Good morning and welcome to the Tecogen Second Quarter 2015 Financial Earnings Conference Call. [Operator Instructions]. For you information, this conference is being recorded. As a reminder a recording of this conference call will be available for playback, approximately one hour after the end of the call and will remain available until Friday, May 15, 2015. Individuals may access the recording by dialing 877-344-7529 from inside the US. 855-669-9658 from Canada or 412-317-0088 from outside the US. Please enter conference replay number followed by the pound sign. Now I would like to introduce David Garrison, Chief Financial Officer. Please go ahead, sir.

Thank you. I will read the Safe Harbor statement. This presentation contains forward-looking statements within meaning of Section 27A of the Securities and Exchange Act of 1993 and Section 21E of the Securities and Exchange Act of 1934. Such statements include declarations regarding the intent, belief or current expectations of the company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of further performance and involve a number of risks and uncertainties that can materially and adversely affect actual results as identified from time-to-time in the company SEC filings. Forward-looking statements provided herein or as of the specific date and are not hereby reaffirmed or updated at any time. I now turn it over to Ben Locke.

John, would you like to say a few words?

Ladies and gentlemen, I'm John Hatsopoulos. I wanted to apologize to all our shareholders for the lack of volume of our securities and the lack of trading. Which upset some shareholders and I don't blame them. The reason that this has happened in the past and hopefully, it won't happen in the future. Is that we have, in our effort to grow our company. We didn't want to use a lot of time and capital to have an IR person. Everybody that bought the stock including the person that bought the shares in the last couple of days are all friends of mine, they honestly believe in, are sorry and - business plan. Therefore there is no selling, on the other hand, since no new investors available because we don't have any IR. There is no trading on the stock. This is about to be corrected. I'm in the process of interviewing a list of people and starting in September. We'll have dedicated IR Department to bring us various institutions and retail shareholders and hopefully, we'll get some more activity in our stock. Thank you, with that I'd like Ben to give you our business plan.

Thanks, John. At conclusion of this call, after our Q&A for those interested. We'll have a short discussing about Ilios, which we issued press release today giving an update of the status. So turning back to Tecogen. I'd like to start off our call, by reminding those who may be new to our company with Tecogen's core business model, as shown on Slide 3. Heat and power and cooling, that is cheaper, cleaner and more reliable. Our proprietary technology for improving efficiency, emissions and grid resiliency is truly disruptive to the traditional method of heating, cooling and powering buildings and infrastructure. And all this [indiscernible] discussion, a combination of our unique technology, overall trends in energy supply and demand and the increasing global emphasis on environmentally clean technology all favour Tecogen's continued growth. Turning to Slide 4, in the second quarter we continue to make substantial progress in the three major metrics for our success. Revenues, margins and backlog. First, we continued our trend of growing revenues. Revenues for the second quarter increased to $6.38 million compared to $4.5 million in Q2, 2014, an increase of 41%. This brings our year-to-date revenues to approximately $12.5 million in line with our revenue goal for the year. Secondly, gross profit increased to $2.14 million compared to $1.35 million in Q2, 2014, an increase of 59%. Gross margins came in at 33.5%, which is a bit lower than our goal of 35%, but still a 12.8% increase over Q2, 2014. I'll talk a little bit more about our margins later in the call. Third, we continue to maintain a robust backlog of projects. Backlog, as of August 5, 2015 yesterday was $10.77 million ensuring a healthy continuation of our revenue growth in the third and fourth quarters of the year. Our goal, is…

