Good day ladies and gentlemen and welcome to the fourth quarter and year end Fuel Tech Incorporated earnings conference call. My name is Eric, I’ll be your coordinator for today. (Operator instructions). I would now like to turn your presentation over to your host for today’s call, Ms. Tracy Krumme, Vice president, Investor Relations, please proceed.

Thank you Eric, good morning everyone, and welcome to Fuel Tech’s fourth quarter and year end conference call. By now all of you should have received a copy of today’s release. If you have not, please call our office at 203-425-9830 and we’ll be happy to send you one. Joining me on the call this morning is John Norris, President and Chief Executive Officer and Vince Arnone, Chief Financial Officer. As a reminder the matters discussed in this conference call except for historical information are forward looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in our forward looking statements. The factors that could cause results to differ are included in our filings with the SEC. The information contained in this call is accurate only as of the date discussed and investors should not assume that statements made in this call remain operative at a later date. Fuel Tech undertakes no obligation to update any information discussed in this call and as a reminder, this conference call is being broadcast over the internet and can be accessed at our website www.ftek.com. With that said, I would now like to turn the call over to John Norris, John please go ahead.

Thanks Tracy and good morning everyone. We appreciate all of you joining us on this call. We are very please to report an outstanding record breaking quarter and full year for Fuel Tech. For the quarter our revenues were $32.6 million up 80% from the fourth quarter of ’06. Net income for the quarter was a record $5.2 million or $0.21 a share an increase of 260% from $1.5 million or $0.06 a share last year. For the full year, 2007 our revenue was a record $80.3 million up from $75.1 million last year. Our pre tax income for the year was a record $12.4 million up from last year’s $11.8 million. After tax income for the year $7.2 million or $0.29 a share up slightly from $6.8 million or $0.28 a share in ’06. Both revenue and net income were about our guidance for the year. Our CFO, Vince Arnone will discuss our financial results in much greater detail in a few minutes including the discussion of the impacts of various tax and other charges such as 1.3 R stock compensation expenses. Vince will also cover our balance sheet in detail. But it remains exceptionally strong with very little debt and with cash, cash equivalent and short term investments of $32.4 million which is roughly the same as last year despite having bought a new building for $6 million for our new corporate headquarters. Our business model continues to generate growth in revenue profit and cash and we expect that to accelerate in the future. Now I would like to tell you about the company business behind the financial numbers. As most of you know, Fuel Tech is a fully integrated company that uses a suite of technologies to provide boiler optimization and efficient improvement and air pollution reduction…

Thank you John and good morning everyone. As John mentioned, net sales for the fourth quarter were $32.6 million up from $18.1 million in 2006 while net sales for the year were $80.3 million up from $71 million in 2006. This result exceeded our guidance target of $79 million. Net income for the quarter totaled $5.2 million or $0.21 per diluted share compared with $1.5 million or $0.06 per diluted share in 2006. Net income for the full year was $7.2 million or $0.29 per diluted share compared with $6.8 million or $0.28 per diluted share in 2006. This result also exceeded our guidance target which was $0.25 to $0.28 per diluted share. The 2007 results for revenue operating income and pre tax income represent record results for Fuel Tech. The fourth quarter and full year results included $1.1 million and $4.8 million in stock based compensation expense versus $0.5 million and $1.8 million for the comparable periods of 2006. This increase attributable to the awarding of stock options to all Fuel Tech employees in December 2006 and to an increase in the fair value of the options granted which was driven by and increase in the price of Fuel Tech’s common stock. On a full year basis, the on year after tax impact of these additional was $0.08 per diluted share. The fourth quarter and full year results include $4.1 million and $5.2 million in income tax expense. As Fuel Tech utilized all of its remaining domestic net operating loss carry forwards in 2007, $1.8 million of the $5.2 million in income tax expense represents cash tax expense. We believe that it’s important to scrutinize our fourth quarter operating results as they are indicative of the financial strengths that we have been expecting from our business model. On revenues…

Thanks Vince, in summary, we finish 2007 with a record breaking quarter and look forward to an even better 2008. We hope and expect our 2008 guidance to be conservative and we’ll see how that works out. With that said Eric can you please open the lines for questions.

(Operator instructions). Your first question comes from the line of Graham Mattison with Lazard Capital Markets, please proceed.

Hi good morning guys.

Good morning Graham.

Just looking at the revenue outlook here for 2008 and I know you gave the breakdown between APC and FUEL CHEM awards, would most of the APC revenue be recognized more towards the latter half of the year or is it going to be more front loaded or about even throughout the year?

I’d say we’re probably looking at a little bit of a split as you know we have a backlog of $28 million here at the end of 2007 and you’re going to see a good portion of that run through the first half of the year, but then obviously we expect to add new contract bookings while starting with the one we announced this morning in China and we expect to add significantly to that as well as we go throughout the year so right now I would say we’re more of a split.

