Good day, Ladies and gentlemen, and welcome to the Fuel Tech first quarter earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Tracy Krumme, Fuel Tech Vice President of Investor Relations and Corporate Communication. You may proceed, madam.

Thank you very much. Good morning everyone, and welcome to Fuel Tech’s First Quarter Conference Call. By now, all of you should have received a copy of today’s release. If you have not, please call 203-425-9830, and we will be happy to send you one. Joining me on the call this morning is John Norris, President and Chief Executive Officer; Vince Arnone, Senior Vice President, Chief Financial Officer, and Treasurer, and John Graham who is Senior Vice President and will assume the position of Chief Financial Officer and Treasurer effective June 1, 2008. 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 materially are included in our filings with the SEC. The information contained in this call is accurate only as of the date discussed, and an investor should not assume that statements made in this call remain operative at a later date. Fuel Tech undertakes no obligations 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. Good morning everyone. I appreciate you joining us on this call. We are pleased to report a record breaking first quarter for Fuel Tech. For the quarter, our revenues were $20.5 million, up 26% from the first quarter of ‘07 and making it the best first quarter in our history and the second highest quarter ever. The net income for the quarter was $1.6 million, or $0.07 a share, double the $800,000 or $0.03 a share last year. Our CFO, Vince Arnone, will discuss our financial results much greater detail in a few minutes including a discussion of the impacts of various taxes, and other charges such as 123R stock compensation expense. Vince will also cover a balance sheet in detail, but it remains exceptionally strong with very little debt and cash equivalents and short-term investments of $34.6 million. Our business model continues to generate growth and revenues, profit, and cash, and we expect that to accelerate into the future. Now, I would like to tell you about the company business behind these 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 efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. For reporting purposes, we broadly group those technologies into two product lines—a specialty chemical business we call Fuel Chem and our air pollution control or APC capital projects product line. For the first quarter of the year, we have both product lines generating growth in revenue and profits. Our APC business sector saw revenues of $11.7 million for the quarter, up 36% from the $8.6 million in 2007. Gross margins for the quarter or 47%, up from 42% in 2007, and reflecting a bit less…

Thank you John, and good morning everyone. As John mentioned net sales for the first quarter were $20.5 million, up from $16.3 million in 2007. Net income for the quarter totaled $1.6 million or $0.07 per diluted share, compared with $0.8 million or $0.03 per diluted share in 2007. The revenue and net income levels are records for a first quarter in Fuel Tech’s history. The first quarter included $1.1 million in stock-based compensation expense versus $0.9 million in the first quarter 2007. The first quarter included $1 million in income tax expense, versus $0.4 million in the first quarter of 2007, representing the increase in taxable income. Revenues for the NOx reduction technology segment were $11.7 million for the quarter versus $8.6 million in the prior year, an increase of 36% due to the ongoing recognition of revenue on the $50 million NOx reduction contracts that were awarded in the second half of 2007. This segment continues to be positioned well to capitalize on the next phase of increasingly stringent US air quality standards. Utilities and industrial facilities across country are planning for compliance with the clean air interstate rule and the clean air visibility rule which take an effect in 2009 and 2013 respectively. Literally thousands of utility and industrial boilers will be impacted by these regulations, and Fuel Tech Technologies will enable utility and industrial boiler owners to attain compliance. Our backlog is approximately $25 million at the end of the first quarter which is the largest backlog at the end of a first quarter in Fuel Tech’s history. Thus far year to date, Fuel Tech has announced contracts with a value of $11.7 million. Revenues for the fuel treatment chemical technology segment were $8.8 million for the first quarter versus $7.7 million in 2007. This segment’s…

Thanks Vince. In summary, we are off to a good start in 2008 and look forward to a very strong year. With that said, operator, can you please open the line up for questions.

Our first question comes from the line of John Quealy from Canaccord Adams. You may proceed.

Hi, good morning folks!

Good morning John.

A couple of questions - first on Fuel Chem. Of all the units that were press released and announced on ‘07 on the coal side, are they all installed and producing in Q1? Can you give us an update there?

Yes. By the end of Q1, we had two large coal units that did not come on until right at the first of February and then the other one in middle February, so those two really only had about half a quarter of contribution, so you really don’t get in this quarter a full run rate from all of those coal units added, but they all are up and running.

John, I know, with the guidance of $38 to $40, I know many of us are looking for this business line to get into that $9.5 million to $10 million revenue run rate per quarter. The guidance you gave certainly sort of reaffirms that. Can you talk a little bit about the seasonality? Are we going to see spikes in the summer time and maybe a gradual advance to that? Can you give us a little bit of thoughts on how the rest of the year is going to work on that revenue line for Fuel Chem?

There is always going to be a little bit of seasonality in these. The summer is obviously the strongest running season when utilities really want to have everything up and running and they will pushing our Fuel Chem a little harder during that time frame. The revenues from new clients that we are adding right now probably won’t affect us until third or fourth quarter coming on, so I think for like the second quarter, you will see the full extent of the contribution from the units we added last year, and in the third and fourth quarter, you’re going to start to see additions from this year. We don’t see the big delays in installations that we saw last year outside of the 1-month delay in India and a 2-month delay in China. In China, it was government dictated by very strong cold weather. We really don’t have in our expectation because there’s going to be a demo period in both of those countries and really don’t have any significant contribution from our expectations for those two international ones. We just want to get up and be a success and have others in demo at the same time in those two countries, and I hope and expect we will have, but I think from the US, we will start seeing contributions. It may be also true for Mexico from additions.

