Tecogen
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KTECOGEN INC. - TGENFiled: March 30, 2016 (period: December 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-K þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015oroo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number 333-178697TECOGEN INC.(Exact name of Registrant as specified in its charter)Delaware04-3536131(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)45 First Avenue Waltham, Massachusetts02451(Address of Principal Executive Offices)(Zip Code)Registrant’s Telephone Number, Including Area Code: (781) 622-1120Securities registered pursuant to Section 12(b) of the Exchange Act:Title of each className of each exchange on which registeredCommon Stock, $0.001 par valueNASDAQ Capital MarketIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes ¨ No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non–accelerated filer o Smaller reporting company xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No ýState the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity waslast sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $24,972,026.As of March 29, 2016, the registrant’s shares of common stock outstanding were: 18,478,990.DOCUMENTS INCORPORATED BY REFERENCEThe registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days following the fiscal year ended December 31, 2015. Portions ofsuch proxy statement are incorporated by reference into Part III of this Form 10-K.Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. THESE FORWARD-LOOKING STATEMENTS AREBASED ON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, AND ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUALRESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD-LOOKING STATEMENTS AS A RESULT OFVARIOUS FACTORS.WE GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECTS,”“PLANS,” “ANTICIPATES,” “COULD,” “INTENDS,” “TARGET,” “PROJECTS,” “CONTEMPLATES,” “BELIEVES,” “ESTIMATES,” “PREDICTS,”“POTENTIAL” OR “CONTINUE” OR THE NEGATIVE OF THESE TERMS OR OTHER SIMILAR WORDS. THESE STATEMENTS ARE ONLYPREDICTIONS. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO KNOWN ANDUNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR, OUR CUSTOMERS’ OR OUR INDUSTRY’S ACTUALRESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTSTO DIFFER.THIS REPORT ALSO CONTAINS MARKET DATA RELATED TO OUR BUSINESS AND INDUSTRY. THESE MARKET DATA INCLUDEPROJECTIONS THAT ARE BASED ON A NUMBER OF ASSUMPTIONS. IF THESE ASSUMPTIONS TURN OUT TO BE INCORRECT, ACTUAL RESULTSMAY DIFFER FROM THE PROJECTIONS BASED ON THESE ASSUMPTIONS. AS A RESULT, OUR MARKETS MAY NOT GROW AT THE RATESPROJECTED BY THESE DATA, OR AT ALL. THE FAILURE OF THESE MARKETS TO GROW AT THESE PROJECTED RATES MAY HAVE AMATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND THE MARKET PRICE OF OURCOMMON STOCK.SEE “ITEM 1A. RISK FACTORS,” “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS” AND “ITEM 1. BUSINESS,” AS WELL AS OTHER SECTIONS IN THIS REPORT, THAT DISCUSS SOME OF THE FACTORS THATCOULD CONTRIBUTE TO THESE DIFFERENCES. THE FORWARD-LOOKING STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10-KRELATE ONLY TO EVENTS AS OF THE DATE OF WHICH THE STATEMENTS ARE MADE. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NOOBLIGATION TO UPDATE OR RELEASE ANY FORWARD- LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OROTHERWISE. Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2015TABLE OF CONTENTS PART IItem 1.Business.1Item 1A.Risk Factors.12Item 1B.Unresolved Staff Comments.17Item 2.Properties.17Item 3.Legal Proceedings.18Item 4.Mine Safety Disclosures.18 PART II Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.18Item 6.Selected Financial Data.19Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.19Item 7A.Quantitative and Qualitative Disclosures About Market Risk.24Item 8.Financial Statements and Supplementary Data.24Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.24Item 9A.Controls and Procedures.24Item 9B.Other Information.25 PART III Item 10.Directors, Executive Officers and Corporate Governance.25Item 11.Executive Compensation.25Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.25Item 13.Certain Relationships and Related Transactions, and Director Independence.25Item 14.Principal Accountant Fees and Services.25 PART IV Item 15.Exhibits and Financial Statement Schedules.26Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsItem 1. BusinessOverviewTecogen® Inc. (“Tecogen” or the “Company”) designs, manufactures, markets, and maintains high efficiency, ultra-clean cogeneration productsincluding natural gas engine-driven combined heat and power, air conditioning systems, and water heaters for residential, commercial, recreational andindustrial use. The company is known for cost efficient, environmentally friendly and reliable products for distributed power generation that, throughpatented technology, nearly eliminate criteria pollutants and significantly reduce a customer’s carbon footprint.Tecogen’s natural gas powered cogeneration systems (also known as combined heat and power or “CHP”) are efficient because they drive electricgenerators or compressors, which reduce the amount of electricity purchased from the utility while recovering the engine’s waste heat for water heating, spaceheating, and/or air conditioning at the customer’s building.Tecogen manufactures three types of CHP products:•Cogeneration units that supply electricity and hot water including the InVerde® 100, InVerde e+®, CM-75 and CM-60;•Chillers that provide air-conditioning and hot water marketed under the TECOCHILL® brand name; and•Ilios® branded high-efficiency water heaters.All of these are standardized, modular, CHP products that reduce energy costs, carbon emissions, and dependence on the electric grid. Tecogen’sproducts allow customers to produce power on-site in parallel with the electric grid, or stand alone when no utility grid is available via inverter-based black-start capability. Because our CHP systems also produce clean, usable heat energy, they provide economic advantages to customers who can benefit from theuse of hot water, chilled water, air conditioning and heating.Traditional customers for our cogeneration and chiller systems include hospitals and nursing homes, schools 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, and military installations; however, the economic feasibility of using our systems is not limited to these customer types. Market driversinclude the price of natural gas, local electricity rates, environmental regulations, and governmental energy policies, as well as customers’ desire to becomemore environmentally responsible.Through our factory service centers in California, Connecticut, Massachusetts, Michigan, New Jersey, and New York our specialized technical staffmaintain our products via long-term service contracts. The Company has shipped over 2,300 units, some of which have been operating for almost 25 years.Our CHP technology uses low-cost, mass-produced engines, which we modify to run on natural gas. In the case of our mainstay cogeneration andchiller products, the engines have proven to be cost-effective and reliable. In 2009, in response to the changing regulatory requirements for stationaryengines, our research team developed an economically feasible process for removing air pollutants from the engine exhaust. This technology's U.S. andforeign patents were granted beginning in October 2013 with other domestic and foreign patents granted or applications pending. Branded Ultera™, the ultraclean emissions technology, repositions our engine driven products in the marketplace, making them comparable environmentally with other technologiessuch as fuel cells, but at a much lower cost and greater efficiency. Because of this breakthrough design for emission control, our natural gas-fueled CHPmodules fitted with the patented Ultera control technology are certified by the California Air Resources Board ("CARB") as meeting its stringent 2007emissions requirements, the same emissions standard used to certify fuel cells and the same emissions levels as a state-of-the-art central power plant. We nowoffer our Ultera emissions control technology as an option on all our products or as a stand-alone application for the retrofitting of other rich-burn spark-ignited reciprocating internal combustion engines.Tecogen products are designed as compact modular units that are intended to be installed in multiples when utilized in larger CHP plants. Themajority of our CHP modules are installed in multi-unit sites with applications ranging up to 12 units. This approach has significant advantages overutilizing single larger units, allowing building placement in constrained urban settings and redundancy to mitigate service outages. Redundancy isparticularly relevant in regions where the electric utility has formulated tariff structures that include high “peak demand” charges. Such tariffs are common inmany areas of the country, and are applied by such utilities as Southern California Edison, Pacific Gas and Electric, Consolidated Edison of New York, andNational Grid of Massachusetts. Because these tariffs are assessed based on customers’ peak monthly demand charge over a very short interval, typically only15 minutes, a brief service outage for a system comprised of a single unit can create a high demand charge and therefore be highly detrimental to the monthlysavings of the system. For multiple unit sites, a full system outage that will create a high demand charge is less likely, so consequently, these customers havea greater probability of capturing peak demand savings.Our CHP products are sold directly to customers by our in-house marketing team and by established sales agents and representatives, includingAmerican DG Energy Inc. and Eurosite Power Ltd. which are affiliated companies.1Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsIn 2009, we created a subsidiary, Ilios Dynamics, to develop and distribute a line of high-efficiency heating products, starting with a water heater.We believe that these products are much more efficient than the conventional boilers traditionally used in commercial buildings and industrial processes (see“Our Products” below). As of the date of this filing, we own a 65.0% interest in Ilios Dynamics.In December 2015, the Company launched a joint venture in conjunction with a group of European strategic investors to develop the Ulteraemissions control technology for the automotive market. Known as Ultra Emissions Technologies Limited, or ULTRATEK for short, Tecogen contributed anexclusive license for use of Ultera in the automotive space to the joint venture while the strategic partners have committed to financing the initial research,development and testing of a viable product. A more in depth discussion of the ULTRATEK opportunity is included in the “Our Products” Ultera discussionsection below.Company HistoryTecogen was formed in the early 1960s as the Research and Development New Business Center of Thermo Electron Corporation, which is nowThermo Fisher Scientific Inc. For the next 20 years, this group performed fundamental and applied research in many energy-related fields to develop newtechnologies. In 1982, the Research and Development group released its first major product, a 60-kilowatt (kW) cogenerator. In the late 1980s and early1990s, air-conditioning and refrigeration products using the same gas engine-driven technology were introduced. In 1987, Tecogen was spun out as aseparate entity by Thermo Electron and, in 1992, became a division of the newly formed Thermo Power Corporation.In 2000, Thermo Power Corporation was dissolved, and Tecogen was sold to a group of private investors including Thermo Electron’s originalfounders, Dr. George N. Hatsopoulos and John N. Hatsopoulos. Tecogen Inc. was incorporated in the State of Delaware on September 15, 2000. Our businessand registered office is located at 45 First Avenue, Waltham, Massachusetts, 02451. Our telephone number is 781-466-6400.Our ProductsWe manufacture natural gas engine-driven cogeneration systems, heat pumps, and chillers, all of which are CHP products that deliver more than oneform of energy. Our cogeneration products are all standard, modular units that come pre-packaged from the company’s factory for ease of installation at acustomer’s site. The package incorporates the engine, generator, heat-recovery equipment, system controls, electrical switchgear, emission controls, and adata controller for remote monitoring and data transmission; minimizing the cost and complexity of installing the equipment at a site. This packaged,modular system simplifies CHP technology for small to mid-sized customers who typically are less experienced with the implementation and benefits of aCHP system.All of our cogeneration systems and most of our chillers use the same engine, the TecoDrive 7400 model. This is an engine modified by us to usenatural gas fuel. The small 25-ton chiller uses a similar engine, the 3000 model. We worked closely with the engine manufacturers and the gas industry(including the Gas Research Institute) in the 1980s and 1990s to modify the engine and validate its durability. For the Ilios water heater, we introduced atechnologically advanced Ford engine that is enhanced for industrial applications.Our commercial product line includes:•the InVerde®, InVerde e+®, and TECOGEN® cogeneration units;•TECOCHILL® chillers;•Ilios® high-efficiency water heaters; and•Ultera™ emissions control technology.InVerde Cogeneration UnitsOur premier cogeneration product is the InVerde, a 100-kW CHP system that not only provides electricity and hot water, but also satisfies thegrowing customer demand for operation during a utility outage, commonly referred to as “black-start” capability. Our exclusively licensed microgridtechnology (see “Intellectual Property” below) enables our InVerde CHP products to provide backup power in the event of power outages that may beexperienced by local, regional, or national grids.The InVerde incorporates an inverter, which converts direct current, or DC, electricity to alternating current, or AC. With an inverter, the engine andgenerator can run at variable speeds, which maximizes efficiency at varying loads. The inverter then converts the generator’s variable output to the constant-frequency power required by customers in 50 or 60 Hertz.This inverter technology was developed originally for solar and wind power generation. The company believes that the InVerde is the firstcommercial engine-based CHP system to use an inverter. Electric utilities accept inverter technology as “safe” by virtue of its certification to the UnderwritersLaboratory interconnection standard 1741. InVerde earned this certification. This qualifies our product for a much simpler permitting process nationwide andis mandatory in some areas such as New York City and California, a feature we consider to be a competitive advantage. The inverter also improves the CHPsystem’s efficiency at partial load, when less heat and power are needed by the customer.2Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsThe InVerde`s black-start feature addresses a crucial demand from commercial and institutional customers who are increasingly concerned aboututility grid blackouts and brownouts, natural disasters, security threats, and antiquated utility infrastructure. Multiple InVerde units can operate collectivelyas a stand-alone microgrid, which is a group of interconnected loads served by one or more power sources. The InVerde is equipped with software that allowsa cluster of units to seamlessly share the microgrid load without complex controls; a proprietary cost advantage for multiple modules on a single location.The InVerde CHP system was developed in 2007, it began shipping in 2008. Our largest InVerde installation utilizes 12 units, which supply 1.2 MWof on-site power and about 8.5 million Btu/hr of heat (700,000 Btu/hr per unit).In January 2016, the company launched its newest edition to the InVerde line, the InVerde e+. The e+ builds on the success of the first generationInVerde and reinforces our goal to be at the forefront of the industry, providing our customers with the most advanced clean energy technologies available inthe marketplace. Among the most differentiating features when compared to competitive CHP technology, the InVerde e+ offers: best in class electricalefficiency; a DC input option for solar or battery array integration; rapid 10 second black-start; and requires just 4 inches of water column gas pressure whicheliminated the need for additional costly pressure boosting equipment, unlike its competitors.TECOGEN Cogeneration UnitsThe TECOGEN cogeneration system is the original model introduced in the 1980s; available in sizes of 60 kW and 75 kW and capable of producingup to 500,000 Btu/hr of hot water. This technology is based on a conventional single-speed generator. It is meant only for grid-connected operation and isnot universally accepted by utilities for interconnection, in contrast to the InVerde. Although this cogeneration product has the longest legacy and largestinstalled population, much of its production volume has been supplanted by the InVerde and its broader array of product features.TECOCHILL ChillersOur TECOCHILL natural gas engine-driven chillers are available in capacities ranging from 25 to 400 tons, with the smaller units air-cooled and thelarger ones water-cooled. Using technology first developed in 1987, the engine drives a compressor that makes chilled water, while the engine’s free wasteheat can be recovered to satisfy the building’s needs for heat or hot water. This process is sometimes referred to as “mechanical” cogeneration, as it generatesno electrical power, and the equipment does not have to be connected to the utility grid.A gas-fueled chiller provides enough air conditioning to avoid most of the utility’s seasonal peak charges for electric usage and capacity. In summerwhen electric rates are at their highest, natural gas is “off-peak” and quite affordable, allowing TECOCHILL customers to avoid typically higher summer-time“peak-usage” electric rates. Gas-fueled chillers also free up the building’s existing electrical capacity to use for other loads and can operate on minimalelectric load in case of electric grid blackout; a key feature for customers concerned about load demand on backup power generators.Ilios High-Efficiency Water HeatersTecogen has developed several heat pumps under the Ilios brand name including a High Efficiency ("HE") Air-Source Water Heater, HE Water-Sourced Water Heater, and HE Air-Sourced “Split System” Water Heater. Our water heater products operate like an electric heat pump but use a natural gasengine instead of an electric motor to power the system. The Ilios high-efficiency water heater uses a heat pump, which captures warmth from outdoor air evenif it is moderately cool outside. Heat pumps work somewhat like a refrigerator, but in reverse. Refrigerators extract heat from inside the refrigerator and moveit outside the refrigerator while heat pumps extract heat from outside and move it indoors.The gas engine’s waste heat is recovered and used in the process, unlike its electric counterpart, which runs on power that has already lost its wasteheat. This means that the heat being captured from outdoors is supplemented by the engine’s waste heat, which increases the efficiency of the process. Thenet effect is that an Ilios heat pump’s efficiency far surpasses that of conventional boilers for water heating; gas engine heat pumps can deliver efficiencies inexcess of 200%.Similarly, if used for space heating, the engine-powered heat pump is more efficient than an electric heat pump, again because heat is recovered andused for other building processes. The product’s higher efficiency translates directly to lower fuel consumption and, for heavy use customers, significantlylower operating costs when compared with conventional equipment.In 2013, a water-sourced model of the heat pump was added to our product line. This heat pump captures heat from a water source such as ageothermal well or from a pre-existing chilled water loop in the facility; the latter configuration provides simultaneous heating and cooling benefits,doubling the effect.Following on the success of the water-sourced model, in early 2015 a 'split system' Ilios model was introduced. The new Split System offers increasedflexibility because its air-source evaporator package can be installed remotely. The engine driven heat pump, which is contained in a small acousticenclosure can be located with a building's mechanical space while the quiet air-source evaporator package can be installed on a roof, or in any outdoorspace. The outdoor evaporator component is connected to the indoor heat pump via refrigerant lines, therefore eliminating all freeze protection issues incolder climates. All of the water3Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of Contentsbeing heated remains inside the conditioned space eliminating the need for a costly isolation heat exchanger and additional pumps, which simplifiesinstallation and increases efficiency by being able to operate at a lower delivery temperature.The heat pump water heater serves as a boiler, producing hot water for drinking and washing, for space heating, swimming pools, or other buildingloads. Energy cost savings to the customer depend on the climate. Heat pumps in general, whether gas or electric, perform best in moderate weatherconditions although the performance of the Ilios water-source heat pump is not impacted by weather or climate conditions. In a typical building, the Iliosheat pump would be added on to an existing heating or water heating system, and would operate as many hours as possible. The conventional boiler wouldbe left in place, but would serve mainly as a backup when the heat pump’s engine is down for maintenance or when the heat pump cannot meet the building’speak heating load. In areas where low electric rates make CHP less economical, the Ilios heat pump could be a financially attractive alternative because itseconomics depend only on natural gas rates. In some areas with high electric rates, the Ilios option could have advantages over CHP; for example where it ishard to connect to the utility grid or where the building’s need for electricity is too low for CHP to be economically sound.Ultera Low-Emissions TechnologyAll of our CHP products are available with the patented Ultera low-emissions technology as an equipment option. This breakthrough technologywas developed in 2009 and 2010 as part of a research effort funded by the California Energy Commission and Southern California Gas Company. Theobjective was to bring our natural-gas engines into compliance with California’s stringent air quality standards.(1) Based upon an annual output of 100 kW and 670,000 Btu/hr of hot water.(2) Conventional Energy Source is U.S. powerplant and gas boiler. Average U.S. powerplant NOx emission rate of 0.9461 lb/MWh from (USEPA eGrid 2012),CO data not available. Gas boiler efficiency of 78% (www.eia.gov) with emissions of 20 ppm NOx @ 3% O2 (California Regulation SCAQMD Rule 1146.2 and <50 ppmv CO @ 3% O2 (California Regulation SCAQMD BACT).(3) Tecogen emissions based upon actual third party source test data.(4) Microturbine and Fuel Cell emissions from EPA CHP Partnership - Catalog of CHP Technologies- March 2015.