gas engine-driven chillers that provide air conditioning and hot water; • Tecofrost ® gas engine-driven refrigeration compressors; these systems circulate refrigerant and provide hot water as a byproduct; and, • Ultera ® emissions control technology.
Our operations are comprised of three business segments: • our Products segment, which designs, manufactures and sells industrial and commercial cogeneration systems; • our Services segment, which provides operations and maintenance ("O&M") services and turn-key installation for our products under long term service contracts, and • our Energy Production segment, which sells energy in the form of electricity, heat, hot water and cooling to our customers under long-term energy sales agreements.
Our operations are comprised of three business segments: • our Products segment, which designs, manufactures and sells industrial and commercial cogeneration systems; • our Services segment, which provides operations and maintenance ("O&M") services for our products under long term service contracts, and • our Energy Production segment, which installs, operates and maintains distributed generation electricity systems that we own and sells energy generated by such systems in the form of electricity, heat, hot water and cooling to our customers under long-term energy sales agreements.
In 2023 we plan to expand our Tecochill range of products to include a hybrid air cooled chiller based on the inverter design used in the InVerde.
In 2023 we expanded our Tecochill range of products with the introduction of a hybrid air cooled chiller based on the inverter design used in the InVerde.
Controlled Environment Agriculture: NetZero Greens On July 20, 2022, we announced the establishment of NetZero Greens, a new business unit focused on low carbon Controlled Environment Agriculture ("CEA"). We believe that CEA offers an exciting opportunity to apply our expertise in clean cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security.
Controlled Environment Agriculture On July 20, 2022, we announced our intention to focus on opportunities for low carbon Controlled Environment Agriculture ("CEA"). We believe that CEA offers an exciting opportunity to apply our expertise in clean cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security.
Product development time and costs would likely be significant, and we expect that our patent for the inverter-based CHP system (7,239,034) provides significant protections for key features. In 2013, we purchased rights to designs and technology, including patents granted or pending for our permanent magnet generators. A key component of our InVerde module uses this acquired technology.
Patent 7,239,034, provides significant protections for key features. In 2013, we purchased rights to designs and technology, including patents granted or pending for our permanent magnet generators. A key component of our InVerde module uses this acquired technology.
Tecochill Hybrid-Drive Air-Cooled Chiller Development During the third quarter of 2021 we began development of the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller.
See Note 5."Aegis Contract and Related Asset Acquisition" of the Notes to the Consolidated Financial Statements. Tecochill Hybrid-Drive Air-Cooled Chiller Development During the third quarter of 2021 we began development of the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller.
Our experience providing clean energy solutions to cannabis cultivation facilities has given us significant insight into requirements relating to energy-intensive indoor agriculture applications that we expect to be transferable to CEA facilities for food production.
Our experience providing clean energy solutions to cannabis cultivation facilities has given us significant insight into requirements relating to energy-intensive indoor agriculture applications that we expect to be transferable to CEA facilities for food production. Impact of the Russian Invasion of Ukraine Presently, we have no operations or customers in Russia or the Ukraine.
One other company has developed a product that seeks to compete with our inverter-based InVerde, although it does not offer all of the same benefits and features offered by our InVerde products.
The expiration, termination, or invalidity of one or more of these patents may have a material adverse effect on our business. One other company has developed a product that seeks to compete with our inverter-based InVerde, although it does not offer all of the same benefits and features offered by our InVerde products.
We anticipate that an inverter-based product with at least some of the features offered by our InVerde products will be introduced by others, but we believe that our competitors will face serious challenges in duplicating the InVerde.
We anticipate that an inverter-based product with at least some of the features offered by our InVerde products will be introduced by others, but we believe that our competitors will face serious challenges in duplicating the InVerde. Product development time and costs would likely be significant, and we expect that our patent for the inverter-based CHP system, U.S.
Overview of Our Business Products Our products offer customers energy savings, resiliency and a cleaner environmental footprint. Our cogeneration, chiller and heat pump systems use an engine to generate electricity or shaft work and recover the waste heat from the engine. 2 TECOGEN INC.
Overview of Our Business Products Our products offer customers energy savings, resiliency and a cleaner environmental footprint. Our cogeneration, chiller and heat pump systems use an engine to generate electricity or shaft work and recover the waste heat from the engine. Our systems are greater than 88% efficient compared to typical electrical grid efficiencies of 40% to 50%.
Sales & Distribution Our products are sold directly to end-users by our sales team and by established independent sales agents and representatives. We have agreements with manufacturers' representatives and outside sales representatives who are compensated by commissions for designated territories and product lines. During the year ended December 31, 2022 one customer accounted for more than 10% of our revenues.
Sales & Distribution Our products are sold directly to end-users by our sales team and by established independent sales agents and representatives. We have agreements with manufacturers' representatives and outside sales representatives who are compensated by commissions for designated territories and product lines.
We understand the benefits of employee health and safety and continue to invest in programs, products, and resources. We also understand the environment of trust and fairness that exists when information is openly shared. We also continue to invest in products and services to meet the health and safety needs of our customers and communities.
We also understand the environment of trust and fairness that exists when information is openly shared. We also continue to invest in products and services to meet the health and safety needs of our customers and communities. Talent Acquisition and Development Our values are integral to our employment process and serve as guideposts for leadership.
Employees As of December 31, 2022, we employed 85 full-time employees and 1 part-time employees, including 6 sales and marketing personnel, 51 service personnel, 19 manufacturing personnel and 10 finance and administrative personnel.
Employees As of December 31, 2023, we employed 92 full-time employees and 1 part-time employee, including 4 sales and marketing personnel, 63 service personnel, 17 manufacturing personnel and 9 finance and administrative personnel.
We introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and expect to see incremental revenue in the fourth quarter of 2023. A patent application based on this concept has been filed with the US Patent and Trademark Office.
We introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and received an order on February 8, 2024 for three hybrid-drive air-cooled chillers for a utility in Florida. A patent application based on this concept has been filed with the US Patent and Trademark Office. 1 TECOGEN INC.
We developed Ultera® for other applications including stationary engines and forklifts. See "Our Products - Ultera Low-Emissions Technology" for a more in-depth discussion of our Ultera emissions technology. We were incorporated in the State of Delaware on September 15, 2000. We have wholly-owned subsidiaries American DG Energy, Inc.
We developed Ultera® for other applications including stationary engines and forklifts. We were incorporated in the State of Delaware on September 15, 2000. We have wholly-owned subsidiaries American DG Energy, Inc. ("ADGE") and Tecogen CHP Solutions, Inc., and we own a 51% interest in American DG New York, LLC ("ADGNY"), a joint venture.
Our systems are greater than 88% efficient compared to typical electrical grid efficiencies of 40% to 50%. As a result, our greenhouse gas (GHG) emissions are typically half that of the electrical grid. Our systems generate electricity and hot water or in the case of our Tecochill product, both chilled water and hot water.
As a result, our greenhouse gas (GHG) emissions are typically half that of the electrical grid. Our systems generate electricity and hot water or in the case of our Tecochill product, both chilled water and hot water. Our products are expected to run on Renewable Natural Gas (RNG) as it is introduced into the US gas pipeline infrastructure.
Engine-driven chillers are often used as replacements for aging electric chillers because they both occupy similar amounts of floor space and require similar maintenance schedules. This is also the case with refrigeration compressors. Competition The markets for our products are highly competitive, though we believe that we offer customers a suite of premier best-in-class clean energy and thermal solutions.
Engine-driven chillers are often used as replacements for aging electric chillers because they both occupy similar amounts of floor space and require similar maintenance schedules. This is also the case with refrigeration compressors. 6 TECOGEN INC.
Talent Acquisition and Development Our values are integral to our employment process and serve as guideposts for leadership. The ultimate goal is straightforward: find great people, ask them to join, and give them a reason to stay.
The ultimate goal is straightforward: find great people, ask them to join, and give them a reason to stay.
Furthermore, with technology we have introduced, like the Ultera low-emissions technology, our products can now contribute to better air quality at the local level while complying with the strictest air quality regulations in the United States.
We believe that if cogeneration were applied on a large scale, global fuel usage might be dramatically curtailed and the utility grid made far more resilient. Furthermore, with technology we have introduced, like the Ultera low-emissions technology, our products can now contribute to better air quality level while complying with the strictest air quality regulations in the United States.
Such royalty payments have been in the range of $5,000 to $15,000 on an annual basis through the year ended December 31, 2022. In addition, WARF reserved the right to grant non-profit research institutions and governmental agencies non-exclusive licenses to practice and use, for non-commercial research purposes, the technology developed by us that is based on the licensed software.
In addition, WARF reserved the right to grant non-profit research institutions and governmental agencies non-exclusive licenses to practice and use, for non-commercial research purposes, the technology developed by us that is based on the licensed software. 9 TECOGEN INC. We consider our patents and licensed intellectual property to be important in the operation of our business.
As resources are available, we expect to continue to expand and evolve our safety programs to better meet our employee needs and workplace conditions as our business grows. Fiscal year 2022 was unique due to the impact that the COVID-19 pandemic had on organizations, including ours. Our response has consistently evolved to meet the turbulent environment.
As resources are available, we expect to continue to expand and evolve our safety programs to better meet our employee needs and workplace conditions as our business grows. We understand the benefits of employee health and safety and continue to invest in programs, products, and resources.
ADGE owns the equipment that it installs at a customer’s facility and sells the energy produced by its systems to the customer on a long-term contractual basis.
ADGE and ADGNY distribute, own, and operate clean, on-site energy systems that produce electricity, hot water, heat and cooling. ADGE and ADGNY own the equipment that is installed at customers' facilities and sell the energy produced to the customer on a long-term contractual basis.
Removed
("ADGE") and Tecogen CHP Solutions, Inc., and we own a 51% interest in American DG New York, LLC ("ADGNY"), a joint venture. ADGE and ADGNY distribute, own, and operate clean, on-site energy systems that produce electricity, hot water, heat and cooling.
Added
The majority of our customers are located in regions with the highest utility rates, typically California, the Midwest and the Northeast.
Removed
The Agreement also provides that we will hire certain Aegis employees who will continue to provide maintenance services relating to the cogeneration systems, and that Aegis will provide transitional services relating to the assumed Maintenance Agreements.
Added
Under the Agreement, we agreed to acquire from Aegis and assume Aegis' rights and obligations arising on or after April 1, 2023 under maintenance agreements pursuant to which Aegis provided maintenance services for approximately 200 cogeneration systems, and acquired certain vehicles and inventory used by Aegis in connection with the performance of such maintenance services, and, following closing hired eight (8) Aegis employees to provide services with respect to such maintenance agreements.