And when you’re looking at those additions—those 6 new coal units, 2 non-coal—last year, was it 13 in total? I know you’ve talked in previous calls. You think you can match that number in terms of total FUEL CHEM units at least on the coal side—can you match that number again this year, John?

I would be sorely disappointed if we don’t exceed that. I mean if we’re going to be a growth company, we really need to have a growth pattern. I’m really encouraged by the pace of wins so far this year and the visibility we have in contract negotiations, but you never know in this stuff. Until it’s a done deal, it’s not a done deal, but yes, I would expect to be that strong or stronger. I’d be disappointed if it’s not.

A couple of other questions and just one more on Fuel Chem. When you talked about the installation delays and all the things that you had, I think you actually mentioned it in reference to APC as well as Fuel Chem, what has changed in your mind in terms of the timing expectations for these units to get up and running this year versus last because from an outsider view of the macro, it seems similar, if not potentially a little bit more conservative given the election cycle and some environmental regulation push-out we are seeing on the CAIR side?

Yes, and the Mercury ruled had some impact but not as much for the ongoing units. CAIR probably is just going to cause more of an issue around new units that are trying to be built and exactly what they have to comply with. What we are seeing at least in our interactions with utilities and what we’re seeing in the utility industry now is the more normal utility kind of delay. Utilities are utilities. Last year, they were spooked. This year, I don’t see the spooking at all in our discussions with utilities. They’re more into their own budget cycle and more normal kinds of stuff you’ve to put up with utilities. On the China front, that actually is a lot more encouraging. Our success there on the units with Huaneng, the largest power company in China, that was well noted throughout that corporation, and I’m really encouraged by what we see in China on the opportunities for 2008. The opportunities beyond that are just incredible, but this could be a really great year in China for us on the APC side, and we hope to get the ball rolling on the Fuel Chem side there too.

Just a couple of others. On the FGC relationship and Chem-Mod, how should we look at that? What do you think is going to contribute more, and what’s the margin profile or revenue profile we should be looking at for the sulfur business?

First, I’ll deal with the flue gas conditioning. I think FGC, Inc., in my opinion has the best flue gas conditioning technology, especially for the melting of the sulfur. They have a patented approach in the industry. We liked it a lot. They’re great guys to work with. Those sales will look a lot like SNCR sales with revenue and profit margin, and we’ve had all of our sales staff in here to training last week, and they’re really hitting the ground running, both in Europe and we’re looking at in Asia there too. On the Chem-Mod, that’s a little bit longer short. FGC is a proven technology. That’s just us taking it to market. Chem-Mod is true R&D. We have high hopes for that. We hope that we will be able to sign up a customer to do a demo to see if our expectations are in line with reality, but we’ll see. If it were to work really well, it would be an incredible home run. If it doesn’t work, it’s a swing and a miss, but you’ve got to be at the plate.

And the final two for Vince. You gave us the segments’ split on the revs. The margin profile—can you comment on what sort of ballpark margins for both business lines you are looking at for this year?

Right. For APC, as we’ve seen here in Q1, we have a little bit of an uptick in gross margin, and that’s specifically related to the mix of project profile that we’re working through right now from a backlog perspective, so on a prospective basis overall for APC, we’re still looking at lower to mid 40s as the overall target. As we work off the backlog that we have out there today, it may be a little bit on the higher end because it’s overall a mix of projects that’s in favor of Fuel-Tech only scope work as opposed to the turnkey scope of work which has a tendency to go ahead and dilute margins. Again, longer term basis, lower to mid 40s. Immediate quarter or so perhaps, the higher end of that on the APC side. Fuel Chem, as you see we were at the 49% level here in Q1, and again had it not been for the carryover of a demonstration, we would have been in that approximately 51% level. Lower 50s is our target for Fuel Chem. That’s where we’re looking to be, and I would expect to see that as we go forward in the future.

My last one, cash flow in the quarter was exceptionally high at two and a half times net income. Are we still looking for roughly one to one this year, Vince, in terms of cash flow generation in terms of net income?

That’s exactly on. The timing of cash flow varies greatly with the change in working capital. We did have substantial receivable collections here in Q1, and so it gives us a little bit of a benefit there, but on an overall basis for the year, your point is dead on.

Right, and congrats Vince, we’ll miss you.

Thanks John. I really appreciate that.

And the next question comes from the line of Rick Hoss from Roth Capital Partners. You may proceed.

Hi Guys, Good morning!

Good morning, Rick.

On the APC side of things, you talked about domestically and Canadian utilities looking more ultras, and you say that's more regulatory driven as far as increased caution about transporting ammonia.

Yes. The ultras will go with SCRs. As you know, both installed SCRs and new ones, the Homeland Security ranks that just came out and the railroads’ reaction to that has been pretty pronounced. Those ranks which will soon go into place are going to put an extreme burden on the rail shipment of anhydrous ammonia which is the way most of it is moved around. One of the railroads told us recently that the hauling of anhydrous ammonia amounted to less than 1% of their revenue and over 50% of their corporate risk. Those are pretty incredible numbers. If they will deliver the stuff at all, the costs are going to go through the roof. They will have to reroute lines not being able to pull into yards, and that’s pretty difficult to not have rail shipments being able to pull into a yard here in a place like Chicago where the big rail yards are, so those are real issues. Utilities are looking at switching from anhydrous ammonia to some sort of urea-based solution. We believe we have the best one of those on the market, and new systems that are going in are most definitely going to be looking at some sort of urea-based approach. In China, they’ve been a believer around all their big cities, so Ultra is really a hot item over there right now.