Okay, great. And then just looking at the margins in the FUEL CHEM segment, they were down a bit and I know that’s related to start up cost there is that sort a rate that we should look at going forward or will sort of revert to historical.

Graham it’s going to be in the 50’s probably the low to mid 50’s on an ongoing basis. There’s nothing fundamental about that and we track margins looking at existing customers once we get a contract, we assign and start depreciating the cost of all that equipment right away whether or not it started moving chemical so you get the charges but without the offsetting revenue.

Right so that’s more just a lumpiness on a quarterly basis but not a trend.

And hopefully a lumpiness that we don’t see extent delays like that in the future.

Okay great, I’ll jump back in queue, than you very much.

Thanks.

You next question comes from the line of Rich Wesolowski of Sidoti and Company, please proceed. Richard Wesolowski - Sidoti & Company: Thanks a lot good morning.

Good morning Rich. Richard Wesolowski - Sidoti & Company: The flip side of the first question is the margin of the APC is it the nature of the work or the volume that you squeeze through the quarter that result in that big 51%.

The nature of the work. Richard Wesolowski - Sidoti & Company: The nature of the work.

When we get, we talk about mix of work, we get better margins when it’s just our technology that’s out there when a client, and we’ll do it for them. When a client asks us to do the installation, then we’ll hire a local construction guy to do it that the client like and we’re only going to get 10% for overseeing that as project manager well then that, all of those revenues come in and you get our normal mix and then you get overlaid on that a 10 margin on those revenues and that’s what drives down the margin. You’re looking at a more typical margin for a more typical mix in what we did in the, this year.

A lower to mid 40’s is what we expect on a continuing basis for APC. It’s purely a mix issue Rich. Richard Wesolowski - Sidoti & Company: So the mix of the work that your booked in the fourth quarter and the award that you announced today, they’re more of a historical range where you have some of that contractor pass-through cost?

I’m sorry. Richard Wesolowski - Sidoti & Company: The big margins on the new work are more like 43% than 51%.

Oh where, they’re usually not going to be 51% but in that 45% give or take a percent is probably what you’re going to expect out of the APC side of the house. Richard Wesolowski - Sidoti & Company: Okay. And then reverting back to FUEL CHEM, did you recognize the benefits from the volume break in the chemical supply?

Well we definitely did yes. We definitely did. Richard Wesolowski - Sidoti & Company: And then I understand like the year over year and the delays in the costs that you had but looking at a quarter over quarter you had virtually the same revenue in December and September and the margin came down a good bit, what was the difference there?

It’s just what we said, the FUEL CHEM revenues give or take a couple 100,000 that’s in the noise to be honest a plant burns gets a load of horse coal, they crank us up, they get a load of better coal, they crank it down in the injection rate a little bit. It varies all the time. You had all those, the outages in the fall where people were installing the rest of the new equipment. We didn’t expect at all, to be honest at all. We thought our FUEL CHEM revenues were going to roughly flat from the third quarter and they were from the third quarter so they were really in line with what we were expecting. We were with the units before the new ones, we were running at a roughly $8 million a quarter rate, give or take a couple 100,000 for the last three quarters of the year with the new units, I would expect in 2009 rate to jump up a bit. The first quarter might not be as high as the rest of them because two of the big ones didn’t get on until like February the 1st of this year and running. But I would expect something a bit higher you know 9 to 10 and maybe a little more as it goes, as we see the full run rate on all of those.

Hey Rich as we went from the third quarter to the fourth quarter and we actually geared up for some of those additional new units startups as well. So that’s the primary reason for the down take in the gross margins as you look from quarter to quarter on FUEL CHEM. Richard Wesolowski - Sidoti & Company: Okay. And then lastly, if you take out the stock comp for both periods as you noted in the release, the SG&A dollars were down about $2 million. Are you going to see a period of catch up now that the business appears half the lull you saw in earlier segments.

No, we are, this is the business actually the beauty of the business model and we think we showed that in the fourth quarter where our, with the existing staff, without adding significantly we were able to crank up the work we did to do 50%, 60% more work and then recognized revenues than we have ever done in our history, our best ever quarter was like 20. So we’ve got a lot of flexibility in our ability in our team to deliver. We’re going to control, you don’t have to add a lot of new accountants for a few more contracts. And Vince’s bonus is not that big. Richard Wesolowski - Sidoti & Company: Thank you very much.

Your next question comes from the line of Michael Carboy with Signal Hill, please proceed.

Good morning ladies and gentlemen, John and Vince.

Good morning Michael.

Good morning Michael.

Good morning. Congratulations on putting up very strong numbers here for the fourth quarter.

Thank you.

I have some questions regarding the outlook though and you talked about tremendous order activity and momentum in the business, and you talked also about new market opportunities, do you see the company deriving greater growth here in the ’08 and ’09 periods in the international markets and do you see the US markets being somewhat slow and stagnant or do you see good growth here in the US?