Removed
At the closing, we will acquire certain Aegis vehicles for $170,000, and between the closing and June 30, 2023, we will acquire from Aegis inventory used to provide maintenance services in exchange for a credit of $300,000 to be used for purchases by Aegis of our cogeneration equipment on or before June 30, 2023.
Added
At closing, we acquired eight (8) Aegis vehicles for consideration consisting of $170,000 in cash. Also, we issued credits against outstanding accounts receivable due from Aegis in the amount of $300,000 for the acquisition of inventory that Aegis used to provide maintenance services.
Removed
Following the closing, for a period of up to seven years, we will pay Aegis a portion of the revenue collected for maintenance services provided pursuant to the assumed Maintenance Agreements.
Added
On February 1, 2024, Tecogen and Aegis amended the Agreement to add eighteen (18) additional maintenance contracts (the "Amendment"). The Amendment includes an undertaking by Aegis to use commercially reasonable efforts to support and assist our execution of maintenance service agreements for an additional thirty-six (36) cogeneration units sold to customers by Aegis.
Removed
We also have the right to assume Aegis’ remaining Maintenance Agreements for cogeneration systems on the same terms and conditions but effective December 31, 2023 to the extent that Aegis is permitted to assign such agreements to us in accordance with the terms of such agreements.
Added
Competition The markets for our products are highly competitive, though we believe that we offer customers a suite of premier best-in-class clean energy and thermal solutions.
Removed
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.
Added
Such royalty payments have been in the range of $5,000 to $15,000 on an annual basis through the year ended December 31, 2023.
Removed
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.
Added
The lease for our headquarters located in Waltham, Massachusetts was extended on March 1, 2024 and expires on April 30, 2024. On March 31, 2023, we entered into two lease agreements for two adjoining buildings, located in Billerica, Massachusetts, containing approximately 26,412 square feet of manufacturing, storage and office space to serve as our headquarters and manufacturing facilities.
Removed
We elected to use an alternative quarter, which qualified us 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.
Added
We have a total of approximately 21,000 square feet of manufacturing and warehouse space at the Billerica, Massachusetts facility. The lease agreements which commenced on January 1, 2024, provide for initial lease terms of five (5) years, expiring on December 31, 2028, with two successive options to renew for additional terms of five (5) years.
Removed
As a result of averaging 100 or fewer full-time employees in 2019, all wages paid to employees in the first, second and third quarters of 2021 were eligible for the ERC. Wages used towards PPP loan forgiveness cannot be used as qualified wages for purposes of the ERC.
Added
Working Capital Requirements Our ability to maintain sufficient working capital is highly dependent upon achieving expected operating results and cash flows. Failure to achieve the operating results could have a material adverse effect on our working capital, our ability to obtain financing, and our operations in the future.
Removed
During the three months ended June 30, 2021, we recorded an ERC benefit for the first and second quarters of 2021 of $713,269 and, in the three months ended September 30, 2021 we recorded an ERC benefit for the third quarter of 2021 of $562,752, respectively, in other income (expense), net in the our condensed consolidated statements of operations.
Added
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of obligations in the normal course of business.
Removed
A current receivable in the amount of $713,269 is included in our condensed consolidated balance sheet as of December 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.
Added
As of December 31, 2023, our cash and cash equivalents were $1,351,270, compared to $1,913,969 at December 31, 2022, a decrease of $562,699.
Removed
We received $667,121 from the Internal Revenue Service on January 12, 2023 in payment of the ERC claimed from the first and second quarters of 2021 and $15,775 of accrued interest. We expect to receive the remaining balance of $46,148 in the second quarter of 2023.
Added
For the year ended December 31, 2023 we used $823,315 in cash from operations and generated net operating losses of $4,413,612, due to due to lower Products sales, a decrease in gross margin due to higher products material costs and the increased provision for obsolete inventory and an increase in operating expenses due primarily to increased bad debt expense and a general increased in other administrative expenses.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny of such events may result in customers modifying the equipment or the terms or timing of the expected installation, which may result in changes to the amount of backlog attributed to those projects. We experience significant fluctuations in revenues from quarter to quarter on our product sales which may make period to period comparisons difficult.
Biggest changeWe experience significant fluctuations in revenues from quarter to quarter on our product sales which may make period to period comparisons difficult. We have low volume, high dollar sales for projects that are generally non-recurring, and therefore our sales have fluctuated significantly from period to period.
The certifying officers designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under their supervision, to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and is made known to management (including the certifying officers) by others within the company, including its subsidiaries.
The certifying officers designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under their supervision, to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and is made known to management (including the certifying officer) by others within the company, including its subsidiaries.
Additionally, we may have access to confidential or other sensitive information of our customers, which despite our efforts to protect, may be vulnerable to security breaches, theft, or improper disclosure any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Additionally, we may have access to confidential or other sensitive information of our customers or suppliers, which despite our efforts to protect, may be vulnerable to security breaches, theft, or improper disclosure any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Over the past several years electric rates have fluctuated, in some instances the rate have decreased, subsequent to the vast majority of customer contract dates, causing the billable value of the electrical power generated by our systems to decrease which has an adverse effect on our results of operations.
Over the past several years electric rates have fluctuated, in some instances rates have decreased, subsequent to the vast majority of customer contract dates, causing the billable value of the electrical power generated by our systems to decrease which has an adverse effect on our results of operations.
The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: • results and timing of our product development; • results of the development of our competitors’ products; • regulatory actions with respect to our products or our competitors’ products; • actual or anticipated fluctuations in our financial condition and operating results; • actual or anticipated changes in our growth rate relative to our competitors; • actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate; • competition from existing products or new products that may emerge; 18 TECOGEN INC. • announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or capital commitments; • issuance of new or updated research or reports by securities analysts; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • additions or departures of key management or personnel; • disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain, maintain, defend or enforce proprietary rights relating to our products and technologies; • announcement or expectation of additional financing efforts; • sales of our Common Stock by us, our insiders, or our other stockholders; and • general economic and market conditions.
The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: • results and timing of our product development; • results of the development of our competitors’ products; • regulatory actions with respect to our products or our competitors’ products; • actual or anticipated fluctuations in our financial condition and operating results; • actual or anticipated changes in our growth rate relative to our competitors; • actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate; • competition from existing products or new products that may emerge; • announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or capital commitments; • issuance of new or updated research or reports by securities analysts; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • additions or departures of key management or personnel; • disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain, maintain, defend or enforce proprietary rights relating to our products and technologies; • announcement or expectation of additional financing efforts; • sales of our Common Stock by us, our insiders, or our other stockholders; and • general economic and market conditions.
Although we are seeking to diversify our customer base and reduce our reliance upon sales to a small number of customers, we expect sales to such customers to continue to constitute a significant portion of our revenues in the near term given we actively pursue large contracts and projects.
Although we are seeking to increase and diversify our customer base and reduce our reliance upon sales to a small number of customers, we expect sales to such customers to continue to constitute a significant portion of our revenues in the near term given we actively pursue large contracts and projects.
Management conducted an evaluation of our internal control over financial reporting and based on this evaluation, management concluded that the company’s internal control over financial reporting was not effective as of December 31, 2022. We have a small number of employees dealing with general controls over information technology security and user access. This constitutes a material weakness in financial reporting.
Management conducted an evaluation of our internal control over financial reporting and based on this evaluation, management concluded that the company’s internal control over financial reporting was not effective as of December 31, 2023. We have a small number of employees dealing with general controls over information technology security and user access. This constitutes a material weakness in financial reporting.
Item 1A. Risk Factors Our business operations, financial condition, results of operations and stock price may be affected by a number of factors. In additional to the other information in this Form 10-K, the following factors and the information contained under the heading ''Cautionary Note Concerning Forward-Looking Statements'' should be considered in evaluating our company and our business.
Item 1A. Risk Factors Our business operations, financial condition, results of operations and stock price may be affected by a number of factors. In addition to the other information in this Form 10-K, the following factors and the information contained under the heading ''Cautionary Note Concerning Forward-Looking Statements'' should be considered in evaluating our company and our business.
We expect to plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. If sales in any period fall significantly below anticipated levels, our financial condition, results of operations and cash flow would suffer.
We plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. If sales in any period fall significantly below anticipated levels, our financial condition, results of operations and cash flow would suffer.
Also, and as a result, relatively small trades in our stock could have a disproportionate effect on our stock price. Certain provisions of our charter and bylaws may discourage mergers and other transactions. Certain provisions of our certificate of incorporation and bylaws may make it more difficult for someone to acquire control of the company.
Also, and as a result, relatively small trades in our stock could have a disproportionate effect on our stock price. 20 TECOGEN INC. Certain provisions of our charter and bylaws may discourage mergers and other transactions. Certain provisions of our certificate of incorporation and bylaws may make it more difficult for someone to acquire control of the company.
Others may assert that our technology infringes their intellectual property rights. 21 TECOGEN INC. We may be subject to infringement claims from time to time. The defense of any claims of infringement made against us by third parties could involve significant legal costs and require our management to divert time from our business operations.
Others may assert that our technology infringes their intellectual property rights. We may be subject to infringement claims from time to time. The defense of any claims of infringement made against us by third parties could involve significant legal costs and require our management to divert time from our business operations.
In addition, an adverse outcome of litigation could cause our insurance premiums and retention amounts to increase in the future. Any of these consequences could have a material adverse effect on our business, financial condition and results of operations. For more information regarding litigation, see "Item 3.
In addition, an adverse outcome of litigation could cause our insurance premiums and retention amounts to increase in the future. Any of these consequences could have a material adverse effect on our business, 17 TECOGEN INC. financial condition and results of operations. For more information regarding litigation, see "Item 3.
We may find it more difficult to raise additional equity capital if it should be needed for our business while the options, warrants and convertible securities are outstanding. Future sales of our shares by our existing stockholders may cause our stock price to fall. 19 TECOGEN INC.
We may find it more difficult to raise additional equity capital if it should be needed for our business while the options, warrants and convertible securities are outstanding. Future sales of our shares by our existing stockholders may cause our stock price to fall.
However, any such impairment would have an adverse effect on our results of operations. Risks Related to our Technology and Business Operations If we are unable to maintain our technological expertise in design and manufacturing processes, we will not be able to successfully compete. 16 TECOGEN INC.
However, any such impairment would have an adverse effect on our results of operations. Risks Related to our Technology and Business Operations If we are unable to maintain our technological expertise in design and manufacturing processes, we will not be able to successfully compete.
In addition, our operating expenses are based on anticipated sales levels, and a high percentage of our expenses are generally fixed in the short term. As a result of these factors, a small fluctuation in timing of sales can cause operating results to vary materially from period to period.