Okay, thanks. Do you have a timeframe for that domestic when that’s supposed to hit?

As any kind of thing like this hits, utilities will like at it. They’ll put it in their capital budget. They’ll then look at the technologies, so it’ll be something that will start, but won’t be like a meat cleaver coming down. It’ll be utilities starting the switch as those costs go through the roof.

Okay, and then as far as the APC proposal activity, I think in a discussion that we had in 2007, it seemed like the proposal activity was always robust. Just wanted to get a comparison compared to 2007 levels what we’re looking at.

Well, this year everything is more or less on schedule. What we saw about this time last year was utilities starting to put off meetings, starting to delay when they wanted bids and turn it around stuff, we didn’t really see the pronounced impact of that till about the end of the second quarter when stuff just wouldn’t get done. This year, things are proceeding on a pace. Utilities are keeping their schedules for meetings when they want to have kickoffs, when they want to go with the negotiations. The quota activity is very high. The team is working very hard. Again, the China situation there is quite remarkable, and we’ve just got to bring those home, but that could be quite beyond our expectation this year, if we’re right.

Okay. Is there an increased sense of urgency among utilities with CAIR starting?

Yes, but it’s more normal increased urgency. The fact that the annual price for NOx credit is starting at $4000 something a ton is really the market saying they believe that utilities are undercomplying at first. If they do that, they’ll just have to buy the credit. As you look at the more long-dated sales for NOx credit, you see it tapering down which is the market saying we think they’ll start building this out. I think the expectation is that we’ll see that start picking up more and more. Utilities don’t like to spend capital in the face of uncertainty if they don’t have to. The good part about our technologies is that they’re relatively low capital, so we actually see an upturn in interest on things like SNCRs more than we thought and a lot of interest in Cascade as the cost of construction for SCRs continues to really escalate.

Okay, perfect. Thanks a lot.

And the next question comes from the line of Sanjay Shrestha from Lazard Capital Markets. You may proceed. Graham Madison – Unknown Firm: Hi, good morning guys. It’s Graham Madison, how are you?

Hi Graham, how are you? Graham Madison – Unknown Firm: Attention to details on the Fuel Chem margin, just a quick clarification on that front. The margins are low 50s. Will these be healthier as more Fuel Chem customer move off demo contracts to paying contracts?

Absolutely! In addition to rev share, sometimes we give a certain period of time, a couple of weeks or a month, even free ride up front in a 60- or 90-day demo, and then they rev share for the next 30 days or 60 days where we split the cost, and we’re trying to be competitive in our offerings there, which means at the front of any deployment, you might depress margins down to where they are now, but longer term—that’s what Vince was talking about—longer term, we expect to see this segment being in the low 50s. Graham Madison – Unknown Firm: Got it. So there’s potential as more of these roll over, you can see a little bit of margin growth here.

I think you’ll see that absolutely, and you’ll see these things more level out on the revenues and become predictable as coal units are so deeply in the money. They are just running all the time anytime they can these days, and from an analyst and investor point of view, you should see the noise get down to where it’s a few 100,000 up or down according to unit shutdown, but nothing big as we get a much larger customer and revenue base. Graham Madison – Unknown Firm: Okay, great. Thanks. And then also looking at rising raw costs across the industry, are you being impacted by that at all? Are any of your business lines, or is there a potential to pass some of the higher costs on to the customers?

Since we are a relatively low cost solution, there are increases, but they are not material, and even for Cascade, there’s a little bit of free buffet. It’s not that much. It’s not outrageous, but you have a little bit of an impact, but it really is not going to hurt us commercially. What you really see though is a lot of utilities really choking on the cost of SCRs. They are going through the roof, and steel workers are in short demand. A quick anecdotal note—in our new office building, we have a central staircase that’s made of steel. We’re delayed a bit over a month moving in because we couldn’t get steel workers to come in to build our darn staircase because they’re all working on utility SCRs right now, and there’s a pretty big demand in this market. I found that quite 634 actually when I heard that excuse from our contractors. I don’t see that sort of stuff for low-capital intense now. The only other thing that would be out there is some of the transportation costs, we do pass that through to customers for like magnesium hydroxide, and the mag market is going up some, but right now we’re under a fixed price contract with our supplier, so we’re shielded from that right now. Graham Madison – Unknown Firm: Okay. One final question – just looking at the strong cash flow and the growing cash balance, do you have a target level for the amount of cash you want to keep on your balance sheet or are you looking any options in terms of – do you want to keep it there for potential acquisitions or potential share buybacks, or is there any sort of corporate policy on that?

The board looks at that literally every board meeting of what is in the best interest of the shareholders. Right now, we believe that we are going to find ways to use that capital to grow this business via acquisition of new technologies or M&A or whatever we are going to do with that, and if that half proves not to use much of it, you can always look at special dividends. There are all kinds of ways—stock buybacks—and the board actually looks at that every meeting. They are a pretty astute group on our board, and literally the answer always comes to them is what’s in the best interest of the shareholders and how we’re going to use that.