I think you’re going see great growth here in the US. One of the things that’s going to impact and is impacting the US market is the cancellations or delays, significant delays by groups litigating over new coal units, Michael. And with that existing coal units are as valuable as gold. Utilities that were planning on shutting down 200 and 300 megawatt units as they were going to replace them with more efficient 1000 megawatt units are now looking to find was to keep those things running for the foreseeable future and that means putting on environmental controls. It also is a great sweet spot for our FUEL CHEM but on the APC side, a number of folks are going to have to put NOx controls on where they were planning on just phasing them out. And that’s really good for us in places like China, there’s a huge recognition by the government that they’ve got to do something and they are starting to do something as evidenced by this most recent win that really didn’t have anything to do with the Olympics. These systems are all going to get installed after the Olympics are over for these ultras going forward, the Chinese are very serious about cleaning up. But I think we have never seen this level of business opportunity for us. And I’m real pleased about our pushing for the new technologies, the ultra and the cascade. Last year 2007 and it’s going to follow into this year which really was the year of the ultra. I think you’re going to see cascades take off, I hope that’s true and cascade orders are going to be significantly larger on a per order basis than any of our other technologies.

Let me follow up and then on that John if I may. You have any idea on the number of plants that a year or two ago people were thinking of moth balling them or were more likely stay in operation at this point. And then on the cascade front we’re approaching a major catalyst refresh cycle right now, in the market and I’m wondering whether that is going to drive or potentially delay a cascade adoption rate.

I don’t think the, I don’t think it will delay what’s going to drive the cascade adoption rate is the cost of steel and labor to build these SCR, they’re going through the roof. And our approach is a, uses very minimal amount of new steel in the duct work and construction labor. It’s not so much the cost of the catalyst that is driving that. And with us you get real solid performance with very modest amounts of catalyst. I think that’s really starting to catch hold in both here and in China especially. But we’re really encouraged by the discussions we’re having with clients on potential cascade applications here in the US.

Should we contemplate any bender based financing or financing schemes that would need to be put in place in international?

No these are not that expensive in the US our cascades go from what $30 to $70 a kilowatt at most utilities have that in their capital budget they won’t be out there doing a special race for any of that. The Chinese systems are even cheaper. And by the way, there was an article in the this month’s, it just came out I just got it yesterday but electric light and power which is the Edison electric institute’s industry magazine and it said 2007, the year of uncertainty, and the whole article talks about the delays in capital spending and the conclusion was they really need to spend more money on air pollution control equipment and on any energy efficiency measures in power generation. That was a neat quote for thinking about us.

And just last question for you, it sounds like the strategy you’re taking with regard to dealing with expectations is to set a benchmark that you are highly confident that you can achieve and then as incremental wins are made you believe you’ll be able to raise numbers. Is that, am I reading your press release correctly?

You know me too well. We’re, if we have anything to do about it, we’re all done explaining away shortcomings.

Terrific. Thanks.

Your next question comes from the line of John Quealy with Canaccord Adams, please proceed.

Hey, good morning folks, nice quarter.

Good morning John.

Let me just dive into the last question a little bit more, so if we’re looking at this guidance top and bottom if you would, 88 to 93 in the top and you gave us the split so if you’re entering the year at call it $28 million at APC, $38 to $40 on FUEL CHEM, I mean that’s almost $70 million of visibility on call it 90. In the past couple years, you’ve done call it north of $40 million bookings in APC. I realize you’re being conservative and you want to hit expectations and beat them can you dig into it a little bit more in terms of potential pipeline because that seems almost too conservative John if you get my point.

Well there’s, many of you and us have had this same discussion about you’re damned if you do and you’re damned if you don’t on the guidance issue. With the FUEL CHEM, you know if you look at the additions we added according to how strong the first quarter is and I don’t know that yet, but you can say a large part of that we have already. And we hope as with our announcement today, I notice I hope you saw that announcement today including it included four mapping and modeling projects for large potential FUEL CHEM coal customers, and that’s usually the first step to contract. But as we saw last year, signing a contracts one thing, getting them online in time to generate some different revenues for the year is another. And I want to see us execute and be able to get in there quickly before a raise on the FUEL CHEM side. On the APC side, I guess we’re sure as hell starting the year a lot better than last year, by far in a way not only in the announce contracts with 28 plus we got 6 plus more today the 34. But we need to win some more and as we win them, at the first half when we do our first half earning, we’ll take a long, a strong look and see what we’re doing. Now our guidance is not our business plan. Our guidance is conservative to our business plan and expectations. But I’d like to see us put a few more of these wins in our belt, a number of which we do have visibility on, the one we announce today we basically had since November. But it just couldn’t get the final paperwork done. The, and so sometimes they take longer than you expect even when there’s no conscious delays by anybody out there. We just we’re, do not want to be a company that over promises and under delivers.

