Good day, ladies and gentlemen and welcome to the third quarter 2008 Fuel Tech earnings' conference call. (Operator Instructions). I would now like to turn the call over to Mrs. Tracy Krumme, Vice President of Investor Relations for Fuel Tech. Please proceed, ma'am.

Thank you very much. Good morning, everyone and welcome to Fuel Tech's third quarter 2008 conference call. Joining me on the call this morning is John Norris, President and Chief Executive Officer, John Graham, Senior Vice President and Chief Financial Officer and Ellen Albrecht, Vice President and Controller. As a reminder, the matters discussed in this conference call, except for historical information are forwards looking that are subject to some risk 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 investors should not assume 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 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. We appreciate all of you joining us on this call. Our results for the third quarter include $23.7 million in revenue, up 55% from $15.2 million in the third quarter of 2007. Net income for the quarter was $2.1 million or $0.09 per diluted share, up 125% from $0.93 million or $0.04 per diluted share in the same quarter last year. For the first nine months of 2008, our revenues were $62.9 million, up 32% from the $47.7 million last year. Net income for the first nine months of this year was $4.2 million or $0.17 per diluted share, more than double the $2 million or $0.08 per diluted share last year. Our CFO, John Graham, will discuss our financial results in greater detail in a few minutes. John will also cover our balance sheet in detail, but it remains exceptionally strong, with very little debt, and with cash and cash equivalents of $32.8 million as of the end of the third quarter. Our business model continues to generate growth in revenue, profit and cash flows, 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 improvements, and air pollution reduction and control solutions to utility and industrial customers worldwide. For reporting purposes, we group these 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 third quarter, and the first nine months of this year, we have both product lines generating growth in revenue and profits. Our APC business sector…

Thank you, John. Good morning, everyone. As John mentioned, consolidated revenues for the third quarter were $23.7 million up from $15.2 million in the third quarter of 2007, while consolidated year-to-date sales were $63 million, up from $47.7 million through the first three quarters of 2007. The third quarter revenue level was the second highest in our company's history. Now, let's talk more in depth about each of our business segments and other financial items. In the FUEL CHEM segment, third quarter revenues of $10.1 million, a record level for our company, included $8.7 million from coal units, a 25% increase versus 3Q 2007. Quarterly revenues from non-coal-fired units of $1.4 million equaled the comparable prior year period. High crude oil prices kept many domestic oil-fired units from running at all but peak, rather critical, situations. For the first nine months of our year, our FUEL CHEM revenues of $27.2 million were up 11% from the amount recognized in the first nine months of 2007. Again, this number alone must be further segmented into revenue from coal and non-coal units. To further clarify the true growth of the underlying business. In the first nine months of 2007, the $24.6 million in total FUEL CHEM segment revenues, $19.7 million were from coal-fired units and $4.9 were from non-coal-fired units. In the first nine months of 2008, of the $27.2 million in FUEL CHEM revenues, $23.7 million were from coal-fired units, an increase of 21% over the comparable period of 2007, while revenues from non-coal-fired units declined 28% to $3.5 million. The large reduction in FUEL CHEM revenues from non-coal fired units year-over-year was also due to the high price of crude oil keeping the domestic oil-fired units from being dispatched to the extent they were in 2007. The $4 million increase…

Thanks, John. And now, operator, can you open up the lines for questions?

(Operator Instructions). Our first question will come from the line of John Quealy with Canaccord Adams. Please proceed.

Hi. Good morning. First a bit of house keeping, and I apologize if you said this, in terms of the detailed guidance, the $79 million to $81 million, did you break out APC versus FUEL CHEM?

No, we have not provided that level of detail, John.

John, I think you mentioned something like $37.5 million per FUEL CHEM when you were going through the reconciliation. I would assume that's a decent number to use on a run rate basis now?

Run rate right now basis, that's exactly right. For a full year, like in '08, some of those units that are in commercial status now became in commercial status during this year. So we weren't suggesting that that will be like this year's number, because some of those units didn't have a full year run rate, but for those units in commercial status, that provides a base for going forward and then new units, as they roll into commercial status, can be added to that. We were trying to just clean up that sheet, so that you guys could have a better basis for what to use, as you run your models.

With regard to the FUEL CHEM spending initiative, can you comment, as much as you can, what exactly you're doing to tweak the process there, or what you need in international markets to invest near-term? Then, also, any quantification of that number in the next couple of quarters?

John, I lost the train of thought there for just a second, as I was trying to shape my answer.