(5) Stationary Engine BACT as defined by SCAQMD.4Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsThrough development of a two stage catalyst emission treatment system, the Company was able to meet or exceed the strict air quality regulationswith a solution that is cost-effective, robust, and reliable. The patent-protected Ultera low-emissions technology keeps our CHP systems compliant with airquality regulations. The first commercial CHP units equipped with Ultera low-emissions technology shipped to a California utility in 2011. We conductedthree validation programs for this technology:1.Third-party laboratory verification. The AVL California Technology Center, a long-standing research and technology partner with the internationalautomotive industry, confirmed our results in their state-of-the-art dynamometer test cell, which was outfitted with sophisticated emissionsmeasurement equipment.2.Verifying longevity and reliability in the field. We did so by equipping one of our TECOGEN 75-kW units, already operating at a customerlocation in Southern California, with the Ultera low-emissions technology and a device to continuously monitor emissions. The Ultera low-emissions system operated successfully for more than 25,000 hours, approximately 3.5 years, and consistently complied with California’s stringentemission standards over the entire field testing period.3.Additional independent tests. During the field test, two companies licensed in California to test emissions each verified our results at different times.The results from one of these tests, obtained in August 2011, enabled us to qualify for New Jersey’s fast-track permitting. Virtually every statenationwide requires some kind of permit related to local air quality, but New Jersey allows an exemption for systems such as ours that demonstratesuperior emissions performance. This certification was granted in November 2011, and since then we have sold Ultera low-emissions systems tocustomers in the territory.In 2012, a 75 kW CHP unit equipped with the Ultera system became our first unit to obtain a conditional air permit (i.e. pending a third party sourcetest to verify compliance) in Southern California since the strict regulations went into effect in 2009. A state-certified source test, administered in January2013, verified that our emissions levels were well below the new permitting requirements, and the final permit version was approved in August 2013.Standby GeneratorsAfter successfully developing the Ultera technology for our own equipment, the Tecogen R&D team began exploring other possible emissionscontrol applications in an effort to expand the market for the ultra-clean emissions system. Retrofit kits were developed in 2014 for other stationary enginesand in 2015 the Ultera Retrofit Kit was applied successfully to natural gas stand-by generators from other manufacturers, including Generac. According to aBrookings Institute report on distributed generation, over 12 million generators have been installed across the United States with a total capacity of morethan 200 gigawatts. Market research experts Frost & Sullivan forecast steady future growth for the category, modeling an average yearly revenue increase of5% through 2017.Historically standby generators have not been subjected to the strict air quality emissions standards of traditional power generation. However,generators which run for more than 200 hours per year or run for non-emergency purposes (other than routine scheduled maintenance) are subject tocompliance with the same stringent regulations applied to a typical electric utility. As demand response programs become more economically attractive andair quality regulations continue to become more stringent, there could be strong demand for retrofitting of standby generators with our Ultera emissionscontrol technology, thus providing a cost-effective solution to keeping the installed base of standby generators operational and in compliance.BiogasThe Ultera emissions control technology developed by our engineering team applies specifically to rich-burn, spark-ignited, internal combustionengines. While it was originally intended for natural gas powered engines, there is reason to believe the technology may be adapted for other fuel types aslong as the engine meets the rich-burn criteria.In 2015 the Ultera system was applied to a biogas powered engine operating at the Eastern Municipal Water District’s (EMWD) Moreno ValleyRegion Water Reclamation Facility in Perris, California. The demonstration project was a result of an ongoing collaboration between Tecogen, the EMWDand various other partners. This project successfully applied an Ultera retrofit kit to a 50 liter Caterpillar engine fueled by biogas extracted from an anaerobicdigester.Biogas is a significant byproduct of wastewater treatment plants. Considered to be a renewable source of fuel, it is becoming an increasinglyimportant resource for power generation. According to the American Biogas Council, nationwide there are over 1,100 engines fueled by wastewater-derivedbiogas, over 600 fueled by landfill-generated biogas, and over 100 running on biogas from agricultural waste. This represents a significant potential marketfor Ultera retrofit kit application as these biogas engines become subject to the same air quality standards as traditional power generation sources.5Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsGasoline VehiclesIn October 2015, following revelations of wide-scale problems with vehicle emissions compliance and testing, Tecogen formed an EmissionsAdvisory Committee to examine the potential application of Ultera to the automotive gasoline market. According to the U.S. EPA, 50 percent of nitrogenoxides (NOx) and 60 percent of all carbon monoxide (CO) emissions in the United States comes from vehicle exhaust. These are precisely the two pollutantsTecogen's Ultera emission control system is designed to target. After a thorough investigative process on the part of the Advisory Committee and variousindustry expert consultants, the group recommended Tecogen pursue a funded initiative to develop the technology for gasoline vehicles.In December 2015, the Company announced the formation of a 50/50 joint venture company with a group of strategic investors. Ultra EmissionsTechnologies Limited (known as “ULTRATEK”) was created to advance Tecogen’s near-zero emissions technology for adaptation to transportationapplications powered by spark-ignited rich-burn engines in the automobile and truck categories. Tecogen has granted ULTRATEK an exclusive license forthe development of its patented, emissions-related, intellectual property for the vehicle market, while the strategic investors have collectively contributed $3million to finance the initial operations of the joint venture.Initially ULTRATEK’s focus is on preliminary research, testing, and verification that the Ultera technology can in fact be applied to gasolineengines while maintaining similar near-zero emission results as have been demonstrated in other use cases. If successfully developed, the market forautomotive emissions control could be a source of future growth for the Company; although that potential could take several years to be realized and there isno guarantee we will be successful.Other Ultera ApplicationsAccording to the University of Washington's Institute for Health Metrics and Evaluation, air pollution is now the world's fourth leading cause ofpremature death while a 2013 Massachusetts Institute of Technology study found that the U.S. experiences 200,000 early deaths each year due to emissionsfrom heavy industry, transportation, and commercial and residential heating. As climate change and air quality continue to develop as areas of focus bygovernment regulators, emissions restrictions are expected to become increasingly stringent around the world. These tightening regulations could open upnew markets and applications for the Ultera near-zero emissions control technology. Some of these opportunities may include:•Commercial and industrial natural gas fueled engines from other manufacturers•Natural gas and biogas powered vehicle fleets - such as municipal bus fleets•Small industrial mobile engines - such as propane powered fork trucksProduct ServiceWe provide long-term maintenance contracts, parts sales, and turnkey installation through a network of nine well-established field service centers inCalifornia, the Midwest, and the Northeast. These centers are staffed by full-time Tecogen technicians, working from local leased facilities. The facilitiesprovide offices and warehouse space for inventory. We encourage our customers to provide internet or phone connections to our units so that we maymaintain communications with the installed equipment. For connected installations, the machines are contacted daily, download their status, and provideregular operational reports (daily, monthly, and quarterly) to our service managers. This communication link is used to support the diagnosis effort of ourservice staff and to send messages to preprogrammed phones that a unit has experienced an unscheduled shutdown. In many cases, communications receivedby service technicians from connected devices allow for proactive maintenance; minimizing equipment downtime and improving operating efficiency for thecustomer.Our service managers, supervisors, and technicians work focuses on our products. Because we manufacture our own equipment, our servicetechnicians bring hands-on experience and competence to their jobs. They are trained at our corporate headquarters and primary manufacturing facility inWaltham, Massachusetts.Most of our service revenue is in the form of annual service contracts, which are typically of an all-inclusive “bumper-to-bumper” type, with billingamounts proportional to achieved operating hours for the period. Customers are thus invoiced in level, predictable amounts without unforeseen add-ons forsuch items as unscheduled repairs or engine replacements. We strive to maintain these contracts for many years, assuring the integrity and performance of ourmachines is maintained.Our product lines have a long history of reliable operation. Since 1995, we have had a remote monitoring system in place that connects to hundredsof units daily and reports their “availability,” which is the amount of time a unit is running or is ready to run in hours. More than 80% of them operate above90% availability, with the average being 93.8%. Our factory service agreements have directly impacted these positive results and represent an important,long-term, annuity-like stream of revenue for the Company.6Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsIn early 2016, we announced the selection of GE’s (NYSE: GE) Equipment Insight solution for new equipment sold beginning in 2016 and for selectupgrades to the existing installed equipment fleet. With GE’s technology Tecogen is able to collect, analyze and manage valuable asset data continuouslyand in real-time, providing the Service team with improved insight into the functionality of our installed CHP units. GE Equipment Insight allows Tecogento provide a more seamless and proactive maintenance approach while also ensuring peak performance of installed equipment and improving the equipmentpayback period for its customers. The industrial internet solution enables the Service department to perform remote monitoring and diagnostics and to viewsystem results in real time via a computer, smart phone or tablet. The solution enables users to better utilize monitoring data, ensuring customers arecapturing maximum possible savings and efficiencies from their installation. Through constant monitoring and analysis of equipment data, Tecogen expectsto enhance the performance of installed equipment by ensuring machinery consistently operates at peak performance and is available to deliver maximumpotential value for customers.Contributions to RevenueThe following table summarizes net revenue by product line and services for the years ended December 31, 2015 and 2014: 2015 2014Products: Cogeneration$7,882,838 $5,364,810Chiller & Heat Pump2,172,399 3,260,224Total product revenue10,055,237 8,625,034Service & Parts7,832,181 7,438,125Installation Services3,555,239 3,279,505Total service revenue11,387,420 10,717,630Total revenue$21,442,657 $19,342,664All of the Company’s long lived assets reside in the United States. Currently, some revenue is generated outside the United States. These salesinclude United Kingdom, Mexico, Ireland, and others.Sales & DistributionOur products are sold directly to end-users by our sales team and by established sales agents and representatives. Various agreements are in placewith distributors and outside sales representatives, who are compensated by commissions, including American DG Energy and EuroSite Power which areaffiliated companies, for certain territories and product lines. In New England, our affiliate, American DG Energy, has exclusive sales representation rights toour cogeneration products only (not including chillers). Sales through our in-house team or sales that are not covered by a representative’s territory carry nocommission or only a fractional one. For the fiscal years ended 2015 and 2014, no distribution partner or customer relationship accounted for more than 10%of total combined company revenue.Our product sales cycle exhibits typical seasonality for the HVAC industry with sales of chillers generally stronger in the warmer months while heatpump sales are stronger in the cooler months.Total product and installation backlog as of December 31, 2015 was $11.6 million compared to year end 2014 backlog of $9.9 million. Please seeManagement’s Discussion and Analysis section and related Risk Factors for additional information about the Company’s backlog.Markets and CustomersWorldwide, stationary power generation applications vary from huge central stationary generating facilities (traditional electric utility providers) toback-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 centralutility system utilizing high-temperature steam turbines powered by fossil-fuels. This turbine technology, though steadily refined over the years, reached amaximum efficiency (where efficiency means electrical energy output per unit of fuel energy input) of approximately 40%. According to the U.S. EPA, theaverage efficiency of fossil fuel power plants in the United States is 33% and has remained virtually unchanged for four decades.A number of developments related primarily to the deregulation of the utility industry as well as significant technological advances have nowbroadened the range of power supply choices available to all types of customers. CHP, which harnesses waste energy from power generation processes andputs it to work for other uses on-site, can boost the energy conversion efficiency to nearly 90%, a better than two-fold improvement over the averageefficiency fossil fuel plant. This distributed generation, or power generated on-site at the point of consumption rather than power generated centrally,eliminates the cost, complexity, and inefficiency associated with electric transmission and distribution. The implications of the CHP distributed generationapproach are significant. If CHP were applied on a large scale, global fuel usage might be dramatically curtailed and the utility grid made far more resilient.7Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsOur CHP products address the inherent efficiency limitation of central power plants by siting generation close to the loads being served. This allowscustomers with energy-intensive buildings or processes to reduce energy costs and operate with a lower carbon footprint. Furthermore, with technology wehave introduced within the last two years, like the Ultera low-emissions technology, our products can now contribute to better air quality at the local levelwhile complying with the strictest air quality regulations in the United States.Cogeneration and chiller products can often reduce the customer’s operating costs (for the portion of the facility loads to which they are applied) byapproximately 30% to 60% based on Company estimates, which provides an excellent rate of return on the equipment’s capital cost in many areas of thecountry with high electricity rates. Our chillers are especially suited to regions where utilities impose extra charges during times of peak usage, commonlycalled “demand” charges. In these cases, the gas-fueled chiller reduces the use of electricity during the summer, the most costly time of year.On-site CHP not only eliminates the loss of electric power during transmission, but also offsets the capital expense of upgrading or expanding theutility infrastructure. The national electric grids of many developed countries are already challenged to keep up with existing power demand. In addition, thetransmission and distribution network is operating at capacity in a majority of urban areas. Decentralizing power generation by installing equipment atcustomer sites not only relieves the capacity burden on existing power plants, but also unburdens transmission and distribution lines. This ultimatelyimproves the grid’s reliability and reduces the need for costly upgrades.Increasingly favorable economic conditions could improve our business prospects domestically and abroad. Specifically, we believe that natural gasprices might increase from their current depressed values, but only modestly, while electric rates would continue to rise over the long-term as utilities pay forgrid expansion, better emission controls, efficiency improvements, and the integration of renewable power sources.The largest numbers of potential new customers in the U.S. require less than 1 MW of electric power and less than 1,200 tons of cooling capacity. Weare targeting customers in states with high electricity rates in the commercial sector, such as California, Connecticut, Massachusetts, New Hampshire, NewJersey, and New York. These regions also have high peak demand rates, which favor utilization of our modular units in groups so as to assure redundancy andpeak demand savings. Some of these regions also have generous rebates that improve the economic viability of our systems.We aggressively market to both potential domestic and international customers where utility pricing aligns with our advantages. These areas includeregions that have strict emissions regulations, such as California, or those that reward CHP systems that are especially non-polluting, such as New Jersey.There are currently 23 states that recognize CHP as part of their Renewable Portfolio Standards or Energy Efficiency Resource Standards and several of them,including New York, California, Massachusetts, New Jersey, and North Carolina, have initiated specific incentive programs for CHP.The traditional markets for CHP systems are buildings with long hours of operation and with corresponding demand for electricity and heat.Traditional customers for our cogeneration systems 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, municipalbuildings, and military installations.Traditional customers for our chillers and heat pumps overlap with those for our cogeneration systems. Engine-driven chillers are often utilized asreplacements for aging electric chillers because they both occupy similar amounts of floor space and require similar maintenance schedules.CompetitionAlthough we believe Tecogen offers customers a suite of premier best-in-class clean energy and thermal solutions, the market for our products ishighly competitive. Our cogeneration products compete with the utility grid, existing technologies such as other reciprocating engine and microturbine CHPsystems, and other emerging distributed generation technologies including solar power, wind-powered systems, and fuel cells.Although solar and wind powered systems produce no emissions, the main drawbacks to these renewable powered systems are their dependence onweather conditions, their reliance on backup utility grid, and high capital costs that can often make these systems uneconomical without governmentsubsidies. Similarly, while the market for fuel cells is still developing, a number of companies are focused on markets similar to ours. Fuel cells, like solar andwind powered systems, have received higher levels of incentives for the same type of applications as CHP systems in many territories. Management believesthat, absent these higher government incentives, our CHP solutions provide a better value and more robust solution to end users in most applications.Additionally, our patents relating to the Ultera ultra-low emissions technology give Tecogen products a strong competitive advantage in marketswhere severe emissions limits are imposed or where very clean power is favored, such as New Jersey, California, and Massachusetts.Our products fall into the broad market category of distributed generation systems that produce electric power on-site to mitigate the drawbacks oftraditional central power and the low efficiency of conventional heating processes.8Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsOverall, we compete with end users’ other options for electrical power, heating and cooling on the basis of our clean technology’s ability to:•Provide power when a utility grid is not available or goes out of service;•Reduce the customer’s total cost of purchasing electricity and other fuel;•Reduce emissions of criteria pollutants (NOx and CO) to near-zero levels and cut the emission of greenhouse gas such as carbon dioxide;•Provide reliable on-site power generation, heating and cooling services; and•Control maintenance costs and ensure optimal peak equipment performance.InVerde CHPWe believe that no other company has developed a product that competes with our inverter-based InVerde, which offers UL-certified gridconnection, blackstart capability, and patented variable-speed operation. An inverter-based product with at least some of these features has been introducedby others, but we believe that they face serious challenges in duplicating all the unique features of the InVerde. Product development time and costs could besignificant, and we expect that our patents and license for Microgrid software will keep others from offering certain important functions.Similarly, in the growing Microgrid segment, neither fuel cells nor microturbines can respond to changing energy loads when the system isdisconnected from the utility grid. Engines such as those used in Tecogen’s equipment inherently have a fast dynamic response to step load changes, whichis why they are the primary choice for emergency generators. Fuel cells and microturbines would require an additional energy storage device to be utilized inoff-grid operation, giving our engine-driven solutions an advantage for Microgrid applications. We believe that Capstone Turbine Corporation is the onlymicroturbine manufacturer with a commercial presence in CHP.TECOCHILL ChillersAccording to the Energy Solutions Center, a non-profit consortium, three companies make gas-engine-driven chillers that compete with ourTECOCHILL products: Trane, a division of Ingersoll-Rand plc, York, a division of Johnson Controls, Inc. and Alturdyne. Natural gas can also fuel absorptionchillers, which use fluids to transfer heat without an engine drive. However, engine chillers will continue to have an efficiency advantage over absorptionmachines, TECOCHILL products reach efficiencies well above levels achieved by similarly sized absorption systems. Today’s low natural gas prices in theUnited States improve the economics of gas-fueled chillers while their minimal electric demand on back up power systems make them ideal for facilitiesrequiring critical precision climate control.Ilios Heat PumpThere are a few companies manufacturing gas-engine heat pumps, including Yanmar and Tedom. The Ilios water heater and other heat pumpproducts compete in both the high-efficiency water heating market and the CHP market.Research & DevelopmentTecogen has a long, rich, research and development tradition and sustained programs have allowed us to cultivate deep engineering expertise. Wehave strong core technical knowledge that is critical to product support and continuous product improvement efforts. Our TecoDrive engine, cogenerationand chiller products, InVerde, Ilios heat pumps, and most recently the Ultera emissions control system were all created and optimized in-house with bothpublic and private funding support.We continue to forge alliances with utilities, government agencies, universities, research facilities, and manufacturers. The Company has alreadysucceeded in developing new technologies and products in collaboration with several entities, including:•Sacramento Municipal Utility District has provided test sites for the Company since 2010.•Southern California Gas Company and San Diego Gas & Electric Company, each a Sempra Energy subsidiary have granted us research anddevelopment contracts since 2004.•Department of Energy’s Lawrence Berkeley National Laboratory, research and development contracts executed since 2005, includingongoing Microgrid development work related to the InVerde.•Eastern Municipal Water District has co-sponsored demonstration projects to retrofit both a natural-gas powered municipal water pumpengine, 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, and provided a test site to theCompany since 2005.•California Energy Commission executed research and development contracts from 2004 until March 2013.•The AVL California Technology Center has performed a support role in research and development contracts as well as internal research anddevelopment on our emission control system from August 2009 to November 2011.9Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsOur efforts to forge partnerships continue to focus on utilities, particularly to promote the InVerde, our most utility-friendly product. The nature ofthese alliances varies by utility, but could include simplified interconnection, joint marketing, ownership options, peak demand mitigation agreements, andcustomer services. We have commissioned a Microgrid with the Sacramento Municipal Utility District at its headquarters in Sacramento, California, wherethe central plant incorporated three InVerde systems equipped with our Ultera low-emissions technology. Some expenses for this project were reimbursed tothe utility through a grant from the California Energy Commission.Certain components of our InVerde product were developed through a grant from the California Energy Commission. This grant includes arequirement that we pay royalties on all sales of all products related to the grant. As of December 31, 2015, such royalties accrued in accordance with thisgrant agreement were less than $12,000 on an annual basis.We also continue to leverage our resources with government and industry funding, which has yielded a number of successful developments. Theseinclude the Ultera low-emissions technology, sponsored by the California Energy Commission and Southern California Gas Company, and new 35-kWengine technology we developed with the California Energy Commission’s support. Pursuant to the terms of the grants from the California EnergyCommission, the California Energy Commission has a royalty-free, perpetual, non-exclusive license to these technologies, for government purposes.For the years ended December 31, 2015 and 2014, we spent approximately $591,585 and $1,041,483, respectively, in research and developmentactivities.Intellectual PropertyWe currently hold five United States patents for our technologies:•9,121,326: “Assembly and method for reducing nitrogen oxides, carbon monoxide and hydrocarbons in exhausts of internal combustionengines.” This patent, granted in September 2015, is related to the Ultera emission control system applicable to all our products.