To add to John’s point, we don’t have a specific target cash number in terms of what we want to keep on hand. We have right now the opportunity on a global basis to really grow this company, and we need to use that cash in the optimal way to get into these market places because the time is now for us to do that, and to do John’s point, we are looking at all of the possibilities that you mentioned, and we’re looking at acquisition-type opportunities all the time, so that’s on our plate on a recurring basis. Graham Madison – Unknown Firm: I agree, and I’ll jump back in queue. Thank you very much.

And the next question comes from the line of [inaudible] from Morgan Stanley. You may proceed.

Good morning!

Good morning!

Quick question – on the Fuel Chem side, you talked about the high cost of oil reducing your revenues from that segment. Is that going to be a continued trend? Oil-fired revenues—I know it’s a smaller part, but do you see that continue to do head down or is that going to level off?

I think it will do both a little bit. It’s going to be down year over year. At $120 a barrel, oil breakeven for oil-fired units is about $120 of megawatt hour. Gas has gone up to $11 or $12 per million BTU, and their breakeven right now for combined cycle is about $90 to $100 and for separate cycle, it’s more like $110 to $120, so what you are likely to see is in the shoulder seasons—spring and fall—you will see prices hover probably at the breakeven for combined cycle, like they are around $80 a megawatt hour. You will see summer peak start going up into the mid 100s because you’re going to have to operate some of these units because they are must-run units, some of them, where they are near big cities. They’ll be running at least part of time for support, and then they’ll be running during peak periods. The consumer is going to see ultimately higher electric prices as all those fuel costs pass through, but where you lose is a lot of the oil units are just not going to be able to run at all in the shoulder months, and oil-fired revenues aren’t huge, but they are not nothing either, and this is a US event. For places like Mexico where they are burning this sludge that is not marketable, that’s not an issue. It’s really for places and some of the Caribbean islands and such like that where that’s the only source they have, so they’ll just pay it, so you’re going to see those continue to run, but along the Eastern US seaboard is where most of the oil units in the US are these days and somewhat along the Gulf, and you’re going to see a lot those be challenged by the market to operate very much. We’ll see that go down. You just saw a pretty pronounced version of that, and that kind of trend will probably continue, I would suspect, for most of the year.

So what was the customer unit breakdown between the coal and the non-coal for the quarter?

The number of units?

Yes. A couple of quarters ago, you put out a sheet that listed the number that you had for the quarter.

We’ve got it, and it’s on our web site. In the US, our coal units now number 37; four of those are US coal units that haven’t started up as you know. On the non-coal units, we have 23 in the US.

We update that chart every time we actually add a new Fuel Chem customer unit, so whenever you see us put a press release out, we will actually update this chart on the web site, so you can track our progress as we do.

Great, and one final question. On the APC side, were any of the revenues coming from China this quarter, and what’s the estimate percentage-wise for ’08?

Just a very small piece of revenue that fell into Q1 here related to China projects. It was really just what I would call some start-up related revenues from projects that we had signed in 2007, so just a very small piece. As John noted, we do have high hopes for China here in 2008. In fact, we’re expecting to see some order flow there, perhaps a little bit earlier than we would have expected last year at this point in time, so we think China looks promising, and we are looking to forward to getting some announcements from China here in the near term.

We signed that $6.7 million in the first quarter, most of which were for office of China. That just hasn’t started generating revenues yet for us in the first quarter.

Correct

Thank you very much.

And the next question comes from the line of Jeff Osborne fromThomas Weisel Partners. You may proceed.

Hi Good Morning guys. I just had a couple of question on China. Can you just talk about Huaneng trials wrap up, and you’ve been alluding to a couple of orders in the future here. Would those be before the trial is completed or potentially after?

The orders for that particular utility were for ones we signed at the first of last year, Jeff, and they are already in operation. Those were Ultras that were designed to give you better 90% NOx reduction in conjunction with SCR at full power, and they used it at 50% power, and we got greater than 90% reduction at a data point it wasn’t even designed for. The rest of the startup has gone great, and I think their internal comment was that not only has it far exceeded their expectation but that we are the best foreign company they had ever worked with. They are the largest power company in China. That bodes real well. I think we’re on their approved supplier list now, so we’re real pleased about how that has gone. I expect to see that turn into more business for us and other Chinese utilities we’re watching. NCRs, we are not with them, but they started up also late last year and exceeded our guarantees by a pretty wide region, so everything we’ve started up over there has bettered our guaranteed results and that has well pleased our Chinese customers.

Excellent! I was thinking there was a third-party validation test that needed to be performed.

You’re thinking of the Fuel Chem. With Itochu, the one we signed in the first quarter, that will really start up here. The outage got moved by the government till June, so it’ll start up in July, so it’ll be doing its trial period really throughout the third quarter. The documented results from that will be verified by a third party from that one—that’s for the Fuel Chem.

So that’s more of an ’09 impact, assuming that the third party tests go well?

Yes. In our business plan, we didn’t really have—since there being a trial period there—we just actually did not put any revenue contribution from either of those, and on a conservative basis, I hope we do get some, but in our business plan, we didn’t put any in there for ’08.

Excellent! Just two other quick ones – I believe your joint venture with Itochu comes to a close next month. Can you just talk about what your plans are afterwards and if there’s any type of disruption in the near term that you might experience in 2Q or 3Q?

