TECOGEN INC.

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review “Item 1A. 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. 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. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Current wording

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) together with our consolidated financial statements and related notes thereto appearing elsewhere in this report. Some of the information contained in this MD&A or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” in this report 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 MD&A. 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. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Previous wording

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.

Current wording

During the years ended December 31, 2024 and 2023, our revenues were negatively impacted due to supply chain issues, customer order delays or deferrals; service delays due to customer facility closures and reduced manufacturing capacity due to our plant relocation in 2024.

Previous wording

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. 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. 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. 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. "Aegis Contract and Related Asset Acquisition" in the Notes to Consolidated Financial Statements.

Current wording

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. 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. 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.

Previous wording

During the third quarter of 2021 we began development of the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller. Using the inverter design from our InVerde e+ cogeneration module, the system can simultaneously take two inputs, one from the grid or a renewable energy source and one from our natural gas engine. This allows a customer to seek the optimum blend of operational cost savings and greenhouse gas benefits while providing added resiliency from two power sources. We introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and 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.

Current wording

During the third quarter of 2021, we began development of the Tecochill Hybrid-Drive Air-Cooled Chiller. We recognized that there were many applications where the customer wanted an easy to install roof top chiller. Using the inverter design from our InVerde e+ cogeneration module, the system can simultaneously take two inputs, one from the grid or a renewable energy source and one from our natural gas engine. This allows a customer to seek the optimum blend of operational cost savings and greenhouse gas benefits while providing added resiliency from two power sources. We introduced the Tecochill Hybrid-Drive Air-Cooled Chiller at the AHR Expo in February 2023 and received an order on February 8, 2024 for three hybrid-drive air-cooled chillers for a utility company in Florida. In March 2024, the US Patent and Trademark Office granted patent 11,936,327: "Hybrid Power System With Electric Generator and Auxiliary Power Source."

Previous wording

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. 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.

Current wording

On July 20, 2022, we announced our intention to focus on opportunities for the use of our cogeneration equipment in 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.

Previous wording

In recent years our cogeneration equipment has been used in numerous cannabis cultivation facilities because our systems significantly reduce operating costs, reduce the facility GHG footprint and offer resiliency to grid outages. Our experience providing clean energy solutions to cannabis cultivation facilities has given us significant insight into requirements relating to energy-intensive indoor agriculture applications that we expect to be transferable to CEA facilities for food production.

Current wording

In recent years our cogeneration equipment has been used in numerous cannabis cultivation facilities because our systems reduce the facility's need for power, significantly reduce operating costs and the facility GHG footprint, and offer resiliency to grid outages. Our experience providing clean energy solutions to cannabis cultivation facilities has given us significant insight into requirements relating to energy-intensive indoor agriculture applications that we expect to be transferable to CEA facilities for food production.

Previous wording

Determination of contract consideration allocatable to multiple performance obligations within a single contract requires employing stand-alone selling prices which may be based on observable selling prices, estimated selling prices or as a residual. We use an observable selling price to determine standalone selling prices where available and either a combination of an adjusted market assessment approach, an expected cost plus a margin approach, and/or a residual approach to determine the standalone selling prices for separate performance obligations as a basis for allocating contract consideration when an observable selling price is not available.

Current wording

Determination of contract consideration allocable to multiple performance obligations within a single contract requires employing stand-alone selling prices which may be based on observable selling prices, estimated selling prices or as a residual. We use an observable selling price to determine standalone selling prices where available and either a combination of an adjusted market assessment approach, an expected cost plus a margin approach, and/or a residual approach to determine the standalone selling prices for separate performance obligations as a basis for allocating contract consideration when an observable selling price is not available.

Previous wording

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. 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.

Current wording

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 P3Y to P15Y years. 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.

Previous wording

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. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. We may make certain estimates and assumptions when determining the fair values of assets acquired and liabilities assumed, including intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from energy production sites or customer maintenance contracts, estimated operating costs, as well as discount rates. At the acquisition date, we will also record acquisition related liabilities, if applicable, for any contingent consideration or deferred payments to the seller. Contingent consideration is recorded at fair value on the acquisition date based on our expectation of achieving the contractually defined revenue targets. The fair value of the contingent consideration liabilities is remeasured each reporting period after the acquisition date and any changes in the estimated fair value are reflected as gains or losses in general and administrative expense in the consolidated statement of operations. Contingent consideration liabilities and deferred payments to sellers are recorded as current liabilities and other long-term liabilities in the consolidated balance sheets based on the expected timing of settlement.