•8,829,698: “Power generation systems.” This patent, granted in September 2014, is for a power generation system that includes an internalcombustion engine configured to provide rotational mechanical energy.•8,578,704: “Assembly and method for reducing nitrogen oxides, carbon monoxide, and hydrocarbons in exhausts of internal combustionengines.” This patent, granted in November 2013, is for the Ultera emission system applicable to all our products.•7,239,034: “Engine driven power inverter system with cogeneration.” This patent, granted in July 2007, pertains to the utilization of anengine-driven CHP module combined with an inverter and applies to our InVerde product specifically.•7,243,017: “Method for controlling internal combustion engine emissions.” This patent, granted in July 2007, applies to the specificalgorithms used in our engine controller for metering the fuel usage to obtain the correct combustion mixture and is technology used bymost of our engines.We have filed for several additional patents - most notable among them:•"Systems and methods for reducing emissions in exhaust of vehicles and producing electricity." This patent, filed in November 2015 andpublished in March 2016, is related to the development of the Ultera emission control system for vehicle applications.In addition, the Company licensed specific rights to Microgrid algorithms developed by University of Wisconsin researchers for which we payroyalties to the assignee, The Wisconsin Alumni Research Foundation (WARF). The specific patent named in our agreement is “Control of small distributedenergy resources” (7,116,010), granted in 2006. Our exclusive rights are valid for engine-driven systems utilizing natural gas or diesel fuel in the applicationof power generation where the per-unit output is less than 500 kW.The software allows our products to be integrated as a Microgrid, where multiple InVerde units can be seamlessly isolated from the main utility gridin the event of an outage and re-connected to it afterward. The licensed software allows us to implement such a Microgrid with minimal control devices andassociated complexity and cost. Tecogen pays WARF a royalty for each cogeneration module sold using the licensed technology. Such royalty paymentshave been in the range of $5,000 to $20,000 on an annual basis through the year ended December 31, 2015. In addition, WARF reserved the right to grantnon-profit research institutions and governmental agencies non-exclusive licenses to practice and use, for non-commercial research purposes technologydeveloped by Tecogen that is based on the licensed software.We consider our patents and license to be important in the operation of our business. The expiration, termination, or invalidity of one or more ofthese patents may have a material adverse effect on our business. Our earliest patent, the licensed from WARF, was issued in 2006 and expires in 2022. Mostof our current patents expire between 2022 and 2027.10Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsWe believe that one other company has developed a product that competes with our inverter-based InVerde. We anticipate that an inverter-basedproduct with at least some of these features will be introduced by others, but we believe that competitors will face serious challenges in duplicating theInVerde. Product development time and costs would likely be significant, and we expect that our patent for the inverter-based CHP system (7,239,034) wouldoffer significant protection, especially in key features. Likewise, we consider the Microgrid license with WARF to be a key feature of our InVerde product,and one that would be difficult to duplicate outside the patent.In 2013, we purchased rights to designs and technologies including patents granted or pending for our permanent magnet generators. This keycomponent of our InVerde module uses this acquired technology.The recent issuance by the U.S. PTO of the patent for the Ultera low-emissions technology keeps that technology exclusive to us. It applies to all ofour gas engine-driven products and may have licensing applications to other rich-burn spark-ignited internal combustion engines. We have also filed for orbeen granted patents for this technology in Europe, Australia, Brazil, Canada, China, Costa Rica, Dominican Republic, India, Japan, Mexico, New Zealand,Republic of Korea, Singapore, and South Africa. There is no assurance, however, that the Ultera low-emissions patent applications will be approved in anyother country.TrademarksThe Company has registered the brand names of our equipment and logos used on our equipment. These registered trademarks include Tecogen,Tecochill, Ultera, InVerde, Ilios, and the associated logos. We will continue to trademark our product names and symbols.Sourcing & ManufacturingWe are focused on continuously strengthening our manufacturing processes and increasing operational efficiencies within the Company. Many ofthe components used in the manufacture of our highly-efficient clean energy equipment are readily fabricated from commonly available raw materials or arestandardly available parts sourced from multiple suppliers. We believe that in most cases, adequate supply exists to meet our near to medium termmanufacturing needs. Tecogen has an on-going focus on developing and implementing new systems to simplify our manufacturing processes, productsourcing methods, and our supply chain.The company has a combined total of approximately 26,000 square foot manufacturing and warehouse footprint running on a single 5-day per weekshift at the Waltham, Massachusetts facility. We believe we have sufficient spare capacity to meet near to medium term demand without accruing additionalfixed cost.Government & RegulationSeveral kinds of government regulations affect our current and future business, 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; and•Electric utility pricing and related regulations.Our markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are impacted not only by energypolicy, laws, regulations and incentives of governments in the markets in which we sell, but also by rules, regulations and costs imposed by utilities. Utilitycompanies or governmental entities may place barriers on the installation or interconnection of our product with the electric grid. Further, utility companiesmay charge additional fees to customers who install on-site power generation; thereby reducing the electricity they take from the utility, or for having thecapacity to use power from the grid for back-up or standby purposes. These types of restrictions, fees or charges could hamper the ability to install oreffectively use our product, or increase the cost to our potential customers for using our systems. This could make our systems less desirable, adverselyimpacting our revenue and profitability. In addition, utility rate reductions can make our products less competitive, causing a material adverse effect on ouroperations. These costs, incentives and rules are not always the same as those faced by technologies with which we compete.Similarly, rules, regulations, laws and incentives could also provide an advantage to our distributed generation solutions as compared withcompeting technologies if we are able to achieve required compliance in a lower cost, more efficient manner. Additionally, reduced emissions and higher fuelefficiency could help our customers combat the effects of global warming. Accordingly, we may benefit from increased government regulations that imposetighter emission and fuel efficiency standards. We encourage investors and potential investors to carefully consider associated Risk Factors detailed belowwhich highlight various aspects of the regulatory environment and other related risks.11Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsEmployeesAs of December 31, 2015, we employed 72 full-time employees and 4 part-time employees, including 6 sales and marketing personnel and 31service personnel. We believe that our relationship with our employees is satisfactory. Three of our New Jersey service employees are represented by acollective bargaining agreement which was executed on February 25, 2014 with a retroactive effective date of January 1, 2014.Item 1A. Risk FactorsOur business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that wecurrently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the followingrisks occurs, our business, financial condition or results of operations could suffer and the trading price of our common stock could decline. Investors andprospective investors should consider the following risks and the information contained under the heading ''Cautionary Note Concerning Forward-LookingStatements'' before deciding whether to invest in our securities.Risks Relating to Our BusinessOur operating history is characterized by net losses. We anticipate incurring further losses, and we may never become profitable.For each of our last five fiscal years and prior thereto, we have incurred annual operating losses. We expect this trend to continue until such time thatwe can sell a sufficient number of systems and achieve a cost structure to become profitable. We may not have adequate cash resources to reach the point ofprofitability. Even if we do achieve profitability, we may be unable to increase our sales and sustain or increase our profitability in the future.We experience significant fluctuations in revenues from quarter to quarter on our product sales.We have low volume, high dollar sales for projects that are generally non-recurring, and therefore our sales have fluctuated significantly from periodto period. For example, when compared to the previous quarter, our revenues in 2015 increased in the first and fourth quarters, and decreased in the secondand third quarter. In 2014, our revenues increased during the second and the fourth quarters and decreased in the first and third quarters. Fluctuations cannotbe predicted because they are affected by the purchasing decisions and timing requirements of our customers, which are unpredictable.We may be unable to fund our future operating requirements, which could force us to curtail our operations.If our funds are insufficient to fund our future operating requirements, we would need to raise additional funds through further public or privateequity or debt financings depending upon prevailing market conditions. These financings may not be available to us, or if available, may be on terms that arenot favorable to us and could result in significant dilution to our stockholders and reduction of the trading price of our stock. The state of worldwide capitalmarkets could also impede our ability to raise additional capital on favorable terms or at all. If adequate capital were not available to us, we likely would berequired to significantly curtail our operations or possibly even cease our operations.If we experience a period of significant growth or expansion, it could place a substantial strain on our resources.If our cogeneration and chiller products penetrate the market rapidly, we would be required to deliver even larger volumes of technically complexproducts or components to our customers on a timely basis and at a reasonable costs to us. We have never ramped up our manufacturing capabilities to meetsignificant large-scale production requirements. If we were to commit to deliver large volumes of products, we may not be able to satisfy these commitmentson a timely and cost-effective basis.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 many of our products. Our engine supplier, generator supplier for cogeneration products (other thanthe InVerde), and in our chillers a compressor and vessel set, are all purchased from large multinational equipment manufacturers. The loss of one of oursuppliers could materially, and adversely affect our business if we are unable to replace them. While alternate suppliers for the manufacture of our engine,generator and compressor have been identified, should the need arise, there can be no assurance that alternate suppliers will be available and able tomanufacture our engine, generator or compressor on acceptable terms.From time to time, shipments can be delayed because of industry-wide or other shortages of necessary materials and components from third-partysuppliers, as well as shipping delays at points of importation. A supplier's failure to supply components in a timely manner, or to supply components thatmeet our quality, quantity, or cost requirements, or our inability to obtain substitute sources of these components on a timely basis or on terms acceptable tous, could impair our ability to deliver our products in accordance with contractual obligations.12Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsWe 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. If these larger competitors decide to focus on the development of distributed power orcogeneration, they have the manufacturing, marketing and sales capabilities to complete research, development and commercialization of these productsmore quickly and effectively than we can. There can also be no assurance that current and future competitors will not develop new or enhanced technologiesor more cost-effective systems, and therefore, there can be no assurance that we will be successful in this competitive environment.If we are unable to maintain our technological expertise in design and manufacturing processes, we will not be able to successfully compete.We believe that our future success will depend upon our ability to continue to develop and provide innovative products and product enhancementsthat meet the increasingly sophisticated needs of our customers.However, this requires that we successfully anticipate and respond to technological changes in design and manufacturing processes in a cost-effective and timely manner. The development of new, technologically advanced products and enhancements is a complex and uncertain process requiringhigh levels of innovation, as well as the accurate anticipation of technological and market trends. There can be no assurance that we will successfully identifynew product opportunities, develop and bring new or enhanced products to market in a timely manner, successfully lower costs, and achieve marketacceptance of our products, or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive. The introduction of products embodying new technologies, and the shifting of customer demands or changing industry standards, could render ourexisting products obsolete and unmarketable. We may experience delays in releasing new products and product enhancements in the future. Material delaysin introducing new products or product enhancements may cause customers to forego purchases of our products and purchase those of our competitors.Our intellectual property may not be adequately protected.We seek to protect our intellectual property rights through patents, trademarks, copyrights, trade secret laws, confidentiality agreements, andlicensing arrangements, but we cannot ensure that we will be able to adequately protect our technology from misappropriation or infringement. We cannotensure that our existing intellectual property rights will not be invalidated, circumvented, challenged, or rendered unenforceable.We have applied for and obtained patents on certain key components used in our products. Specifically, the Company holds patents, all of which areutilized in our products. In addition, we have rights to a 2006 University of Wisconsin patent enabling us to use that patent’s microgrid control algorithms forour specific use: engine-based power generation fueled by natural gas and diesel for engines less than 500 kW in electric power output. Also, the Companyacquired rights to several patents and technologies included in the permanent magnet generators. The Company continues to apply for patents in the UnitedStates and other countries related to our technologies.Our competitors may successfully challenge the validity of our patents, design non-infringing products, or deliberately infringe our patents. Therecan be no assurance that other companies are not investigating or developing other similar technologies. In addition, our intellectual property rights may notprovide a competitive advantage to us or ensure that our products and technology will be adequately covered by our patents and other intellectual property.Any of these factors or the expiration, termination, or invalidity of one or more of our patents may have a material adverse effect on our business.Our control software is protected by copyright laws or under an exclusive license agreement. Further, we rely on treatment of our technology as tradesecrets through confidentiality agreements, which our employees and vendors are required to sign. We also rely on non-disclosure agreements with othersthat have or may have access to confidential information to protect our trade secrets and proprietary knowledge. These agreements may be breached, and wemay not have adequate remedies for any breach. Our trade secrets may also be or become known without breach of these agreements or may be independentlydeveloped by competitors. Failure to maintain the proprietary nature of our technology and information could harm our results of operations and financialcondition.Others may assert that our technology infringes their intellectual property rights.We may be subject to infringement claims in the future. The defense of any claims of infringement made against us by third parties could involvesignificant legal costs and require our management to divert time from our business operations. If we are unsuccessful in defending any claims ofinfringement, we may be forced to obtain licenses or to pay additional royalties to continue to use our technology. We may not be able to obtain anynecessary licenses on commercially reasonable terms or at all. If we fail to obtain necessary licenses or other rights, or if these licenses are costly, ouroperating results would suffer either from reductions in revenues through our inability to serve customers or from increases in costs to license third-partytechnologies.13Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsOur success is dependent upon attracting and retaining highly qualified personnel and the loss of key personnel could significantly hurt ourbusiness.To achieve success, we must attract and retain highly qualified technical, operational and executive employees. The loss of the services of keyemployees or an inability to attract, train and retain qualified and skilled employees, specifically engineering, operations, and business developmentpersonnel, could result in the loss of business or could otherwise negatively impact our ability to operate and grow our business successfully.Our business is subject to product liability and warranty claims.Our business exposes us to potential product liability claims, which are inherent in the manufacturing, marketing and sale of our products, and wemay face substantial liability for damages resulting from the faulty design or manufacture of products or improper use of products by end users. We currentlymaintain a moderate level of product liability insurance, but there can be no assurance that this insurance will provide sufficient coverage in the event of aclaim. Also, we cannot predict whether we will be able to maintain such coverage on acceptable terms, if at all, or that a product liability claim would notharm our business or financial condition. In addition, negative publicity in connection with the faulty design or manufacture of our products would adverselyaffect our ability to market and sell our products.We sell our products with warranties. There can be no assurance that the provision in our financial statements for estimated product warrantyexpense will be sufficient. We cannot ensure that our efforts to reduce our risk through warranty disclaimers will effectively limit our liability. Anysignificant occurrence of warranty expense in excess of estimates could have a material adverse effect on our operating results, financial condition and cashflow. Further, we have at times undertaken programs to enhance the performance of units previously sold. These enhancements have at times been provided atno cost or below our cost. If we choose to offer such programs again in the future, such actions could result in significant costs.Certain businesses and consumers might not consider cogeneration solutions as a means for obtaining their electricity and power needs.Generating electricity and heat at the customers’ building (on-site CHP) is an established technology, but it is more complex than buying electricityfrom the utility and using a furnace for heat. Customers have been slow to accept on-site CHP in part because of this complexity. In addition, thedevelopment of a larger market for our products will be impacted by many factors that are out of our control, including cost competitiveness, regulatoryrequirements, and the emergence of newer and potentially better technologies and products. If a larger market for cogeneration technology in general and ourproducts in particular fails to grow substantially, we may be unable to continue our business.Utilities or governmental entities could hinder our entry into and growth in the marketplace, and we may not be able to effectively sell ourproducts.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. These typesof restrictions, fees, or charges could make it harder for customers to install our products or use them effectively, as well as increasing the cost to our potentialcustomers. This could make our systems less desirable, thereby adversely affecting our revenue and other operating results.We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales.We believe that we will need to reduce the unit production cost of our products over time to maintain our ability to offer competitively pricedproducts. Our ability to achieve cost reductions will depend on our ability to develop low-cost design enhancements, to obtain necessary tooling andfavorable supplier contracts, and to increase sales volumes so we can achieve economies of scale. We cannot assure you that we will be able to achieve anysuch production cost reductions. Our failure to do so could have a material adverse effect on our business and results of operations.We have granted sales representation rights to an affiliated company, which restricts our distribution.Our affiliates American DG Energy and EuroSite Power Inc. have certain exclusive sales representation rights to our cogeneration products only (notincluding chillers) and exclusive rights to our Ultra low-emissions technology if it is applied to engines from other CHP manufacturers in projects developedby American DG Energy (see Note 13 in the Financial Statements). As a result of these agreements, we have limited control over our distribution of certainproducts in New England, and this could have a material adverse effect on our business and results of operations.14Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsCommodity market factors impact our costs and availability of materials.Our products contain a number of commodity materials, from metals, which include steel, special high temperature alloys, copper, nickel andmolybdenum, to computer components. The availability of these commodities could impact our ability to acquire the materials necessary to meet ourrequirements. The cost of metals has historically fluctuated. The pricing could impact the costs to manufacture our products. If we are not able to acquirecommodity materials at prices and on terms satisfactory to us or at all, our operating results may be materially adversely affected.Our products involve a lengthy sales cycle and we may not anticipate sales levels appropriately, which could impair our results of operations.The sale of our products typically involves a significant commitment of capital by customers, with the attendant delays frequently associated withlarge capital expenditures. For these and other reasons, the sales cycle associated with our products is typically lengthy and subject to a number of significantrisks over which we have little or no control. We expect to plan our production and inventory levels based on internal forecasts of customer demand, which ishighly unpredictable and can fluctuate substantially. If sales in any period fall significantly below anticipated levels, our financial condition, results ofoperations and cash flow would suffer. If demand in any period increases well above anticipated levels, we may have difficulties in responding, incur greatercosts to respond, or be unable to fulfill the demand in sufficient time to retain the order, which would negatively impact our operations. In addition, ouroperating 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 thesefactors, 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 fuel and electricity, and the variability of these prices creates a riskthat our projects will not be economically viable and that potential customers will avoid such energy price risks.The economic viability of our CHP products depends on the spread between natural gas fuel and electricity prices. Volatility in one component ofthe spread, such as the cost of natural gas and other fuels (e.g., propane or distillate oil), can be managed to some extent by means of futures contracts.However, the regional rates charged for both base load and peak electricity may decline periodically due to excess generating capacity or general economicrecessions.Our products could become less competitive if electric rates were to fall substantially in the future, noting that historically the rates have not had anysustained decline in price. Also, potential customers may perceive the unpredictable swings in natural gas and electricity prices as an increased risk ofinvesting in on-site CHP, and may decide not to purchase CHP products.We are exposed to credit risks with respect to some of our customers.To the extent our customers do not advance us sufficient funds to finance our costs during the execution phase of our contracts, we are exposed tothe risk that they will be unable to accept delivery or that they will be unable to make payment at the time of delivery.We may make acquisitions that could harm our financial performance.To expedite development of our corporate infrastructure, particularly with regard to equipment installation and service functions, we anticipate thefuture acquisition of complementary businesses. Risks associated with such acquisitions include the disruption of our existing operations, loss of keypersonnel in the acquired companies, dilution through the issuance of additional securities, assumptions of existing liabilities, and commitment to furtheroperating expenses. If any or all of these problems actually occur, acquisitions could negatively impact our financial performance and future stock value.Risks Related to Ownership of our Common StockInvestment 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 significantprice and trading volume fluctuations, unrelated to the operating performance or the prospects of such companies. The market price of shares of our CommonStock 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;15Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of Contents•announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or capitalcommitments;•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.Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market pricesof equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies.These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, orinternational currency fluctuations, may negatively impact the market price of shares of our Common Stock. In addition, such fluctuations could subject us tosecurities class action litigation, which could result in substantial costs and divert our management’s attention from other business concerns, which couldpotentially harm our business.We may be subject to securities litigation, which is expensive and could divert management attention.Our share price may be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to anincreased incidence of securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us couldresult in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price andtrading volume could decline.The trading market for our Common Stock will depend on the research and reports that securities or industry analysts publish about us or ourbusiness. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or moreanalysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage ofour company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volumeto decline.We are controlled by a small group of majority stockholders, and our minority stockholders will be unable to effect changes in our governancestructure or implement actions that require stockholder approval, such as a sale of the Company.George N. Hatsopoulos and John N. Hatsopoulos, who are brothers, beneficially own approximately 39.4% of our outstanding shares of CommonStock. These stockholders have the ability to control various corporate decisions, including our direction and policies, the election of directors, the contentof our charter and bylaws and the outcome of any other matter requiring stockholder approval, including a merger, consolidation and sale of substantially allof our assets or other change of control transaction. The concurrence of our minority stockholders will not be required for any of these decisions. Thisconcentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire. The interests of this group ofstockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interestsand not necessarily those of other stockholders, including seeking a premium value for their Common Stock, which might affect the prevailing market pricefor our Common Stock.There has been a material weakness in our disclosure controls and procedures and our internal control over financial reporting, which couldharm our operating results or cause us to fail to meet our reporting obligations.As of our fiscal year end, December 31, 2015, our principal executive officers and principal accounting officer performed an evaluation of disclosurecontrols and procedures and concluded that our controls were not effective to provide reasonable assurance that information required to be disclosed by ourCompany in reports that we file under the Exchange Act, is recorded, processed, summarized and reported as when required. Management conducted anevaluation of our internal control over financial reporting and based on this evaluation, management concluded that the company’s internal control overfinancial reporting was not effective as of December 31, 2015. The Company currently does not have personnel with a sufficient level of accountingknowledge, experience and training in the selection, application and implementation of generally acceptable accounting principles as it relates to complextransactions and financial reporting requirements. The Company also has a small number of employees dealing with general controls over informationtechnology security and user access. This constitutes a material weakness in financial reporting. Any failure to implement effective internal controls couldharm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause investors to lose confidence inour reported financial16Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of Contentsinformation, which could have a negative effect on the trading price of our common stock, and may require us to incur additional costs to improve ourinternal control system.The JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations and reduces the amount of informationprovided by us in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies willmake our Common Stock less attractive to investors.We are and we will remain an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, until theearliest to occur of (i) the last day of the fiscal year during which our total annual gross revenues equal or exceed $1 billion (subject to adjustment forinflation), (ii) the last day of the fiscal year following the fifth anniversary of our initial public offering, (iii) the date on which we have, during the previousthree-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a large accelerated filer under the ExchangeAct.For so long as we remain an emerging growth company we are not required to:•have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;•comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firmrotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., anauditor discussion and analysis);•submit certain executive compensation matters to shareholder non-binding advisory votes;•submit for shareholder approval golden parachute payments not previously approved; and•disclose certain executive compensation related items such as the correlation between executive compensation and financial performanceand comparisons of the Chief Executive Officer’s compensation to median employee compensation, when such disclosure requirements areadopted.In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Anemerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to privatecompanies. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accountingstandards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act providesthat our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.We cannot predict if investors will find our Common Stock less attractive because we may rely on some of these exemptions. If some investors findour Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. If weavail ourselves of certain exemptions from various reporting requirements, our reduced disclosure may make it more difficult for investors and securitiesanalysts to evaluate us and may result in less investor confidence.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.Our headquarters is located in Waltham, Massachusetts, and consists of approximately 43,000 square feet of leased space, of which Tecogenoccupies approximately 40,000 square feet of manufacturing, storage and office space. We sub-lease the remaining space to American DG Energy, and othertenants. Our lease, with an original expiration date of March 31, 2014, was renewed for an additional ten years and will expire March 31, 2024. We believethat our facilities are appropriate and adequate for our current needs.Our nine leased service centers can be broken into two different sizes. The larger of the two has office space to accommodate administrative, salesand engineering personnel, and warehouse space to stock parts in support of our service contracts.As of December 31, 2015, the service centers that fit this larger category are based in Piscataway, New Jersey, Valley Stream and Buchanan, NewYork 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 inHayward, California. A portion of the Corporate headquarters in Waltham, Massachusetts is used in this manner to service Boston and northern New England.The smaller type service center is a parts depot or warehouse for the stocking of parts in support of our service contracts. These centers are located inLos Angeles, California, Sterling Heights, Michigan, Newark, New York, and East Windsor, Connecticut.17Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsItem 3. Legal Proceedings.In the ordinary course of its business, the Company is involved in various legal proceedings involving a variety of matters. The Company does notbelieve there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.Item 4. Mine Safety Disclosures.Not applicable.PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.MarketThe Company's common stock has been listed on the NASDAQ Capital Market since May 2014 and trades under the ticker symbol TGEN. Thefollowing table sets forth, for the periods indicated, the high and low sale prices per share of common stock as quoted by the NASDAQ.Year Ended December 31, 2015 High Low1st Quarter $5.65 $4.552nd Quarter 5.19 3.903rd Quarter 4.40 2.804th Quarter 4.10 2.46Year Ended December 31, 2014 High Low2nd Quarter $31.31 $5.063rd Quarter 8.18 4.974th Quarter 7.80 4.59HoldersAs of March 29, 2016, there were more than 300 beneficial owners of our Common Stock including 88 holders of record.DividendsTo date, we have not declared or paid any dividends on our outstanding shares. We currently do not anticipate paying any cash dividends in theforeseeable future on our Common Stock. Although we intend to retain our earnings to finance our operations and future growth, our Board of Directors willhave discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements and otherfactors, which our Board of Directors may deem relevant. Also, the Company's convertible note provides that the Company shall not declare, pay or authorizeany dividend, without prior consent of the note holder.Equity Compensation Plan InformationThe following table provides information, as of December 31, 2015, with respect to our equity compensation plans: Number of securities to beissued upon exercise ofoutstanding options, warrantsand rightsWeighted-averageexercise price ofoutstanding options,warrants and rightsNumber of securities remaining available forfuture issuance under equity compensation plans(excluding securities reflected in column (a))Plan Category(a)(b)(c)Equitycompensation plansapproved bysecurity holders (1)1,268,200$3.061,614,533Equitycompensation plansnot approved bysecurity holders———Total1,268,200$3.061,614,533(1) 2006 Equity Incentive Plan approved by written consent of stockholders (see exhibit 10.24).Purchases of Equity SecuritiesNot applicable.18Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsItem 6. Selected Financial Data.Not applicable.Item 7. Management's Discussion and Analysis of Financial ConditionYou should read the following discussion and analysis of our financial condition and results of operations together with our financial statementsand related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forthelsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-lookingstatements that involve risks and uncertainties. You should review “Item 1A. Risk Factors” of this Annual Report on Form 10-K for a discussion of importantfactors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in thefollowing discussion and analysis.OverviewTecogen designs, manufactures and sells industrial and commercial cogeneration systems that produce combinations of electricity, hot water, and airconditioning using automotive engines that have been specially adapted to run on natural gas. Cogeneration systems are efficient because in addition tosupplying mechanical energy to power electric generators or compressors – displacing utility supplied electricity – they provide an opportunity for thefacility to incorporate the engine’s waste heat into onsite processes such as space and potable water heating. We produce standardized, modular, small-scaleproducts, with a limited number of product configurations that are adaptable to multiple applications. We refer to these combined heat and power products asCHP (electricity plus heat) and MCHP (mechanical power plus heat).Our products are sold directly to end-users by our in-house marketing team and by established sales agents and representatives. We have agreementsin place with distributors and sales representatives, including American DG Energy and EuroSite Power which are affiliated companies. Our existingcustomers include hospitals and nursing homes, colleges and universities, health clubs and spas, hotels and motels, office and retail buildings, food andbeverage processors, multi-unit residential buildings, laundries, ice rinks, swimming pools, factories, municipal buildings, and military installations. We havean installed base of more than 2,100 units. Many of these have been operating for almost 25 years.In 2009, we created a majority-owned subsidiary Ilios to develop and distribute a line of ultra-high-efficiency heating products, including a highefficiency water heater. These products provide twice the efficiency of conventional commercial and industrial boilers (based upon management estimates)utilizing advanced thermodynamic principles. As of the date of this report, we own a 65.0% interest in Ilios.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 arenot dependent on the recurrence of revenue from those customers. Our product revenue is such that customers may make a large purchase once and may notever make a purchase again. Our equipment is built to last 20 or more years, therefore, our product revenue model is not dependent on recurring salestransactions from the same customer. Our service revenue, however, lends itself to recurring revenue from particular customers; although we currently do nothave any service revenue customers who make up more than 10% of our total revenues on an annual basis.For the last two fiscal years, more than one third of our revenue was generated from long-term maintenance contracts, or service contracts, whichprovide us with a somewhat predictable revenue stream, especially during the summer months. We have a slight surge of activity from May throughSeptember as our “chiller season” is in full swing. Our service revenue has grown from year to year since 2005, with our New York City/New Jersey, NewEngland and to some extent California territories experiencing the majority of the growth. This growth is consistent with the sale of new units into thoseterritories. Our service margins are generally predictable as we service hundreds of long-term contracts with relatively low dollar, high volume sales.Our product revenue is derived from the sale of the various cogeneration modules, such as the InVerde 100, the CM-75 and the CM-60, Ilios heatpumps, and the three chiller models, such as the smaller ST, the larger DT and the RT (roof-top) units. The sales cycle for each module varies widely, and canrange from as short as a month to as long as a year or more. Furthermore, since our products and their installation are costly they are considered a majorcapital improvement and customers may be slow in making their buying decisions. Our products sales are high dollar value, low volume transactions.Therefore our product revenue can be difficult to predict and the expected margin varies.Our cogeneration and chiller modules are built to order and revenue is recognized upon shipment. The lead time to build and deliver a unit dependson its customized configuration and is approximately 12 to 16 weeks from time of purchase order. As revenue is recognized upon shipment, our work-in-process is an important factor in understanding our financial condition in any given quarter.19Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsCritical Accounting PoliciesThe preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of the Notes to Consolidated FinancialStatements describes the significant accounting policies used in the preparation of the consolidated financial statements. Some of these significantaccounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation of the Company’s financial statements and requiresmanagement to make difficult, subjective or complex judgments that could have a material effect on the Company’s financial condition and results ofoperations. Specifically, critical accounting estimates have the following attributes: 1) the Company is required to make assumptions about matters that arehighly uncertain at the time of the estimate; and 2) different estimates the Company could reasonably have used, or changes in the estimate that arereasonably likely to occur, would have a material effect on the Company’s financial condition or results of operations. Estimates and assumptions aboutfuture events and their effects cannot be determined with certainty. The Company bases its estimates on historical experience and on various otherassumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional informationis obtained and as the Company’s operating environment changes. These changes have historically been minor and have been included in the consolidatedfinancial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not withinits control and will not be known for prolonged periods of time. These uncertainties are discussed in Item 1A, “Risk Factors" above. Based on a criticalassessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes thatthe Company’s consolidated financial statements are fairly stated in accordance with generally accepted accounting principles, and present a meaningfulpresentation of the Company’s financial condition and results of operations. Management believes that the following are critical accounting policies:Accounts ReceivableAccounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts isprovided for those accounts receivable considered to be uncollectible based upon historical experience and management’s evaluation of outstandingaccounts receivable at the end of the year. Bad debts are written off against the allowance when identified.InventoryRaw materials, work in process, and finished goods inventories are stated at the lower of cost, as determined by the average cost method, or market.The Company periodically reviews inventory quantities on hand for excess and/or obsolete inventory based primarily on historical usage, as well as based onestimated forecast of product demand. Any reserves that result from this review are charged to cost of sales.Revenue RecognitionRevenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed ordeterminable and collectability is reasonably assured. Generally, sales of cogeneration and chiller units and parts are recognized when shipped and servicesare recognized over the term of the service period. Payments received in advance of services being performed are recorded as deferred revenue.The Company recognizes revenue in certain circumstances before delivery has occurred (commonly referred to as bill and hold transactions). In suchcircumstances, among other things, risk of ownership has passed to the buyer, the buyer has made a written fixed commitment to purchase the finished goods,the buyer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations existby the Company. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms granted.For those arrangements that include multiple deliverables, the Company first determines whether each service or deliverable meets the separationcriteria of FASB ASC 605-25, Revenue Recognition—Multiple-Element Arrangements. In general, a deliverable (or a group of deliverables) meets theseparation criteria if the deliverable has stand-alone value to the customer and, if the arrangement includes a general right of return, delivery or performanceof the undelivered item(s) is considered probable and substantially in control of the Company. Each deliverable that meets the separation criteria isconsidered a separate ‘‘unit of accounting”. The Company allocates the total arrangement consideration to each unit of accounting using the relative sellingprice method. The amount of arrangement consideration that is allocated to a delivered unit of accounting is limited to the amount that is not contingentupon the delivery of another unit of accounting.20Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsWhen vendor-specific objective evidence or third-party evidence is not available, adopting the relative fair value method of allocation permits theCompany to recognize revenue on specific elements as completed based on the estimated selling price. The Company generally uses internal pricing liststhat determine sales prices to external customers in determining its best estimate of the selling price of the various deliverables in multiple-elementarrangements. Changes in judgments made in estimating the selling price of the various deliverables could significantly affect the timing or amount ofrevenue recognition. The Company enters into sales arrangements with customers to sell its cogeneration and chiller units and related service contracts andoccasionally installation services. Based on the fact that the Company sells each deliverable to other customers on a stand-alone basis, the company hasdetermined that each deliverable has a stand-alone value. Additionally, there are no rights of return relative to the delivered items; therefore, each deliverableis considered a separate unit of accounting.After the arrangement consideration has been allocated to each unit of accounting, the Company applies the appropriate revenue recognitionmethod for each unit of accounting based on the nature of the arrangement and the services included in each unit of accounting. Cogeneration and chillerunits are recognized when shipped and services are recognized over the term of the applicable agreement, or as provided when on a time and materials basis.In some cases, our customers may choose to have the Company engineer and install the system for them rather than simply purchase thecogeneration and/or chiller units. In this case, the Company accounts for revenue, or turnkey revenue, and costs using the percentage-of-completion methodof accounting. Under the percentage-of-completion method of accounting, revenues are recognized by applying percentages of completion to the totalestimated revenues for the respective contracts. Costs are recognized as incurred. The percentages of completion are determined by relating the actual cost ofwork performed to date to the current estimated total cost at completion of the respective contracts. When the estimate on a contract indicates a loss, theCompany’s policy is to record the entire expected loss, as required by generally accepted accounting principles. The excess of contract costs and profitrecognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue. Billings in excess of relatedcosts and estimated earnings are recorded as deferred revenue.Recent Accounting PronouncementsIn May 2014, the FASB amended its standards related to revenue recognition. This amendment replaces all existing revenue recognition guidanceand provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that we will apply todetermine the measurement of revenue and timing of when it is recognized. The underlying principle is that we will recognize revenue in a manner thatdepicts the transfer of goods or services to customers at an amount that we expect to be entitled to in exchange for those goods or services. The guidanceprovides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certaincontract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized beforecontingencies are resolved in certain circumstances. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty ofrevenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurredto fulfill a contract. The standard allows either full or modified retrospective adoption effective for our annual and interim periods beginning January 1, 2018.Management is in the process of evaluating the impact the amendment will have on our Consolidated Financial Statements. While a final decision has notbeen made, we are currently planning to adopt the standard using the modified retrospective approach.Emerging Growth CompanySection 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we chose to “opt out” of any extended transition period,and as a result we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new orrevised accounting standards is irrevocable.21Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsResults of OperationsThe following table sets forth for the periods indicated, the percentages of the net sales represented by certain items reflected in the Company'sstatements of operations. Years ended December 31, 2015 2014Revenues100.0 % 100.0 %Cost of Sales64.4 66.9Gross Profit35.6 33.1General and administrative37.3 37.6Selling7.9 9.3Research and development2.8 5.4Loss from operations(12.4) (19.2)Total other expense, net(0.7) (0.9)Consolidated net loss(13.1) (20.1)Less: Loss attributable to the noncontrolling interest0.3 0.6Net loss attributable to Tecogen Inc.(12.8) (19.5)Year Ended December 31, 2015 Compared to Year Ended December 31, 2014RevenuesRevenues in 2015 were $21,442,657 compared to $19,342,664 in 2014, an increase of $2,099,993 or 10.9%. This increase is the result of theincreased sales in both equipment and services. Product revenues in 2015 were $10,055,237 compared to $8,625,034 in 2014, an increase of $1,430,203 or16.6%. This increase from the year ended December 31, 2014 to 2015 resulted from an increase in cogeneration sales of $2,518,028 and a decrease in chillersales of $1,087,825. The increased sales efforts in 2015 yielded dramatic increase in cogen sales. Our product mix, as well as product revenue, can varysignificantly from period to period as our products are high dollar, low volume sales in which revenue is only recognized upon shipment.Revenues derived from our service centers including installation activities, in 2015 were $11,387,420 compared to $10,717,630 for the same periodin 2014, an increase of $669,790 or 6.2%. Our service operation grows with the sales of cogeneration and chiller systems, since the majority of our productsales are accompanied by a service contract or time and materials agreements. As a result our “fleet” of units being serviced by our service department growswith product sales. In addition, our service department revenue has increased due to turnkey projects of $3,555,239 in 2015 compared to $3,279,505 in 2014.Cost of SalesCost of sales in 2015 was $13,809,431 compared to $12,943,600 in 2014, an increase of $865,831 or 6.7%. Our gross profit margin was 35.6% in2015 compared to 33.1% in 2014, an increase of 7.6%. The increase in gross profit margin is attributable to better margins on turnkey projects year over yearand improving production efficiencies in material, labor and factory utilization. The factory continues to improve product service cycles, ease ofmaintenance, and component sourcing in to order to continuously improve efficiencies in our processes.Operating ExpensesOperating expenses increased in 2015 to $10,276,576 compared to $10,102,381 in 2014, an increase of $174,195 or 1.7%. This increase was mostlydue to increased general and administrative expense of $732,882, and a decreased research and development expense of $449,898. The increase in generaland administrative expenses was due to increased rent expense after the loss of subleases, and the first full year of public company related expenses. Sellingexpenses decreased in 2015 to $1,687,479 compared to $1,796,268 in 2014, a decrease of $108,789 or 6.1%. This decrease was due to a decrease in salescommissions as more revenues were the result of staff compared to contracted sales representatives. Research and development expenses decreased in 2015 to$591,585 compared to $1,041,483 in 2014, a decrease of $449,898 or 43.2%. The decrease in research and development expenses was due to the completionof projects related to Ilios and InVerde e+ products. The decrease is not the result of a change in focus with research and development, but reflects thecompletion of these long term programs. Management continues its efforts to improve the product's performance and cost.22Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsLoss from OperationsLoss from operations for the year ended December 31, 2015 was $2,643,350 compared to $3,703,317 in 2014, a decrease of $1,059,967 or 28.6%.The decrease in the loss was due to the increase in operating expenses being less than the increase in gross profit as discussed above.Other Income (Expense), netOther expense, net for the year ended December 31, 2015 was $157,610 compared to $167,635 for the same period in 2014. Other income (expense)includes interest income and other income of $14,334, net of interest expense on notes payable of $171,944 in 2015. For the same period in 2014, interestand other income was $9,710 and interest expense was $177,345. The interest income and expense is not expected to change in the near future.Noncontrolling InterestThe noncontrolling interest share in the losses of Ilios was $73,547 for the year ended December 31, 2015 compared to $125,140 for the same periodin 2014, a decrease of $51,593 or 41.2%. The decrease in the losses were a direct result of increased sales and improving performance of the subsidiary.Management expects continued improvement with higher sales volume and margin improvement in the near future. Noncontrolling interest ownershippercentage as of December 31, 2015 and 2014 was 35%.Net Loss Attributable to Tecogen, Inc.Net loss for the year ended December 31, 2015 was $2,727,413 compared to $3,745,812 for the same period in 2014. The decrease in the loss of$1,018,399 was due to the increase in gross profit offset partially by the increase in operating expenses as discussed above.Liquidity and Capital ResourcesConsolidated working capital at December 31, 2015 was $14,027,370, compared to $7,217,583 at December 31, 2014, an increase of $6,809,787 or94.3%. Included in working capital were cash and cash equivalents of $5,486,526 and $294,802 in restricted short-term investments at December 31, 2015,compared to $1,186,033 in cash and cash equivalents and $585,702 of restricted short-term investments at December 31, 2014. These increases inconsolidated working capital and cash is due to increased cash from the sale of stock, increased accounts receivable and increased inventory in anticipationof increased sales.Cash used in operating activities for the years ended December 31, 2015 and 2014 was $4,733,759 and $5,126,816, respectively. Our accountsreceivable balance increased to $5,286,863 at December 31, 2015 compared to $4,750,437 at December 31, 2014, an increase of $536,426 due to timing ofbilling, shipments, and collections. Unbilled revenues also increased by $375,479 in connection with turnkey projects. Our inventory increased to$5,683,043 as of December 31, 2015 compared to $4,090,221 as of December 31, 2014, an increase of $1,585,822. This increase was in anticipation ofincreased sales, and inventory associated with change in product lines with a new inverter with the InVerde e+. Prepaid expenses as of December 31, 2015increased to $353,105 as compared to $348,868, an increase of $4,237.Accounts payable increased to $3,311,809 as of December 31, 2015 from $2,416,313 at December 31, 2014, an increase of $895,496. The increasein accounts payable is related to increased activities in manufacturing. Accrued expenses decreased to $1,066,860 as of December 31, 2015 compared to$1,008,153 as of December 31, 2014, a decrease of $58,707. Deferred revenues decreased to $1,270,103 as of December 31, 2015 from $1,873,729 atDecember 31, 2014, a decrease of $603,626. This significant decrease in deferred revenues relates to a decrease in customer deposits, and an increase inprojects billed but not completed.Our related party balance was a net receivable of $1,177,261 as of December 31, 2015 and $600,251 as of December 31, 2014. This change is due toreceivables with related parties being larger than payables at year end and are not necessarily indicative of any significant change in operations.During 2015 our cash flows used in investing activities were $185,740 and included , purchases of property and equipment of $69,582 andexpenditures related to intangible assets such as patents and product certifications of $133,032 offset by the proceeds from disposal of assets of $16,874.Our cash flows provided by financing activities were $9,219,992 for 2015, resulting from the proceeds of $8,859,767 from the sale of the Company'scommon stock and warrants provided by a private placement, and the exercising of stock options of $360,225.At December 31, 2015, our commitments included various leases for office and warehouse facilities of $4,674,897 to be paid over several yearsthrough 2024. The source of funds to fulfill these commitments will be provided from operations.23Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsBased on our current operating plan, we believe existing resources, including cash and cash flows from operations and funds raised in subsequentprivate placements, will be sufficient to meet our working capital requirements for the next twelve months. As we continue to grow our business, we expectthat our cash requirements will increase. As a result, we may need to raise additional capital through a debt financing or an equity offering to meet ouroperating and capital needs for future growth.SeasonalityWe expect that the majority of our heating systems sales will be in the winter and the majority of our chilling systems sales will be in the summer.Our cogeneration and chiller system sales are not generally affected by the seasons, although customer goals will be to have chillers installed and running inthe spring. Our service team does experience higher demand in the warmer months when cooling is required. These units are generally shut down in thewinter and started up again in the spring. This “busy season” for the service team generally runs from May through the end of September.Off Balance Sheet ArrangementsOn April 10, 2015, the performance obligation tied to a performance bond previously collateralized by an account owned by John N. Hatsopouloswas relieved and the credit facility was canceled. As of December 31, 2015, $294,802 in a letter of credit was outstanding under a revolving bank creditfacility needed to collateralize a performance bond on a certain installation project. The bank required collateral to issue the letter of credit which thecompany provided in the form of restricted cash. This revolving bank credit facility was terminated on January 28, 2016 as the performance bond obligationswere cleared.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Not applicable.Item 8. Financial Statements and Supplementary Data. The information required by this item is incorporated from Item 15 and pages F-1 through F-26 of this Annual Report on Form 10-K.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. NoneItem 9A. Controls and Procedures.Management’s Evaluation of Disclosure Controls and Procedures: Our disclosure controls and procedures are designed to provide reasonable assurance that the control system’s objectives will be met. Ourmanagement, including our Co-Chief Executive Officers and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls andprocedures as of December 31, 2015, or the "Evaluation Date", have concluded that as of the Evaluation Date, our disclosure controls and procedures werenot effective due to material weaknesses in financial reporting relating to lack of personnel with a sufficient level of accounting knowledge and a smallnumber of employees dealing with general controls over information technology. At the present time, our management has decided that, considering theemployees involved and the control procedures in place, there are risks associated with the above, but the potential benefits of adding additional employeesto mitigate these weaknesses do not justify the expenses associated with such increases. Management will continue to evaluate the above weaknesses, and asthe Company grows and resources become available, the Company plans to take the necessary steps in the future to remediate the weaknesses.For these purposes, the term disclosure controls and procedures of an issuer means controls and other procedures of an issuer that are designed toensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarizedand reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similarfunctions, as appropriate to allow timely decisions regarding required disclosure.24Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsManagement’s Annual Report on Internal Control over Financial Reporting:The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting in accordancewith the Exchange Act. Management, including our Co-Chief Executive Officers and Chief Financial Officer, conducted an evaluation of our internal controlover financial reporting based on the framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee ofSponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the designeffectiveness of controls, testing of the operating effectiveness of controls and a conclusion of this evaluation. Based on this evaluation, managementconcluded that the Company’s internal control over financial reporting was not effective as of December 31, 2015.At December 31, 2015, the Company employed 72 active full-time employees and 4 part-time employees. The Company currently does not havepersonnel with a sufficient level of accounting knowledge, experience and training in the selection, application and implementation of generally acceptedaccounting principles as it relates to complex transactions and the financial reporting requirements for such transactions. The Company also has a smallnumber of employees dealing with general controls over information technology security and user access. This constitutes a material weakness in financialreporting. At this time, management has decided that considering the employees involved and the control procedures in place, there are risks associated withthe above, but the potential benefits of adding additional employees to mitigate these weaknesses, does not justify the expenses associated with suchincreases. Management will continue to evaluate the above weaknesses.Our management, including our Co-Chief Executive Officers and Chief Financial Officer, does not expect that our Disclosure Controls or ourinternal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, canprovide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact thatthere are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues andinstances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can befaulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, bycollusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptionsabout the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential futureconditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate becauseof changes in conditions or deterioration in the degree of compliance with policies or procedures.Item 9B. Other Information.None.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information called for by this item is incorporated by reference to our 2016 Proxy Statement.Item 11. Executive Compensation.The information called for by this item is incorporated by reference to our 2016 Proxy Statement.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information called for by this item is incorporated by reference to our 2016 Proxy Statement.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information called for by this item is incorporated by reference to our 2016 Proxy Statement.Item 14. Principal Accountant Fees and Services.The information called for by this item is incorporated by reference to our 2016 Proxy Statement.25Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules.The following consolidated financial statements and the related notes thereto of Tecogen Inc. and the Accounting Firm thereon are filed as part ofthis Annual Report on Form 10-K.(a)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMINDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES:Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014Consolidated Statements of Operations for the years ended December 31, 2015 and December 31, 2014Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015 and December 31, 2014Consolidated Statements of Cash Flows for the years ended December 31, 2015 and December 31, 2014Notes to Consolidated Financial StatementsAll other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the relatedinstructions, or are inapplicable, and therefore have been omitted.(b)ExhibitsThe exhibits to the Registration Statement are listed in the Exhibit Index attached hereto and incorporated by reference herein.26Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. TECOGEN INC. (Registrant) By:/s/ John N. Hatsopoulos Co-Chief Executive Officer (Principal Executive Officer) By:/s/ Benjamin Locke Co-Chief Executive Officer (Principal Executive Officer) By:/s/ David A. Garrison Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)Dated: March 30, 2016Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacity and on the dates indicated.Signature Title Date /s/ Angelina M. Galiteva Chairman of the Board March 30, 2016Angelina M. Galiteva /s/ John N. Hatsopoulos Director and Co-Chief Executive Officer March 30, 2016John N. Hatsopoulos (Principal Executive Officer) /s/ Benjamin Locke Co-Chief Executive Officer March 30, 2016Benjamin Locke (Principal Executive Officer) /s/ David A. Garrison Chief Financial Officer, Treasurer and Secretary March 30, 2016David A. Garrison (Principal Financial and Accounting Officer) /s/ Charles T. Maxwell Director March 30, 2016Charles T. Maxwell /s/ Ahmed F. Ghoniem Director March 30, 2016Ahmed F. Ghoniem /s/ Joseph E. Aoun Director March 30, 2016Joseph E. Aoun /s/ Earl R. Lewis Director March 30, 2016Earl R. Lewis 27Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsEXHIBIT INDEXExhibitNumberDescription3.1bAmended and Restated Certificate of Incorporation.3.2bAmended and Restated Bylaws.4.1bSpecimen Common Stock Certificate of Tecogen Inc.4.2aForm of Restricted Stock Purchase Agreement.4.3+bForm of Stock Option Agreement.4.5Form of Warrant Agreement.10.1+cTecogen Inc. 2006 Stock Incentive Plan, as amended and restated on June 30, 2014 with stockholder approval on July 15, 2014.10.2aForm of Tecogen Inc. Subscription Agreement for private placement of Common Stock.10.7bLease Agreement between Atlantic-Waltham Investment II, LLC, and Tecogen Inc., dated May 14, 2008.10.8bSecond Amendment to Lease Agreement between Atlantic-Waltham Investment II, LLC, and Tecogen Inc., dated January 16, 2013.10.11aForm of Sales Representative Agreement.10.12#bAsset Purchase Agreement with Danotek, LLC.10.13#bExclusive License Agreement between Tecogen Inc. and the Wisconsin Alumni Research Foundation, dated February 5, 2007.10.14aGrant Award Number PIR-08-022, dated July 2, 2009.10.15#bSales Representative Agreement between American DG Energy Inc. and Ilios Dynamics, dated October 20, 2009.10.16bFirst Amendment to the Sales Representative Agreement, dated November 12, 2013, between Ilios Inc. and American DG Energy Inc.10.20bForm of Common Stock Purchase Agreement.10.21bSenior Convertible Promissory Note, dated December 23, 2013, by Tecogen Inc. in favor of Michaelson Capital Special Finance FundLP.10.22bCollective Bargaining Agreement, dated February 25, 2014, between Tecogen Inc. and International Union of Operating Engineers,Local 68, 68A, 68B.10.23bRevolving Line of Credit Agreement between Tecogen Inc. and John N. Hatsopoulos, dated March 26, 2014.10.24cFacilities and Support Services Agreement between American DG Energy Inc. and Tecogen Inc., dated August 8, 2014.10.26gRevolving Line of Credit Agreement between Tecogen Inc. and John N. Hatsopoulos, dated July 1, 2015.10.28dForm of Common Stock Purchase Agreement dated August 3, 2015.10.29dRegistration Rights Agreement dated August 3, 2015.10.30eFirst amendment to the Facilities and Support Services Agreement between American DG Energy Inc. and Tecogen Inc., dated Aug 7,2015.10.31fJoint Venture Agreement, dated December 28, 2015.10.32fLicense between Tecogen and Ultra Emissions Technologies Ltd., dated December 28, 2015.10.33fForm of subscription agreement between Tecogen and the several investors purchasing shares of Tecogen common stock and warrants,dated December 28, 2015.10.34fForm of warrants issued pursuant to the subscription agreements described in Exhibit 10.33 hereto.14.1aCode of Business Conduct and Ethics21.1bList of subsidiaries23.1*Consent of Wolf & Company, P.C.31.1*Rule 13a-14(a) Certification of Co-Chief Executive Officer31.2*Rule 13a-14(a) Certification of Co-Chief Executive Officer31.3*Rule 13a-14(a) Certification of Chief Financial Officer 28Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsExhibitNumberDescription32.1*Section 1350 Certifications of Co-Chief Executive Officers and Chief Financial Officer101.INS*XBRL Instance Document101.SCH*XBRL Taxonomy Extension Schema101.CAL*XBRL Taxonomy Extension Calculation Linkbase101.DEF*XBRL Taxonomy Extension Definition Linkbase101.LAB*XBRL Taxonomy Extension Label Linkbase101.PRE*XBRL Taxonomy Extension Presentation Linkbase *Filed herewith. #Confidential Treatment has been granted for portions of this document. The confidential portions were omitted and filed separately, ona confidential basis, with the Securities and Exchange Commission.+Management contract or compensatory plan or agreement.a Incorporated by reference to the registrant’s Registration Statement on Form S-1, as amended, originally filed with the SEC onDecember 22, 2011 (Registration No. 333-178697).b Incorporated by reference to the registrant's Registration Statement on Form S-1, as amended, filed with the SEC on June 27, 2014(Registration No. 333-193791).c Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2014 as filed with the SECon August 14, 2014.d Incorporated by reference to the registrant's Report on Form 8-K, as filed with the SEC on August 6, 2015.e Incorporated by reference to the registrant's Report on Form 8-K, as filed with the SEC on August 13, 2015.f Incorporated by reference to the registrant's Report on Form 8-K, as filed with the SEC on December 31, 2015.g Incorporated by reference to the registrant's Report on Form 8-K, as filed with the SEC on June 18, 2015.29Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsContentsReport of the Independent Registered Public Accounting Firm F-2Consolidated Financial Statements:Consolidated balance sheets F-4Consolidated statements of operations F-5Consolidated statements of stockholders' equity F-6Consolidated statements of cash flow F-7Notes to the consolidated financial statements F-9F- 1Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders ofTecogen Inc. We have audited the accompanying consolidated balance sheets of Tecogen Inc. ( the “Company”) as of December 31, 2015 and 2014 and therelated consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our auditincluded consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no suchopinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position ofTecogen Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generallyaccepted accounting principles./s/ WOLF & COMPANY, P.C.Boston, MassachusettsMarch 30, 2016 F- 2Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsCONSOLIDATED BALANCE SHEETSAs of December 31, 2015 and 2014 2015 2014ASSETS Current assets: Cash and cash equivalents$5,486,526 $1,186,033Short-term investments, restricted294,802 585,702Accounts receivable, net5,286,863 4,750,437Unbilled revenue1,072,391 696,912Inventory, net5,683,043 4,090,221Due from related party1,177,261 600,251Deferred financing costs48,989 50,201Prepaid and other current assets353,105 348,868Total current assets19,402,980 12,308,625 Property, plant and equipment, net543,754 658,421Deferred financing costs, net of current portion— 48,990Intangible assets, net1,044,611 1,011,300Goodwill40,870 40,870Other assets58,425 53,325TOTAL ASSETS$21,090,640 $14,121,531 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable$3,311,809 $2,416,313Accrued expenses1,066,860 1,008,153Deferred revenue996,941 1,666,576Total current liabilities5,375,610 5,091,042 Long-term liabilities: Deferred revenue, net of current portion273,162 207,153Senior convertible promissory note, related party3,000,000 3,000,000Total liabilities8,648,772 8,298,195 Commitments and contingencies (Note 8) Stockholders’ equity: Tecogen Inc. stockholders’ equity: Common stock, $0.001 par value; 100,000,000 shares authorized; 18,478,990and 15,905,881 issued and outstanding at December 31, 2015 and 2014,respectively18,479 15,906Additional paid-in capital34,501,640 25,088,213Accumulated deficit(21,682,437) (18,955,023)Total Tecogen Inc. stockholders’ equity12,837,682 6,149,096Noncontrolling interest(395,814) (325,760)Total stockholders’ equity12,441,868 5,823,336 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$21,090,640 $14,121,531The accompanying notes are an integral part of these consolidated financial statements.F- 3Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsCONSOLIDATED STATEMENTS OF OPERATIONSFor the Years Ended December 31, 2015 and 2014 2015 2014Revenues Products$10,055,237 $8,625,034Services11,387,420 10,717,630Total revenues21,442,657 19,342,664 Cost of sales Products7,137,149 6,347,583Services6,672,282 6,596,017Total cost of sales13,809,431 12,943,600 Gross profit7,633,226 6,399,064 Operating expenses General and administrative7,997,512 7,264,630Selling1,687,479 1,796,268Research and development591,585 1,041,483Total operating expenses10,276,576 10,102,381 Loss from operations(2,643,350) (3,703,317) Other income (expense) Interest and other income14,334 9,710Interest expense(171,944) (177,345)Total other expense, net(157,610) (167,635) Loss before income taxes(2,800,960) (3,870,952)Consolidated net loss(2,800,960) (3,870,952) Less: Loss attributable to the noncontrolling interest73,547 125,140Net loss attributable to Tecogen Inc.