In addition, our operating expenses are based on anticipated sales levels, and a high 14 TECOGEN INC. percentage of our expenses are generally fixed in the short term. As a result of these factors, a small fluctuation in timing of sales can cause operating results to vary materially from period to period.
The economic viability of our projects depends on the price spread between natural gas and other fuel and electricity, and the variability of these prices creates a risk that our projects will not be economically viable and that potential customers will avoid such energy price risks. 15 TECOGEN INC.
The economic viability of our projects depends on the price spread between natural gas and other fuel and electricity, and the variability of these prices creates a risk that our projects will not be economically viable and that potential customers will avoid such energy price risks.
We cannot assure you that measures already taken, or any future measures, will enable us to provide accurate and timely financial reports, particularly if we are 20 TECOGEN INC. unable to hire additional personnel in our accounting and financial department, or if we lose personnel in this area.
We cannot assure you that measures already taken, or any future measures, will enable us to provide accurate and timely financial reports, particularly if we are unable to hire additional personnel in our accounting and financial department, or if we lose personnel in this area.
Reductions in, or eliminations or expirations of, governmental incentives in regions where we focus our sales efforts could result in decreased demand for and lower revenue 17 TECOGEN INC. from cogeneration equipment there, which would adversely affect us.
Reductions in, or eliminations or expirations of, governmental incentives in regions where we focus our sales efforts could result in decreased demand for and lower revenue from cogeneration equipment there, which would adversely affect us.
Additionally, the holdings of our directors and executive officers may increase in the future upon vesting or exercise of the options or other stock awards they may hold or in the future may be granted or if they otherwise acquire additional shares in the open market or otherwise.
Additionally, the holdings of our directors and executive officers may increase in the future upon vesting or exercise of the options or other stock awards they may hold or in the future may be granted or if they otherwise acquire 19 TECOGEN INC. additional shares in the open market or otherwise.
As of the end of the period covered by this Annual Report, December 31, 2022, our principal executive officer and principal financial officer performed an evaluation of our disclosure controls and procedures and concluded that our controls were not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Securities Exchange Act, is recorded, processed, summarized and reported when required.
As of the end of the period covered by this Annual Report, December 31, 2023, our principal executive officer and principal financial officer performed an evaluation of our disclosure controls and procedures and concluded that our controls were not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file under 21 TECOGEN INC. the Securities Exchange Act, is recorded, processed, summarized and reported when required.
Because our directors and executive officers are among our largest stockholders, they can exert influence over our business and affairs and have actual or potential interests that may differ from other stockholders or investors. As of the date of this report, our directors and executive officers collectively beneficially own approximately 11.4% of our issued and outstanding shares.
Because our directors and executive officers are among our largest stockholders, they can exert influence over our business and affairs and have actual or potential interests that may differ from other stockholders or investors. As of the date of this report, our directors and executive officers collectively beneficially own approximately 14.8% of our issued and outstanding shares.
In addition, increases in the cost of natural gas may increase the cost of power generation in comparison to the cost of power from the electric grid and may result in decreased revenue and adversely affect our results of operation.
In addition, increases in the cost of natural gas may increase the cost of power generation in comparison to the cost of power from the electric grid and may result in decreased revenue and adversely affect our results of operation. 15 TECOGEN INC.
We performed a goodwill impairment test at December 31, 2022 and determined that the estimated fair value of the energy production business assets, based on a discounted cash flow analysis, exceeded the carrying value of the assets and did not recognize goodwill impairment relating to our energy production segment for the year ended December 31, 2022.
We performed a goodwill impairment test at December 31, 2023 and determined that the estimated fair value of the energy production business assets and the Aegis maintenance service contracts, based on a discounted cash flow analysis, exceeded the carrying value of the assets and did not recognize goodwill impairment relating to our energy production segment or service segment for the year ended December 31, 2023.
Furthermore, during the COVID-19 pandemic and at other times, the U.S. stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies.
Furthermore, the U.S. stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies.
The loss of any one or more of such customers or an inability to collect such accounts receivable could have a material adverse effect our business, financial condition and results of operations.
The loss of any one or more of such customers or an inability to collect such accounts receivable could have a material adverse effect our business, financial condition and results of operations. Item 1B. Unresolved Staff Comments. None.
The amount of our backlog is subject to fluctuation due to our customers’ experiencing unexpected delays in financing, permitting or modifications in specifications of the equipment. Our total product and installation backlog as of December 31, 2022 was $6,722,138 compared to $11,321,043 as of December 31, 2021.
The amount of our backlog is subject to fluctuation due to our customers’ experiencing unexpected delays in financing, permitting or modifications in specifications of the equipment. Our total product and installation backlog as of December 31, 2023 was $7,388,145 compared to $6,722,138 as of December 31, 2022.
We expect significant competition for our products and services. Many of our competitors and potential competitors are well established and have substantially greater financial, research and development, technical, manufacturing and marketing resources than we do.
Many of our competitors and potential competitors are well established and have substantially greater financial, research and development, technical, manufacturing and marketing resources than we do.
There can be no assurance that our efforts to reduce our risk through warranty disclaimers will effectively limit our liability. Any significant occurrence of warranty expense in excess of estimates could have a material adverse effect on our operating results, financial condition and cash flow. Further, we have at times undertaken programs to enhance the performance of units previously sold.
There can be no assurance that our efforts to reduce our risk through warranty disclaimers will effectively limit our liability. Any significant occurrence of warranty expense in excess of estimates could have a material adverse effect on our operating results, financial condition and cash flow.
John Hatsopoulos, a director, beneficially owns approximately 9.4% of our issued and outstanding shares.
John Hatsopoulos, a director, beneficially owns approximately 12.3% of our issued and outstanding shares.
There can be no assurance we will be able to increase our sales and achieve and sustain profitability in the future. We are dependent on a limited number of third-party suppliers for the supply of key components for our products. We use third-party suppliers for components in all of our products.
Changes in customer orders or lack of demand may also impact our profitability. There can be no assurance we will be able to increase our sales and achieve and sustain profitability in the future. We are dependent on a limited number of third-party suppliers for the supply of key components for our products.
Our operating history is characterized by losses and there can be no assurance we will be able to increase our sales and sustain profitability in the future. We have historically incurred annual operating losses, including an operating loss of $2,447,927 in 2022.
Our operating history is characterized by losses and there can be no assurance we will be able to increase our sales and sustain profitability in the future. We have historically incurred annual net losses, including a net loss of $4,598,108 in 2023.
Our business is capital intensive and, because our products generally are built to order with customized configurations, the lead time to build and deliver a unit can be significant. We may be required to purchase key components long before we can deliver a unit and receive payment. Changes in customer orders or lack of demand may also impact our profitability.
Our business is capital intensive and, because our products generally are built to order with customized configurations, the lead time to build and deliver a unit can be significant. We may be required to purchase key components long before we can deliver a unit and receive 13 TECOGEN INC. payment.
There was one customer who represented 15% of the accounts receivable balance as of December 31, 2022, and two customers who represented 14% and 12%, respectively, of the accounts receivable balance as of December 31, 2021.
There was one customer who represented 14% of the accounts receivable balance as of our December 31, 2023, and one customer who represented 15% of the accounts receivable balance as of December 31, 2022.
The market for cogeneration equipment depends in part on the availability and size of government and economic incentives that vary by geographic market.
The reduction, elimination or expiration of government and economic incentives for applications of our equipment could reduce demand for our equipment and harm our business. The market for cogeneration equipment depends in part on the availability and size of government and economic incentives that vary by geographic market.
Our provision for doubtful accounts receivable was $361,197 as of December 31, 2022, a decrease of $188,009 when compared to the provision for doubtful accounts as of December 31, 2021.
Our provision for doubtful accounts receivable was $149,922 as of December 31, 2023, a decrease of $211,275 when compared to the provision for doubtful accounts as of December 31, 2022.
If any of the events or circumstances described in the following risks occur, our business, financial condition and results of operations could suffer and the trading price of our common stock could decline.
If any of the events or circumstances described in the following risks occur, our business, financial condition and results of operations could suffer and the trading price of our common stock could decline. Risks Relating to Our Business Strategy and Industry We may need to raise additional financing if cash generated from our operations is insufficient.
The loss of one or more of these customers, or our inability to collect outstanding receivables from such customers could have a material adverse effect on our financial results.
The loss of one or more of these customers, or our inability to collect outstanding receivables from such customers could have a material adverse effect on our financial results. For the years ended December 31, 2023 and December 31, 2022, no customer represented more than 10% of revenues for the respective years.
Turnkey construction contracts to which we are a party may contain liquidated damages provisions resulting from failure to achieve agreed milestones relating to construction activity. Agreements relating to the sale of equipment or energy may include performance and other obligations that may result in payment obligations to customers.
Agreements with our customers may include potential liquidated damages relating to construction delays or performance guaranties. Turnkey construction contracts to which we are a party may contain liquidated damages provisions resulting from failure to achieve agreed milestones relating to construction activity.
The extent to which the coronavirus will continue to impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted.
During the year ended December 31, 2023, our revenues continued to be negatively impacted due to supply chain issues and project deferrals. The extent to which the coronavirus will continue to impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted.
We have low volume, high dollar sales for projects that are generally non-recurring, and therefore our sales have fluctuated significantly from period to period. Fluctuations cannot be predicted because they are affected by the purchasing decisions and timing requirements of our customers, which are unpredictable. Such fluctuations may make quarter to quarter and year to year comparisons difficult.
Fluctuations cannot be predicted because they are affected by the purchasing decisions and timing requirements of our customers, which are unpredictable. Such fluctuations may make quarter to quarter and year to year comparisons difficult. We expect significant competition for our products and services.
These enhancements have at times been provided at no cost or below our cost. If we choose to offer such programs again in the future, such actions could result in significant costs. Agreements with our customers may include potential liquidated damages relating to construction delays or performance guaranties.
Further, we have at times 16 TECOGEN INC. undertaken programs to enhance the performance of units previously sold. These enhancements have at times been provided at no cost or below our cost. If we choose to offer such programs again in the future, such actions could result in significant costs.
Risks Relating to Ownership of our Common Stock Investment in our Common Stock is subject to price fluctuations and market volatility. Historically, valuations of many small companies have been highly volatile. The securities of many small companies have experienced significant price and trading volume fluctuations unrelated to the operating performance or the prospects of such companies.
The securities of many small companies have experienced significant price and trading volume fluctuations unrelated to the operating performance or the prospects of such companies.
If the cash generated by operations together with proceeds of loans under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act,") that we have obtained and were forgiven as described below are insufficient to fund our future operating requirements, we will need to raise additional funds through public or private equity or debt financings.