Current wording

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. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. We may make certain estimates and assumptions when determining the fair values of assets acquired and liabilities assumed, including intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from energy production sites or customer maintenance contracts, estimated operating costs, as well as discount rates. At the acquisition date, we will also record acquisition related liabilities, if applicable, for any contingent consideration or deferred payments to the seller and pre-acquisition deferred maintenance contingencies identified at service contract acquisition. Contingent consideration and pre-acquisition deferred maintenance contingencies are recorded at fair value on the acquisition date based on our expectation of achieving the contractually defined revenue targets and actual and projected future costs. The fair value of the contingent consideration and pre-acquisition deferred maintenance liabilities are remeasured each reporting period after the acquisition date and any changes in the estimated fair value are reflected as gains or losses in cost of goods sold or general and administrative expense in the consolidated statement of operations. Contingent consideration liabilities and deferred payments to sellers are recorded as current liabilities and other long-term liabilities in the consolidated balance sheets based on the expected timing of settlement.

Previous wording

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

Current wording

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

Previous wording

At a minimum, we perform a quantitative goodwill impairment test in the fourth quarter of the year. 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. 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".

Current wording

At a minimum, we perform a quantitative goodwill impairment test in the fourth quarter of the year. In the fourth quarter of 2024, 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. 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 resulted in an impairment at December 31, 2024. See Note 6. "Sale of Energy Producing Assets and Goodwill Impairment".

Previous wording

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").

Current wording

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 our common 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").

Previous wording

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. However, given the economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are not achieved, we may be required to record additional goodwill impairment charges in future periods.

Current wording

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. However, due to uncertainties regarding the impact of the economic environment on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are not achieved, we may be required to record additional goodwill impairment charges in future periods.

Previous wording

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.

Current wording

Revenues in 2024 were $22,619,536 compared to $25,139,419 in 2023, a decrease of $2,519,883 or 10.0% due to decreased Products revenues.

Previous wording

Product revenues in 2023 were $8,859,946 compared to $11,156,099 in 2022, a decrease of $2,296,153 or 20.6%. 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. 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.

Current wording

Product revenues in 2024 were $4,443,996 compared to $8,859,946 in 2023, a decrease of $4,415,950 or 49.8%. The decrease in Products revenue in 2024 compared to 2023 is due to a $3,656,604 decrease in chiller sales, $675,609 decrease in engineered accessories sales and a $83,737 decrease in cogeneration sales, due to decreased unit volume. 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. The relocation to our new facility in April 2024 constrained our manufacturing capacity, which impacted product revenues during the second and third quarters of 2024.

Previous wording

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%. The increase in revenue in 2023 is due primarily to the addition of $1,884,891 in revenue from the acquired Aegis maintenance contracts and a $577,502 or 4.8%, increase in service contract revenues from existing contracts.

Current wording

Revenues derived from our service centers in 2024 were $16,074,870 compared to $14,523,054 for the same period in 2023, an increase of $1,551,816 or 10.7%. The increase in Services revenue in 2024 is due to an increase in revenue from the acquired Aegis Maintenance contracts of $786,160, or 41.7%, and a $765,656, or 6.1%, increase in service contract revenues from existing contracts.

Previous wording

Cost of sales in 2023 was $14,937,801 compared to $13,935,803 in 2022, an increase of $1,001,998 or 7.2%. 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%.

Current wording

Cost of sales in 2024 was $12,749,363 compared to $14,937,801 in 2023, a decrease of $2,188,438 or 14.7%. The decrease in cost of sales is due to decreased Products revenue volume. Our overall gross margin was 43.6% in 2024 compared to 40.6% in 2023, an increase of 3.0%.

Previous wording

Costs of sales for products in 2023 was $5,923,096 compared to $7,413,320 in 2022, a decrease of $1,490,224, or 20.1%, due to decreased product revenue volume, partially offset by increased provisions for obsolete inventory, higher material costs and increased product warranty costs. 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.

Current wording

Costs of sales for products in 2024 was $3,014,655 compared to $5,923,096 in 2023, a decrease of $2,908,441, or 49.1%, due to decreased product revenue volume and a decrease in the provision for obsolete inventory in 2024. Our products gross margin was 32.2% in 2024 compared to 33.1% in 2023, a decrease of 0.9%, due to decreased engineering accessories sales in 2024, which are higher margin sales.