I don’t expect any disruption, and I like our relationship with Itochu. I think the feeling is mutual.

Excellent! The last question on the CAIR side, should we be thinking about R&D to be running at this rate then or would you expect another step-up in 2Q and 3Q as maybe you push forward your projects there?

I would think we would be at a similar level. If something happens whereby we need to come up with special funding for a certain arrangement with CAIR, that’s something that obviously we’ll take a decision to do that if we think it’s worthwhile to spend the money and then obviously we’ll discuss that with you when those numbers roll through on a Q. At this point in time, I would not expect anything exceptional.

We have a lot more work than is known publicly going on in our R&D shop. We just don’t publicize that. We’re working on a number of different solutions, and we’re not going to let advancement of our technologies be limited by an arbitrary R&D budget.

I hear you. Thanks a lot.

Thanks Jeff.

And the next question comes from the line of Richard Wesolowski from Sidoti & Company. You may proceed, sir. Richard Wesolowski – Sidoti & Company: Thanks, good morning.

Good morning, Rich. Richard Wesolowski – Sidoti & Company: Quickly, I am just assuming that all the APC backlog is scheduled to run off in 2008.

No, not all of it.

Not all of it, but the great majority of it, yes. Richard Wesolowski – Sidoti & Company: And then, the only other question that I had was that if you look at the overhead – the SG&A expenses ex-any changes in FAS-123, you were negative for every quarter in ’07. You were about flat in December, and you were up about $1.8 million in March here. Can you discuss how much additional spending you need on that front as you continue to grow, if any?

Just the pace of growth that we have here is going to necessitate that we beef up some of the admin staff. That’s expected; however, the great majority of our employee base, as you know, is engineering-oriented, and those folks when they are deployed turn into cost of sales for us, and so with that factor in mind, we are not expecting a sizeable dollar or percentage increase in SG&A as we move forward into the future, again excluding your 123R impact. We have, as we’ve always said, the ability to leverage our SG&A balance greatly, and we anticipate that that’s still going to be the fact as we go forward here in the future, so again, are we going to have to add some SG&A dollars just to support and maintain the business? Absolutely, but it’s not going to be a material level. Richard Wesolowski – Sidoti & Company: Looking out to 2009 and 2010, do you guys have a dollar internal plan? Do you look at it as a percentage of sales? Is this some kind of bogey?

We don’t have a specific target to be honest. We’re going to do what we have to to maintain the business, and our focus has always been on improving our operating margin percentage. Our internal goal has been looking to notch that up over 20% on an annualized basis, and so that’s our internal goal. We’re going to manage our SG&A costs as we have done historically, and again we’re not exactly a frivolous spending group here by any means, but that being said, we will do what is necessary on that SG&A line to ensure that we can support the growth that we see coming here in the future. Again, no specific dollar level or percentage in mind at this point in time. Richard Wesolowski – Sidoti & Company: Great. Thanks for everything Vince. Good luck!

Thanks, Rich. Appreciate it.

Your next question comes from the line of Daniel Mannes of Avondale Partners. You may proceed.

Hi, good morning.

Good morning, Dan

Pretty much three questions – two on Fuel Chem and one on APC. First on Fuel Chem, can you talk a little bit about maybe the second, third, and fourth quarters last year and what the split was between oil-fired and coal-fired units – meaning is this a trend that you’ve already been seeing for a couple of quarters or is this the first time you sort of—I mean we’ve known that oil units were running less, but I’m wondering has it been this dramatic in your financials?

Well, the price of oil wasn’t that high in the first quarter of last year, and we have our own business plan that we were looking at the price of oil and how hard we expect it to run. Who would have expected a year ago that we’d be $120 oil? So we didn’t have that in our business plan. The reason we raised it now is because we’re breaking out units as coal and non-coal. Vince and I talked about this, and we’ll be breaking coal and non-coal revenues going forward just to be extra help for you all, but there was always a question about where are all these units you’ve been signing. They are there. They were just masked in this particular quarter by that downtick in oil.

Okay. The question I was trying to get out was there wasn’t a similar impact in the second, third, and fourth quarters of last year—meaning there was a dramatic tick down in oil plant output this quarter versus, say, the prior three? I mean do we know what happened year over year?

Dan, to be honest, we don’t have that level of detail here in front of us. Generally speaking, the coal-fired business over this past couple of years has ranged anywhere between 70% to 80% of the total Fuel Chem revenue, just as a rule of thumb. That percentage we see as increasing obviously because the coal-fired marketplace is our largest market opportunity, but I’ll give you a full year 2007. That data I have available, and as John noted, on a prospective basis, we will be giving you that breakdown between coal and non-coal just to be consistent with how we are actually tracking number of units. On a full-year basis for 2007, of the $32 million and some change in revenues, $25 million was coal, $7 million was non-coal, just to give you the magnitude of what we’re talking about relative to the revenue breakdown between those two industrial areas.

Thanks a lot. One other question on Fuel Chem. You mentioned usually when you sign up a new customer during the demo period, you’re either discounting the price or revenue share obviously. You noted that one of the reasons you’re doing that was to be competitive, and we’ve discussed historically that you haven’t a lot of competitors in this space. Is that new, or is that just something that you…

No, and I didn’t mean that in a ‘we’re facing competition’ kind of statement. I meant we’re trying to be out there and give utilities the best deal they can get to go ahead and try it, to make it as low a threshold for giving us a try as we can make it and to show really what we’ve got. We wouldn’t be doing this and we’re not doing this because some competition is offering them a better deal, but rather we’re just trying to accelerate market acceptance. We think if they try it, they’re going to like it, so the trick is to get them to try it.