Thanks, Ben. The following are some of the key measures management uses, to analyze and gage our success. On some of the graphs, the shaded blue box on the right-hand side relates to time in future periods. If I could draw your attention to the revenue graph. Service revenue is a combination of service contracts from our factory maintenance program and construction services from installing our products. Our trailing four quarters revenue, has increased at a CAGR of 43% or from $11.3 million ending 2013, Q2 to $23 million for the trailing four quarter ended 2015, Q2. Management's goal, is to achieve nearly $24.5 million for calendar 2015. Looking to the gross margin graph, review of gross margin percentage using the trailing four quarters eliminates the seasonality and shows our return to a gross margin of 35%. On occasion, as Ben previously discussed projects of lesser margin are intentionally initiated [ph] as part of a larger goal or a program of projects. These events will affect margins in the short-term. But management's goal is to stay in an average margin above 35%. Turning to operating expense, as a percent of revenue. In the second quarter of 2015, operating expenses decreased to 38%, as a percentage of revenues. While continuing to lower, the trailing four quarters percentage to 45% on the graph. Management expects some of these costs to rise in the short-term. Again while pleased with the results, the goal is to continue controlling these costs while growing revenues at a faster pace. Selling expenses will increase prior to seeing the resulting revenue gains from increased sales staff. Management's goal beyond 2015 is to work towards operating expenses less than 25% of revenues. To reiterate, this will be achieved with a combination of increased revenues and controlled expenses. Onto backlog, it is worth noting that backlog only relates to product and installation service revenues. The service revenue from our maintenance contract which exceeded $2 million in the second quarter is not included in this metric. This reoccurring revenue is nearly one third of our revenues providing steady cash flow and profit. The backlog graph illustrates the variability in timing when projects are added to our backlog and when shipments were made or installations are completed. Management's near term goal of maintaining a consistent backlog over $10 million has been achieved. Our longer term goal, is to maintain a book-to bill-ratio of between 1 and 1.5 matching increased production capacity with increasing orders. Now I turn it over to about Bob Panora.

Thank you, David and good morning, everyone. As you may recall, our emissions reduction process which we call Ultra is protected by several patents and has been available on own products for several years. Most systems, we manufacture include Ultra, as customers want assured compliance with the strict air regulations, we generally encounter. Also they want to be prepared for strict regulations that, might be encountered down the road. It has been evident to us, that sometime their emissions process is readily adaptable with a significant end user benefits to a wide variety of engines unrelated to our core CHP business. These will be engines of various sizes applies to water pumping, power generation, certain mobile applications and so forth. Incited in regions or applications, where emissions regulations are difficult. To this end, we introduced an Ultra Retrofit Kit for larger stationary engines through about 1,000 horsepower, which we have been marking primarily in Southern California. So referring to Slide 9, as announced previously. We see received three important orders from California-based customers. One is to update [ph] a 50-litre Bio-Fuel engine manufactured recently Caterpillar with a scaled up version of the Tecogen emission system. The equipment for this order was fabricated and shipped in Q1 and we currently expect initial operation in September. The on-site work which is being directed by the Water District was delayed by several months due to a change in contract. But otherwise the project is proceeding well. We look forward to providing an update as soon as we have meaningful data. This customer operates over 60 engines and it has requested us to promote. I'm sorry if you quote systems for three large engines in a second water treatment plant. This was provided in June and we are optimistic as to the outcome. The…

Thanks, Bob. I'd like to take a few minutes to discuss some of the trends that continue to favour Tecogen going forward. Turning to Slide 11, all of the drivers for our products are not expected to change anytime soon. Electric rates continue to rise in our key markets. in fact, higher electric rates are spreading to other geographic regions both in the North East and the West Coast. They were previously uneconomic for our equipment. Just as important, natural gas continues to be an abundant and cost effective fuel source. The combination of low cost natural gas and high electric rates are the primary drivers for our CHP and chiller systems. The emission controls are rapidly becoming a decisive driver for all of our products. As Bob described, strict regulations developed in California for criteria emissions related to Smog, CO and NOx. Swiftly being adopted by other states including Massachusetts. Any CH. chiller or heat pump system that cannot meet the mandated level of emissions. Safety, eventual prospect of violation, fines or as Bob described, potential shutdown. Further evidence of this trend toward cleaner emissions can be found in the clean power plant recently released by President Obama and EPA. The plan outlines clear goals for National and State reductions of both greenhouse gas emissions and criteria emissions. Specifically the plan calls for a 32% reduction in CO2 emissions and 72% reduction in NOx emissions by 2030 from power generation sector. These goals address the serious national health issues surrounding current pollution levels such as asthma, respiratory illness and premature death. CHP technology will be a significant part of this plan. CHP Systems cut CO2 emissions in half versus current electric production. A typical Tecogen, InVerde system provides approximately 600 tons of greenhouse gas reductions per year. Each year…

[Operator Instructions] Our first question comes today from JinMing Liu with Ardour Capital

I guess, I have a question Bob, to your use of proceeds from the equity financing from yesterday. You mentioned, Tecogen is going to expand your sales team. So I just wanted to understand, what kind of sale strategy, what kind of improving you're going to make to your sale strategy and where you're going to deploy additional sales forces? And also your relationship with ESCOs.