Okay that’s helpful and then just on a roll forward if you will on the FUEL CHEM units. I know on your website at the end of February you had an updated FUEL CHEM detail like you started last quarter and it looks like you’ve got 37 coal burning units. What’s that number today installed?

We had 37 in total coal units, that would be correct.

And that includes the catch up from last year, is that right?

We’re trying to keep this thing John completely up to date. When we make an announcement we update it that very day and we look at them on an ongoing basis to make sure that if somebody’s shut us off and they’re not going to run for 6 months because they got some new coal then we go under kind of a formal little committee evaluation that says keep it on, take it off because this chart is really for your guys. It’s for investors and analysts to give you better visibility into our, into what we’ve got running and to our operations. So we keep this chart, that chart that’s on the website will be accurate real time.

Until we say otherwise going forth in the future to John’s point. We put out a press release on new FUEL CHEM customer demonstration. This thing will be updated the same day.

Got you. Okay and then final two questions. One on the operating expenses, doing the math and assuming similar gross margins, where are you going to spend or overspend if anything on operating expenses this year? Is it new R&D platforms John you had looked at mercury before what, why is op ex going to trend up and what are you looking at there?

I think generally speaking on upward trend I think where we could overspend could be in international markets. Opening up a Beijing fuel tank in 2007 obviously costs some additional operating expenses too then. We’ll see what develops in India with the success of our demonstration there. We may find ourselves setting up a legal entity structure there as well. That’s something that we haven’t decided as of today but that could be real for us. So there’s an area whereby we could expect to see some additional operating expenses. We added 40 individuals to our employment base in 2007. The great majority of them actually rolled through cost of sales but there were some folks that were added for purely administrative reasons just to help the company gear up and adjust to our growth pattern. 2008, obviously we’re going to staff up again but the impact on SG&A should not what I call material John.

I think that’s right, and we working hard to come up, we are not going to be a one or two or three trick pony on technology. And I think you’ll see 2008 may be a break out year for us with new technologies and with expanding our capabilities, at least my expectation that that is going to be true. Been working a lot of stuff that we, that’s real close to fruition so we’re trying to stay ahead and not only do we want to win and compete with what we have on the plate now but we want to have a bigger plate.

Then my last question for Vince, Vince, generally speaking you’ve got a 1 to 1 ratio on net income conversion into cash flow. This year is was .5. I know you spent some money on a new building but as we look into ’08 are we still looking to keep roughly the cash flow to net income ratio about 1 to 1?

You know probably a little bit less than we had in ’08. We do have to actually build out the inside of our new building so we’re going to have what I would call a one time impact related just to finishing our new corporate headquarters in ’08 with the exception of that, that conversion should be 1 to 1 at least.

And a note about the new building so folks don’t think we’re, we did a, we’re for those of you visiting we’re busting at the seams and we’re hot bunking with some of the cubes around here because we have completely used up our office space locally. We did an evaluation of lease versus buy in fact we had in the final competition about six places to lease and only the one buy option and we a large of the employees around and evaluate each one and we looked at the cost. It is in today’s market it is radically cheaper to the route we did on buying versus leasing. I mean it was almost 2 to 1 kind of thing in cost. And we’re going to have a facility that should serve us for many years in the future. It’s right on I88 at the Windfield exit. It’s a great place. Something we can be proud of but also it’ll make us a lot more efficient because we won’t be scattering our stuff all over in warehouses.

Great, thanks guys.

Thanks John.

Your next question comes from the line of Mark Tobin of Roth Capital Partners, please proceed.

Good morning.

Good morning Mark.

Quick question, a lot of mine have already been asked but one Vince the accounts receivable was up quite a bit sequentially, can you comment on that?

Certainly, that’s purely the result of all of the year end work that we did relative to all of the additional project bookings in the third and fourth quarters of they year. Okay, as we recognize revenue we actually obviously at that point in time we actually increase our receivable balance. It’s an unbilled receivable for percentage of completion until we actually issue the invoice but the driver there is purely the operating business activity in the third and fourth quarters of the year and I would expect that to notch down a little bit in the first quarter of the year.

Okay, and then on the outlook, I guess looking ahead to beyond ’08 into ’09, I guess John if you could outline the catalyst that could reaccelerate growth again as several people have mentioned the ’08 guidance implies that a fair deceleration just give us an idea of what catalyst are there that are going to drive accelerated growth in the long term

Well if the deceleration from expectations it’s an acceleration from our ’06 to ’07 results, we are, we don’t mean imply a deceleration in our guidance. And we’ll see how the end of the year comes out. Everything, the stars are all aligning for this to be an awesome period of growth not just in ’08 but ’09 and 2010. If we play our cards right in China, that is an incredible market for us. And it’s hard to oversell that to be honest with you. And we have to make sure we don’t stumble in our process and [Linda Lynn] is winging her way back to China as we’re having this phone call. We have high expectations for this company to get, to be a high growth company, high growth rate and very profitable company. And I think you’re starting to see, one of the things that Vince mentioned that I really want to highlight in that context is that operating margin. We had talked in the past about we hoped to get to 20%, when we get to triple digits in our business plan which would imply something like a $25 million or greater. I don’t know if it will take that or greater. But we’ve never been at that level of performance on a quarterly basis. We hit it our operating results were quite spectacular. We think this company can beat what people are estimating out there and that’s what we aim to do.