If the cash generated by operations together with proceeds of funds available under our related party loans with John N. Hastopoulos, a director and principal shareholder and Earl R. Lewis, III, a director, are insufficient to fund our future operating requirements, we will need to raise additional funds through public or private equity or debt financings.
Utilities may charge additional fees to customers who install on-site CHP and rely on the grid for back-up power. These types of restrictions, fees, or charges could make it harder for customers to install our products or use them effectively, as well as increase costs to potential customers.
These types of restrictions, fees, or charges could make it harder for customers to install our products or use them effectively, as well as increase costs to potential customers. This could make our systems less desirable, thereby adversely affecting our revenue and other operating results.
As a consequence of COVID-19, we have experienced order delays and deferrals for our products due to business closures or the inability to obtain government issued permits to conduct product installations.
We have experienced order delays and deferrals for our products due to business closures or the inability to obtain government issued permits to conduct product installations. Any of such events may result in customers modifying the equipment or the terms or timing of the expected installation, which may result in changes to the amount of backlog attributed to those projects.
Utilities or governmental entities could hinder our entry into and growth in the marketplace, and we may not be able to effectively sell our products. Utilities or governmental entities on occasion have placed barriers to the installation of our products or their interconnection with the electric grid, and they may continue to do so.
Utilities or governmental entities on occasion have placed barriers to the installation of our products or their interconnection with the electric grid, and they may continue to do so. Utilities may charge additional fees to customers who install on-site CHP and rely on the grid for back-up power.
Our engine supplier, generator supplier for cogeneration products (other than the InVerde), and the compressor and vessel sets in our chillers, are all purchased from large 14 TECOGEN INC. multinational equipment manufacturers. The loss of one or more of our suppliers could materially and adversely affect our business if we are unable to replace them.
We use third-party suppliers for components in all of our products. Our engines and generators required in our cogeneration products (other than the InVerde), and the compressor and vessel sets in our chillers, are all purchased from large multinational equipment manufacturers.
Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted or experience a security breach from computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information.
Accordingly, our data protection efforts and related security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information.
Legal Proceedings" and Note 11 "Commitments and Contingencies" in the Notes to our Consolidated Financial Statements included elsewhere herein. Credit and Liquidity Risks We are exposed to credit risks with respect to some of our customers.
Legal Proceedings" and Note 12 "Commitments and Contingencies" in the Notes to our Consolidated Financial Statements included elsewhere herein. Losses or unauthorized access to or releases of confidential information, including personal information, could subject us to significant reputational, financial, legal and operational consequences.
Our provision for doubtful accounts receivable decreased $188,009 to $361,197 in the year ended December 31, 2022, compared to the year ended December 31, 2021. We continue to seek to increase our customer base and reduce our reliance on a limited number of customers.
Our provision for doubtful accounts receivable decreased $211,275 to $149,922 in the year ended December 31, 2023, compared to the year ended December 31, 2022.
Increased remote work and remote study environments during the COVID-19 pandemic has resulted in decreased commercial electricity and revenue generated by our systems, and has adversely affected our results of operations. Our financial condition and results of operations could suffer if there is an impairment of goodwill or intangible assets.
Our financial condition and results of operations could suffer if there is an impairment of goodwill or intangible assets. As of December 31, 2023, our goodwill was $2,743,424, and our intangible assets were $2,436,230.
Removed
Risks Relating to Our Business Strategy and Industry Our financial condition and results of operations have been and may be materially adversely affected by the 2019 novel Coronavirus (COVID-19) pandemic. COVID-19 has had and continues to have a significant impact around the world, prompting governments and businesses to take unprecedented measures in response.
Added
The loss of one or more of our suppliers could materially and adversely affect our business if we are unable to replace them.
Removed
Such measures have included restrictions on travel and business operations, temporary business closures, and quarantine and shelter-in-place orders. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption of financial markets. COVID-19 has and could continue to have a material and adverse effect on our business, financial condition and results of operations.
Added
We may be affected by global climate change or by legal, regulatory, or market responses to such change. The growing political and scientific sentiment is that global weather patterns are being influenced by increased levels of greenhouse gases in the earth’s atmosphere.
Removed
During the course of the pandemic, certain of our suppliers have experienced disruptions, resulting in supply shortages that affected revenues, and similar disruptions could occur in the future. Public safety measures can also adversely impact demand for our products and services in affected areas. COVID-19 has negatively impacted our revenue and may continue to do so.
Added
This growing sentiment and the concern over climate change have led to legislative and regulatory initiatives aimed at reducing greenhouse gas emissions which warm the earth’s atmosphere. These warmer weather conditions could result in a decrease in demand for our products in general.
Removed
We may need to raise additional financing if cash generated from our operations is insufficient. During the year ended December 31, 2022, our revenues continued to be negatively impacted due to supply chain issues and project deferrals.
Added
Moreover, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the United States. Laws enacted that could impact demand for the products we sell could adversely affect our business, financial condition, results of operations and cash flows.
Removed
Due to the impact of the coronavirus pandemic on our customers, including the closure of certain customers' facilities and difficulties that customers may have in maintaining their business and operations during the pandemic, collections from certain existing customers have been and may continue to be deferred or difficult or impossible to collect, that there may be delays in the implementation of current projects and the completion of sales of our products and services. 13 TECOGEN INC.
Added
Significant increases in federal, state or municipal restrictions on emissions of carbon dioxide that may be imposed on gas-driven cogeneration and chillers could adversely affect demand for our product. Our inability to respond to such changes could adversely impact the demand for our products and our business, financial condition, results of operations or cash flows.
Removed
On April 17, 2020, we were granted a loan of $1,874,200 under the Paycheck Protection Program established pursuant to the CARES Act to provide relief to certain businesses as a result of the pandemic. The loan was provided to us by Webster Bank, N.A. and was guaranteed by the United States Small Business Administration (“SBA”).
Added
Agreements relating to the sale of equipment or energy may include performance and other obligations that may result in payment obligations to customers. Utilities or governmental entities could hinder our entry into and growth in the marketplace, and we may not be able to effectively sell our products.
Removed
We utilized the loan for payroll, rent, and utilities during the applicable covered period. Effective January 11, 2021, the loan together with all accrued interest thereon was forgiven in full by the SBA. The loan forgiveness is considered to be nontaxable for both state and federal purposes and has been treated accordingly in our condensed consolidated financial statements.
Added
Our business requires us to use and store confidential information, including personal information, with respect to our customers and employees and also requires us to share confidential information with suppliers and other third parties. We rely on suppliers that are also exposed to ransomware and other malicious attacks that can disrupt business operations.
Removed
On February 5, 2021, we obtained a Second Draw Paycheck Protection Program unsecured loan in the amount of $1,874,269 through Webster Bank, pursuant to the Paycheck Protection Program under the CARES Act and is guaranteed by the SBA. We utilized the loan for payroll, rent, and utilities during the applicable covered period.
Added
Although we take steps to secure confidential information that is provided to or accessible by third parties working on our behalf, such measures may not always be effective and losses or unauthorized access to or releases of confidential information occur. Such incidents and other malicious attacks could materially adversely affect our business, reputation, results of operations and financial condition.
Removed
Effective September 8, 2021, the loan together with all accrued interest thereon was forgiven in full by the SBA. The loan forgiveness is considered to be nontaxable for both state and federal purposes and has been treated accordingly in our condensed consolidated financial statements.
Added
We have implemented systems and processes intended to secure our information technology systems and prevent unauthorized access to or loss of sensitive data, and mitigate the impact of unauthorized access, including through the use of encryption and authentication technologies and we continue to undertake regular reviews of our IT infrastructure and have investigated improved software and hardware cyber threat protection solutions.
Removed
The 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.
Added
But these measures cannot provide absolute security, and losses or unauthorized access to or releases of confidential information occur and could materially adversely affect our business, reputation, results of operations and financial condition.
Removed
We qualified for the ERC in the first, second and third quarters of 2021 and recognized $1,276,021 in Employee Retention Credits in 2021. As of January 12, 2023, we have received $1,229,873 in payment of the ERC's and expect to receive the remaining balance of $46,148 in the second quarter of 2023.
Added
We have experienced malicious attacks and other attempts to gain unauthorized access to our systems, including the ransomware attack on our computer network which occurred on April 28, 2023 which required that we limit user access, remove the hard drives from two affected workstations from service and restore network files from systems backups.
Removed
Although we made a net profit of $3,696,000 in 2021, as a result of the Paycheck Protection Program Loans and Employee Retention Credits in the amount of $5,049,035 in the aggregate, we have historically incurred annual operating losses.
Added
Our network returned to full operation on May 1, 2023. Since this incident, we have implemented changes to user access passwords, conducted a full audit of user accounts and implemented multi-factor authentication for network and workstation access.
Removed
As of December 31, 2022, our goodwill was $2,406,156, and our intangible assets were $997,594.
Added
These attacks seek to compromise the confidentiality, integrity or availability of confidential information or disrupt normal business operations, and could, among other things, impair our ability to attract and retain customers for its products and services, impact our stock price, materially damage commercial relationships, and expose us to litigation or government investigations, which could result in penalties, fines or judgments against us.
Removed
This could make our systems less desirable, thereby adversely affecting our revenue and other operating results. The reduction, elimination or expiration of government and economic incentives for applications of our equipment could reduce demand for our equipment and harm our business.
Added
Globally, attacks are expected to continue accelerating in both frequency and sophistication with increasing use by actors of tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence, all of which hinders our ability to identify, investigate and recover from incidents.
Removed
There was one customer who represented 12% of revenues for the year ended December 31, 2022 and no customer who represented more than 10% of revenues for the year ended December 31, 2021.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our facilities are appropriate and adequate for our current needs. Our eleven leased service centers can be broken into two different sizes. The larger leased spaces have office space to accommodate administrative, sales and engineering personnel, and warehouse space to stock parts in support of our service contracts.
Biggest changeThe larger leased spaces have office space to accommodate administrative, sales and engineering personnel, and warehouse space to stock parts in support of our service contracts. As of December 31, 2023, the service centers that fit this larger category are based in Piscataway, New Jersey and 24 TECOGEN INC.
These centers are located in Los Angeles, California; Sterling Heights, Michigan; Newark, New York, East Windsor, Connecticut; Toronto, Ontario and Wellesley Chapel, Florida.
These centers are located in Los Angeles, California; Sterling Heights, Michigan; Newark, New York, East Windsor, Connecticut; East Syracuse, New York, Toronto, Ontario and Wellesley Chapel, Florida.
A portion of the corporate headquarters in Waltham, Massachusetts is used in this manner to service Boston and New England. The smaller service centers are parts depots or warehouses for the stocking of parts in support of our service contracts.