Sure. It's a good question. So, JinMing. I've described in previous calls, how we have our sales structure set up. We've got directional sales people. We have manufacturers' reps and we have sales agents. And generally that's how we do it. What I'd like to do, is expand our direct sales force to in some cases have a direct sales presence in territories where we might have had a rep before. That gives us much better control over the sales process and at specific geography. So I can see us expanding our sales team here on the East Coast and also on the West Coast specifically to get more control over our sales prospects. Another use, as I alluded to, is the development activity, for our Ultra Emission System. Right now, Bob is really heading that up from a technology standpoint, but we really need a dedicated business development effort on the Ultra because the potential as we described here, is so enormous. It is deserving of a full time effort. As John Hatsopoulos mentioned at the beginning of the call. We've been kind of purposefully neglecting our IR and marketing efforts because simply the resources needed to be deployed in a much more functionally direct way. But we hope to do more with that, with investor relations and marketing. Again as Dave mentioned those are costs of course but the costs that are needed ultimately to go on revenues, to where we want them to be. And then you have the second part of your question JimMing, which I don't recall, what it was? The ESCO, the ESCOs. Right. ESCOs are a great way, we're working directly with ESCOs with our direct sales team and also with our manufacturers’ representatives. It really is tremendously important as you can guess. I mean there are some very top names ESCOs out there, that have chosen our products. And it's very important that we give them the attention and the performance that they're expecting our units, so they continue to expect us. So that is a very important piece of our sales strategy that I expect to increase going forward.

Ben, I think you should also mention, that Johnson Controls just put up a press release naming our equipment, as part of their effort for a school system.

Yes, Johnson is one of the ESCOs, the larger ESCOs that are out there. These ESCOs typically work with school systems. They'll come in there and they'll provide, solar [ph] build replace windows put up some insulation. But increasingly CHP is a core part of their overall efforts. Again they'll swoop in and do an entire K [ph] through high school building. That something Tecogen or some of these larger ESCOs could never do. Whereas one of these larger named ESCOs can come in there and do that. So it's a good relationship, we hope to keep it going.

Okay, good. But, just one more question. Regarding your Ultra system that you started some mobile application, so what market your application is targeting. Is that the larger cost, a truck or some smaller truck market?

Yes, it we're not going straight for the trucks and buses and things like that, as you can imagine that's a pretty significant reach. But there are light industrial mobile engines out there. Things that kind of scoot around on four wheels but aren't on highways. That are already being kind of targeted for their poor emissions. So we're working with a government agency.

A collective from an industry.

Yes. That has been brought to task on this for again these kind of light mobile engines, that scoot around. And it's a perfect fit for our segment, the engine scale is about the right size. It's a good medium stretch of the technology, that if we can show that, then you start to contemplate larger engines. As I mentioned before like bus fleets, trucks, things of that nature. But we're being, I think as I described before very careful and deliberate with each new field of use, to make sure one, if the technology works. But more importantly, number two, we have all our intellectual property in place. All of our patents in place, so we can slowly start expanding our IPO state.

Okay, thank you.

[Operator Instructions] Our next question comes from Ralph Wanger with RW Investments.

I noticed last week that there were as an outbreak of legionnaires disease in New York City, due to cooling, people using cooling towers. Is there a way to replace those cooling towers with our product?

Yes, cooling towers are kind of they're outside of our scope. Any building that has a big, large air conditioner, it's got a cooling tower, that we utilize. That's kind of outside of our realm. Except to say, when we do a chiller installation, we typically inspect the cooling tower and inform the building if it's for any reason, has an deficiency. So not directly, Ralph.

Thank you.

[Operator Instructions] There appears to be no further questions at the moment. I'd like to turn the conference back over to management.