Previous wording

Cost of sales for services in 2023 was $7,909,202 compared to $5,525,493 in 2022, an increase of $2,383,709, or 43.1%, due primarily to increased labor and material costs as a consequence of acquiring the Aegis customer maintenance contracts, increased material usage at existing sites and an increase in the provision for obsolete inventory. Our services gross margin was 45.5% in 2023 compared to 54.2% in 2022, a decrease of 8.7%, due to increased labor and material costs incurred to replace engines at certain sites and an increase in the provision for obsolete inventory.

Current wording

Cost of sales for services in 2024 was $8,432,876 compared to $7,909,202 in 2023, an increase of $523,674, or 6.6%, due to increased labor and material costs as a consequence of acquiring the Aegis customer maintenance contracts and increased material usage at existing sites, offset by a decrease in the provision for obsolete inventory in 2024. Our services gross margin was 47.5% in 2024 compared to 45.5% in 2023, an increase of 2.0%, due to decreased labor and material costs incurred to replace engines at certain sites and a decrease in the provision for obsolete inventory.

Previous wording

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.

Current wording

Cost of sales for energy production for the year ended December 31, 2024 was $1,301,832 compared to $1,105,503 in 2023, an increase of $196,329. Energy production gross margin was 38.0% in 2024 compared to 37.1% in 2023, an increase of 0.9%, due to higher fuel costs.

Previous wording

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.

Current wording

General and administrative expenses decreased $523,983, or 4.4%, to $11,356,406 in the year ended December 31, 2024 compared to $11,880,389 in 2023 due to a $756,422 decrease in credit loss expense, due to the write down of certain install receivables which were deemed uncollectible in 2023, a $104,986 decrease in consulting costs, a $84,756 decrease in stock-based compensation and a $80,331 decrease in amortization and depreciation, offset partially by a $265,274 increase in payroll and related benefits, a $90,593 increase in facility costs due to the transition to our new facility and $83,055 of relocation costs.

Previous wording

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.

Current wording

Gain on the sale of assets was $12,181 in 2024 compared to a gain on the sale of assets of $36,207 in 2023.

Previous wording

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. 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.

Current wording

Loss from operations for the year ended December 31, 2024 was $4,534,087 compared to a loss of $4,413,612 in 2023, an increase in the loss from operations of $120,475. The increase in the net loss from operations is due to a $331,445 decrease in gross margin due to lower Products revenue and goodwill impairment of $217,295, offset partially by a $428,265 decrease in operating expenses.

Previous wording

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.

Current wording

The provision for state income taxes for the years ended December 31, 2024 and 2023 was $22,565 and $32,491, respectively, and represents estimated income tax payments, net of refunds, to various states.

Previous wording

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.

Current wording

We have income and losses attributable to the non-controlling interest we have in American DG Energy's 51% owned subsidiary, ADGNY, LLC. The non-controlling interest share of ADGNY profits and losses was income of $86,468 for the year ended December 31, 2024 compared to income of $74,952 in 2023.

Previous wording

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. The increase in net loss in 2023 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.

Current wording

Net loss for the year ended December 31, 2024 was $4,760,238 compared to a net loss of $4,598,108 for 2023, an increase of $162,130. The increase in the net loss is due to a $331,445 decrease in gross margin due to lower Products revenue and goodwill impairment of $217,295, offset partially by a $428,265 decrease in operating expenses.

Previous wording

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. For the year ended December 31, 2022, basic and diluted shares were 24,850,261 and 24,850,261, respectively.

Current wording

Net loss per share for the year ended December 31, 2024 was a loss of $0.19 compared to a loss of $0.19 per share for the same period in 2023. The basic and diluted weighted average shares outstanding for the year ended December 31, 2024 were 24,861,190 and 24,861,190, respectively. For the year ended December 31, 2023, basic and diluted shares were 24,850,261 and 24,850,261, respectively.

Previous wording

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%. 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.

Current wording

Consolidated working capital at December 31, 2024 was $5,329,650, compared to $9,822,546 at December 31, 2023, a decrease of $4,492,896 or 45.7%. Included in working capital were cash and cash equivalents of $5,405,233 at December 31, 2024, compared to $1,351,270 at December 31, 2023, an increase of $4,053,963 or 300.0%, due to increased customer deposits and borrowing under our related party notes. 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.

Previous wording

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. Our accounts receivable balance increased by $81,195 at December 31, 2023 compared to December 31, 2022 and our unbilled revenues decreased by $56,994 in at December 31, 2023 compared to December 31, 2022. Our inventory increased by $82,525 as of December 31, 2023 compared to December 31, 2022 and other non-current assets decreased by $265,725 as of December 31, 2023 as compared to December 31, 2022.