Okay, thank you that was helpful. That’s all I have.

Okay. Thanks.

Your next question comes from the line of Jeff Osborne of Thomas Weisel Partners, please proceed.

Hi Jeff. Jeff? I don’t think he’s there Eric.

His line is open. Jeff?

I’m not hearing anything. Let’s go back and pick up Jeff in a little bit, Eric.

Jeff your line is open now.

Yeah, Vince and John can you hear me?

Yes we can.

Excellent, I appreciate it. Congratulations on the strong quarter and not sure what the confusion there was. But John I was wondering if you could just rank order you know the potential sources of upside in 2008 that you’re expecting not in the guidance but just where are you the most optimistic. Is it domestic, is it India, China, Mexico and you know if you could just kind of clarify whether it’s APC or FUEL CHEM.

Got you. It’s actually both. On the FUEL CHEM side, we’re getting a lot of interest in China and India on efficiency gains if you read, if you keep track of the coal market, China’s in their coldest winter in recorded history. They are running all of their power plants to delay in the outage is due to they’re trying to keep people from freezing right now. A lot of their plants are district heating plants too. The use of coal is up dramatically and China had to stop exports so their really looking at can we get more megawatts per ton of coal? And that’s where our fuel cam really helps. And they want to clean up air which is where our APC helps. Those stars are all seeming to align. The Mexican, I mean the Indian market is also very active and again I would be disappointed if we don’t have more orders in both of those markets in the not so distant future. Mexico is moving as a major growth area for us the interest down there is quite high and again I expect to see something sooner than later for additions there on much bigger units. So the foreign markets are really good. Europe is the, I don’t see the explosive growth there. We’ll get some odds and ends up there, but right now, our Italian offices run our Indian operation. Those are great folks there and we’re trying again to use our folks most efficiently. But in the US, the market is really outstanding. I think there’s never been as green a feeling throughout the country as people wanting to clean up air and water. And utilities are no longer looking so much to buy credit to do that but are trying to make sure they don’t have to buy so many, because they want them to be cleaner, for all kinds of the right of reasons. And on the efficiency, that Santee Cooper paper which has just been out a few weeks now is generating incredible interest among utilities as they look at this and in fact one utility exec told us recently he said let me get this straight. I can put a FUEL CHEM, on and I can save enough money to pay for my NOx addition on the capital side and I can get all of this stuff be more efficient and be cleaner and not spend any money, net net. And we said yes, that’s what that means. And that’s actually quite intriguing to a utility say.

Excellent I appreciate the detailed response. I just had two more questions. Can you talk about the accruing there’s a lot of optimism on the international side and you got the Itochu relationship. Can you just talk about what the kind of the rhythm of the numbers are in terms of the expenses that you’re have associated with an international build out, in particular with Itochu only being able to recognize half the revenue. Should we think about the margin profile of Chinese customers being lower than your traditional American customers?

The, while the revenue overall is going to be and profits are going to be split 50/50 there, I don’t know what the margins on our revenues are going to be completely yet. We’re going to see that a lot of the deployment there, we have a business plan obviously but the right now I’d say we don’t see a lot of difference between the US and China today for us. But we will see what the future hold. What we need to do Jeff is to get one or two of these up and running and get them under belt and we can talk more intelligently because how much is it really going to cost to ship the stuff. I mean we’ve got prices and for the chemicals over here but what’s it going to cost us to buy it in there. We’ve got two or three prices on local mag supply. What’s our technician really going to cost us going forward and how much training and all of that. We’re just now implementing that we have a plan, we think we know what those costs are and they look real attractive to us and the margins look real good. But before I can speak more definitively I would like to get one or two in each market under my belt.

Yeah that’s good and is the Itochu relationship I believe that’s up for renewal this year, is that correct?

It’s one of those things that it was a one year exclusive. In June, it comes up for it could be renewed or we’d move to a joint venture company. That was the initial plan is we’d give it one year to see how we like each other, and to see if it’s meeting both of our expectations. And then if it is, we go forward potentially with a joint venture company. We’ll have to make that final determination but I think it’s safe to say that both parties are very pleased with the relationship at this point.

So there wouldn’t be any volatility around revenue recognition around the through negotiation either. You know one of the parties trying to bring in.