A portion of the corporate headquarters in Waltham, Massachusetts and the new corporate headquarters in Billerica, Massachusetts are used in this manner to service Boston and New England. The smaller service centers are parts depots or warehouses for the stocking of parts in support of our service contracts.
Item 2. Properties. Our headquarters is located in Waltham, Massachusetts, and consists of approximately 43,000 square feet of manufacturing, storage and office space. Although our Waltham lease expires March 31, 2024, we have identified an alternate space and are currently negotiating the lease terms. Currently, our monthly base rent is $44,254.
Item 2. Properties. Our headquarters is located in Waltham, Massachusetts, and consists of approximately 43,000 square feet of manufacturing, storage and office space. On March 1, 2024, we extended the Waltham lease which now expires on April 30, 2024. Currently, our monthly base rent for our Waltham, Massachusetts facility is $44,254.
As of December 31, 2022, the service centers that fit this larger category are based in Piscataway, New Jersey and Valley Stream and Buchanan, New York to service the Metro New York City and the Mid-Atlantic region. The San Francisco Bay area and Northern California is served by such a center in Hayward, California.
Table of Contents Valley Stream and Buchanan, New York to service the Metro New York City and the Mid-Atlantic region. The San Francisco Bay area and Northern California is served by such a center in Hayward, California.
Added
On March 31, 2023, we entered into two lease agreements for two adjoining buildings, located in Billerica, Massachusetts, containing approximately 26,412 square feet of manufacturing, storage and office space to serve as our headquarters and manufacturing facilities.
Added
The lease agreements provide for initial lease terms of five (5) years with two successive options to renew for additional terms of five (5) years. Both leases commence on January 1, 2024 and require payment of the base rent, real estate taxes, common maintenance expenses and aggregate deposits of $38,200.
Added
Our costs for initial improvements required to the leased premises is estimated to range between $500,000 and $750,000. The estimated straight-line monthly rent expense for the initial term of the lease is approximately $26,962 per month.
Added
In accordance with ASC 842-20-30-1, we will record the lease liability and right-of-use asset using the discount rate for the lease upon the lease commencement date, January 1, 2024. We believe that our facilities are appropriate and adequate for our current needs. Our eleven leased service centers can be broken into two different sizes.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. On November 23, 2022, we were served with a suit filed against us on August 24, 2022 in the Ontario Superior Court of Justice for damages in the amount of CDN $1,000,000, alleging that a Tecogen cogenerator installed by us at the plaintiffs facility caught fire, causing damage to the cogenerator and the plaintiff's facility.
Biggest changeItem 3. Legal Proceedings. On November 23, 2022, we were served with a suit filed against us on August 24, 2022 in the Ontario Superior Court of Justice by The Corporation of the Town of Milton, Milton Energy Generation Solutions Inc. and Milton Hydro Distribution Inc (the "Plaintiffs"), all of whom are municipal corporations incorporated in the Province of Ontario.
For the year ended December 31, 2022, we reserved $150,000 for anticipated costs which may not be covered by insurance. We are not a party to any other material pending legal proceeding. Item 4. Mine Safety Disclosures. Not applicable. PART II
For the year ended December 31, 2022, we reserved $150,000 for anticipated damages which may not be covered by our insurance and continue to maintain the reserve at December 31, 2023. Item 4. Mine Safety Disclosures. Not applicable. PART II
Added
The plaintiffs sued for damages in the amount of CDN $1,000,000, pre-judgment and post-judgment interest, legal fees, and any further relief the court may deem, alleging breach of contract, breach of warranty, negligent misrepresentations and nuisance.
Added
Plaintiffs allege that on or about July 10, 2022, a Tecogen cogenerator installed by us at the plaintiffs facility caught fire, causing damage to the cogenerator and the plaintiff's facility. We have filed a response denying liability and are represented by Canadian counsel.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides information as of December 31, 2022, regarding Common Stock that may be issued under the Amended Plan and the 2022 Plan.
Biggest changeThe number of shares remaining available for future issuance under the 2022 Plan as of December 31, 2023 was 3,068,750. 25 TECOGEN INC. Table of Contents The following table provides information as of December 31, 2023, regarding Common Stock that may be issued under the Amended Plan and the 2022 Plan.
The Plan was amended at various dates by the Board of Directors to increase the reserved shares of common stock issuable under the Plan to 3,838,750 as of December 31, 2022, and in June 2017 stockholders approved an amendment to extend the termination date of the Plan to January 1, 2026 and to ratify all of our option grants issued after January 1, 2016 (the “Amended Plan”).
The Plan was amended at various dates by the Board of Directors to increase the reserved shares of common stock issuable under the Plan to 3,838,750 as of December 31, 2023, and in June 2017 stockholders approved an amendment to extend the termination date of the Plan to January 1, 2026 and to ratify all of our option grants issued after January 1, 2016 (the “Amended Plan”).
Any over-the-market quotations reflect inter-dealers prices, without mark-up, markdown or commission and may not necessarily represent actual transactions. Dividends We have never declared or paid a cash dividend on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.
Any over-the-market quotations reflect inter-dealer prices, without mark-up, markdown or commission and may not necessarily represent actual transactions. Dividends We have never declared or paid a cash dividend on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Our Shares Our common stock is quoted on the OTC Markets Group’s OTCQX Best Market tier and trades under the symbol TGEN. As of March 23, 2023, there were 57 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Our Shares Our common stock is quoted on the OTC Markets Group’s OTCQX Best Market tier and trades under the symbol TGEN. As of March 25, 2024, there were 57 holders of record of our common stock.
The adoption of the 2022 Plan was approved by our shareholders on June 9, 2022. 23 TECOGEN INC. Table of Contents 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 adoption of the 2022 Plan was approved by our shareholders on June 9, 2022. Under the 2022 Plan, stock options vest based upon the terms within the individual option grants, with an acceleration of the unvested portion of such options upon a change in control event, as defined in the 2022 Plan.
The 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 December 31, 2022 and 2021 was 146,393 and 764,768, respectively.
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 December 31, 2023 and 2022 was 243,818 and 146,393, respectively.
Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) Equity compensation plans approved by security holders 3,204,297 $ 1.61 3,746,393 Equity compensation plans not approved by security holders — — — Total 3,204,297 $ 1.61 3,746,393 Item 6. [Reserved].
Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) Equity compensation plans approved by security holders 3,638,122 $ 1.49 3,312,568 Equity compensation plans not approved by security holders — — — Total 3,638,122 $ 1.49 3,312,568 Item 6. [Reserved].
The options are not transferable except by will or domestic relations order. The option price per share under the 2022 Plan cannot be less than the fair market value of the underlying shares on the date of the grant. The number of shares remaining available for future issuance under the 2022 Plan as of December 31, 2022 was 3,600,000.
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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table sets forth for the periods indicated, the percentages of the net sales represented by certain items reflected in our statements of operations for the years ended December 31, 2022 and 2021: Years ended December 31, 2022 2021 Revenues 100.0 % 100.0 % Cost of Sales 55.7 52.5 Gross Profit 44.3 47.5 General and administrative 43.6 40.1 Selling 7.2 10.1 Research and development 2.9 2.2 Total operating expenses 53.7 52.5 Loss from operations (9.4) (5.0) Total other income (expense), net (0.1) 20.4 Consolidated net income (loss) (9.6) 15.3 (Income) loss attributable to the noncontrolling interest (0.2) (0.2) Net income (loss) attributable to Tecogen Inc.
Biggest changeTable of Contents Years ended December 31, 2023 2022 Revenues 100.0 % 100.0 % Cost of Sales 59.4 55.7 Gross Profit 40.6 44.3 Operating expenses: General and administrative 47.3 43.6 Selling 7.7 7.2 Research and development 3.3 2.9 Gain on sale of assets (0.1) (0.2) Long-lived asset impairment — — Total operating expenses 58.1 53.7 Loss from operations (17.6) (9.4) Total other expense, net (0.3) (0.1) Consolidated net loss (18.0) (9.6) Income attributable to the noncontrolling interest (0.3) (0.2) Net loss attributable to Tecogen Inc.
During 2018, we early-adopted the provisions of ASU 2017-04 which simplified goodwill impairment testing by eliminating the requirement to determine the implied value of goodwill where a quantitative analysis indicates that the carrying value of the reporting unit exceeds its fair value. At a minimum, we perform a quantitative goodwill impairment test in the fourth quarter of the year.
During 2018, we adopted the provisions of ASU 2017-04 which simplified goodwill impairment testing by eliminating the requirement to determine the implied value of goodwill where a quantitative analysis indicates that the carrying value of the reporting unit exceeds its fair value. At a minimum, we perform a quantitative goodwill impairment test in the fourth quarter of the year.
Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the term of the related leases. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized.
Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the term of the related leases. Expenditures for maintenance and repairs are expensed, while renewals and betterments that materially extend the life of an asset are capitalized.
The impairment analysis recognizes the shortening of remaining contract terms with customers without replacement and without further growth, as well as less than expected cost savings and, offset by profitability from our initiatives to optimize the long-term profitability of our various site operations, and a price peak of the Company's stock on the date of the business combination to which the goodwill relates (see also Note 5."Sale of Energy Producing Assets and Goodwill Impairment").
The impairment analysis recognizes the shortening of remaining contract terms with customers without replacement and without further growth, as well as less than expected cost savings, offset by profitability from our initiatives to optimize the long-term profitability of our various site operations and a price peak of the Company's stock on the date of the business combination to which the goodwill relates (see also Note 6."Sale of Energy Producing Assets and Goodwill Impairment").
For the last two fiscal years, more than half of our revenue was generated from long-term maintenance and energy production contracts, which provides us with a predictable revenue stream, especially during the summer months. We experience a slight surge of activity from May through September as our “chiller season” is in full swing. Our O&M service 24 TECOGEN INC.
For the last two fiscal years, more than half of our revenue was generated from long-term maintenance and energy production contracts, which provides us with a predictable revenue stream, especially during the summer months. We experience a slight surge of activity from May through September as our “chiller season” is in full swing. Our O&M service 26 TECOGEN INC.
To date we have shipped over 3,150 units, some of which have been operating for almost 35 years. Although we may, from time to time, have one or a few customers who may represent more than 10% of our product revenue for a given year, we are not dependent on the recurrence of revenue from those customers.
To date we have shipped over 3,200 units, some of which have been operating for almost 35 years. Although we may, from time to time, have one or a few customers who may represent more than 10% of our product revenue for a given year, we are not dependent on the recurrence of revenue from those customers.