Well that concludes our discussion of Tecogen's second quarter results. For those of you, that are interested we did put a press release out today about some more specifics of the Ilios and I will be explaining just a few minutes now, talking about that press release, some of the highlights of Ilios and some of the financials, [indiscernible]. So again, referring to the press release that we put out today about Ilios Dynamics, which of course is a majority on subsidiary of Tecogen. We had some tremendous results with Ilios as I described before in the second quarter. In fact, Ilios, had first positive quarterly net income in during the quarter, as a result of the orders that we've received. Nine gas heat pumps were shipped. The highest single quarterly shipment total since the company's establishment. And as I mentioned, the backlog of Ilios, is more than double of any previous year. On track to surpass $1.2 million in revenue. We previously announced to review and analyze the acquisition of remaining non-controlling interest by Tecogen, and that process has begun. I'd like to turn over to Dave, to describe that in a little bit more detail.

Thank you, Ben. First up, in the press release we included three years of financials in the first six months of 2015. We were hoping to supply this information to show the success of Ilios over the last three years and to understand, why now is the time, to buy the last piece of non-controlling interest by Tecogen. Ilios earned its first profit in the second quarter and that's an exciting outcome. I want to just let everyone know, that we started evaluation process in the independent committees of each board have been formulated to ensure that the transaction can occur in an orderly fashion and with the correct evaluation. If there are any questions on the line about this or about the Tecogen call. You can get back in the queue and ask those questions now.

[Operator Instructions] At time we do a follow up from Ralph Wanger with RV Investments.

Given the size and importance of the California market. I don't, I see a lot of results from you guys for New Jersey and New York City. Nothing in the building market in California. Why is this?

The Utilities tariff structure. Ralph, in California is extremely complicated. They have a number of, they'll never admit it. But they are cogen killer type tariff structures, what do they call a push pass and [indiscernible] Paris, Bob?

Time and time of use. And the bid rates are skewed being in cogen and the entire efficiency, really.

Right so, they're not as progressive as the utilities in the Northeast you know ConEd, Eversource in terms of their tariff structures. And it's extremely complicated to unravel that. Now fortunately, we've got a guy out there, that has the experience and knows how to untangle these tariffs structures. But at the end of the day, sometimes the economic aren't there because the rates. Once you get through all of these particular tariffs are distraught. Now with all that said Ralph, as part of our entry sales effort we are going to be spending a lot more time in California and trying to increase our activity out there.

Okay, that seems to be very peculiar because California has such tight standards and yet you can't. They're keeping you from putting your equipment and to fix it.

Ralph, this is Bob Panora. We actually, it is now a new thing, that we can actually meet the regulations. Only about a year and a half two years ago, before Ultra we would have struggled and certainly in Southern California. So part of the problem, is that the cogeneration market in California was, it was dormant for 2008 to the arrival of Ultra. So now the rep structure, the quotation, all that stuff is now becoming much more active. Whereas it had gone to sleep because of this you punitive emissions situation, is definitely reawakening now.

Ralph, this is John Hatsopoulos. The battle we got from utilities in Southern California, actually Northern California, mostly. It was unbelievable, they came up with standards. I'm talking now a few years ago, that we'd end up killing [ph] maintenance people, but sharing our equipment when they're working. Which is impossible to happen it's an amazing story. But with our new technology, they lost all their arguments.

Okay.

Thank you. Our next question comes from Roger Liddell with Clear Harbor Asset Management

I want to pursue the Southern California, air quality issue situation. With a couple of questions. Can you give us some texture on the issue of whether Ultra could be designated Best available control technology and if so, my understanding is that, that sets the standard. And what are the implications of that and what's the probability, of being designated BACT.

I'll answer that, Roger. This is Bob Panora. Last month I visited the South Coast Regulators for meeting. We were talking about this issue and others and they informed us that they had gone to one of our permanent [ph] sites, our cogeneration site that were Ultra equipped. And they were now proceeding to their case to make our system to be BACT, Best available control technology. And so that has started. Now they also said, this will be and it's not publicly hearing haven't started for us. But it will be quite opposed by people, who don't have this technology. So it will be protracted situation. But they did visit our system. They looked at the results. This is very impressive and they're going to pursue that. So let's see where it goes. The implications are that, currently in California engines that don't drive electrical generators are BACT is much higher than electrical generators. Cogen has a much lower standard. What will happen is, eventually is that the other engines in California water pumping and so forth, if it not has to BACT. The regulation will require it to meet our BACT, the new BACT which is much stricter number. You know four or five times more strict. So that's the implication and of course BACT is something that's a national standard that EPA put forth and that could become something that's moved across the country. I mean that's, long time coming and a lot of hearings and so forth between that time. But that's how these things progress.