Sure. First part, what exactly are we doing, as much as you can tell us, about the FUEL CHEM initiative overseas that requires some extra expense there? Then secondly, can you quantify the related expense over the next couple of quarters?

Got you. Most of that is going to be done this quarter, in the fourth quarter. It's not going to be followed on. The nature of those one-time expenses, as an example, the China project, the demo project that we've been doing up until now, the amount that the customer paid us on that one wasn't going to fully ever cover our costs on that. We knew that was always an investment, and so, we'll be seeing the rest of those costs come in this fourth quarter. This effort on preparing this final report is really, as I said, was a huge effort. To give you a feeling, you're trying to quantify boiler efficiency gains and megawatt gains on a unit that cycles dramatically up and down throughout each day. On a unit that was hit with numerous typhoons during our demonstration program, so that the coal was saturated with, at times, a foot of water a day on numerous occasions. Then you had, as typhoons move through, the discharge cooling water would heat up as the warm water coming in off the ocean would affect the condenser cooling water coming in. It is probably, for me it is a fact that it is the most difficult technical evaluation I've ever seen. We'll see what the client thinks. I think the results look real darn good, but we've spent a heck of a lot of time and money preparing the evaluation going through daily logs and coal analysis reports. That's the kind of thing we're talking about. On the India unit, we are not and we never planned on fully covering all of our costs. Now that that unit is in operation, on a cost accounting mode, we move all of those costs to charge that project. So I don't see that being the norm. Normally in the US, our demonstration programs, the client, their contribution covers our costs in there. We may not make a margin on it, but those typically cover our costs. John, and the answer to your other question, John Graham has actually a breakdown of some expected FUEL CHEM and APC revenue dollars, not on the EPS side, but on the revenue side if you'd like it for our end of year. John, go ahead.

John, two comments. One, from a breakout from a segment perspective of the $79 million to $81 million, we have FUEL CHEM at $36 million to $37 million full year, and APC at $43 million to $44 million, full year. If I may, just one comment to follow on John, when we talked about the additional costs we've incurred overseas, because we are in the process of determining the market viability for FUEL CHEM, and both look very strong for us, one of the items that, we as a company have to do, is qualify a local chemical supplier. Until that occurs, and that's on the fast track for us in both countries, we have to ship the chemical over there from here to run in the FUEL CHEM demonstration programs. You can imagine the cost of the freight and the import duties, and tariffs, and what not; it can add cost to that. Such as, one example of why, during these demonstration programs, the costs over there will run more than they will back here in the states.

Okay. Thank you. Just a last question quickly. John thanks for that breakout on the guidance. So that's assuming maybe $8 million in APC business in Q4. Is that all in the $15 million backlog right now or what's going on there?

It is, John. Everything in our guidance from an APC standpoint are contracts in-house, expected to be worked off here in '08. We presumed betting on the comp for nothing in the guidance.

If you remember, that was consistent with what we talked about at the end of the second quarter, where I said, we had about $27 million in backlog at that time, and that we expected about $7 million of that to really be work that had to be done in '09 and that's still a consistent number.

Great, thanks.

Our next question will come from the line of Michael Carboy with Signal Hill. Please proceed.

Good morning, ladies and gentlemen. John, given the natural gas prices have declined roughly 30%, 40% here since the beginning of the third quarter through the end of the third quarter and coal prices have jumped, depending on which blend of coal you're looking, and they were roughly 30% to 40%. I'm hoping you'll be able to discuss the FUEL CHEM variances in the context of those fuel costs and what operational bearing that has for the utilities? I certainly understand your point about oil-peaking units not being run as much, but I think there is a lot more going on here with regard to fuel costs that are enforcing unit yield levels?

Michael, the coal unit costs have gone up, which actually makes our FUEL CHEM program more desirable from a utility point of view, because as they look for cheaper coal and usually get cheaper coal in price, because the quality is so much less. It's higher sulfur, it's very high slagging, those are the reasons that coal costs are different across the nation, and that really pushes units to want to use us. The prices have come down on natural gas. Natural gas, you know follows, how much is stored and the delivery patterns and those are posted on the Energy Information agency site each week and looking at supply and demand really will dictate the natural gas prices. So you're seeing prices come down as the start of the winter is mild so far as the economy is slacking off. Even at today's prices, though, a natural gas fired power plant is twice as expensive to operate, even the best ones, as an average-sized coal unit in terms of electric production costs, O&M. So coal units are still very deeply in the money. They'll run where they can preferentially, but a lot of the gas units, especially gas turbines are quick starting. You see those used for the peak periods if the coal units are more sluggish in operations. Going forward, it's anybody's guess of what power prices will look like. It will depend on how cold the winter is, because natural gas, one of its alternate uses is obviously to heat homes directly and water heating, but coal units are still, Michael, half the cost of gas units to operate.