Everything’s in place that needs to be in place. The real big expense with that is establishing our Beijing Fuel Tech environmental technologies company office and they’re in a great place and we have an incredible staff. I’m amazed that Linda was able to recruit the recruiting.

Excellent and the last question I had just for Vince. What should we think about in terms of tax rate for ’08 and ’09 and also on the cap ex side.

I’d use 38% as an overall effective tax rate for both years. Okay and I guess cap ex independent of what I would call the special one time corporate headquarters purchase requirement, independent of that as you know, our primary cap spending requirement comes from our FUEL CHEM equipment so as that business for the tax rate in this country and in China and in India that’s how our cap ex is going to ramp up. Again it’s not what I would call material cap ex overall but an increase from what we experienced year end in 2007 which was around just around $3 million spent on FUEL CHEM related equipment in 2007, any increase in that in ’08 and in the future, that just means that we’re going to be generating obviously annualized revenues we had a $1 million per year rate per unit so what we look forward to that capital spending any day. Jeff Osborne – Thomas Weisel Partners: Sure but they 2007 had a front end loaded in terms of the cap ex on those FUEL CHEM customers that have actually haven’t flowed through the revenues so you could argue that FUEL CHEM revenue would actually grow a little bit faster and you wouldn’t have the cap ex associated with that is that fair? You’ve already spent that money in depreciating it as you said before?

Well you do a little bit.

Absolutely true from that perspective. My point is more related incremental cap ex related to the new FUEL CHEM units.

Got you thanks a lot.

Thanks.

You next question comes from the line of Carter Shoop of Deutsche Bank, please proceed.

Hi Carter.

Good morning, can you guys hear me okay?

Yeah, we can. No problem

Thanks so first question is on FUEL CHEM, it sounds like in the first quarter, maybe it will be relatively flat sequentially and then pick up to the $9 to $10 million range. First off is that correct?

Well it may or may not be flat, we don’t know yet, but it wouldn’t be the full operating flow rates that I would expect in the second, third and fourth quarters. Exactly how much short of that we won’t know for a little while.

And just to clarify, the pick up to $9 to $10 million, that’s going to be as a result of the contract you’ve already won?

Yeah, those are as a result of 2007 and wouldn’t include anything we’ve announced in ’08. I’ll be honest with you we’re not counting, because you have chop and everything in our business plan we really don’t have much for the India, China unit in there and we announced to more units that were already up and running but those were a few 100,000 on a year basis. So the baked in impact is from the ones we won in ’07 and we need to win some more here in ’08.

Great, that’s helpful. In regards to FUEL CHEM, is there a way you guys can quantify the number of plants that have made it in offline for more than two or three months. It sounds like you guys take them off the sheet after they’ve been offline for six months, are there a handful of different plans that have been off for two or three months?

Jeff, I mean Carter, I’m sorry, Carter we don’t give out, I mean that’s given way down in the weeds for that sort of stuff. We’re trying to help your macro visibility versus micro. Power plants when they take an outage sometimes it will be a six week outage to do a turbine, that’s just a standard outage, and outage that we’re not injecting when they’re doing that. They may have other issues that they deal with at they times they want us to crank up higher. We don’t try to tell everybody okay we’re cranking higher than normal on five units and lower than normal on three others over here. That’s way down in the details and we really, I think we’re being I hope we’re being open enough to be useful to you all but I can’t get down into that level.

Okay. I understand it’s pretty far into the details, just given the sequential decline the past two quarters in a row about that might be helpful in getting a little bit more understanding on what the drivers there.

Carter, just one, as you look at FUEL CHEM, 100,000 more, 100,000 less or 200 or 300,000, that’s kind of in the noise or usually it’s one way or the other. A gas unit comes on or a coal, a oil unit comes on for peak in a period and goes off that might have a extra 50,000 here or something there. What you’re really looking is for movement in the millions.

Okay.

On a quarterly basis.

Can you give us an update on the arriving associated with getting FUEL CHEM recognized as a fuel adjusted cost with several different PUC’s and what type of upside potential that would provide if successful?

Carter yes and that’s actually something we’re working hard on but not the state level. We will work, we do work at the state level but the interest really is on working with the House and Senate so that in any new energy legislation package, we get them to put a mandate in there the clerk allow for energy efficiency measures like injections to be included in the clerk fuel adjustment costs. Actually right now I think in both the rows bills that are, we have successfully got that language in those proposed bills. Now whether an energy bill passes in ’08 we’ll see but if it passes and if that language stays in there, that’s a home run. That means no more do plants have to worry about this being a O and M cost increase. It’s now fuel cost pass through and there would be no reason or budgetary side, which is the primary drawback for implementation at most facilities. So we’re working that hard, Vince Albanese, our Senior VP of investor relations and he’s been meeting with not just, republicans and democrats on both sides of the House and we’re getting a really good reception.