$(2,727,413) $(3,745,812) Net loss per share - basic and diluted$(0.16) $(0.24) Weighted average shares outstanding - basic and diluted16,860,453 15,607,897The accompanying notes are an integral part of these consolidated financial statements.F- 4Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2015 and 2014 Tecogen Inc. Common StockShares CommonStock$.001Par Value AdditionalPaid-InCapital AccumulatedDeficitNoncontrollingInterestTotalBalance at December 31, 2013 15,155,200 $15,155 $22,463,996 $(15,209,212) $(204,046)$7,065,893Sale of common stock 649,106 649 2,339,545 — — 2,340,194Exercise of stock options 101,575 102 161,163 — — 161,265Stock based compensation expense — — 123,510 — 3,426 126,936Net loss — — — (3,745,812) (125,140) (3,870,952)Balance at December 31, 2014 15,905,881 $15,906 $25,088,214 $(18,955,024) $(325,760) $5,823,336 Sale of common stock and warrants 2,350,734 2,351 8,857,416 — — 8,859,767Exercise of stock options 222,375 222 360,003 — — 360,225Stock based compensation expense — — 196,007 — 3,493 199,500Net loss — — — (2,727,413) (73,547) (2,800,960)Balance at December 31, 2015 18,478,990 $18,479 $34,501,640 $(21,682,437) $(395,814) $12,441,868The accompanying notes are an integral part of these consolidated financial statements.F- 5Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2015 and 2014CASH FLOWS FROM OPERATING ACTIVITIES:2015 2014 Net loss$(2,800,960) $(3,870,952)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization271,727 278,865Loss (gain) on disposal of asset(4,631) 1,209Provision for losses on accounts receivable— 53,800(Recovery) for inventory reserve(7,000) —Stock-based compensation199,500 126,936Non-cash interest expense50,202 50,910Changes in operating assets (increase) decrease in: Short-term investments, restricted290,900 (1,303)Accounts receivable(536,426) (1,063,352)Inventory(1,585,822) (746,428)Unbilled revenue(375,479) (50,514)Due from related party(577,010) (600,251)Prepaid expenses and other current assets(4,237) (8,855)Other assets(5,100) 19,100Changes in operating liabilities increase (decrease) in: Accounts payable895,496 78,267Accrued expenses58,707 (131,401)Deferred revenue(603,626) 1,055,270Interest payable, related party— (198,450)Due to related party— (119,667)Net cash used in operating activities(4,733,759) (5,126,816)CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment(69,582) (223,574)Disposal of property and equipment16,874 7,092Purchases of intangible assets(133,032) (141,959)Purchases of short-term investments— (584,400)Net cash used in investing activities(185,740) (942,841)CASH FLOWS FROM FINANCING ACTIVITIES: Payments made on demand notes payable, related party— (2,950,000)Proceeds from sale of common stock, net of costs8,859,767 2,340,194Proceeds from exercise of stock options360,225 161,265Payments for debt issuance costs— (9,668)Net cash (used in) provided by financing activities9,219,992 (458,209)Net increase (decrease) in cash and cash equivalents4,300,493 (6,527,866)Cash and cash equivalents, beginning of the year1,186,033 7,713,899Cash and cash equivalents, end of the year$5,486,526 $1,186,033Supplemental disclosure of cash flow information:Cash paid for interest$121,742 $324,885The accompanying notes are an integral part of these consolidated financial statements.F- 6Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Note 1 – Nature of business and operationsTecogen Inc. (the “Company”), a Delaware Corporation, was organized on November 15, 2000, and acquired the assets and liabilities of the TecogenProducts division of Thermo Power Corporation. The Company produces commercial and industrial, natural-gas-fueled engine-driven, combined heat andpower (CHP) products that reduce energy costs, decrease greenhouse gas emissions and alleviate congestion on the national power grid. Tecogen’s productssupply electric power or mechanical power for cooling, while heat from the engine is recovered and purposefully used at a facility. The majority of theCompany’s customers are located in regions with the highest utility rates, typically California, the Midwest and the Northeast.On May 4, 2009, the Company invested in a new corporation called Ilios Inc., or Ilios. The investment gave the Company a controlling financialinterest in Ilios, whose business focus is advanced heating systems for commercial and industrial applications. As of December 31, 2015 the Company owns a65.0% interest in Ilios and has consolidated Ilios into its financial statements. With the inclusion of unvested restricted stock awards, the Company owns64.3% of Ilios.The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiary, Ilios.The Company’s operations are comprised of one business segment. Our business is to manufacture and support highly efficient CHP products basedon engines fueled by natural gas.Note 2 – Summary of significant accounting policiesPrinciples of Consolidation and Basis of PresentationThe financial statements have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board, or FASB.The FASB sets generally accepted accounting principles, or GAAP, to ensure financial condition, results of operations, and cash flows are consistentlyreported. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification, or ASC. The Company adopted thepresentation requirements for noncontrolling interests required by ASC 810 Consolidation. Under ASC 810, earnings or losses attributed to thenoncontrolling interests are reported as part of the consolidated earnings and not a separate component of income or expense. Noncontrolling interests in thenet assets and operations of Ilios are reflected in the caption “Noncontrolling interest” in the accompanying consolidated financial statements. Allintercompany transactions have been eliminated.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates.Concentration of Credit RiskThe Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-terminvestments and accounts receivable. The Company maintains its cash balances in bank accounts, which at times may exceed the Federal Deposit InsuranceCorporation’s general deposit insurance limits. The amount on deposit at December 31, 2015 and 2014 which exceeded the $250,000 federally insured limitwas approximately $5,329,528 and $1,272,500, respectively. The Company has not experienced any losses in such accounts and thus believes that it is notexposed to any significant credit risk on cash and cash equivalents.There was no customer who represented more than 10% of revenues for the years ended December 31, 2015 and 2014. The Company hasapproximately four hundred customers who represented 100% of the revenues for the year ended December 31, 2015. Included in trade accounts receivableare amounts from one customer who represents 16% of the accounts receivable balance as of December 31, 2015 and another customer who represented 13%of the accounts receivable balance as of December 31, 2014.Cash and Cash EquivalentsThe Company considers all highly liquid instruments with an original maturity date, at date of purchase, of three months or less to be cash and cashequivalents.Short-Term InvestmentsShort-term investments consist of certificate of deposit with maturities of greater than three months but less than one year. Certificates of depositsapproximate fair value, based on estimates using current market rates offered for deposits with similar remaining maturities. These certificates of deposits wascurrently restricted as collateral for performance bonds associated with ongoing turnkey projects. On January 28, 2016, the collateral restriction was liftedand the remaining certificates was liquidated into cash.F- 7Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Accounts ReceivableAccounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts isprovided for those accounts receivable considered to be uncollectible based upon historical experience and management’s evaluation of outstandingaccounts receivable at the end of the year. Bad debts are written off against the allowance when identified. At December 31, 2015 and 2014, the allowance fordoubtful accounts was $50,000.InventoryRaw materials, work in process, and finished goods inventories are stated at the lower of cost, as determined by the average cost method, or market.The Company periodically reviews inventory quantities on hand for excess and/or obsolete inventory based primarily on historical usage, as well as based onestimated forecast of product demand. Any reserves that result from this review are charged to cost of sales.Property, Plant and EquipmentProperty, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of theasset, which range from three to fifteen years. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated usefullives of the assets or the term of the related leases. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments thatmaterially extend the life of an asset are capitalized.Intangible AssetsIntangible assets subject to amortization include costs incurred by the Company to acquire product certifications, certain patent costs and developedtechnologies. These costs are amortized on a straight-line basis over the estimated economic life of the intangible asset. Indefinite life intangible assets suchas trademarks are recorded at cost and not amortized. The Company reviews intangible assets for impairment when the circumstances warrant.GoodwillThe Company's goodwill was recorded as a result of the Company's asset acquisition. The Company tests its recorded goodwill for impairment as ofthe last day of the year, or more often if indicators of potential impairment exist, by determining if the carrying value of the Company's single reporting unitexceeds its estimated fair value. Factors that could trigger an interim impairment test include, but are not limited to, underperformance relative to historical orprojected future operating results, significant changes in the manner of use of the acquired assets or the Company's overall business, significant negativeindustry or economic trends and a sustained period where market capitalization, plus an appropriate control premium, is less than stockholders' equity.The Company's impairment testing involves a step zero process. Step zero allows for management to first assess qualitative factors to determinewhether it is more likely than not that the fair value of the intangible asset is less than its carrying value. Therefore, as of December 31, 2015, the Companydetermined that the fair value of the reporting unit exceeded its carrying value and therefore no impairment was recognized.Impairment of Long-lived AssetsLong-lived assets, including intangible assets and property, plant and equipment, are evaluated for impairment whenever events or changes incircumstances have indicated that an asset may not be recoverable and are grouped with other assets to the lowest level for which identifiable cash flows arelargely independent of the cash flows of other groups of assets and liabilities. 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 continuingoperations in the period in which the determination is made. Management determined that no impairment of long-lived assets existed as of December 31,2015.Off Balance Sheet ArrangementsOn July 22, 2013, John Hatsopoulos, one of the Company’s Co-Chief Executive Officers, personally pledged to support a bank credit facility of$1,055,000 to support bank guarantees issued on certain construction contracts. On April 10, 2015, the performance obligation tied to this bond was relievedand the credit facility was canceled.F- 8Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Loss per Common ShareThe Company computes basic loss per share by dividing net loss for the period by the weighted-average number of shares of common stockoutstanding during the period. The Company computes its diluted earnings per common share using the treasury stock method. For purposes of calculatingdiluted earnings per share, the Company considers its shares issuable in connection with the convertible debentures, stock options and warrants to be dilutivecommon stock equivalents when the exercise/conversion price is less than the average market price of our common stock for the period. All shares issuablefor the years ended December 31, 2015 and 2014 were anti-dilutive because of the reported net loss.Segment InformationThe Company reports segment data based on the management approach. The management approach designates the internal reporting that is used bymanagement for making operating and investment decisions and evaluating performance as the source of the Company's reportable segments. The Companyuses one measurement of profitability and does not disaggregate its business for internal reporting. The Company has determined that it operates in onebusiness segment which manufactures and supports highly efficient CHP products based on engines fueled by natural gas. All of the Company’s long livedassets reside in, and the significant majority of the Company’s revenue is generated in the United States of America.The following table summarizes net revenue by product line and services for the years ended December 31, 2015 and 2014: 2015 2014Products: Cogeneration$7,882,838 $5,364,810Chiller & Heat Pump2,172,399 3,260,224Total Product Revenue10,055,237 8,625,034Services: Service contracts and related part sales7,832,181 7,438,125Installations3,555,239 3,279,505Total Service Revenue11,387,420 10,717,630Total Revenue$21,442,657 $19,342,664Income TaxesThe Company uses the asset and liability method of accounting for income taxes. The current or deferred tax consequences of transactions aremeasured by applying the provisions of enacted tax laws to determine the amount of taxes payable currently or in future years. Deferred tax assets andliabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities and expected future tax consequencesof events that have been included in the financial statements or tax returns using enacted tax rates in effect for the years in which the differences are expectedto reverse. Under this method, a valuation allowance is used to offset deferred taxes if, based upon the available evidence, it is more likely than not that someor all of the deferred tax assets may not be realized. Management evaluates the recoverability of deferred taxes and the adequacy of the valuation allowanceannually.The Company has adopted the provisions of the accounting standards relative to accounting for uncertainties in tax positions. These provisionsprovide guidance on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions. The Company elected torecognize interest and penalties related to income tax matters as a component of income tax expense in the statements of operations. The Company hasanalyzed its current tax return compliance positions and has determined that no uncertain tax positions have been taken that would require recognition.With few exceptions, the Company is no longer subject to possible income tax examinations by federal, state or local taxing authorities for tax yearsbefore 2012, with the exception of loss carryforwards in the event they are utilized in future years. The Company's tax returns are open to adjustment from2002 forward, as a result of the fact that the Company has loss carryforwards from those years, which may be adjusted in the year those losses are utilized.F- 9Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Fair Value of Financial InstrumentsThe Company’s financial instruments are cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, demand notes,line of credit and convertible debentures due to related parties. The recorded values of cash and cash equivalents, accounts receivable and accounts payableapproximate their fair values based on their short-term nature. At December 31, 2015, the recorded value on the consolidated balance sheet of the debenturesapproximates fair value as the terms approximate those available for similar instruments. Certificates of deposits are classified as short-term investments andapproximate fair value, based on estimates using current market rates offered for deposits with similar remaining maturities.Revenue RecognitionRevenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed ordeterminable and collectability is reasonably assured. Generally, sales of cogeneration and chiller units and parts are recognized when shipped and servicesare recognized over the term of the service period. Payments received in advance of services being performed are recorded as deferred revenue.The Company recognizes revenue in certain circumstances before delivery has occurred (commonly referred to as bill and hold transactions). In suchcircumstances, among other things, risk of ownership has passed to the buyer, the buyer has made a written fixed commitment to purchase the finished goods,the buyer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations existby the Company. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms granted. For the year endedDecember 31, 2015, bill and hold transactions were approximately $928,900 in revenue compared to $1,020,000 in 2014.For those arrangements that include multiple deliverables, the Company first determines whether each service or deliverable meets the separationcriteria of FASB ASC 605-25, Revenue Recognition—Multiple-Element Arrangements. In general, a deliverable (or a group of deliverables) meets theseparation criteria if the deliverable has stand-alone value to the customer and, if the arrangement includes a general right of return, delivery or performanceof the undelivered item(s) is considered probable and substantially in control of the Company. Each deliverable that meets the separation criteria isconsidered a separate ‘‘unit of accounting”. The Company allocates the total arrangement consideration to each unit of accounting using the relative sellingprice method. The amount of arrangement consideration that is allocated to a delivered unit of accounting is limited to the amount that is not contingentupon the delivery of another unit of accounting.When vendor-specific objective evidence or third-party evidence is not available, adopting the relative fair value method of allocation permits theCompany to recognize revenue on specific elements as completed based on the estimated selling price. The Company generally uses internal pricing liststhat determine sales prices to external customers in determining its best estimate of the selling price of the various deliverables in multiple-elementarrangements. Changes in judgments made in estimating the selling price of the various deliverables could significantly affect the timing or amount ofrevenue recognition. The Company enters into sales arrangements with customers to sell its cogeneration and chiller units and related service contracts andoccasionally installation services. Based on the fact that the Company sells each deliverable to other customers on a stand-alone basis, the company hasdetermined that each deliverable has a stand-alone value. Additionally, there are no rights of return relative to the delivered items; therefore, each deliverableis considered a separate unit of accounting.After the arrangement consideration has been allocated to each unit of accounting, the Company applies the appropriate revenue recognitionmethod for each unit of accounting based on the nature of the arrangement and the services included in each unit of accounting. Cogeneration and chillerunits are recognized when shipped and services are recognized over the term of the applicable agreement, or as provided when on a time and materials basis.In some cases, our customers may choose to have the Company engineer and install the system for them rather than simply purchase thecogeneration and/or chiller units. In this case, the Company accounts for revenue, or turnkey revenue, and costs using the percentage-of-completion methodof accounting. Under the percentage-of-completion method of accounting, revenues are recognized by applying percentages of completion to the totalestimated revenues for the respective contracts. Costs are recognized as incurred. The percentages of completion are determined by relating the actual cost ofwork performed to date to the current estimated total cost at completion of the respective contracts. When the estimate on a contract indicates a loss, theCompany’s policy is to record the entire expected loss, as required by generally accepted accounting principles. The excess of contract costs and profitrecognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue. Billings in excess of relatedcosts and estimated earnings are recorded as deferred revenue.Presentation of Sales TaxesThe Company reports revenues net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent withspecific revenue-producing transactions.Shipping and Handling CostsThe Company classifies freight billed to customers as sales revenue and the related freight costs as cost of sales.F- 10Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Advertising CostsThe Company expenses the costs of advertising as incurred. For the years ended December 31, 2015 and 2014, advertising expense wasapproximately $184,000 and $281,000, respectively.Research and Development CostsResearch and development expenditures are expensed as incurred. Proceeds from certain grants and contracts with governmental agencies and theircontractors to conduct research and development for new CHP technologies or to improve or enhance existing technology is recorded as an offset to therelated research and development expenses. These grants and contracts are paid on a cost reimbursement basis provided in the agreed upon budget. Amountsreceived totaled $0 and $74,800 in fiscal years 2015 and 2014, respectively, which offset the Company’s total research and development expenditures ofapproximately $591,585 and $1,116,283 for each of the years ended December 31, 2015 and 2014, respectively.Stock-Based CompensationStock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense in thestatements of operations over the requisite service period.The determination of the fair value of share-based payment awards is affected by the Company’s stock price. For the awards prior to the Companybeing publicly traded, the Company considered the sales price of the Common Stock in private placements to unrelated third parties as a measure of the fairvalue of its Common Stock.The Company utilizes an estimated forfeiture rate when calculating the expense for the period. Forfeitures are estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense recognized is based on awardsthat are ultimately expected to vest. The Company evaluates the assumptions used to value awards regularly and if factors change and different assumptionsare employed, stock-based compensation expense may differ significantly from what has been recorded in the past. If there are any modifications orcancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-basedcompensation expense.Pursuant to ASC 505-50, Equity Based Payments to Non-Employees, the fair value of restricted Common Stock and stock options issued tononemployees is revalued at each reporting period until the ultimate measurement date, as defined by ASC 505-50. The Company records the value of theinstruments at the time services are provided and the instruments vest. Accordingly, the ultimate expense is not fixed until such instruments are fully vested.Recent Accounting PronouncementsIn May 2014, the FASB amended its standards related to revenue recognition. This amendment replaces all existing revenue recognition guidanceand provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that we will apply todetermine the measurement of revenue and timing of when it is recognized. The underlying principle is that we will recognize revenue in a manner thatdepicts the transfer of goods or services to customers at an amount that we expect to be entitled to in exchange for those goods or services. The guidanceprovides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certaincontract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized beforecontingencies are resolved in certain circumstances. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty ofrevenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurredto fulfill a contract. The standard allows either full or modified retrospective adoption effective for annual and interim periods beginning January 1, 2018.Management is in the process of evaluating the impact the amendment will have on our Consolidated Financial Statements. While a final decision has notbeen made, we are currently planning to adopt the standard using the modified retrospective approach.In April 2015, the FASB amended its standards related to the balance sheet classification of debt issuance costs. This amendment requires entities topresent debt issuance costs related to a debt liability as a direct deduction from the carrying amount of the debt and requires retrospective application. Thenew rules will become effective for annual and interim periods beginning after December 15, 2016. This will not have a significant impact our ConsolidatedFinancial Statements.In July 2015, the FASB issued ASU No. 2015-11, which simplifies the subsequent measurement of inventory by requiring inventory to be measuredat the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictablecosts of completion, disposal, and transportation. This ASU is effective for public business entities for fiscal years beginning after December 15, 2016, andinterim periods within those fiscal years. The Company is currently assessing the impact of adopting this ASU on its Consolidated Financial Statements.F- 11Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014In November 2015, the FASB amended its standards related to balance sheet classification of deferred taxes. This amendment requires that alldeferred tax assets and liabilities be classified as non-current in a classified statement of financial position. The new rules will become effective for annualand interim periods beginning after December 15, 2016. Our deferred tax assets and liabilities include a full evaluation allowance. The Company adoption isnot expected to impact our financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires companies to recognize all leases as assets and liabilitieson the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria fordistinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases andoperating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lesseeaccounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows islargely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interimperiods within those fiscal years. Earlier application is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have onits Consolidated Financial Statements.Note 3 – Loss per common share:Basic and diluted loss per share for the years ended December 31, 2015 and 2014, respectively, was as follows: 2015 2014Loss available to stockholders$(2,727,413) $(3,745,812)Weighted average shares outstanding - Basic and diluted16,860,453 15,607,897Basic and diluted loss per share$(0.16) $(0.24) Anti-dilutive shares underlying stock options outstanding1,268,200 1,356,325Anti-dilutive convertible debentures890,207 555,556Note 4 – InventoryInventories at December 31, 2015 and 2014 consisted of the following. 2015 2014Gross raw materials$5,618,853 $4,348,786Less - reserves(293,000) (300,000)Net raw materials5,325,853 4,048,786Work-in-process124,845 22,250Finished goods232,345 19,185 $5,683,043 $4,090,221Note 5 – Intangible assets other than goodwillThe Company capitalized $39,272 and $68,638 of product certification costs during the years ended December 31, 2015 and 2014, respectively.Also included in intangible assets are the costs incurred by the Company to acquire certain patents. These patents, once in service, will be amortized on astraight-line basis over the estimated economic life of the associated product, which range from approximately 7-10 years. The Company capitalized $88,985and $73,321 of patent-related costs during the years ended December 31, 2015 and 2014, respectively. The Company capitalized $4,775 in trademarksduring 2015.F- 12Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Table of ContentsIntangible assets at December 31, 2015 and 2014 consist of the following: ProductCertifications Patents DevelopedTechnology Trademarks TotalBalance at December 31, 2015 Intangible assets$514,616 $603,915 $240,000 $4,775 $1,363,306Less - accumulated amortization(182,931) (91,764) (44,000) — (318,695) $331,685 $512,151 $196,000 $4,775 $1,044,611 Balance at December 31, 2014 Intangible assets$475,344 $514,930 240,000 — $1,230,274Less - accumulated amortization(128,732) (62,242) (28,000) — (218,974) $346,612 $452,688 $212,000 $— $1,011,300Amortization expense was $99,721 and $83,986 during the years ended December 31, 2015 and 2014, respectively. Estimated amortization expenseat December 31, 2015 for each of the five succeeding years and thereafter are as follows:2016$153,2782017153,2782018147,0812019130,4302020124,518Thereafter336,026 $1,044,611Note 6 – Property, plant and equipmentProperty, plant and equipment at December 31, 2015 and 2014 consisted of the following: Estimated UsefulLife (in Years) 2015 2014Machinery and equipment5 - 7 years $953,081 $936,705Furniture and fixtures5 years 113,842 99,346Computer software3 - 5 years 67,215 67,215Leasehold improvements* 437,341 427,791 1,571,479 1,531,057Less - accumulated depreciation and amortization (1,027,725) (872,636)Net property, plant and equipment $543,754 $658,421* Lesser of estimated useful life of asset or lease termDepreciation and amortization expense on property and equipment for the years ended December 31, 2015 and 2014 was $172,006 and $194,879,respectively.Note 7 – Demand notes payable, convertible debentures and line of creditDemand notes payable to related parties consist of various demand notes outstanding to stockholders totaling $0 at December 31, 2015 and 2014.The primary lender was John N. Hatsopoulos, the company’s Co-Chief Executive Officer. On January 6, 2014, the Company repaid the then outstandingprincipal balance of $1,750,000 together with accrued interest of $175,311.On March 25, 2013, the Company entered into a Revolving Line of Credit Agreement, or the Credit Agreement, with John N. Hatsopoulos, our Co-Chief Executive Officer. On January 6, 2014, the Company repaid the then outstanding principal balance of $1,200,000 together with accrued interest of$25,347, closing the line of Credit.F- 13Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014On December 23, 2013, the Company entered into a Senior Convertible Promissory Note (the "Note") with Michaelson Capital Special Finance FundLP, ("Michaelson"), for the principal amount of $3,000,000 with interest at 4% per annum for a term of three years. In the event of default such interest rateshall accrue at 8% after the occurrence of the event of default and during continuance plus 2% after the occurrence and during the continuance of any otherevent of default. The Note is a senior unsecured obligation which pays interest only on a monthly basis in arrears at a rate of 4% per annum, unless earlierconverted in accordance with the terms of the agreement prior to such date. The principal amount, if not converted, is due on the third anniversary of theNote, December 31, 2016. The Note is senior in right of payment to any unsecured indebtedness that is expressly subordinated in right of payment to theNote.The principal balance of the Note, together with any unpaid interest, is convertible into shares of the Company's common stock at 296.73 shares ofour common stock per $1,000 principal amount of Note (equivalent to a conversion price of $3.37 per share) at the option of Michaelson. If at any time thecommon stock of the Company is (1) the arithmetic average of the volume weighted average price of the Common Stock for the twenty consecutive tradingdays preceding the Company's notice of mandatory conversion exceeds $150,000, the Company shall have the right to require conversion of all of the thenoutstanding principal balance together with unpaid interest of this Note into the Company's common stock based on the conversion price of $3.37 per share.The conversion price is subject to adjustment.The Company may prepay all of the outstanding principal and interest due and payable under this Note in full, at any time prior to the maturity datefor an amount equal to 120% of the then outstanding principal and interest due and payable as of the date of such prepayment.Upon change of control, as defined by the Note, at Michaelson's option, the obligations may be assumed, on the terms and conditions in this Note,through an assignment and assumption agreement, or the Company may prepay all of the then outstanding principal and unpaid interest under this Note infull at the optional 120% prepayment amount. This provision does not create an embedded derivative in accordance with ASC 815, Derivatives andHedging. As such it is not required to be bifurcated and accounted for separately from the Note.Debt issuance costs of $140,433 with a balance of $48,989 at December 31, 2015 are being amortized to interest expense over the term of the Noteusing the effective interest method. At December 31, 2015, there were 890,207 shares of common stock issuable upon conversion of the Notes.While, prior to this transaction, Michaelson was an unrelated party, due to their beneficial ownership percentage of 6.8% after this transaction,Michaelson is now considered a related party.On June 15, 2015, the Company entered into a Non-Revolving Line of Credit Agreement, or the Agreement, with John N. Hatsopoulos, theCompany's Co-Chief Executive Officer and a Company Director. Under the terms of the Agreement, Mr. Hatsopoulos has agreed to lend the Company up toan aggregate of $2,000,000, with a withdrawal limit of $250,000 per financial calendar quarter, at the written request of the Company. Any amounts borrowedby the Company pursuant to the Agreement will bear interest at 6% per year. Interest is due and payable quarterly in arrears. The term of the Agreement isfrom July 1, 2015 to July 1, 2017. Repayment of the principal amount borrowed pursuant to the Agreement will be due on July 1, 2017, or the Maturity Date.Prepayment of any amounts due under the Agreement may be made at any time without penalty. The Agreement terminates on the Maturity Date. TheCompany has not yet borrowed any amounts pursuant to the Agreement.Note 8 – Commitments and contingenciesOperating Lease ObligationsThe Company leases office space and warehouse facilities under various lease agreements which expire through March 2024. The Companysubleases portions of its corporate offices and manufacturing facility to sub-tenants under annual sublease agreements, on a calendar year basis. Total rentexpense for the years ended December 31, 2015 and 2014 amounted to $637,588 and $615,602, offset by $113,472 and $201,440 in rent paid by sub-lessees,to both related and unrelated parties, for a net amount of $524,116 and $414,162.As of December 31, 2015, the future minimum lease payments receivable on subleases were $65,748.The Company leased two passenger vehicle under a lease agreement expiring in 2018. Vehicle rent expense amounted to $7,547 and $1,839 duringthe year ended December 31, 2015 and 2014, respectively.F- 14Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Future minimum lease payments under all non-cancelable operating leases as of December 31, 2015 consist of the following:Years Ending December 31, Amount2016 $621,5162017 742,9442018 568,2212019 506,4322020 513,7422021 and thereafter 1,722,042Total $4,674,897Letters of CreditAs of December 31, 2015, $294,802 in a letter of credit was outstanding under a revolving bank credit facility needed to collateralize a performancebond on a certain installation project. The bank required collateral to issue the letter of credit which the company provided in the form of restricted cash. Thisrevolving bank credit facility was terminated on January 28, 2016 as the performance bond obligations were cleared. On April 10, 2015, the performanceobligation tied to a performance bond previously collateralized by an account owned by John N. Hatsopoulos was relieved and the credit facility wascanceled.Legal ProceedingsFrom time to time, the Company may be involved in various claims and other legal proceedings which arise in the normal course of business. Suchmatters are subject to many uncertainties and outcomes that are not predictable. Based on the information available to the Company and after discussionswith legal counsel, the Company does not believe any such proceedings will have a material adverse effect on the business, results of operations, financialposition or liquidity.Note 9 – Product warrantyThe Company reserves an estimate of its exposure to warranty claims based on both current and historical product sales data and warranty costsincurred. The majority of the Company’s products carry a one-year warranty. The Company assesses the adequacy of its recorded warranty liability annuallyand adjusts the amount as necessary. The warranty liability is included in accrued expenses on the accompanying consolidated balance sheets.Changes in the Company’s warranty reserve were as follows:Warranty reserve, December 31, 2013$95,000Warranty provision for units sold207,583Costs of warranty incurred(155,583)Warranty reserve, December 31, 2014147,000Warranty provision for units sold87,690Costs of warranty incurred(124,690)Warranty reserve, December 31, 2015$110,000Note 10 – Stockholders’ equityCommon StockIn 2015 and 2014, the Company raised additional funds through the private placements and public offerings of common stock. In connection withthe 2014 public offering, the Company sold an aggregate of 647,706 shares of common stock at a purchase price of $4.75 per share. In connection with thispublic offering the Company incurred commissions, legal fees and various other costs of $742,710 which were offset against the proceeds in additional paidin capital, resulting in net cash proceeds of $2,333,894. In connection with the 2015 and 2014 private placements, the Company sold an aggregate of2,350,734 and 1,400 shares of common stock in a purchase price range from $3.37 and $4.75 per share, resulting in net cash proceeds of $8,859,767 and$6,300.The holders of Common Stock have the right to vote their interest on a per share basis. At December 31, 2015 and 2014, there were 18,478,990 and15,905,881 shares of Common Stock outstanding, respectively.F- 15Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Preferred StockOn February 13, 2013, the Company authorized preferred stock of 10 million shares. At December 31, 2015, no shares were issued or outstanding.Stock-Based CompensationIn 2006, the Company adopted the 2006 Stock Option and Incentive Plan (the “Plan”), under which the board of directors may grant incentive ornon-qualified stock options and stock grants to key employees, directors, advisors and consultants of the Company. The Plan was amended at various datesby the board to increase the reserved shares of common stock issuable under the Plan to 3,838,750 as of December 31, 2014 (the “Amended Plan”).Stock options vest based upon the terms within the individual option grants, with an acceleration of the unvested portion of such options upon achange in control event, as defined in the Amended Plan. The options are not transferable except by will or domestic relations order. The option price pershare 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 remainingavailable for future issuance under the Amended Plan as of December 31, 2015 and 2014 was 1,614,533 and 1,748,783, respectively.In 2015, the Company granted nonqualified options to purchase an aggregate of 165,000 shares of common stock in a range of $3.39 and $4.05 pershare, respectively to certain employees and a consultant. These options have a vesting schedule of four years and expire in ten years. The fair value of theoptions issued in 2015 was $250,462. The weighted-average grant date fair value of stock options granted during 2015 was $1.52 per option. In October2015, the Board of Directors modified the performance options granted in 2014 to the Company's standard vesting schedule.In 2014, the Company granted nonqualified options to purchase an aggregate of 318,325 shares of common stock for between $4.50 and $5.39 pershare, respectively to certain employees, a director, and a consultant. These options have a vesting schedule of four years and expire in ten years. One of thegrants for 100,000 shares had vesting terms of one year and only vest if the Company achieves positive earnings before interest, taxes, depreciation, andamortization adjusted for stock compensation. The fair value of the options issued in 2014 was $577,029. The weighted-average grant date fair value of stockoptions granted during 2015 was $1.89 per option.Stock option activity for the year ended December 31, 2015 was as follows:Common Stock OptionsNumber ofOptions ExercisePricePerShare WeightedAverageExercisePrice WeightedAverageRemainingLife AggregateIntrinsicValueOutstanding, December 31, 20141,356,325 $1.20-$5.39 $2.77 5.12 years $3,618,935Granted165,000 $3.39-$4.05 3.43 Exercised(222,375) $1.20-$2.60 1.62 Canceled and forfeited(18,250) $2.60-$4.50 3.52 Expired(12,500) $1.20 1.20 Outstanding, December 31, 20151,268,200 $1.20-$5.39 $3.06 6.01 years $985,578Exercisable, December 31, 2015841,650 $2.48 $978,640Vested and expected to vest, December 31, 20151,268,200 $3.06 $985,578The Company does not expect any forfeitures and the table above represents all stock options expected to vest. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. Use of a valuation model requires management to make certainassumptions with respect to selected model inputs. Expected volatility was calculated based on the average volatility of four comparable publicly tradedcompanies. The average expected life was estimated using the simplified method to determine the expected life based on the vesting period and contractualterms, since it does not have the necessary historical exercise data to determine an expected life for stock options. The Company uses a single weighted-average expected life to value option awards and recognizes compensation on a straight-line basis over the requisite service period for each separatelyvesting portion of the awards. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expectedlife assumed at the date of grant.F- 16Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014The weighted average assumptions used in the Black-Scholes option pricing model for options granted in 2015 and 2014 are as follows:Stock option awards: 2015 2014Expected life 6.25 years 6.25 yearsRisk-free interest rate 1.63%-1.67% 1.51%Expected volatility 32.4%-32.6% 22.7%-32.3%The Company has granted restricted stock awards to its employees and directors. The performance based awards have vesting schedules 25% peryear beginning two years after an IPO.Restricted stock activity for the years ended December 31, 2015 was as follows: Number ofRestrictedStock WeightedAverageGrant DateFair ValueUnvested, December 31, 2014163,350 $1.31Granted— —Vested— —Forfeited— —Unvested, December 31, 2015163,350 $1.31During the year ended December 31, 2015, the Company granted 250,000 warrants.During the years ended December 31, 2015 and 2014, the Company recognized stock-based compensation of $189,511 and $117,138, respectively,related to the issuance of stock options and restricted stock. No tax benefit was recognized related to the stock-based compensation recorded during the years.At December 31, 2015 and 2014, the total compensation cost related to unvested restricted stock awards and stock option awards not yet recognized is$592,494 and $156,179, respectively. This amount will be recognized over a weighted average period of 2.96 years.Stock Based Compensation - IliosIn 2009, Ilios adopted the 2009 Stock Incentive Plan (the “2009 Plan”) under which the board of directors may grant incentive or non-qualifiedstock options and stock grants to key employees, directors, advisors and consultants of the company. The maximum number of shares allowable for issuanceunder the Plan is 2,000,000 shares of common stock.Stock options vest based upon the terms within the individual option grants, with an acceleration of the unvested portion of such options upon achange in control event, as defined in the Plan. The options are not transferable except by will or domestic relations order. The option price per share underthe Plan cannot be less than the fair market value of the underlying shares on the date of the grant.During the years ended December 31, 2015 and 2014 Ilios recognized stock-based compensation of $9,989 and $9,798, related to stock options,respectively. No tax benefit was recognized related to the stock-based compensation recorded during the year. At December 31, 2015 and 2014 there were160,000 unvested shares of restricted stock outstanding. At December 31, 2015 and 2014 the total compensation cost related to unvested restricted stockawards and stock option awards not yet recognized is $4,489 and $9,004, respectively. This amount will be recognized over the weighted average period of0.36 years.F- 17Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Stock option activity relating to Ilios for the year ended December 31, 2015 was as follows: Common Stock OptionsNumber ofOptions ExercisePricePerShare WeightedAverageExercisePrice WeightedAverageRemainingLife AggregateIntrinsicValueOutstanding, December 31, 2014675,000 $0.10-$0.50 $0.32 6.56 years $120,000Granted— — — Exercised— — — Canceled and forfeited(25,000) 0.50 0.50 Expired— — — Outstanding, December 31, 2015650,000 $0.10-$0.50 $0.32 5.04 years $120,000Exercisable, December 31, 2015262,500 $0.50 $—Vested and expected to vest, December 31, 2015650,000 $0.32 $120,000Ilios does not expect any forfeitures and the table above represents all stock options expected to vest. Ilios uses the Black-Scholes option pricingmodel to determine the fair value of stock options granted. Expected volatility was calculated based on the average volatility of comparable publicly tradedcompanies, the expected life of the options was calculated using the simplified method, and the risk-free interest rate is based on U.S. Treasury zero-couponissues with a remaining term which approximates the expected life assumed at the date of grant. The Company uses a single weighted-average expected lifeto value option awards and recognizes compensation on a straight-line basis over the requisite service period for each separately vesting portion of theawards.The weighted average assumptions used in the Black-Scholes option pricing model for options granted in 2014 are as follows:Stock option awards: Expected life6.25 yearsRisk-free interest rate1.65%Expected volatility35.2%Ilios has granted restricted stock awards to its employees and directors. The awards have only service conditions and carry vesting schedules rangingfrom 100% 90 days after an IPO up to 100% one year after an IPO.Restricted stock activity for the Ilios awards, for the years ended December 31, 2015 was as follows: Number ofRestrictedStock WeightedAverageGrant DateFair ValueUnvested, December 31, 2014310,000 $0.10Granted— —Vested— —Forfeited(150,000) 0.10Unvested, December 31, 2015160,000 $0.10Note 11 – Noncontrolling interestsAs of December 31, 2015, Tecogen owns 9,500,000 shares of 14,610,000 outstanding shares in Ilios or 65.0%. If the 160,000 restricted Ilios sharesvest, the net result will decrease Tecogen’s ownership interest to 64.3%.Note 12 – Retirement plansThe Company has a defined contribution retirement plan (the “Plan”), which qualifies under Section 401(k) of the Internal Revenue Code (IRC).Under the Plan, employees meeting certain requirements may elect to contribute a percentage of their salary up to the maximum allowed by the IRC. TheCompany matches a variable amount based on participant contributions up to a maximum of 4.5% of each participant’s salary. The Company contributedapproximately $179,300 and $144,568 to the Plan in 2015 and 2014, respectively.F- 18Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Note 13 – Related party transactionsThe Company has two affiliated companies, namely American DG Energy, and EuroSite Power. These companies are affiliates because several of themajor stockholders of those companies have a significant ownership position in the Company. The Company does not own any shares of American DGEnergy, and EuroSite Power.American DG Energy has sales representation rights to the Company’s products and services in New England. Revenue from sales of cogenerationand chiller systems, parts and service to American DG Energy and EuroSite Power during the years ended December 31, 2015 and 2014 amounted to$1,903,427 and $1,410,639, respectively.On October 20, 2009, American DG Energy, in the ordinary course of its business, signed a Sales Representative Agreement