If you think about, switching gears here to the international front, you've talked about having to provide some, shall we say, incentive pricing to some of the Indians and Chinese. Given that it's sometimes rather hard to raise prices in those environments, do you think that we're going to see a diminished profit margin coming from international FUEL CHEM and APC business just to sort of as part of a modeling exercise?

I don't think so, Michael. When we gave them a break on how much of the costs they have to share, they know what the ultimate program costs will be on a successful project. We're just not asking them to share a full 50% of that up front. So the folks out there, it's not a factor of we've given them, some price that's, you know, $10 and our real price is $40. We've showed them $40, we're just saying for this demo, you only have to cover this smaller portion of that and all of our evaluations will be taking a look at the benefits to them from efficiency improvements, the ability to burn cheaper coals, the ability to produce more megawatts on the grid. We'll be taking a look at that versus our commercial rates. So these costs that we're talking about are not setting the stage in client expectations for some cheaper prices.

A couple of quarters ago you had talked then about having already identified and qualified mag-ox sources overseas, and in particular China. It sounds like from John's comments that that are --

What we had done, John, was we had identified mag sources in there. We had had material shipped back to us and, we had looked at the chemical structure on those and the physical properties under a microscope, looking at slurry. The kinds of qualifications that are going on right now that finishes that, and if I said that earlier, then I wasn't complete, are things like how's the stability of that material in a tank when the temperature is way below zero? Does it coagulate? We're looking at that, we have a Ph.D. chemist over there now, actually working with them to fully qualify, and then we are in commercial discussions with those folks about what's the price going to be and negotiating those prices. So when we talk about qualifying, it's not only the technical qualification, but also working out the commercial contract details, and running some more rigorous testing, because we have to take a look at, do you ship it as a slurry? Do you try to ship it dry and then mix it on site? How long will it stay on a train as it's coming in, which tells you how you're going to ship it? So there are a lot of those kinds of questions. That actually is a major effort, but we feel very confident that we'll have sources in China that will fully qualify for what we need.

Do you expect to have those sources qualified this quarter or next quarter?

Well, we expect to have that done hopefully this quarter, especially if we go commercial on this one unit, we don't want to be shipping a whole lot of stuff over here from the US.

Okay. Last question regarding taxes in China, I think the comment was made that the tax rate for the fourth quarter was going to pop up to 40%.

On a consolidated basis.

Could you walk us through sort of what's driving that in detail, John?

Given the performance of the international offices versus what we presumed in our combined rate of 38%, in essence, we're going to generate not as much profitability over there, and in some cases, because of the investments made running at an operating loss, and right now, because we don't have the income to offset those, in effect you have to valuation allowance those offline which drives up the overall rate. The rate domestically is not moving it's really just how the weighted average rate is playing with the revised numbers from a P&L standpoint overseas.

Okay. So you can't basically bring the foreign operating losses in to shield US-based profits?

Yes.

Is that correct?

Yes.

Okay. Thank you. Thanks, John.

You're welcome.

Our next question will come from the line of Rich Wesolowski with Sidoti & Co. Rich Wesolowski - Sidoti & Co.: Good morning.

Good morning, Rich. Rich Wesolowski - Sidoti & Co.: John, are there many or any contracts, APC in China where your engineering partners have won their direct contract or whether their competitors have won their direct contract?

One of the near term ones for us or any, there's a lot of contracts we're chasing in China. In most of the ones we're chasing, we're trying to position ourselves to be on all the teams bidding. We have one that we hope will be in the not so distant future that there's five potential winners. We have the specified technology to be utilized on all five of those bids. So we try to position ourselves and market to the AE firms, to be their preferred source, for example, if they're doing an SCR, to be their source for ammonia, the ultra-urea to ammonia system. In some cases that same thing is true for SNCRs on new units or major retrofits, where that's not the only thing that's being done and there's a market for those. So we market to the AE, we market to the utility, and then we make sure that the governments and the government agencies know about the effectiveness of our technology. So we try to work all three levels. Rich Wesolowski - Sidoti & Co.: Have you spoken with many of the engineering partners lately and, if so, are they saying that the contracts that they're in negotiation for are postponed or are they potentially canceled?