Understand. And then the last question on APC, and this may be more of a housekeeping issue. When I look at the backlog number, I always assumed if you take prior period backlog, subtract out revenue, and then add in new orders, you should come to current period backlog, but is there’s a bit of drop there. Is there something I’m missing?

Yes. In our APC business, in addition to project revenues, we have ancillary spare parts and some reagent chemical royalty revenues that factor into that total APC revenue line, so there’ll always be a little bit of a variance there.

It’s a variance that says there’s more revenues than you’re seeing in contracts. It’s not a variance in the other direction. So you always get at least the same contract in reality as you’re going to get more on an annual basis, a few million more than then signed contracts?

So this quarter, you picked up somewhere between 1 million and 2 million of other stuff?

That’s exactly right.

Great. Thank you.

Thank you.

And your next question comes from the line of Peter [inaudible] from Thinkpanmure. You may proceed, sir. Unknown Analyst – Thinkpanmure: Thank you for taking my call.

Hi Peter Unknown Analyst – Thinkpanmure: How are you?

Hi, how are you? Unknown Analyst – Thinkpanmure: Pretty good, thank you. I also have some basic queries on the APC side again. You signed over $24 million of contracts in the third and fourth quarters. We’re wondering what’s happening in the first and second quarter. You only signed under $10 or about $10 million in APC contracts. Is it momentum of those or we should see more increase in the third and fourth quarter again?

Got it, Peter. Utilities typically sign APC contracts in the US to be in sync with their outage plan. Utilities will have, for our kinds of technology—for the low capital cost, there’s some capital cost but it’s not huge—they are going to sign more of those starting like mid-summer and through the end of the year than they are going to sign it the first of the year, going into the NOx season because until 2009, the NOx was season was May 1st through the end of September, so they would sign them in the fall to get the stuff installed in the spring, so they’d be ready to get NOx reduction during the NOx period. I think one of the changes you’re going to see next year, I believe, is that you will see utilities go to a more balanced ordering in the spring and in the fall because NOx control will be on an annual basis, but at least for the year 2008, what you’re looking at is a number of utilities that delayed their contracting until really late in the second quarter, but a whole bunch of that stuff is being installed as we speak in outages across the nation. They install less in the fall, but again, with CAIR coming in, CAIR pushes those NOx controls from being just season to being annual, and I think you’ll see the capital pattern of the utilities change to reflect that, and I would expect to see a more balance, though there’ll always be a bit more signing in the fall than in the spring, just because there are more outages for utilities in the spring than there are in the fall, and that’s because utilities like to get those plants in as good a shape as they can for the higher prices and the higher demand that typically occurs in the United States in the summer than it does in the winter peak. That’s a long answer. I hope that helped. Unknown Analyst – Thinkpanmure: Definitely, but on the other hand, the concern is all these utilities have already signed one type or another sort of NOx reduction devices, so the market is limited from this point on. Can you comment on that?

Peter, it’s just beginning. Utilities don’t comply all at the first of a regulatory period. We are still responding to bids in the Midwest to [inaudible] requirements. Those requirements went into place in 2004. As those units are being driven harder, they are actually still deployed in that region. They will be deployed against CAIR for a decade. This is just starts in a budget cycle. Utilities will be spreading out. They will order a few SCRs. They’ll get a few SNCRs in. They’ll look at their mix. They were not ready for gas prices to be as high, so I’m sure they had anticipated in some of their pro-mod runs, and that’s the production model run that all regulated utilities will use to predict which units are going to dispatched in a year and how they’re going to budget for them. They’re probably a little bit caught aback now with the high gas prices. The coal units are being driven harder, so their solution in the near term would be to buy credit on the market which is what the market is seeing out there when you look at $4000 a ton for NOx and you hear comments from people where they say that seems to be higher than we expected. Well, it’s higher because the market is looking and saying utilities are behind on their deployment of NOx stuff; you’re going to have to buy more credit. Unknown Analyst – Thinkpanmure: Okay, then final question. Out of this $50 to $53 million that you expect out of the APC business, how much of that will come out of the $25 million backlog, and how much will come from new contracts?

Peter, we’re building this business not only for 2008 but for the future. I want to see a higher backlog at the end of 2008 than we saw at the end of 2007, so we need to win enough new work. You start with $28 million. That’s more or less going to be all worked off over this year. We need to win enough work to get over that. We won what--$11.7, so that brings you to $40 million, so we need to win enough new work to not only meet and hopefully well exceed our business plan expectations but also have a strong basis going into 2009. Unknown Analyst – Thinkpanmure: Okay, thank you.

Thanks Peter.

(Instructions). Your next question comes from the line of Scott [inaudible]. You may proceed.

Hi. Good morning. How are you?

Hi Scott.

Hi John, how are you?

Good morning Scott. How are you?

Hi Vince! I just have a couple of quick questions. You guys had a $50 million backlog coming into this year.

No, we had $28 million coming into this year, right?

$28, well, leaving the fourth quarter, and now that backlog is up to $50.