with Ilios to promote,sell and service the Ilios high-efficiency heating products, such as the high efficiency water heater, in the marketing territory of the New England States,including Connecticut, Rhode Island, Massachusetts, New Hampshire, Vermont, and Maine. The marketing territory also includes all of the nations in theEuropean Union. The initial term of this Agreement is for five years, after which it may be renewed for successive one-year terms upon mutual writtenagreement.The Company had lines of credit with John N. Hatsopoulos, the Co-Chief Executive Officer. Details of these transactions can be found in Note 7.On December 23, 2013, the Company entered into a Senior Convertible Promissory Note (the "Note") with Michaelson Capital Special Finance FundLP, ("Michaelson"). Details of these transaction can be found in Note 7.John N. Hatsopoulos’ salary is $1.00 per year. On average, Mr. Hatsopoulos spends approximately 50% of his business time on the affairs of theCompany; however such amount varies widely depending on the needs of the business and is expected to increase as the business of the Company develops.Since 2006, the Company has a facilities and support services agreement with American DG Energy. Under this agreement, the Company providesAmerican DG Energy with certain office and business support services and also provides pricing based on a volume discount depending on the level ofAmerican DG Energy purchases of cogeneration and chiller products. For certain sites, American DG Energy hires the Company to service its chiller andcogeneration products. The Company also provides office space and certain utilities to American DG Energy based on a monthly rate set at the beginning ofeach year. Also, under this agreement, American DG Energy has sales representation rights to the Company's products and services in New England.The Company subleases portions of its corporate offices and manufacturing facility to sub-tenants under annual sublease agreements. For the yearsended December 31, 2015 and 2014, the Company received $78,468 and $87,880, respectively, from American DG Energy and EuroSite Power. In addition,for the years ended December 31, 2015 and 2014 the Company received from the same companies, $36,672 and $42,366, respectively, to offset commonoperating expenses incurred in the administration and maintenance of its corporate office and warehouse facility. In addition, Tecogen pays certain operatingexpenses, including benefits and insurance, on behalf of American DG Energy. Tecogen was reimbursed for these costs. As of December 31, 2015 and 2014,the net amount due from American DG Energy was $1,177,261 and $600,251, respectively.Note 14 – Investment ActivitiesOn December 28, 2015, Tecogen entered into a joint venture agreement relating to the formation of a joint venture company (the “JV”) organized todevelop and commercialize Tecogen’s patented technology (“Ultera® Technology”) designed to reduce harmful emissions generated by engines using fossilfuels. The joint venture company, called Ultra Emissions Technologies Ltd., was organized under the laws of the Island of Jersey, Channel Islands.Tecogen received a 50% equity interest in the JV in exchange for a fully paid-up worldwide license to use Tecogen’s Ultera emissions controltechnology in the field of mobile vehicles burning fossil fuels. The other half of the joint venture equity interests were purchased for $3,000,000 by a smallgroup of offshore investors. Warrants to purchase additional equity securities in the JV were granted to all parties pro rata. If the venture is not successful, alllicensed intellectual property rights will revert to Tecogen. The license agreement, joint venture agreement and form of warrant are filed as exhibits to thisCurrent Report on Form 8-K.Robert Panora, Tecogen’s President, Chief Operating Officer, and one of the inventors of the Ultera technology will serve as JV co-Chief ExecutiveOfficer along with Dr. Elias Samaras. Dr. Samaras is the founder, President and Managing Director of Digital Security Technologies S.A. and the ChiefExecutive Officer of EuroSite Power Inc., a Tecogen affiliate.The JV is expected to have losses as it performs the necessary research and development with the Ultera technology. Using equity methodaccounting, these losses will not be included in Tecogen's financial statements since Tecogen does not guarantee obligations of the JV and is not otherwiseobligated to provide further financial support of the JV, although it may choose to in the future.F- 19Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014Note 15 – Income taxesA reconciliation of the federal statutory income tax provision to the Company's actual provision for the years ended 2015 and 2014 is as follows: 2015 2014Pre-tax book income $(2,800,960) $(3,870,952)Expected tax at 34% (952,326) (1,316,123) Permanent differences: Machinery & equipment 5,251 6,492 Other 444 36 State taxes: Current — — Deferred 120,931 (177,412) Other items: Federal research and development credits (16,504) — Change in valuation allowance (120,931) 177,412 Deferred tax past year true-up's (47,242) 132 Unbenefited operating losses 1,010,377 1,309,463Income tax provision $— $—The components of net deferred tax assets recognized in the accompanying consolidated balance sheets at 2015 and 2014 are as follows: 2015 2014Net operating loss carryforwards$6,734,000 $6,356,000R&D and ITC credit carryforwards133,000 —Accrued expenses and other1,297,000 1,051,000Accounts receivable19,000 19,000Inventory250,000 207,000Property, plant and equipment119,000 138,000Deferred tax assets8,552,000 7,771,000Valuation allowance(8,552,000) (7,771,000)Deferred tax assets, net$— $—At 2015, the Company has approximately $17,903,000 of Federal Loss Carryforwards that expire beginning in the year 2021 through 2035. Inaddition, the Company has varying amounts of state net operating losses, expiring at various dates starting 2017 through 2035. The Federal net operatinglosses include approximately $3,578,000 attributable to the Company's majority owned subsidiary, which can only be used against income of that entity.Utilization of the loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurredpreviously or could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as well as, similar state provisions. Ownershipchanges may limit the amount of the carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change,as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups of stock of a corporation by more than50 percentage points over a three-year period.If the Company has experienced a change of control, utilization of its carryforwards would be subject to an annual limitation under Section 382.Any limitation may result in expiration of a portion of the loss carryforwards before utilization. Subsequent ownership changes could further impact thelimitation in future years. Further, until a study is completed and any limitation known, no amounts are being presented as an uncertain tax provision.F- 20Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TECOGEN INC.Notes to Audited Consolidated Financial Statements for December 31, 2015 and 2014A full valuation allowance has been provided against the company's loss carryforwards and, if an adjustment is required, this adjustment would beoffset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment wererequired.The Company did not record a benefit for income taxes related to its operating losses for the years ended 2015 and 2014.Note 16 – Subsequent eventsOn January 28, 2016, the letter of credit from Enterprise Bank and Trust Company required for collateral with an outstanding performance bond wasclosed as the Company had met the performance obligations of the bond (see Note 8).On March 8, 2016, the Board of Directors authorized a stock exchange with Ilios shareholders in order to acquire the remaining 35% of outstandingIlios stock and effect a statutory merger of the Company. The exchange was offered using a 30 day volume weighted average closing price of the Company'sstock, or $3.93 at an exchange rate of 7.86 Ilios shares per Tecogen share. As of the filing date, shareholders have begun to respond but no shares have beenissued in the exchange.On March 15, 2016, the Board of Directors accepted an offer in principle by the Michealson Capital Special Finance Fund, LP to extend the maturitydate of the convertible note until December 18, 2018 and increase the outstanding balance by $150,000.The Company has evaluated subsequent events through the date of this report and determined that no additional subsequent events occurred thatwould require recognition in the consolidated financial statements or disclosure in the notes thereto.F- 21Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.5THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED ORQUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS ANDMAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR ANEXEMPTION THEREFROM UNDER SAID ACT AND ANY STATE SECURITIES LAWS WHICH MAY BE APPLICABLE. THECOMPANY MAY REQUIRE AN OPINION OF COUNSEL BEFORE IT EFFECTS ANY TRANSFER ON ITS BOOKS AND RECORDSOF THIS WARRANT OR THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF.________________________________________________________________________________________________WARRANT TO PURCHASESHARES OF COMMON STOCKOFTECOGEN INC.________________________________________________________________________________________________Key Terms/Definitions:“Company”:Tecogen Inc., a Delaware corporation“Holder”: “Common Stock”:Common Stock of the CompanyNumber of shares of Common Stock initiallyissuable on exercise of this Warrant (subject toadjustment): sharesPrice paid to purchase Warrant: “Exercise Price” per share of Common Stock(subject to adjustment): “Date of Issuance” of this Warrant: “Expiration Date” of this Warrant THIS IS TO CERTIFY that, for value received and subject to the provisions hereinafter set forth, that the Holder, or permittedassigns, is entitled to purchase from the Company at any time on or after the date hereof and on or before the Expiration Date thenumber of shares of Common Stock set forth in the table above, subject to the terms, provisions and conditions hereinafter set forth, atthe Exercise Price per share.Tender of the price paid for to purchase this Warrant shall be made by delivery of a personal or bank check payable to theCompany or by wire transfer to the Company’s designated bank account, together with the original copy of this Warrant.SECTION 1. EXERCISE OF WARRANT.This Warrant may be exercised in whole or in part at any time by the surrender of this Warrant (with the subscription form at theend hereof duly completed and executed) at the principal office of the Company and upon payment to the Company of the aggregateExercise Price for the shares being purchased. Any such payment shall be by check payable to the order of the Company.Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a publicoffering or sale of the Company, the exercise of any portion of this Warrant may, at the election of the Holder, be conditioned upon theconsummation of the public offering or sale of the Company, in which case such exercise shall not be deemed to be effectiveconcurrently with the consummation of such transaction.If this Warrant is exercised in respect of less than all of the shares of Common Stock at the time purchasable hereunder, theHolder shall be entitled to receive a new Warrant of like tenor to this Warrant covering the number of shares in respect of which thisWarrant shall not have been exercised.Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.5The Common Stock issuable upon the exercise of this Warrant shall be deemed to have been issued to the Holder at the time ofsuch exercise, and the Holder shall be deemed for all purposes to have become the record holder of the Common Stock at such time.Certificates for shares of the Common Stock purchased upon exercise or partial exercise of this Warrant shall be delivered by theCompany to Holder within five business days after the date of exercise.This Warrant and all rights and options hereunder shall expire on the Expiration Date (as the same may be modified as providedherein), and shall be wholly null and void to the extent this Warrant is not exercised before it expires.SECTION 2. RESERVATION.The Company will at all times prior to the Expiration Date reserve and keep available such number of authorized shares of itsCommon Stock solely for the purpose of issuance upon the exercise of the rights represented by this Warrant as herein provided for, asmay at any time be issuable upon the exercise of this Warrant.SECTION 3. STOCK DIVIDENDS, ETC.The per share Exercise Price and the number of shares deliverable hereunder shall be adjusted as hereinafter set forth:Section 3.1. Stock Dividends, Subdivisions and Combinations. In case after the date hereof the Company shall:(a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in,or other distribution of, Common Stock, or(b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or(c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,then the per share Exercise Price shall be adjusted, for the purpose of preserving the economic value of this Warrant, to the pricedetermined by multiplying the per share Exercise Price in effect immediately prior to such subdivision or combination or the taking of arecord of holders in respect of such payment or distribution, as the case may be (each, a “Triggering Event”) by a fraction (i) thenumerator of which shall be the total number of outstanding shares of Common Stock of the Company immediately prior to suchTriggering Event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock of the Companyimmediately after such Triggering Event.Section 3.2. Adjustment of Number of Shares Purchasable. Upon each adjustment of the per share Exercise Price, the numberof shares of Common Stock subsequently purchasable hereunder shall be an amount equal to the quotient derived by dividing theaggregate Exercise Price in effect immediately before such adjustment by the per share Exercise Price in effect immediately followingsuch adjustment or readjustment.SECTION 4. DISSOLUTION OR LIQUIDATION.If the Company declares or pays a dividend upon the Common Stock payable otherwise than in cash out of earnings or earnedsurplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividendpayable in shares of Common Stock (a “Liquidating Dividend”), then the Company shall pay to the Holder at the time of paymentthereof the Liquidating Dividend which would have been paid to such holder on the Common Stock had this Warrant been fullyexercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as ofwhich the record holders of Common Stock entitled to such dividends are to be determined.SECTION 5. NOTICE OF DIVIDENDS; PAYMENTS.If the Board of Directors of the Company shall declare any dividend or other distribution on any class of its Common Stockexcept by way of a stock dividend payable in Common Stock on its Common Stock, the Company shall mail notice thereof to theHolder not less than 10 days prior to the record date fixed for determining shareholders entitled to participate in such dividend or otherdistribution, and the Holder shall be entitled to receive, as a consent fee, cash or other property from the Company in an amount and ofthe same type (cash or property) equal to that which the holder would have been entitled to receive if the unexercised portion hereofhad been exercised as of the record date of such dividend or distribution.Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.5SECTION 6. NO FRACTIONAL SHARES.No fractional shares shall be issued upon the exercise of this Warrant under any circumstances.SECTION 7. FULLY PAID STOCK.The Company covenants and agrees to take all such actions necessary to ensure that the shares of stock represented by each andevery certificate for its Common Stock to be delivered on the exercise of the purchase rights herein provided for shall, at the time ofsuch delivery, be validly issued and outstanding and be fully paid and nonassessable. In addition, the Company shall take all suchactions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable lawor governmental regulation or any requirements of any trading market or securities exchange upon which shares of Common Stockmay be listed.SECTION 8. CLOSING OF TRANSFER BOOKS.The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of the Company for itsCommon Stock may be closed. The Company shall not be required, however, to deliver certificates of its Common Stock upon suchexercise while such books are duly closed for any purpose, but the Company may postpone the delivery of the certificates for theCommon Stock until the opening of such books, and they shall, in such case, be delivered forthwith upon the opening thereof, or assoon as practicable thereafter.SECTION 9. RESTRICTIONS ON TRANSFERABILITY OF WARRANTS ANDSHARES; COMPLIANCE WITH LAWS.Notwithstanding anything contained in this Warrant to the contrary, the terms and provisions of this Section 10 of this Warrantremain in full force and effect at all times and shall survive the Expiration Date.Section 9.1. In General. This Warrant and the shares of Common Stock issued upon the exercise hereof shall not betransferable except upon the conditions hereinafter referred to, which conditions are intended to ensure compliance with the provisionsof the Securities Act of 1933, as amended (or any similar Federal statute at the time in effect) (the “Securities Act”), and any applicablestate securities laws in respect of the transfer of this Warrant or any such shares. Any attempt to transfer such Warrant or such sharesexcept in accordance with the terms hereof shall, to the extent legally enforceable, be void.Section 9.2. Restrictive Legends. Each Warrant and each certificate for shares of Common Stock issued upon the exercise ofany Warrant shall bear a customary restrictive legend relating to securities laws compliance until counsel for the Company determinesthat such legend is no longer legally required. This Warrant and any shares of Common Stock issuable upon exercise hereof may betransferred only in accordance with the provisions of such legend, including the legend set forth on the first page hereof.Section 9.3. Accredited Investor. The initial Holder of this Warrant represents that he is an a “accredited investor” as defined inthe rules and regulations under the Securities Act.SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.If this Warrant is exercised in part only, the holder hereof shall be entitled to receive a new Warrant covering the number ofshares in respect of which this Warrant shall not have been exercised as provided in Section 1. If this Warrant is partially assigned, thisWarrant shall be surrendered at the principal office of the Company (with the partial assignment form at the end hereof duly executed),and thereupon a new Warrant shall be issued to the Holder covering the number of shares not assigned and setting forth theproportionate aggregate Exercise Price applicable to such shares not assigned. The assignee of such partial assignment of this Warrantshall also be entitled to receive a new Warrant of like tenor to this Warrant covering the number of shares so assigned and setting forththe proportionate aggregate Exercise Price applicable to such assigned shares. If this Warrant is assigned in full, this Warrant shall besurrendered at the principal office of the Company (with the full assignment form at the end hereof duly executed), and thereupon anew Warrant of like tenor to this Warrant shall be issued to the assignee covering the number of shares of Common Stock then issuableupon exercise of this Warrant.Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.5SECTION 11. WARRANT DENOMINATIONS.Warrants are issuable or transferable in the denomination of 1,000 shares or any integral multiple thereof (as nearly as may bepracticable and subject to required adjustments hereunder), and the Warrants of each denomination are interchangeable upon surrenderthereof at the office of the Company for Warrants of other denominations, but aggregating the same number of shares as the Warrantsso surrendered. All Warrants will be dated the same date as this Warrant.SECTION 12. LOST, STOLEN WARRANTS, ETC.In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company may issue a new Warrant of like date, tenor anddenomination and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or inlieu of the Warrant lost, stolen or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft or destruction ofsuch Warrant, and upon receipt of indemnity satisfactory to the Company. All warrants hereafter issued in exchange or substitution forthis Warrant shall be substantially in the form hereof.SECTION 13. WARRANT HOLDER RIGHTS.This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of theCompany, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof ashereinbefore provided.SECTION 14. SEVERABILITY.Should any part of this Warrant for any reason be declared invalid, such decision shall not affect the validity of any remainingportion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid portion thereofeliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remainingportion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declaredinvalid.SECTION 15. GOVERNING LAW.This Warrant shall be governed by the laws of the State of Delaware.IN WITNESS WHEREOF, the Company. has caused this Warrant to be signed by a duly authorized officer.Dated: _________________TECOGEN INC.By:_____________________________________Name:Title:The initial Warrant Holder hereby confirmsthe representations and covenants containedin Section 10:___________________________________Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 4.5SUBSCRIPTIONTECOGEN INC.The undersigned,____________________________, pursuant to the provisions of the within Warrant, hereby elects to exercisesaid Warrant for ___________ shares of Common Stock of Tecogen Inc. covered by the within Warrant.______________________________SignatureAddress:Dated: _____________________________FULL ASSIGNMENTFOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfersunto_________________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint___________________________, attorney, to transfer the said Warrant on the books of the within-named Company.______________________________AssignorDated: ______________________________PARTIAL ASSIGNMENTFOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto that portion of the withinWarrant and the rights evidenced thereby which will on the date hereof entitle the holder to purchase shares of Common Stock ofTecogen Inc. and irrevocably constitutes and appoints attorney, to transfer that part of the said Warrant on the books of the within-named Company.______________________________AssignorDated_____________________________Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement (No. 333-187928) on Form S-8 of our report dated March 30, 2016, relating to ouraudit of the consolidated financial statements included in the Annual Report on Form 10-K of Tecogen Inc. for the year ended December 31, 2015./s/ Wolf & Company, P.C.Boston, MassachusettsMarch 30, 2016Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1TECOGEN INC.CERTIFICATIONI, John N. Hatsopoulos, certify that:1.I have reviewed this Annual Report on Form 10-K of Tecogen Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 30, 2016/s/ John N. HatsopoulosJohn N. HatsopoulosCo-Chief Executive OfficerSource: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2TECOGEN INC.CERTIFICATIONI, Benjamin M. Locke, certify that:1.I have reviewed this Annual Report on Form 10-K of Tecogen Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 30, 2016/s/ Benjamin M. LockeBenjamin M. LockeCo-Chief Executive OfficerSource: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.3TECOGEN INC.CERTIFICATIONI, David A. Garrison, certify that:1.I have reviewed this Annual Report on Form 10-K of Tecogen Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: March 30, 2016/s/ David A. Garrison David A. GarrisonChief Financial Officer, Secretary and TreasurerSource: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1TECOGEN INC.CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350Each of John N. Hatsopoulos, Benjamin M. Locke, and David A. Garrison, or the Company, certify, pursuant to Section 1350, Chapter 63 of Title 18,United States Code, that, to his or her knowledge:1.The Annual Report on Form 10-K of the Company for the year ended December 31, 2015, or the Report, fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 30, 2016/s/ John N. Hatsopoulos John N. HatsopoulosCo-Chief Executive Officer/s/ Benjamin M. LockeBenjamin M. LockeCo-Chief Executive Officer/s/ David A. GarrisonDavid A. GarrisonChief Financial Officer, Secretary and TreasurerThe foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separatedisclosure document.A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Companyand furnished to the Securities and Exchange Commission or its staff upon request.Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: TECOGEN INC., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

Continue reading text version or see original annual report in PDF format above