Neither. The Chinese are moving forward. There's no discussion that we have seen from utilities or Aesthetic, that we don't just depend on them, I mean we stay in touch with the utility to know when they award it to any of those AE firms. The Chinese utilities are not slowing down at all that we have seen. In fact, the government is pushing projects to go forward. Most of this work is going to be done in China. Even the stuff we supply. Most all of that will be done by our Beijing Fuel Tech office. The Chinese are looking at trying to maintain their GDP and they're projecting what, 8% to 8.5% GDP growth in 2009. They're going to do that by investing a portion of that $1.5 trillion in cash they're sitting on. Energy and environmental, we have been told, are right at the forefront of those kinds of projects. They are investing in other infrastructure kinds of projects, bridges and roads and some other agriculture areas and some of the others, but the Chinese do not seem to be letting off of the gas pedal at all. Rich Wesolowski - Sidoti & Co.: Okay. Finally, can you give us an update and some perspective on domestic state regulations in the APC market in the wake of care's repeal?

Boy, you don't ask easy ones, do you? The Chair and the situation in the courts, we're all following, I guess you saw where the courts went back to the plaintiffs and said what do you really want in the way of a settlement? Do you really want care to be vacated or do you want it to be reinstated, but with a mandate to EPA to fix it. And I was surprised that the plaintiffs didn't get together any more than they did. The majority still say they don't want it vacated, but not everybody agreed with that. So it's a bit more of a toss up to see whether the court, the US court will reinstate it or not. Now, we have had at least two clients, we had only known about one. There's a second client that has said, hey, if the state reg isn't firm right now, it's supposed to be done by next March, to the EPA under the existing clean air act requirements and since care is in limbo, we are delaying those projects until we see that they're mandated. Every client that we have been in touch with, and you see that in the paper, those of you who keep industry news, I mean Duke, AEP, Ameren, there's a whole series of them that have talked about how they are deferring projects, because, quite frankly, their access to cash is not good. That's what we're hearing from a lot of clients. Now, projects that are halfway through construction or some portion of it, they're moving forward with those, because it would cost a lot more to demobilize and then try to remobilize. But projects that we're still ready to be let are all being delayed. Now, they know they're going to have to do them. They can't cancel them, but they will delay them until either regulations or until they have enough money to be able to do them. That's why we really took a more conservative approach and we said, look, even though we expect to sign some more this year, we're not going to assume any of that for right now and try to put a floor on where our guidance is. Rich Wesolowski - Sidoti & Co.: Thanks, John.

And our next question comes from the line of Graham Mattison from Lazard Capital Markets. Please proceed.

Hi. Good morning, guys.

Good morning, Graham.

Just to clarify, looking at care, what would a reinstatement of care do in terms of your outlook?

It wouldn't change what we're doing right now on this outlook, because if the court ruled even this next week, utilities are going to have to then revise almost daily. Right now, their capital budgets and their O&M budgets, and we're in touch with all of these guys, and we have some meetings with them, which are being rescheduled for two days later, because they say we're in this huge complete officer meeting, scrubbing every item of our O&M and capital budgets. So right now, Graham, I don't think it would change anything for this year. I think there's just too much uncertainty. If we happened to win some and can work it off, great, we beat our guidance, but we're not going to count on it in our guidance right now. We want to give you guys a guidance and explain our logic behind it and hopefully you can model us better.

Then in terms of looking at the 2009 and beyond, what's your outlook for APC awards there, particularly domestically.

Well, we don't know that yet. In fact, we're fixing to have our own officer team meeting and scrub our list of folks. We're having events Tuesday, Wednesday, Thursday of this week, as we look at our overall business plans for 2009. What I would suspect is that a lot of industrials and small units and projects that are smaller, like SNCRs and all of those that are needed to meet various regulations that are in place, and in states, that are impacted by those are probably going to go forward. You may see a few of those later this year and in the first quarter of '09. In the US, there's a lot more uncertainty. In China, we had always anticipated that of those very large number and large dollar amounts of bids we have currently in China, that the vast majority of those would probably be signed in 2009, a few of them over in 2010. So we see no abatement of the Chinese market. The rest of the world pales in comparison. We don't get a lot of business out of Europe and other countries right now. I think the amount of work that we're doing there probably remains about the same, but it's not a large driver of our finances. So China for us is the area we believe are going to buy strong, maybe starting later this year, but certainly in '09. Then FUEL CHEMs, we're pushing hard, we're get ago lot of success and a lot of traction throughout the US, and overseas. We think you'll see some more. We anticipate, hopefully, signing some more this year.