Well, the backlog at the end of the first quarter was $25. We generated $11.7 million in revenue, so we worked off some of that, but we also signed some contracts, so we are actually just down very slightly, and we’ve signed some more since then--$5 million more since then, so we don’t do it on a monthly basis, but I would suggest we’re probably up right now.

With respect to China and the global opportunity, can you qualify how you feel about China opportunity in terms of dollars and a little bit of timing, and can you talk about the competitive situation in China now with Nalco Chemical?

I’ll talk about the latter. We really don’t see them as a significant event in China. I think we’ve got ourselves established as a pretty firm supplier, so I really don’t see them over there and don’t spend any time thinking about them in that market. The amount of dollars in China….

I didn’t mean near term. If you looked out 3 to 5 years….

In the near term, one to two years, it’s pretty awesome—far beyond what we have in our business plan and in our expectations even as much as a year ago, but I’m not going to count those chickens until they hatch, and we’re probably not going to give out those numbers on our expectations. I will tell you that we’ve said before that the number of leads that we are chasing in China is into triple digits on the APC side, and those leads are turning into real prospects a lot faster than we had anticipated.

Can you look out and tell me about what your plans are for new products and new products portfolio refreshing either the APC line or maybe something in Mercury?

The Chem-Mod is one initiative at Mercury. If it works, some of the results they got, but their rates were too high to be commercially viable when they got it, but their results in a non-targeted mode were pretty outstanding on Mercury, and some really pretty awesome results on SO2. We want to be across the board in air pollution, and that would mean SOx which Chem-Mod might be able to do pretty well, and we have high expectations. If it’s not them, we are going to get somebody else. NOx, we’re already pretty good at that. Mercury, again we have some other initiatives on there too. Particulate, that’s where flue gas conditioning really helps in dramatically improving the performance of electrostatic precipitators and taking out particulates, and CO2, and in my own personal opinion, the carbon sequestration is going to fly. I don’t think the US will ever get over the liability issues around pumping vast quantities of CO2 underground, and I’m speaking as a person who probably launched the first of those kinds of initiatives back when I was with AEP, but I just think that that’s going to be a huge stumble block, but there are other ways, and we are working on other ways. If we really need them, we can come up with a way that can catch some substantial portion of carbon and bond it in a way that that could land filled or used in building materials without being deep underground sequestered, and our Fuel Chem programs. Santee Cooper, they got 1.5% efficiency improvement with our chemical, and with our consulting, we were able to help them achieve another 1.5% efficiency, so about 3% efficiency. The CO2 reduction is double the efficiency game as a rule of thumb, so they are going to drop their CO2 production rate by 6%, and they’re saving an incredible amount of money doing it. We think that’s a pretty strong case, and most of the studies that are being talked about in Congress are now recognizing that generation efficiency is the first and best step that could be done in this nation to reduce CO2 intensity and that’s what we want to do.

So in terms of the Chem-Mod products, you really see this rounding out the portfolio in more than ways.

Yes, and again, if that doesn’t work, that’s not our only fish on the line, but that’s the only one we’ve announced.

You also made reference to it not being commercially viable yet. Is that from the cost side?

It was just too high a volume on the ejection on the test that they achieved. It would have overpowered the precipitator. You really can’t do that. You can’t afford a major precipitator upgrade, and that’s the hope that our targeting as it does with magnesium hydroxide will allow much less stuff less to be used and achieve much higher levels of performance.

The following question comes from the line of Michael Carboy from Signal Hill. You may proceed.

Good morning, ladies and gentlemen. Can you hear me?

Good morning, Michael

A couple questions for you. Out of 23 non-coal burning units, how many of them are oil burners that are using in upper shoulder power generation rather than industrial waste processing or black liquor or whatever?

Michael, I don’t have that number in front of me, but we have in US one waste energy plant that’s using our targeted corrosion inhibition technology and there are a few other non-coal units in that 23, and a few other that are not oil that are non-coal, but the majority in the US are oil burners. I can’t give you a specific number, but it’s going to be high teens to 20 kind of number. There are 3 to 5 that aren’t oil.

Okay, that’s helpful. Let’s swing back to flue gas conditioning. What portion of the installed base is already using wet scrubbers? Could you still use flue gas conditioning technology, or just the fact that a wet scrubber is in the process box those operators out of using FGC?

No, they don’t. In the US, FGC has a great business going. A lot of folks upgrade particularly to wet scrubbers. You would think that they would take out more of the particulates—that if you had a wet scrubber on that they would get all of that. It actually doesn’t do that, just like when I used to think when I was first running AEP’s fleet before that wet scrubbers would take out SO3 too, which looks like a fine particulate. Utilities have a choice when they’re trying to control fine particulates, and that really is use a baghouse and put a bigger baghouse. That’s incredibly expensive and a giant pain in the wrong for operators. The electrostatic precipitators are by far the preferred method. You could build and use a lot more fields to try to capture it. Far and away the first thing you do it to try to condition the flue gas so that your existing facilities are much more efficient. In the US, a number of people have already done that, and that’s being rapidly deployed. It’s places like China where almost nobody has done it, and the few that have done it try to use a single flue gas conditioning stream to do it, and they got relatively poor results. Dual flue gas conditioning where you actually infect, believe it or not, SO3 and ammonia in small quantities together achieves pretty dramatic results, and that’s really what FGC offers—a patented approach—to the way you package those two chemical drivers.