And you know that reduces, it’s not only efficiency if I can change a unit’s efficiency by 2%, 1% it’s double that in the CO2 reduction. 1% change in efficiency means a 2% reduction in CO2. and with our costs it’s free. Why wouldn’t you do that if that’s something you’re worried about.

Yeah, I mean it seems that it makes a lot of sense. Do you have a, an idea of how many different customers you’ve talked to that have been hung up on the fuel adjusted cost. And how many customers are waiting in the wings for those type of legislation to be passed?

They’re not necessarily waiting in the wings because utilities know about politics. But I would say 90% of the customers we talk to this is an issue.

Okay. The final question, can you give us an update on the overall competitive environment both on the FUEL CHEM and APC sides?

There was much said about the competitive alternatives on the FUEL CHEM side and I hope that facts are showing out that that was all way overblown and there’s not serious competition on that side. Competition really is around getting it, for us utilities being able to justify it in the O&M costs. For the cost side for to benefits often got to the fuel buyer and the power marketer. That’s the biggest issue that’s where the quote competition will come from just in they’re own internal financials. It’s not from us being beat in head to head by somebody else. On the APC side, there is competition. There’s a few others out there and now Mobotec just came in although I don’t think they’re updating old fire system remotely as good in the domestic market as our system and there’s a couple others. ACP is one that we meet in the market a good bit. And you know we work hard to win what we win. They’re all good competititors there on the APC side. We see those a lot more prominent.

Great. Best of luck in ’08.

Thank you.

Your next question comes from the line of Dan Mannes of Avondale Partners, please proceed.

Morning everybody.

Good morning Dan.

A couple follow up questions, first on the APC side, you noted in last years K that you thought about 300 domestic units would be impacted by care. I was just wondering as we look [care] implementation in the beginning of ’09, where are we in terms of compliance. Obviously you’ve got your share of orders in the fourth quarter and we’ve seen a lot of scrubber announcements but two years ago now how many people sort of are still working through their compliance plans, how much is sort of open business at this point?

Dan that number was based on some assumptions that proved to be grossly over conservative on our part in as far as low numbers. The new 10K is being filed today is it Vince?

Yes it is.

And you’re going to see new numbers and they’re substantially higher. I think we’re showing, I’m trying to read what we had said in here but in either case, you’re talking about thousands of new units as we looked at the applicability for care we had 1300 electric generating units, not counting the industrials alone on care that we believe were customer units. So the market potential, and then you look at cleaner visibility rule and that goes into to many thousands. Now with spread of our technology suite, we really if you’re doing anything with NOx, then we got something to talk to you about. If you want to put on an SCR, our ultra technology has now taken off, and I think we’re the industry standard and we’ve gotten all kinds of ways, we were just looking at units for example if you were going to put in an SCR. We call that list and said okay which units are going to put an SCR in and have gas supply nearby because our ultras were gas fired and that would be a test. Well now we’ve got ultras that are boil fire, gas fired, fired by air, hot air so they’re, and electric so there’s really no unit out there if they’re doing something about NOx that we don’t have a technology applicable for and we’re expanding those so that market is opened up a lot for us in the past year.

So just so I understand. I mean the 300 was really coal fired units and when you talked about that over 1000, you talking about more industrial and non coal fired?

No, actually Dan, the 300 was a subset of coal fired units.

Yeah, that’s what I meant.

It wasn’t all the coal units.

Right.

The 1300 includes coal but has other oil, other fuels in it too. But when you’re combusting anything, you are generating NOx whether its oil or whatever and we’ve got these new for some of the ones that we would have never have included before, the very small university and industrial gas fired boilers for example. We now have a brand new design that’s, we call mini ultras that are just awesome for that market. And again that’s stuff we didn’t have a year ago.

And then briefly, on the ultra product, certainly I understand the hazardous nature of ammonia, especially by the heavily populated areas but isn’t there also a cost increase there given the lower ammonia quantity in urea and converting it back. Isn’t there a cost disadvantage to actually using urea?

There is a, when we were, when I was looking at this at AEP, the and I remember we did a detailed analysis of all that the capital cost for anhydrous ammonia which is just the pure ammonia is very high, because you have to have these tanks and you have to have a all sorts of safety equipment around them but the shipment cost is the cheapest in. the next in line on cost was a system like an ultra. And the most costly was to do a water ammonia blend. Hydrated ammonia and you can get that down to like the 20%, 19% ammonia and 81% water. But that gives you five times the shipping cost. With the new rules coming out of homeland security on transportation for those, even those kind of tankers were both aqueous and hydrous ammonia, the shipping costs are going up dramatically because trains are going to have to be routed around like a Chicago, well that’s’ very costly for a train to have to segregate so that they can go into the yard in those big cities. I think the cost is going come up and we’re going to be cheaper all the way around, especially with our new heating techniques Dan with not just gas even hot air.