I guess looking now at the CASCADE, and I know in prior quarters you talked about you thought you were close to being able to get one signed up, has the outlook for CASCADEs changed given the economic environment, given that it's a higher ticket item. Or do you still feel pretty confident that you'll be able to get one or two CASCADEs coming soon?

The logic and the interest in CASCADEs has gone way up, but the near-term decisions on those, we had, indeed, expected one, Graham, actually, we had expected it by now. That one has been delayed, we think by months and not a year or anything like that, but we do see a lot more interest in clients. Clients that were not talking to us about that at all have now scheduled meetings very quickly and said tell us more about this CASCADE process. Those people are for units that were planning on having SCRs, that hadn't already entered into contracts with SCRs, and now can't raise the capital for that, and they're looking for other ways. So our interest is way high on those, but I don't see that in the next few weeks on a domestic order.

On the international front?

Still a lot of interest in that in China, Asia-Pacific, especially.

All right. Great. I'll jump back in queue. Thank you.

And our next question will come from the line of Ron Oster with (inaudible). Please proceed.

Good morning. Just had a few quick questions on the FUEL CHEM business, I think you mentioned run rate $37.5 million, but did $10 million this quarter. Can you just kind of what would give you a run rate over $40 million range; is there anything to account for that variance?

Ron, it's seasonal. The third quarter we have July, August, September. That's the hottest months, the highest power prices. It's the highest loads on the system, so the coal units are all going to be running as much as they can to try to meet that load. Our use on a unit depends on how much power they're generating, right? If we are injecting say, one pound per ton of coal, well, if they're burning a lot more coal than we've got a lot more pounds, because it's per ton, but if they're not generating as much, we're not used as much. So our usage and our revenue dollars from track the power market. So Ron, third quarters will always typically be our strongest, with really fourth quarter and second quarters probably being our typical weakest.

Okay. Then looking into 2009 with the additional detail you provided for the units, of those in demonstration, can you kind of ballpark when you might expect those, when the demo period expires and when we might be able to expect them to go to a commercial status? I think there are nine domestic, four international, in the next six months, how many of those might transfer over to the commercial status?

Well, one of the things that we've found, Ron, and why we've switched to this is that we used to say, well, you know, demo starts six weeks later and count on three months for the demo and we found utilities, and they're in that same mode now, are less predictable these days. Some of the utilities, as an example, and I think at least in one of the demos, it's probably going to be more like about six weeks, we thought it was going to be six weeks to get that sucker installed. It's going to be more like six months. They canceled their outage that they were planning in January for cash flow reasons, because outages cost money and they're just going to run the unit. Now, we'll be ready if they have an opportunity outage, but it's that sort of reason why what we're going to do now, Ron, is that at every conference call, every earnings call, we are going to revise this list and we'll show you then what you should count on for the next quarter. I can't really handicap those. It's typically what I just said. It typically is about a six week to get it installed and then the demo lasts for about 90 days, when we're splitting the costs, before it goes commercial. So we had said as soon as we announce one, probably count on two quarters passing to get it installed and then the demo to run out, and then in the third quarter after our announcement, that it goes commercial.

Okay.

We had a lot of folks, okay, when did you announce this one, when can I add this one in and that's still probably very good, but we'll tell you now. Every earnings call we'll revise that list.

Great. That's helpful, and then you mentioned a pretty extensive evaluation report in China that could be a catalyst for additional orders. What's the timing of when that's going to be released and that something that will be publicly available to other potential customers?

The timing is that we're having the meetings with the clients this week and we may have another one next week on all of that. So it's imminent. What the client will allow us and what they want to do with that report, we'll see. Okay. We had confidentiality agreements executed by all three parties, us, the client and the third party, which is a national lab over there, evaluator. We'll see how we can best use that going forward. So that's a yet to be determined item.

Okay. Then lastly, I think last conference call you mentioned over $100 million of bidding activity in China. Is there any similar type of update you can provide us with, with recent bidding activity over the last month or so?

The number is up in total bid dollar volume and projects we're pursuing from that. The number is large enough, Ron, the real issue is let's start bringing them in the boat, that's lading rascals. The number is quite substantial, far beyond any other business prospects we've got. Now, whether it's $100 million or $160 million, the issue is, okay, how many of that are you going to actually win and that's what we need to be bringing in the boat now, starting the wins.