Okay. As I look at the data that’s in the EPA database, I find about 880 units representing about 160 gigawatts of US’s 495 gigawatt capacity of all units that are untreated on this sulfur front. What proportion of those do you think is available as options for you to bring Fuel Chem in as a means for sulfur mitigation?

Well, the vast majority of those are and even some of the ones that have wet scrubbers. I know we have more than one customer who has a scrubber, and scrubbers are designed around a fuel, just like borders are designed around a fuel, and in many cases, the scrubbers are not ever designed to burn the much higher sulfur coals that you find in like Illinois basin areas. They will take out a lot, but the amount of sulfur is just more than they were designed for. In such cases, if you could offer them, say, 20% to 30% trim on that SO2, they would be all over that in a heartbeat because that would allow them to burn much cheaper fuel, and the fuel costs far outweighs than the cost of the additive, so it’s not only the one that don’t have a scrubber, but also its designed for many of those who do, and that’s a pretty viable business in the US. Now, you go overseas where people don’t want to have all that capital costs in units, and that becomes really viable. In the US, a lot of the small and mid-sized power plants, utilities just don’t want to pay $200 to $250 million for a scrubber for a unit that didn’t cost that much to originally build in total. A low-capital cost option—there be higher variable cost, but low capital cost is really preferred.

Looking at coal prices, we’ve seen a huge escalation in low sulfur coal prices. We are starting to see higher sulfur coal pick up. Can you talk a little bit about the economic balancing act and maybe quantify for us the break points where we would expect to see utilities finding Fuel Chem enormously powerful for sulfur management?

Well, it is Michael and you’re raising some great points there. The export market for coal is in triple digits now—over $100 a ton out there. At the same time, you’ve got rail transportation costs. With the high cost of oil, rail transportation costs with the fuel cost as is are increasing the cost of bringing Power River Basin coal into the East, and there’s still a lot of that coming, but that’s becoming more and more of a factor. Illinois Basin coal and those coals that are in that region are much cheaper from a transportation point of view and they are cheaper in cost, and utilities are really looking for ways to dramatically lower their fuel costs right now, not only esoterically because they want to do that, but their alternative energy sources in gas and oil are going through the roof, and outside of nuclear, they don’t want to get hit with trying to go through a public utilities commission with a fuel cost adder that’s outrageous, so they’re doing everything they can across the board to lower their fuel costs. I think you’ll see Illinois Basin coal become much more popular. For us, it’s a double win because they’re pretty high slaggy coal and they are high sulfur, so for SO3 mitigation and for slag, that’s kind of a double win for our Fuel Chem program.

Can you give us any idea of given all the advantages of Fuel Chem—there is an incremental cost associated with the fees of the mag ox—what incremental costs do we need to see in coal prices for the operators to see it offset?

I think you’re more than seeing that. The operators are never going to see all the benefits that the coal buyers and the trading and marketing guys will see from the extra power to see and from the lower fuel costs. What you’re now finding though and the Santee Cooper paper has helped immensely is that people are doing well. I can lower fuel costs and save money, and it means an increase in the O&M budget—some of which will be offset by reduction in labor for clinker grinder maintenance and for outage labor, but the majority of the benefits are going to flow to the corporation. That message is really starting to be heard at the more senior levels of utilities, at least in my meetings with them and in our market response. Now, having said that, you still fight in the short term as utilities don’t have in their O&M budget, and they’re very reticent to add anything to O&M within a year. They really want to get it into the budget planning and reduce elsewhere because that really comes out of the shareholders’ side.

And just two more question if I may—with regard to the NOx credit this year, John, you pointed that they are starting to run wild (it’s $4000 a ton), it’s my understanding that the PUCs begin to penalize the utilities for hit use and start devaluing the use of any surplus credit they may be generating at other plants. Can you elaborate on that trend a little bit?

It does, Michael. It’s not only because the cost is out there, and you’re a PUC (public utilities commission), you are looking at that and saying how long is that going to continue. Are you going to keep buying credit, and they’re politically based. To buy extra pollution credits from some other region so you don’t have to deploy the technology is not a long-term viable public relation stance by any utility, so they’ll put up with it, but only if you have a plan on how the heck you’re going to get back under and start selling those credits and offset that. Utilities like, to be honest with you, capital additions because they can earn a return on that. When the capital additions go through the roof though, those same public utilities commissions are not going to want to see base rates go up, so utilities are really choking on the capital cost SCRs right now and relooking at other options, and there’s a lot of careful consideration being given to Cascade by folks whom we were talking about.

Okay, and last question—this is more of a housekeeping part here. I think last quarter you suggested that we might get to the price break point for the mag ox purchased in Q3. Are you still on track for that?

That will actually happen earlier this year. That’ll probably happen sometime in Q2. Based on the increased revenue base, increased customer base that we have on Fuel Chem, we expect that to happen probably late in Q2.

That’s right, but it happened in the beginning of Q4 last year, right?

I actually think maybe late in Q3.

Late in Q3, okay. Well, thank you very much.

Thanks Michael.

And now I’ll pass the call over to Mr. John Norris for closing remarks. You may proceed.

Thank you very much, and thank you all for listening in on the call and for you questions and your interest in our company. Again, I think we’re off to a good start. Our goal is to have increasing results throughout the year, and we’re looking forward to trying to achieve that. Have a great day!

Thank you ladies and gentleman. This concludes the presentation for today. You may now disconnect.