All right. You had alluded in an earlier conference call to meetings with engine manufacturers and I believe in this call, you spoke of a consortium, an industry consortium. I don't know but two entities are the same or the engine manufacturers were part of the Trade Association. But is there anything you can comment on regarding the likelihood of a household name, whether overseas or US offering as an option or standardizing on Ultra?

Yes, I can start to answer that question and then Bob, feel free to jump in. The consortium we're looking at, is different than these discussions we've been having with the engine manufacturers. The discussions we've been having with engine manufacturers, reflects these companies many of which are international not US-based. Concerned about their products operating in the United States based on this increasingly stringent environment for emissions. And so these discussions were initiated with that in mind, and Tecogen understanding their engines and then us providing them with the possibility of how we could retrofit their engines in a larger scale capacity, so that they could continue to operate in the United States and set up a retrofit, it might be part of their actual manufacturing process. So all of those discussions, as you can imagine are a little delicate. Certainly, preliminary from any action item standpoint. But a very important part strategically of how we choose to bring the Ultra to other engine platforms.

All right, thank you. And if I could follow up with what you stated earlier in the call on Ilios, as there were sales in Hawaii given the electric load issues and cost levels, electric prices in Hawaii I can't believe this isn't a large opportunity. Can you give texture on the slope of activity in Hawaii? And by their nature Caribbean Islands typically have diesel generation and expensive electricity, this should be another great opportunity. Can you give any texture to those two locations?

Absolutely. Hawaii is a perfect place for Ilios. Propane prices are very high and as you know Alex the value proposition for Ilios, is to cut those propane bills in half, if not reduce them by two thirds. So when you go to customer and say, you're going to have to fill up your propane tank, once a week instead of twice a week, that's pretty compelling. So we are, these first two units that we sold there, is really we hope to be just the tip of the iceberg, in terms of getting more units installed in Hawaii. Now, we have been engaging with the utilities in Hawaii, to discuss what the right next step could be. And by next steps I mean, as you said electric rates are pretty high. It's a perfect market for chillers in cogeneration. Even though the gas is expensive or the propane or Syn gas is what they use there. The electric rates are that much more expensive. So you still got to spark spread, just so the sparks spread has kind of jumped up, a whole another level. But what's very important to Tecogen, is to be a little careful and deliberate. We don't want to just start dropping cogen units down there without any type of dedicated service support because that's been a recipe for disaster. In fact even in Hawaii, many years ago 15, 20 years ago exactly happened. A cogen manufacture dropped down a bunch of units, ran out of town and then these units never ended up running, a left a bad taste in a lot of people's mouths. So what we're hoping for, is by populating initially with Ilios units and perhaps a chiller here and there. And again chillers is basic HVAC product, you can get…

Mexico. Cheap gas coming in from Texas into northern Mexico. The Maquiladora plants, we haven't seen anything on that for a while. What are the opportunities there?

Sure, that one is, that's a great success story for us. We started off with one chiller, at one kind of you know blue chip location. But took a chance, but it's going to save them a lot of money, saving them a lot of money. Just cheap gas, very high, electric rates. And workers in Mexico aren't too keen on working in 100 degree anymore. You these buildings need to provide air conditioning. So we now have ramped that up to a few more chillers to the same customer. The another blue chip company down the road because these guys are all top. The engineers all get together quarterly and have their discussions. Saw the results. We installed two chillers there. We were hoping for a third one there. So it's starting to be a trend. in this particular manufacturing area where they have cheap gas and expensive electricity. That natural gas engine driven chillers are indeed much more economic, than buying the big electric chillers there. We've got a reap in Mexico as well again, very aligned with what our thinking. Is actively mining that whole strip of industrial activity. And I really hope we're going to see Roger more press releases about our chillers in Mexico. The same as if I applied to Hawaii, once we get to some critical mass, where we can have a Tecogen factory supported serviced person down there. You can start contemplating cogen down there.