Okay. Then one modeling question on SG&A. 29% of revenues is that a sustainable level or do you expect that percentage of revenues to continue to decline into 2009 as you grow the topline?

I think we've got a very tough comp when you look at fourth quarter '07, because we had our largest quarter ever back in the fourth quarter of last year. So when you take a look at SG&A expenses, what I would expect you would see going into '09 is a flat to slightly up increase on an absolute dollar basis, but continually to be leveraged as a percentage of revenues. I think we can run this business, as we get to $100 million and above year in, year out, with an operating income. Well north of 20%, which is primarily going to come from reduced SG&A expenses, as a percentage of revenue mainly because, Ron, we're running right now, for the most part, our FUEL CHEM in the low 50s and our APCs in the mid-40s. We're at the gross margins that we expect to be a worst case for us. So our operating income leverage going forward is really going to come out of our SG&A line. So I wouldn't look at any one quarter in particular and say that's a run rate because our revenue levels can oscillate quarter to quarter because of the seasonality of our business, and the timing of the APC orders, and the revenue recognition associated with them, but going into '09 and even perspectively, I think it's safe to say that you will see absolute dollar increases as we invest in the growth of the business, especially internationally, but as a percentage of revenues, that number should continue to drop dramatically.

Okay. Thank you.

Our next question will come from the line of Ted Kundtz with Needham and Co.

Hey, guys. Basically one question for you, since most have been asked. In China you were talking about doing a project with the smaller coal-fired boilers, this is 10-K per system projects, and there are certainly a lot of those boilers over there. Any update on that number?

They're still going through to pick the exact site. We got the project with a region and they were going to pick a site. We have been working on the design of the system and the Chinese had changed sites on us. This whole first effort was anticipated it would take up to a year to get the system installed and fully demonstrate it. Linda? They're looking at a couple of other different sites within that same region and we'll pick one here very shortly. We've got a great sense of urgency. That's not critical path for us right now, as to which site, because we had to get the system design finalized and then get it constructed and then have it delivered to the site. So the first parts of that, design and construction, are kind of underway, because we want to make these modulars so that we can just tie in with temporary connections to run the demo. We'd like to make the system modular so that we can go to all of these sites with truck mounted system that can do its thing, and then if they ever want to shut down that unit, we just back up another truck to that trailer and take it somewhere else.

Okay. This is more of a 2010 revenue opportunity, you think?

Yes. Exactly right. It will be a installed and demo complete in '09.

Okay.

Then hopefully the business prospects for us will be material in 2010.

Okay. Just one more question, then. Just on this evaluation report you're having done in China, is this for a particular province or particular utility over there that you're doing this for and what does this effect? How much of the business could this possibly effect assuming this is a positive report?

The Chinese had seen the report from Santee Cooper in January, and they really liked that kind of very technical approach, so it's not, as that commercial on TV says these day, it's not as she said. They really wanted the hard core technical data and that was fine, but it's for the utility for that unit, but the effectiveness will be widely known. Now, whether we're able to release that unit like Santee did in their report, we don't know just yet. I hope we will be able to, because there is a tremendous amount of work, it's probably the most complex set of circumstances I've ever seen, but we had situations at the plant where as we were operating the worker looks or the plant manager looks in and says, wow, that looks very clean. We're saying, oh, that looks good. He says, but we will look at the data.

Okay.

So they really wanted to see that hard kind of data, not just rely on visual observations.

So it's not really clear if this will be applicable to a lot of the other proposals that you have over there.

No, I think it will be applicable.

So you will be able to use it.

If we are able to release it, it will certainly be known, the effectiveness, why we're able to sign this other unit is that they had already heard positive stuff from the generalities from the plant, so they were encouraged by that, which is why we got our second one. It will be very applicable, just how much of the report we're going to be able to release is the question.

Okay. Great. Thank you.

And our next question will come from the line of Jonathan Hoopes with ThinkEquity. Please proceed.

Hi. Actually, its Jonathan Hoopes and I am actually speaking on behalf Jonathan Hoopes. Thanks for taking my question. In the past you had pointed to high oil prices as one reason for low FUEL CHEM consumptions. Now that oil price is back to about $60 per barrel range, shouldn't we expect more oil-fired boiler consumption of FUEL CHEM or is oil still too high for utilities to fire up their oil boilers.