Alright, and then lastly on FUEL CHEM, just focusing a little more on Q4 and I know obviously there’s some noise quarter to quarter but again year over year, you had two more cold fire units than last year on plus some portion of whatever you brought online in the fourth quarter and revenues were down year over year. Some of this is outage related I mean that seems to happen every quarter but are you seeing any different in sort of flow rates on a consistent of trend basis? Is there whether due to coal switching or anything else or efficiency in the amount you inject. Is there any sort of shift that we should be looking at in terms of chemical demand?

Yeah Dan year over year you know we’re up. It was just the quarter over quarter and that was just some minor variations in operations there. But year over year we’re up like 14%. You only had 2 new units in there. So year over year we were up and you saw the results in there but not quarter over quarter. You’ll see the full results of these, of all these new units running in ’08.

So you’re saying there’s no real fundamental change in usage per unit even with coal switching or other efficiencies?

Well in a individual unit bend, there will always be, if somebody brings in some really slaggy coal our usage goes up, somebody brings in coal that’s not nearly so slaggy the usage on that unit while they’re using it they might cut back on the flow rate because they just don’t need it. And we’re working on that. We’re actually working on an automatic control using infrared cameras, really neat way that will, you can go on automatic and it will actually watch for slag and increase or decrease so we’re looking to fine tune those kind of flows. It’s not that there’s just one number out there that a unit once you turn it on it’s just set. They vary all over the place all the time on every unit. And those kind of operational variations is what I was talking about earlier, you can’t really get down in the weeds and worry about whether it’s 100,000 up or 200,000 down or what. What you’re looking for is the over all trend and I think you’ll see overall trend move up to that $9 to $10 million quarter range and as win more, we’ll get more.

Well thank you.

Okie doke Dan.

(Operator instructions). Your next question is a follow-up question from the line of Michael Carboy from Signal Hill, please proceed.

John I’d like to just sort of follow on this last question here on FUEL CHEM’s speed rate. We’ve talked in the past before about mag ox being a way also help mitigate sulfur emissions, that’s pretty relevant in China as it is here in the US. Are you now seeing any real increase in the speed rates here in the US?

Oh yeah on some units, Michael we look at gross averages on stuff and you know as we’ve said in the past on a big unit it’s important to the application but you might get a unit that is 3 million a year per unit. Or in some applications according to how we’re doing that, and we are working with utilities to find the sweet spot for that utility. We will vary it up and down to take a look at where you get maximum return on investment. It might be a higher gross rate. It might be that if somebody’s grossing that at 1 million that they get a 2 to 1 payback and they [dose] ate 2 million and they get a 6 to 1 payback. It literally is that kind of a difference. So we actually do work with utilities to, and that’s where if you got a fuel cost pass through this becomes a no brainer. It is a little more difficult to work with a plant manager and say hey look I think if you just tweaked it up just a little bit you’re going to get twice the return that you’re already getting. And that’s where Santee, you know we work with Santee Cooper on just that issue. And did a wide variety of rates with those guys and they found their sweet spot and they’ve paid back very, very handsomely for them.

Okay well great. Thank you.

Does that help?

It does.

Thanks Michael. Eric, any more?

Yes sir, your next question comes from the line of Michael Molnar with Goldman Sachs, please proceed.

Hi good morning, everyone.

Good morning Michael.

It’s a marathon call so I’ll just ask one question, most of mine have been answered. Can you just give us some idea of how you think about protecting your IT as you venture into places like China?

Absolutely, and Michael that’s a great question. You know we signed our Chinese FUEL CHEM, at the end of January, February we had hoped to have that on under contract well before Christmas but the whole issue of the last two months was over our license agreement. The Chinese we the modeling stays here in Batavia so the Chinese plant managers fly over here to view their model. But we also once you’ve shown where the ideal locations are, similar size boilers might have somewhat similar location. So it was extraordinarily important to us that there be a rock solid license agreement with unlimited liability if they disclosed those port locations to anyone else. That was a hard concept for the Chinese plant manager to accept but they did. And with adjudication not there in the mainland so we are taking our best effort to protect that information. We do it in our contracts. We do it in the way we approach our customers and how we’re doing our projects. One of the reason, a good help is Itochu, they’re a very large corporation. And people pay attention to that kind, the larger corporation more attention from time to time then they’ll pay to a smaller one, which we are. So I think that we knew we had won that thing for a while but we were not going to go forward until we had the IT issue in absolute solid terms. And that’s true here in the US, it’s true in India, for the same reason and in Mexico and China, wherever else we go.

Okay, great, thank you.

(Operator instructions). You currently have no more questions in queue at this time.

Well thank you very much everyone, thanks for listening in on the call we plan to make 2008 a banner year, now we got work and make that happen, thank you very much for your interest in the company. Good bye.

Thank you for your participation in today’s conference, this concludes our presentation, you may now disconnect, have a good day.