Current wording

For the year ended December 31, 2024 we generated $4,060,547 in cash from operations compared to $817,810 in cash used from operations in 2023, an increase of $4,878,357 in net cash generated by operating activities. Our accounts receivable balance decreased by $608,929 at December 31, 2024 compared to December 31, 2023 and our unbilled revenues decreased by $859,634 at December 31, 2024 compared to December 31, 2023. Our inventory decreased by $848,884 as of December 31, 2024 compared to December 31, 2023 and other non-current assets increased by $510,723 as of December 31, 2024 as compared to December 31, 2023.

Previous wording

Accounts payable increased by $1,161,416 from December 31, 2022 to December 31, 2023 due to increased aging of our payables to conserve liquidity. 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 .

Current wording

Accounts payable decreased by $371,736 from December 31, 2023 to December 31, 2024 due to our increased liquidity in in the fourth quarter of 2024. Accrued expenses increased by $386,257 as of December 31, 2024 compared to December 31, 2023 due to timing of operating expenses. Deferred revenues increased by $5,850,265 as of December 31, 2024 as compared to December 31, 2023, due to advance customer deposits collected in 2024 for Products that will ship in 2025.

Previous wording

For the year ended December 31, 2023 we used $244,889, in cash from investing activities, consisting of $170,000 of cash to acquire certain assets as part of the Aegis acquisition, used $46,851 of cash for purchases of property and equipment, and distributed $62,693 to the 49% non-controlling interest holders of American DG New York LLC.

Current wording

For the year ended December 31, 2023 we used $244,889 in cash from investing activities. We used $170,000 of cash to acquire certain assets as part of the Aegis acquisition, used $46,851 of cash for purchases of property and equipment, and distributed $62,693 to the 49% non-controlling interest holders of American DG New York LLC and received $34,655 in proceeds from the disposition of assets, including insurance proceeds.

Previous wording

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.

Current wording

Cash flows from financing activities for the year ended December 31, 2024 were $1,008,153, consisting of borrowings under our related party notes with John N. Hatsopoulos and Earl R. Lewis of $1,000,000.00 (see Note 11."Related Party Notes"), $71,000 of proceeds from the exercise of stock options and used $62,847 of cash in payment of finance lease principal. Cash flows from financing activities for the year ended December 31, 2023 were $500,000 borrowed under our related party note with John N. Hatsopoulos.

Previous wording

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. Backlog does not include maintenance contract service revenues or energy contract revenues.

Current wording

Our total product and installation backlog as of December 31, 2024 was $12,336,248 compared to $7,388,145 as of December 31, 2023. Backlog includes a multi-year $2,000,000 prepaid service maintenance contract, but does not include energy contract revenues.

Previous wording

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%. 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.

Current wording

At December 31, 2024 and 2023, we had cash and cash equivalents of $5,405,233 and $1,351,270, an increase of $4,053,963 or 300.0%. During the year ended December 31, 2024, our revenues were negatively impacted due to customer order delays or deferrals; the relocation to our new facility in April 2024 which impacted product revenues during the second and third quarters of 2024; 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.

Previous wording

Based on our current operating plan, we believe existing resources, including cash and cash flows from operations will be sufficient to meet our working capital requirements for the next twelve months. 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.

Current wording

Based on our current operating plan, we believe existing resources, including cash and cash flows from operations will be sufficient to meet our working capital requirements for the next twelve months. In order to grow our business, fund the development of our hybrid-drive air-cooled chiller, and respond to opportunities in the data center market, 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. There can be no assurance that we will be able to raise such additional financing or upon terms that are acceptable to us or at all.

Previous wording

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. Future minimum lease commitments under non-cancellable operating leases as of December 31, 2023, were $772,593. See "Leases". Effective as of January 1, 2024, the future minimum lease commitments for the Billerica, Massachusetts location were $1,325,614.

Current wording

We are obligated under operating leases for our North Billerica, Massachusetts headquarters through December 31, 2028 and our eleven leased service centers through January 2031. Future minimum lease commitments under non-cancellable operating leases as of December 31, 2024, were $1,772,171. See Note 14."Leases".

Previous wording

We are also obligated under finance leases for five vehicles through December 31, 2028. Future minimum finance lease payments as of December 31, 2023, were $200,187.

Current wording

We are also obligated under finance leases for ten vehicles through October 31, 2029. Future minimum finance lease payments as of December 31, 2024, were $410,881.

Previous wording

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. 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.

Current wording

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 experiences 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. Chillers in indoor cultivation and other process cooling applications run year round.