Abinand Rangesh: But Mike, you’re aware, the percentage that we pay Aegis on the revenue is between – it starts at like 5%. And then at the seven-year point, it goes up to 10% of revenue. But we are escalating the contracts every year. And therefore, the margin coming from those contracts should not decrease. What you’re really doing is just paying for the acquisition as a percentage. It’s basically a commission, right? That’s all you’re doing.
Unidentified Analyst: Okay. And then there’s a couple of other, I think, interesting items. It shows that we have an unrealized loss on investment securities. What investment securities do we have? And how come they’re at a loss?
Abinand Rangesh: So this was EuroSite shares that Tecogen has owned for many years, so we have the mark-to-market. So we have 1.8 million shares of EuroSite Power, and it fluctuates and we have the mark-to-market.
Unidentified Analyst: So the bottom line is, why do we still own it? I mean, it seems like it’s a drag on us.
Abinand Rangesh: So I think this is one where we will, at some point, sell it. It’s a pretty tricky one, the way it’s held right now. Some of those shares need to be registered and then sold. So we will sell it at some point. It just hasn’t – at this point, the business really has to focus on getting our cash flow in order, getting this move done, getting ourselves – getting our cost under control first. And then I think we’ll start optimizing these other aspects. But I feel like these are – like the business has to stay very, very focused on getting these items resolved first.
Unidentified Analyst: And then with regard to the inventory write-down, how did we get saddled, if you will, with “obsolete inventory?” Are they parts? Are they engines? What are they? Or what…
Abinand Rangesh: Yes. So there’s a few different things over there. There’s a portion of it that comes from some of our chillers that we were servicing until recently, but there’s chillers from the 1980s that had our large 1,000-ton chillers from years and years ago. So those chillers finally have been replaced, so we don’t need those parts anymore. And then there are certain components that were related to Ilios and those aspects. Again, we have not sold anything in that range for a while. And then there’s a few different pieces. Again, we look back four years to see what parts have been used because, of course, the service business, we support products for many, many years. So we sometimes do have components that have very low turnover, but at the same time are still being used.
But in some cases, when we look back, we just find things that are not being used. And those were – that’s really what it was. And honestly, we felt like this is something, at some point, has no – this did not have a value to the business anymore, and we weren’t going to be able to convert this into cash to anything reasonable. So we chose to take the write-off at this point.
Unidentified Analyst: And then with regard to the bad debt provision, is there any process by which we can attempt to recover some of the bad debt? I mean, can we just go out and pick up the chillers or whatever the units are and refurbish them and sell them to somebody else?
Abinand Rangesh: So in this case, they were really NYSERDA rebates that the company had discounted the value of the project by the rebate amount and it required the customer to do certain things. And the customer did not do those certain things. And unfortunately, it means that the rebate becomes at risk. In some cases, the customer actually even removed the units. So we are going to take – we’re going to use legal means to take collection efforts, and I believe we’ll recover a portion of this money. Again, the amount that will be recovered, it’s uncertain. The cost to recover it, there’s going to be a portion associated with that. So again, we can keep – we can say that we can leave it on our books, but again, it didn’t, at this point, seem like it was getting harder and very unlikely to collect these portions.
So we chose again to write it off at this point and – but we’re not going to – we are going to continue collection efforts to collect as much of that money as we can.
Unidentified Analyst: And when you say these were rebate items, does that mean that units were installed and then some governmental entity was going to give a rebate to the end user and the end user didn’t give the rebate back to us? Is that the way it works?
Abinand Rangesh: So in this case, Tecogen was actually discounting the value of the project by that anticipated end rebate amount. So these project – yes. And hence…
Unidentified Analyst: Yes. In the future, we shouldn’t do that.
Abinand Rangesh: Correct.
Unidentified Analyst: I mean, just get the rebate – get the full upfront price and then if the rebate comes, you can negotiate accordingly.
Abinand Rangesh: I totally agree with you on that one.
Unidentified Analyst: And then finally, you said that we are now emphasizing a – we’re looking at a national market rather than local geographic markets. And when you say we’re looking at a national market, what exactly does that mean? Are we having distributors? Or are we talking to engineering firms? What are we doing to widen our national market effort?
Abinand Rangesh: So there’s a couple of things we’ve done. We’ve really gone into this more by looking at market segments first because there are certain segments that we have an advantage on, right? So there are – as you already know, we have a pretty significant advantage on indoor agriculture. We have a, we believe, a significant advantage in things like certain types of process cooling. We also have an advantage wherever a customer is doing cooling and dehumidification. So there’s a few different things we’re doing. One is that we are actually attending trade shows really targeted at these segments. We are also working with some project developers that really specialize in these segments. They have relationships with end users.