During the years ended December 31, 2022 and 2021, our revenues were negatively impacted due to 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 segment revenue due to business closures and increased remote work and learning environments.
During the years ended December 31, 2023 and 2022, our revenues were negatively impacted due to 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 segment revenue due to business closures and increased remote work and learning environments.
In order to grow our business and fund the development of our hydrid-drive air-cooled chiller and the relocation of our primary facility, we expect that our cash requirements will increase and we may need to raise additional capital through a debt or equity financing to meet our need for capital to fund operations and future growth.
In order to grow our business and fund the development of our hybrid-drive air-cooled chiller and the relocation of our primary facility, we expect that our cash requirements will increase and we may need to raise additional capital through a debt or equity financing to meet our need for capital to fund operations and future growth.
In the fourth quarter of 2022, we performed a quantitative goodwill impairment test for our energy production reporting unit acquired in 2017. We used a discounted cash flow approach to develop the estimated fair value of that reporting unit. Management judgment is required in developing the assumptions for the discounted cash flow model.
In the fourth quarter of 2023, we performed a quantitative goodwill impairment test for our energy production reporting unit acquired in 2017. We used a discounted cash flow approach to develop the estimated fair value of that reporting unit. Management judgment is required in developing the assumptions for the discounted cash flow model.
During the year ended December 31, 2022, our revenues were negatively impacted due to 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 business closures and increased remote work and learning environments.
During the year ended December 31, 2023, our revenues were negatively impacted due to 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 business closures and increased remote work and learning environments.
In determining the estimate of fair value of customer energy production contracts, the measure of market, and thus the baseline to measure the amount related to any of the off-market terms or conditions with respect to the contracts, was considered best determined, given the nature of the services provided under the contracts, by utilizing a benchmark level of margin, in this case 35% of revenue which is consistent with the average return on revenue of US investor owned public utilities.
In determining the estimate of fair value of customer energy production contracts, the measure of market, and thus the baseline to measure the amount related to any of the off-market terms or conditions with respect to the contracts, was considered best determined, given the nature of the services provided under the contracts, by utilizing a benchmark level of margin, in this case 35% of revenue which is consistent with the average return on revenue of US investor owned public utilities. 29 TECOGEN INC.
Management believes that the following are critical accounting policies: Revenue Recognition Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. This generally occurs with the transfer of control of our products, services and energy production.
Management believes that the following are critical accounting estimates: Revenue Recognition Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. This generally occurs with the transfer of control of our products, services and energy production.
Our service operation revenues grow with the sales of installed systems, since the majority of our product sales are accompanied by a service contract or time and materials agreements. As a result our “fleet” of units being serviced by our service department grows with product sales.
Table of Contents Our service operation revenues grow with the sales of installed systems, since the majority of our product sales are accompanied by a service contract or time and materials agreements. As a result, our “fleet” of units being serviced by our service department grows with product sales.
CEA facilities enable multiple crop cycles (15 to 20 cycles) in one year compared to one or two crop cycles in conventional farming. In addition, growing produce close to the point of sale reduces food spoilage during transportation.
Table of Contents CEA facilities enable multiple crop cycles (15 to 20 cycles) in one year compared to one or two crop cycles in conventional farming. In addition, growing produce close to the point of sale reduces food spoilage during transportation.
An impairment would be recorded if the carrying amount of a reporting unit including goodwill exceeded the estimated fair value. Based on the aforementioned analysis, the carrying amount of that reporting unit, including goodwill, exceeded the estimated fair value and there was no impairment at December 31, 2022. See Note 5. "Sale of Energy Producing Assets and Goodwill Impairment".
An impairment would be recorded if the carrying amount of a reporting unit including goodwill exceeded the estimated fair value. Based on the aforementioned analysis, the carrying amount of that reporting unit, including goodwill, exceeded the estimated fair value and there was no impairment at December 31, 2023. See Note 6. "Sale of Energy Producing Assets and Goodwill Impairment".
Table of Contents projected undiscounted cash flows (excluding interest charges) is less than the carrying value of the assets, the assets will be written down to the estimated fair value and such loss is recognized in income from continuing operations in the period in which the determination is made.
If the sum of the projected undiscounted cash flows (excluding interest charges) is less than the carrying value of the assets, the assets will be written down to the estimated fair value and such loss is recognized in income from continuing operations in the period in which the determination is made.
Goodwill Goodwill is not amortized; however, it is reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.
Table of Contents Goodwill Goodwill is not amortized; however, it is reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.
"Fair value measurements". Provision for State Income Taxes The provision for state income taxes for the years ended December 31, 2022 and 2021 was $16,352 and $19,491, respectively, and represents estimated income tax payments, net of refunds, to various states.
"Fair Value Measurements". Provision for State Income Taxes The provision for state income taxes for the years ended December 31, 2023 and 2022 was $32,491 and $16,352, respectively, and represents estimated income tax payments, net of refunds, to various states.
Any reserves that result from this review are charged to cost of sales. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful life of the asset, which range from three to fifteen years.
Any reserves that result from this review are charged to cost of sales. 28 TECOGEN INC. Table of Contents Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful life of the asset, which range from three to fifteen years.
Table of Contents Net Income (Loss) Per Share Net income per share for the year ended December 31, 2022 was a loss of $0.10 compared to income of $0.15 per share for the same period in 2021. The basic and diluted weighted average shares outstanding for the year ended December 31, 2022 were 24,850,261 and 24,850,261, respectively.
Net Income (Loss) Per Share Net loss per share for the year ended December 31, 2023 was a loss of $0.19 compared to a loss of $0.10 per share for the same period in 2022. The basic and diluted weighted average shares outstanding for the year ended December 31, 2023 were 24,850,261 and 24,850,261, respectively.
We evaluate the recoverability of our long-lived assets when impairment is indicated by comparing the net book value of the asset group to the estimated future undiscounted cash flows attributable to such assets. f the sum of the 27 TECOGEN INC.
We evaluate the recoverability of our long-lived assets when impairment is indicated by comparing the net book value of the asset group to the estimated future undiscounted cash flows attributable to such assets.
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 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.
Noncontrolling Interest With the addition of American DG Energy, we have income and losses attributable to the noncontrolling interest we have in American DG Energy's 51% owned subsidiary, ADGNY, LLC. The noncontrolling interest share of ADGNY profits and losses was income of $50,215 for the year ended December 31, 2022 and income of $45,017 in 2021.
Noncontrolling Interest We have income and losses attributable to the noncontrolling interest we have in American DG Energy's 51% owned subsidiary, ADGNY, LLC. The noncontrolling interest share of ADGNY profits and losses was income of $74,952 for the year ended December 31, 2023 and income of $50,215 in 2022.
Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview Tecogen designs, manufactures, markets, and maintains high efficiency, ultra-clean cogeneration products.
Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
For the year ended December 31, 2021, basic and diluted shares were 24,850,261 and 25,115,518, respectively.
For the year ended December 31, 2022, basic and diluted shares were 24,850,261 and 24,850,261, respectively.
Table of Contents reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. These judgments, assumptions and estimates are made or applied within the context of accounting policies related to the nature of the transaction. Note 2.
The preparation of these financial statements requires us to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. These judgments, assumptions and estimates are made or applied within the context of accounting policies related to the nature of the transaction. Note 2.
Tecochill Hybrid-Drive Air-Cooled Chiller Development During the third quarter of 2021 we began development of the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller.
"Aegis Contract and Related Asset Acquisition" in the Notes to Consolidated Financial Statements. Tecochill Hybrid-Drive Air-Cooled Chiller Development During the third quarter of 2021 we began development of the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller.
Net Income (Loss) Attributable to Tecogen Inc Net loss for the year ended December 31, 2022 was $2,447,927 compared to a net income of $3,696,000 for the comparable period in 2021.
Net Loss Attributable to Tecogen Inc Net loss for the year ended December 31, 2023 was $4,598,108 compared to a net loss of $2,447,927 for the comparable period in 2022.
Gains on the sale of assets was $41,931 in 2022 compared to a gain on the sale of assets of $10,486 in 2021. Impairment of long-lived assets decreased $2,726 to $4,674 in the year ended December 31, 2022 compared to $7,400 in 2021.
Gains on the sale of assets was $36,207 in 2023 compared to a gain on the sale of assets of $41,931 in 2022. Impairment of long-lived assets decreased $4,674 in the year ended December 31, 2023 compared to 2022.
Table of Contents revenue which has grown from year to year since 2005, with our New York City/New Jersey and New England systems experiencing the majority of the growth, was impacted to some extent by the COVID-19 pandemic.
Table of Contents revenue which has grown from year to year since 2005, with our New York City/New Jersey and New England systems experiencing the majority of the growth, was positively impacted by the Aegis maintenance agreement acquisition in 2023.
The discount rate, profitability assumptions, and terminal growth rate of this reporting unit were the material assumptions utilized in the discounted cash flow model used to estimate its fair value. The discount rate reflects an estimate of our weighted-average cost of capital. 28 TECOGEN INC.
The discount rate, profitability assumptions, and terminal growth rate of the Energy Production unit were the material assumptions utilized in the discounted cash flow model used to estimate its fair value. The discount rate reflects an estimate of our weighted-average cost of capital. The discounted cash flow analysis requires estimates, assumptions and judgments about future events.
Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make judgments, assumptions and estimates that affect the 26 TECOGEN INC.
Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Table of Contents cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security. We propose to address this challenge by developing a highly efficient energy solution for CEA grown produce using our cogeneration products in conjunction with solar energy generation, energy storage, and other technologies.
We propose to address this challenge by developing a highly efficient energy solution for CEA grown produce using our cogeneration products in conjunction with solar energy generation, energy storage, and other technologies. 27 TECOGEN INC.
We believe the assumptions used in our goodwill impairment analysis are appropriate and result in a reasonable estimate of the fair value of the reporting unit.
Our analysis uses our internally generated long-range plan. The long-range plan reflects management's judgment and assumptions about future events. We believe the assumptions used in our goodwill impairment analysis are appropriate and result in a reasonable estimate of the fair value of the reporting unit.
Loss from Operations Loss from operations for the year ended December 31, 2022 was $2,349,141 compared to a loss of $1,219,092 in 2021, an increase in the loss from operations of $1,130,049.
Loss from Operations Loss from operations for the year ended December 31, 2023 was $4,413,612 compared to a loss of $2,349,141 in 2022, an increase in the loss from operations of $2,064,471.
Chiller units for space conditioning applications are generally shut down in the winter and started up again in the spring. This chiller “busy season” for the service team generally runs from May through the end of September. Chillers in indoor cultivation and other process cooling applications run year round.
Our service team does experience higher demand in the warmer months when cooling is required. Chiller units for space conditioning applications are generally shut down in the winter and started up again in the spring. This chiller “busy season” for the service team generally runs from May through the end of September.
We introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and expect to see incremental revenue in the fourth quarter of 2023. A patent application based on this concept has been filed with the US Patent and Trademark Office.
We introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and received an order on February 8, 2024 for three hybrid-drive air-cooled chillers for a utility in Florida. A patent application based on this concept has been filed with the US Patent and Trademark Office.
The revenue increase in 2022 compared to 2021 is due primarily to an increase in cogeneration sales of $2,015,256, due to increased unit volume, which is partially offset by a $303,962 decrease in sales of engineered accessories and a decrease in chiller sales of $688,524.
The revenue decrease in 2023 compared to 2022 is due primarily to a decrease in cogeneration sales of $2,517,902, due to decreased unit volume and a $47,596 decrease in sales of engineered accessories, which are partially offset by an increase in chiller sales of $269,345.
Liquidity and Capital Resources The following table presents a summary of our net cash flows from operating, investing, and financing activities: Years End Cash Provided by (Used in) December 31, 2022 December 31, 2021 Operating activities $ (1,351,929) $ 465,033 Investing activities (348,565) (215,058) Financing activities — 1,874,269 Change in cash and cash equivalents $ (1,700,494) $ 2,124,244 Consolidated working capital at December 31, 2022 was $14,344,288, compared to $16,193,881 at December 31, 2021, a decrease of $1,849,593 or 11.4%.
Liquidity and Capital Resources The following table presents a summary of our net cash flows from operating, investing, and financing activities: Years End Cash Provided by (Used in) December 31, 2023 December 31, 2022 Operating activities $ (823,315) $ (1,351,929) Investing activities (244,889) (348,365) Financing activities 505,505 — Change in cash and cash equivalents $ (562,699) $ (1,700,294) Consolidated working capital at December 31, 2023 was $9,822,546, compared to $14,344,288 at December 31, 2022, a decrease of $4,521,742 or 31.5%.
Our systems generate electricity and hot water or in the case of our Tecochill product, both chilled water and hot water. These result in savings of energy related costs of up to 60% for our customers. Our products are expected to run on Renewable Natural Gas (RNG) as it is introduced into the US gas pipeline infrastructure.
These result in savings of energy related costs of up to 60% for our customers. Our products are expected to run on Renewable Natural Gas (RNG) as it is introduced into the US gas pipeline infrastructure. Our products are sold directly to end-users by our in-house sales team and by established sales agents and representatives.
Research and development expenses increased in the year ended December 31, 2022 to $732,873 compared to $542,079, an increase of $190,794 due to costs incurred to develop the hybrid-drive air-cooled chiller, which included a $96,172 increase in payroll cost and a $92,270 increase in outside development costs.
Table of Contents Research and development expenses increased in the year ended December 31, 2023 to $840,011 compared to $732,873, an increase of $107,138 due to costs incurred to develop the hybrid-drive air-cooled chiller, which included a $72,700 increase in payroll cost and a $29,250 increase in consulting costs.
The increase in the net loss from operations is primarily due to a $520,842 decrease in gross margin due to higher products material costs and a $609,207 increase in operating expenses.
The increase in the net loss from operations is primarily due to lower Products sales, a $865,193 decrease in gross margin due to higher products material costs and the increased provision for obsolete inventory and a $1,199,278 increase in operating expenses.
In 2019, we also reintroduced our TecoFrost refrigeration line. The sales cycle varies between 6 months to a year or more. Therefore, our product revenue can be difficult to predict and the expected margin can vary. In most cases we work with consulting engineers who specify our product in new and retrofit applications.
Our product revenue is derived from the sale of the various cogeneration modules, such as the InVerde, InVerde e+, the Tecopower, and Tecochill products. In 2019, we also reintroduced our TecoFrost refrigeration line. The sales cycle varies between 6 months to a year or more. Therefore, our product revenue can be difficult to predict and the expected margin can vary.
For the year ended December 31, 2022 we used $1,351,929 in cash from operations compared to generating $465,033 in cash from operations in 2021, a decrease of $1,816,962 in net cash provided by operating activities. Our accounts receivable balance decreased by $2,401,904 at December 31, 2022 compared to December 31, 2021.
For the year ended December 31, 2023 we used $823,315 in cash from operations compared to $1,351,929 in cash used from operations in 2022, a decrease of $528,614 in net cash used by operating activities.
Recent Developments Assumption of Aegis Energy Services Maintenance Agreements On March 15, 2023, we entered into an Agreement with Aegis Energy Services, LLC (“Aegis”) regarding the assignment and assumption of certain maintenance agreements, the purchase and sale of certain assets, and related matters (the “Agreement”) pursuant to which we agreed to assume Aegis’ rights and obligations arising on or after April 1, 2023 (the anticipated closing date) under Maintenance Agreements for 202 cogeneration systems, and acquire certain vehicles and inventory used in connection with the performance of maintenance services.
Recent Developments Assumption of Aegis Energy Services Maintenance Agreements On March 15, 2023, we entered into an agreement ("Agreement") with Aegis Energy Services, LLC (“Aegis”) pursuant to which Aegis agreed to assign to us and we agreed to assume certain Aegis maintenance agreements, we agreed to purchase certain assets, and related matters (“Acquisition”). On April 1, 2023, the Acquisition closed.
Our products are sold with our patented Ultera® technology which nearly eliminates all criteria pollutants such as NOx and CO. Our systems are greater than 88% efficient compared to typical electrical grid efficiencies of 40% to 50%. As a result, our greenhouse gas (GHG) emissions are typically half that of the electrical grid.
Our systems are greater than 88% efficient compared to typical electrical grid efficiencies of 40% to 50%. As a result, our greenhouse gas (GHG) emissions are typically half that of the electrical grid. Our systems generate electricity and hot water or in the case of our Tecochill product, both chilled water and hot water.
We also work with building owners directly, in some limited cases offering a full turn-key installation. Our cogeneration, heat pump, and chiller modules are built to order and revenue is recognized upon shipment.
In most cases we work with consulting engineers who specify our product in new and retrofit applications. Our cogeneration, heat pump, and chiller modules are built to order and revenue is recognized upon shipment.
Our services gross margin was 54.2% in 2022 compared to 51.0% in 2021, an increase of 3.2%, due to lower installation services revenue. Energy Production Cost of sales for energy production for the year ended December 31, 2022 was $996,990 compared to $1,074,421 in 2021, a decrease of $77,431.
Energy Production Cost of sales for energy production for the year ended December 31, 2023 was $1,105,503 compared to $996,990 in 2022, an increase of $108,513. Energy production gross margin was 37.1% in 2023 compared to 44.2% in 2022, a decrease of 7.1%, primarily due to increased fuel and maintenance costs.
Table of Contents Seasonality We expect that the majority of our heating systems sales will be operational for the winter and the majority of our chilling systems sales will be operational for the summer. Our cogeneration sales are not generally affected by the seasons. Our service team does experience higher demand in the warmer months when cooling is required.
Future minimum finance lease payments as of December 31, 2023, were $200,187. Seasonality We expect that the majority of our heating systems sales will be operational for the winter and the majority of our chilling systems sales will be operational for the summer. Our cogeneration sales are not generally affected by the seasons.
Our overall gross margin was 44.3% in 2022 compared to 47.5% in 2021, a decrease of 3.2%. Products Costs of sales for products in 2022 was $7,413,320 compared to $5,601,046 in 2021, an increase of $1,812,274, or 32.4%, due to increased product revenue volume and higher material costs.
The increase in cost of sales is due to increased Services revenue volume, the impact of inflation on our material costs, an increase in the provision for obsolete inventory and increased product warranty costs. Our overall gross margin was 40.6% in 2023 compared to 44.3% in 2022, a decrease of 3.7%.
Contractual Obligations and Commitments We are obligated under operating leases for our Waltham, Massachusetts headquarters through March 31, 2024, and our eleven leased service centers through January 2031. Future minimum lease commitments under non-cancellable operating leases as of December 31, 2022 were $1,311,041. See Note 13. "Leases.” 32 TECOGEN INC.
The proceeds of the loans are expected to be used for general working capital purposes. Contractual Obligations and Commitments We are obligated under operating leases for our Waltham, Massachusetts headquarters through March 31, 2024, our new Billerica, Massachusetts headquarters through December 31, 2029 and our eleven leased service centers through January 2031.
Operating Expenses Operating expenses increased in 2022 to $13,415,952 compared to $12,806,745 in 2021, an increase of $609,207 or 4.8%. 30 TECOGEN INC.
Operating Expenses Operating expenses increased in 2023 to $14,615,230 compared to $13,415,952 in 2022, an increase of $1,199,278 or 8.9%.
(9.8) % 15.1 % The following table presents revenue by segment and the change from the prior year for the years ended December 31, 2022 and 2021: Years Ended Revenues December 31, 2022 December 31, 2021 Increase (Decrease) $ Increase (Decrease) % Product: Cogeneration $ 5,279,569 $ 3,264,313 $ 2,015,256 61.7 % Chillers 5,034,633 5,723,157 (688,524) (12.0) % Engineered Accessories 841,897 1,145,859 (303,962) (26.5) % Total product revenue 11,156,099 10,133,329 1,022,770 10.1 % Service: Service contracts 12,060,404 11,586,763 473,641 4.1 % Installations 257 938,831 (938,574) (100.0) % Total service revenue 12,060,661 12,525,594 (464,933) (3.7) % Energy production 1,785,854 1,739,150 46,704 2.7 % Total Revenue $ 25,002,614 $ 24,398,073 $ 604,541 2.5 % Revenues Revenues in 2022 were $25,002,614 compared to $24,398,073 in 2021, an increase of $604,541 or 2.5% due to increased Product revenues. 29 TECOGEN INC.
(18.3) % (9.8) % The following table presents revenue by segment and the change from the prior year for the years ended December 31, 2023 and 2022: Years Ended Revenues December 31, 2023 December 31, 2022 Increase (Decrease) $ Increase (Decrease) % Product: Cogeneration $ 2,761,667 $ 5,279,569 $ (2,517,902) (47.7) % Chillers 5,303,978 5,034,633 269,345 5.3 % Engineered Accessories 794,301 841,897 (47,596) (5.7) % Total product revenue 8,859,946 11,156,099 (2,296,153) (20.6) % Services 14,523,054 12,060,661 2,462,393 20.4 % Energy production 1,756,419 1,785,854 (29,435) (1.6) % Total Revenue $ 25,139,419 $ 25,002,614 $ 136,805 0.5 % Revenues Revenues in 2023 were $25,139,419 compared to $25,002,614 in 2022, an increase of $136,805 or 0.5% due to increased Services revenues which were offset by decreased Products revenues.