If you look at the utility prices in the market, power prices tracked usage, right the supply/demand kind of thing, so you have the highest power prices of the year in the summer, where you get up to way north of $100, sometimes north of several hundred dollars per megawatt hour. In the fall, prices will fall back to about $40 or $50 a megawatt hour and then in the winter typically you get up to $75, $80 an hour. So summer is the highest, winter it will be the second highest season, but not as high and then spring and fall will be very light. Oil prices at $65 or $60, in that range, if you work the math out, it is coincident that most of the oil-fired units' heat rates are around 10,000 and the barrel of oil heat content works out to be that that's about the fuel cost to generate with oil. So today an oil-fired unit would be break even on their cost of fuel at about $60 to $65 per megawatt hour when a market is paying $45 to $50. So they're still outside the money right now, but a lot closer and they will run sometimes. The utilities will dispatch them a little bit more now for voltage support around some major cities. Now, if the prices hold throughout the winter, when the power price moves up to $75, $80, if the price of oil holds, then you'll see those units come on a lot stronger. We just don't think that will happen in the fourth quarter. Does that help?

Yes, it does. Thank you. Also, I have another question. We were wondering why Fuel Tech low capital intensive solutions wouldn't be even more enticing to utilities in a CapEx constrained environment, as is our understanding that much of the installation work is done leveraging the Fuel Tech balance sheet. Also shouldn't we expect that in a period of low economic growth utilities we wouldn't be able to find more down time, that utilities are able to find more down time? Wouldn't it help Fuel Tech to complete more installations and give them a chance to see the benefits of the product line?

Let me answer both. The first item, absolutely, because we are a much lower capital cost solution, we are seeing a lot more interest from very big utilities. Just in the last few weeks they've called us and said come back in to tell us more about what you're offering and we're especially interested in the CASCADE. That logic and why they're saying that is exactly what you were talking about in your first point, they really are looking at lower capital costs, they can't borrow enough money right now and typically utilities use debt and equity to fund major capital additions. They like to keep their dividends up. They're really cut off from a lot of capital access right now. So that they're trying to restrict cash flows. That leads into the second item. While you would say, okay, they don't need as much generation right now, but they don't want to go into outages. Outages cost millions of dollars for all the workers that have to come in to do everything that they need to do. So you've got a lot of units running along at partial load right now that utilities are looking at actually deferring outages. Not incurring the several millions of dollars in cash flow that an outage would cost. They're taking a risk, because the unit's going to degrade in material condition if they skip an outage, but right now a lot of utilities are in the survival mode. I've been there, been part of that kind of a situation, as I was decades at Duke as an executive and at AEP, and they're husbanding their cash right now, every way they possibly can in the US.

Okay. Thank you.

Our next question will come from the line of Carter Shoop with Deutsche Bank. Please proceed.

Good morning. On the APC side, can you comment on what the backlog was as of the end of the third quarter? Then also comment on what percentage of that backlog do you expect to be realized in 2009?

Yes. It's $15 million, Carter. We'll probably recognize about $8 million of that this quarter, carry about $7 million. That can move by a $1 million one way or the other, but it's in that range going into first quarter of next year.

Then can you comment about the pipeline for APC deals and how much it could be realized in 2009? It seems like we could potentially see a down year in 2009 on the APC side.

Well, I don't think so, because of China, Carter. Our expectations are for a really strong year in China. We also expect to see some good portion of wins probably in the first quarter, but maybe a few even late this year on the American side. We had expected a very strong close of the year as we saw a lot of the same signs that we saw last year. Obviously the financial crisis changed that completely, but for 2009, we haven't developed a guidance and everything, but right now, our business indications are that this is going to be our coming out party on the Chinese side. We'll see if that actually materializes.

Okay. Shifting over to the FUEL CHEM side. When do you expect your Chinese FUEL CHEM demonstration customer to make a decision on a long-term contract? It sounds like it could be any day now, but what's kind of the other side of that guidance range? Could it take another two or three quarters for them to actually sign a contract?

I don't think so. I think the former is right. I think the technical evaluation meetings are going to go right into commercial contract meetings. We already set the stage for that. We didn't just sign. Our original contract had an anticipation of a commercial contract to evolve if everything came out okay. So, I would expect that you would see by the first quarter that that thing would be in commercial operation if the client decides as we expect them to decide.

Then lastly, the commentary on oil prices and the impact to FUEL CHEM is helpful. I was hoping maybe you could quantify what that potential impact could be in '09 if oil and natural gas prices stay at current levels.

Well, it looks like if oil prices stays at current levels, then I think we may see a recovery from some of our oil units, because next summer, if it were to stay there, those units would be pushed back into service, because they could make a lot of money, producing at $65 when the price is at $130 a megawatt hour.