Okay, a final question. The large procurement, the Long Island school district that you announced on July 16, with ESCO whether that's Johnson Controls or not, it's not really the subject of my question but I welcome that particular contract or that announcement, a Memorandum of Understanding maybe with contracts to come going forward. But do you foresee or why is in those kinds of bulk procurement programs versus the one offs that are troubling to assess in terms of, the companies part, where some relevance of each one off to the overall picture.

Yes, I absolutely hope that we reach the point where, you're going to see more of those things. Building relationships with these ESCOs is a very, very delicate thing, as you can imagine. These ESCOs are large and they can swing in one direction or the other very quickly and it really comes down to interpersonal relationships of our folks and their folks. So we manage that relationship preciously and make sure that we're of course doing our job and that everything is performing well, that we give them good competitive pricing and good support all the way through the construction process. And only by doing that on a repeated basis, one project to the next project, to the next projects. Where you get to the point, we're getting expectant. So I guess, I'm hoping, I'm answering your question. Its suffice to say, the relationships are very strong. But paying particular attention to it, in terms of our engineering support and we'll hope to see more as a result.

Thank you very much.

Your next question comes from Alex Blanton with Clear Harbor Asset Management.

I also have a question about that Long Island contract and I understand that the first part of the contract is the engineering of the 14 units for the six school districts. And that, when that is completed and the order for the equipment comes in. Well as long as these are, deemed to be economic. At that point [technical difficulty] the entire amount of the work. My question is, what is that amount 14 units that's quite a bit of equipment and assuming that all of these units are gained economic. What would be the total dollar value of that work for you?

This is Bob Panora. I think you can do the math 14 units. But in this particular case, this contractor or this ESCO . We've dealt in the past and we assume it will be the same case. We'll have the engineering revenue, but we'll also have, a lot of pre-engineered accessories that were built in the factory that will accompany the units. In other words, they want to minimize the work in the field. So they'll buy from us skid mounted heat exchanger, pump assemblies they'll by control panels, that are control the whole plant and so forth. So if you look at an earlier press release not that one but another one. It describes, a type of revenue leads on. I think it was a single unit sale, where it was not just the unit, it was also these additional stuff. This sale, this 14 units will fall more or less what I said in the press release you know this.

And what did you say, Bob?

And this is from memory I believe the revenue from the unit was almost doubles, by the amount of material that went along with it with these accessories.

Well, to save us from doing the math. Could you give us the final number?

For the 14 units or just one unit?

Well, the 14 units, that we're talking about.

I'm little nervous about doing that. I'd rather.

Yes, I'll appreciate. As you can imagine, this is still. We can't give you pricing, when in fact our customers is not even had final pricing and negotiations hasn't occurred yet, that's a little premature.

What is per unit? Do you have a per unit figure?

Well, if I give you per unit, you get is multiplied by the number of units. So we're just trying to be a little cautious and protective of our relationship here and don't want to provide any pricing at this point.

Okay, thank you.

Our next question comes from JinMing Liu with Ardour Capital

Hi, just one quick question regarding the financial of Ilios. I saw, Ilios has $1.7 million of cost receivable outstanding, which is relatively large comparing to its revenue and so why is that?

Okay, you're looking at Ilios and you're saying?

Accounts payable is $1.6 million.

Including and accounts payable is the payables owed to Tecogen. So that includes, that's combined total of the stuff that's been purchased from us over time as well as work that's been done in Tecogen for Ilios, so that's what that number is.

It's really related party, we try to truncate the financial statements to make them smaller and more digestible instead of a full blown bought it in detail.

Okay, got that. Thanks.

At this time there appears to be no further questions. End of Q&A:

I'd like to thank everyone for joining this call and particularly for the questions. We really do, are happy to answer any and all questions. And we'll be having another conference call for the third quarter in a few months.

As you all know this is John Hatsopoulos. Feel free any one of you to call me. Directly me at my office and I'll within few hours to give you any answers, you might need. Thanks.

Okay, thank you.

Thank you very much for participating in today's call. You may now disconnect. Take care.