Controlled Environment Agriculture: NetZero Greens On July 20, 2022, we announced the establishment of NetZero Greens, a new business unit focused on low carbon Controlled Environment Agriculture (CEA). We believe that CEA offers an exciting opportunity to apply our expertise in clean 25 TECOGEN INC.
Controlled Environment Agriculture On July 20, 2022, we announced our intention to focus on opportunities for low carbon Controlled Environment Agriculture ("CEA"). We believe that CEA offers an exciting opportunity to apply our expertise in clean cooling, power generation, and greenhouse gas reduction to address critical issues affecting food and energy security.
Our products gross margin was 33.5% in 2022 compared to 44.7% in 2021, a decrease of 11.2%, due primarily to the impact of inflation on our material costs. Services Cost of sales for services in 2022 was $5,525,493 compared to $6,134,953 in 2021, a decrease of $609,460, or 9.9%, due to decreased installation activities.
Our products gross margin was 33.1% in 2023 compared to 33.5% in 2022, a decrease of 0.4%, due primarily to the impact of inflation on our material costs and an increase in the provision for obsolete inventory.
For the year ended December 31, 2022, other income (expense) includes interest and other expense of $34,713 and net interest expense of $16,255, which is partially offset by unrealized income on marketable securities of $18,749.
Other Income (Expense), net Other expense, net, for the year ended December 31, 2023 was $77,053 compared to income of $32,219 for the same period in 2022, a decrease of $44,834, due to an increase in interest and other expense of $61,003 compared to $34,713 in 2022, and by a decrease in unrealized income on marketable securities of $18,749, which represents the market value fluctuation of marketable equity securities as discussed in Note 16.
Included in working capital were cash and cash equivalents of $1,913,969 at December 31, 2022, compared to $3,614,463 at December 31, 2021, a decrease of $1,700,494 or 47.0%. The decrease in consolidated working capital is primarily due to the second draw Paycheck Protection Program loan forgiveness and positive cash flow from operations in 2021.
Included in working capital were cash and cash equivalents of $1,351,270 at December 31, 2023, compared to $1,913,969 at December 31, 2022, a decrease of $562,699 or 29.4%. The decrease in consolidated working capital is primarily due to the increase in our net loss and increased liabilities recognized due to the Aegis contract acquisition.
These include natural gas engine driven combined heat and power (CHP) systems, chillers and heat pumps for multi-family residential, commercial, recreational and industrial use. We are known for products that provide customers with substantial energy savings, resiliency from utility power outages and for significantly reducing a customer’s carbon footprint.
We are known for products that provide customers with substantial energy savings, resiliency from utility power outages and for significantly reducing a customer’s carbon footprint. Our products are sold with our patented Ultera® technology which nearly eliminates all criteria pollutants such as NOx and CO.
Accounts Receivable Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and management’s evaluation of outstanding accounts receivable at the end of the year.
Accounts Receivable Accounts receivable are stated at the amount management expects to collect from outstanding balances.
Accounts payable decreased by $246,401 from December 31, 2021 to December 31, 2022. Accrued expenses from operations decreased by $109,282 as of December 31, 2022 compared to December 31, 2021 due to lower operating expenses. Deferred revenues decreased by $678,758 as of December 31, 2022 as compared to December 31, 2021.
Accrued expenses from operations increased by $128,869 as of December 31, 2023 compared to December 31, 2022 due to higher operating expenses. Deferred revenues increased by $543,842 as of December 31, 2023 as compared to December 31, 2022, due to Aegis contract customer deposits collected in 2023 .
At December 31, 2022 and 2021, we had cash and cash equivalents of $1,913,969 and $3,614,463, a decrease of $1,700,494 or 47.0%.
Backlog does not include maintenance contract service revenues or energy contract revenues. At December 31, 2023 and 2022, we had cash and cash equivalents of $1,351,270 and $1,913,969, a decrease of $562,699 or 29.4%.
Table of Contents Years Ended Increase (Decrease) December 31, 2022 December 31, 2021 $ % Operating Expenses General and administrative 10,909,251 9,795,823 $ 1,113,428 11.4 % Selling 1,811,085 2,471,929 (660,844) (26.7) % Research and development 732,873 542,079 190,794 35.2 % Gain on sale of assets (41,931) (10,486) (31,445) 299.9 % Long-lived asset impairment 4,674 7,400 (2,726) (36.8) % Total $ 13,415,952 $ 12,806,745 $ 609,207 4.8 % General and administrative expenses increased $1,113,428 to $10,909,251 in the year ended December 31, 2022 compared to $9,795,823 in 2021 due primarily to a $311,710 increase in freight and other related costs, a $206,006 increase in payroll costs, a $150,000 provision for litigation, a $131,719 increase in stock-based compensation, a $124,403 increase in franchise taxes, a $122,497 increase in professional fees and a $76,370 increase in travel related expenses.
Years Ended Increase (Decrease) December 31, 2023 December 31, 2022 $ % Operating Expenses General and administrative 11,880,389 $ 10,909,251 $ 971,138 8.9 % Selling 1,931,037 1,811,085 119,952 6.6 % Research and development 840,011 732,873 107,138 14.6 % Gain on sale of assets (36,207) (41,931) 5,724 (13.7) % Long-lived asset impairment — 4,674 (4,674) (100.0) % Total $ 14,615,230 $ 13,415,952 $ 1,199,278 8.9 % General and administrative expenses increased $971,138 to $11,880,389 in the year ended December 31, 2023 compared to $10,909,251 in 2022 due primarily to a $974,420 increase in bad debt expense, due mainly to the write down of certain install receivables which were deemed uncollectible, a $139,364 increase in amortization and depreciation, due to the Aegis acquisition, a $164,415 increase in business insurance, partially offset by a $83,758 decrease in stock-based compensation, a $68,470 decrease in franchise taxes and the $150,000 litigation provision recorded in 2022.
Our product 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 to some degree were impacted by COVID-19 as energy and other construction projects were delayed.
Our product 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. Services Revenues derived from our service centers, including installation activities, in 2023 were $14,523,054 compared to $12,060,661 for the same period in 2022, an increase of $2,462,393 or 20.4%.
If impairment is indicated, the asset is written down to its estimated fair value.
If impairment is indicated, the asset is written down to its estimated fair value. Business Combinations In accordance with applicable accounting standards, we estimate the fair value of assets acquired and liabilities assumed as of the acquisition date of each business combination.
Table of Contents Products Product revenues in 2022 were $11,156,099 compared to $10,133,329 in 2021, an increase of $1,022,770 or 10.1%.
Products Product revenues in 2023 were $8,859,946 compared to $11,156,099 in 2022, a decrease of $2,296,153 or 20.6%.
During 2021, our cash flows from financing activities were $1,874,269, consisting of the receipt of proceeds from the Second Draw Paycheck Protection Program loan. Our total product and installation backlog as of December 31, 2022 was $6,722,138 million compared to $11,321,043 as of December 31, 2021. Backlog does not include maintenance contract service revenues or energy contract revenues.
Cash flows from financing activities in 2023 were $505,505, consisting of borrowings under our related party note with John N. Hatsopoulos (see Note 11."Related Party Notes"). During 2022, there were no cash flows from financing activities. Our total product and installation backlog as of December 31, 2023 was $7,388,145 compared to $6,722,138 as of December 31, 2022.
Removed
Our products are sold directly to end-users by our in-house sales team and by established sales agents and representatives. We have agreements in place with distributors and sales representatives.
Added
Except as required by federal securities law or other disclosure requirements applicable to us, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Removed
The extent to which the coronavirus will continue to impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Our product revenue is derived from the sale of the various cogeneration modules, such as the InVerde, InVerde e+, the Tecopower, Ilios heat pumps, and Tecochill products.
Added
Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Tecogen designs, manufactures, markets, and maintains high efficiency, ultra-clean cogeneration products. These include natural gas engine driven combined heat and power (CHP) systems, chillers and heat pumps for multi-family residential, commercial, recreational and industrial use.
Removed
The Agreement also provides that we will hire certain Aegis employees who will continue to provide maintenance services relating to the cogeneration systems, and that Aegis will provide transitional services relating to the assumed Maintenance Agreements.
Added
Under the Agreement, we agreed to acquire from Aegis and assume Aegis' rights and obligations arising on or after April 1, 2023, under maintenance agreements pursuant to which Aegis provided maintenance services for approximately 200 cogeneration systems, and acquired certain vehicles and inventory used by Aegis in connection with the performance of such maintenance services, and, following closing hired eight (8) Aegis employees to provide services with respect to such maintenance agreements.
Removed
At the closing, we will acquire certain Aegis vehicles for $170,000, and between the closing and June 30, 2023, we will acquire from Aegis inventory used to provide maintenance services in exchange for a credit of $300,000 to be used for purchases by Aegis of our cogeneration equipment on or before June 30, 2023.
Added
At closing, we acquired eight (8) Aegis vehicles for consideration consisting of $170,000 in cash. Also, we issued credits against outstanding accounts receivable due from Aegis in the amount of $300,000 for the acquisition of inventory that Aegis used to provide maintenance services.
Removed
Following the closing, for a period of up to seven years, we will pay Aegis a portion of the revenue collected for maintenance services provided pursuant to the assumed Maintenance Agreements.
Added
On February 1, 2024, Tecogen and Aegis amended the Agreement to add eighteen (18) additional maintenance contracts (the "Amendment"). The Amendment includes an undertaking by Aegis to use commercially reasonable efforts to support and assist our execution of maintenance service agreements for an additional thirty-six (36) cogeneration units sold to customers by Aegis. See Note 5.
Removed
We also have the right to assume Aegis’ remaining Maintenance Agreements for cogeneration systems on the same terms and conditions but effective December 31, 2023 to the extent that Aegis is permitted to assign such agreements to us in accordance with the terms of such agreements.
Added
The allowance for credit losses is estimated based on historical experience, aging of the receivable, the counterparty’s ability to pay, condition of general economy and industry, and combined with management's estimate of current conditions, reasonable and supportable forecasts of future losses to determine estimated credit losses in our evaluation of outstanding accounts receivable at the end of the year.
Removed
Paycheck Protection Program Loan On April 17, 2020, we obtained an unsecured loan in the principal amount of $1,874,200 from Webster Bank, NA ("Webster") under the Paycheck Protection Program adopted pursuant to the Coronavirus Aid, Relief and Economic Recovery Act, as amended ("CARES Act").
Added
The allowance for credit losses reflects managements evaluation of our outstanding accounts receivable at the end of the year and our best estimate of probable losses inherent in the accounts receivable balance. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified.

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