Like a $1 million or $2 million, is that kind of a reasonable way to think about it?

That's exactly the kind of range you're talking about.

Okay. Great. Thanks a lot, guys.

Our next question will come from the line of Jeremy Sussman with Natexis. Please proceed.

Hi. Good morning.

Hey, Jeremy.

Thanks for all the colors so far. I was going to ask, if you were seeing some signs on APC pickup? I guess maybe you answered the question, but let me know if I'm thinking about this correctly, clearly you talked about fourth quarter being a bit slow, but if some of the larger utilities are now starting to come for you for CASCADE or what have you, is that sort of potential that we could see in 2009, I guess?

It's a good question, actually, Jeremy. The utilities by this time of the year would have already done their capital budgets and be presenting them to their Boards of Directors by the first week or so in December for approval for next year's budget run. What they are all doing right now is preparing to rerun all of those capital budgets with a mandate to reduce capital, and operations, and maintenance costs wherever they can. That's why these urgent meetings are coming up, where folks are saying, tell me more, because they want to learn if they can defer like an SCR and then thus change their plans. Been through these kinds of situations, although this is a more dire situation than we've seen for about three decades in the utility business, but when they're in this kind of mode, really they'll be running series after series of analyses to see what they can change and everybody will then be rolling all of that up and then typically they'll ask everybody, they'll roll it all up, then they will come back and say, cut that by another $20 million or whatever in your department. So you'll be running a whole series of reevaluations. That's what's going on right now. Utilities are cutting every expenditure they can in the short-term and then they're revising all of their capital budgets. That's why these meetings are being asked for. The results of which we won't know until they come out of them, to be honest with you.

Great. That's helpful. Then just lastly, any chance since we've been talking about China quite a bit, we can get sort of a ballpark in terms of, percentage of revenues that you expect from China over the next year or so?

We will provide that early next year. We are right now running those, we are going to be finalizing those numbers in the next week or two and then presenting that to our Board in the first part of December. We don't have that in any sort of form that I can talk about right now.

Okay. Fair enough. Thanks very much.

Okay.

Our next question will come from the line of Brian Shore with Avondale Partners. Please proceed.

Good morning, guys.

Hi, Brian.

Just a quick question, following up on one earlier, on the APC side and the impact of care, I know you've cited that the financial economic situation has been one of the big drivers in some of those orders getting pushed off. You also mentioned a couple of orders delayed with uncertainty over care. I guess is it safe to assume that the care ruling isn't having a material impact on orders getting pushed out and that sort of thing, it's just one or two here or there?

When we first did it, we had talked about having actually one customer, one utility that had kind of put their projects on hold and I think we had one project with that utility. Since this financial crisis we've had one or two other utilities that were planning on going ahead, despite a change in care, because they just saw that this was a momentary blip on the regulatory screen. They actually still believe that that's true, but the financial situation right now is causing them to say internally, I don't care how much good guys we want to be, we don't have the cash to be good guys right now. If it's not absolutely required today by regulation, we are not going to out it in today, but we know it's coming. I don't think there's anybody, anybody in the country that believes that Barack Obama when he comes in as President, if care or something like it is not in existence, is not going to push that as a first priority item to ensure that air pollution continues to be reduced in this nation, whether CO2 is part of that or not, but I think everybody knows that it's coming. The ones that are doing more than just delaying the signing of contracts are really doing so out of a financial crisis item.

Okay. This may be asking you to I guess peer into a crystal ball a little bit, but if the financial situation in this country weren't the way it were, you wouldn't expect a material impact because of care's sort of delay there?

No. Most folks that we had talked to were planning on going ahead with projects. We had said that. We just didn't see a material short-term kind of impact and in longer-term we thought either care was going to be back in, which I always thought was a long shot, but there would be other regulation early that would be passed next year to get us back into at least an equivalent care kind of situation. So, I still think that's true. I think regulatory wise we're going to see those kinds of restrictions. You're just seeing a few utilities look for any reason they can to delay anything they can.

I got you. On the FUEL CHEM side, I apologize if you touched on it earlier, sequential FUEL CHEM usage from the second quarter into the third quarter on the units you've got in place, I mean where utilities are?

The revenues really went up because the power demand was higher and the units were driven harder, which means they run more and use more coal and our injections are on a per ton of coal utilized. So when their usage of coal goes up, our usage of our chemical goes up. So you see seasonality in our revenue dollars, Brian that are based on the usage of the utility.

Okay. Then lastly, I guess if I look at your guidance for next quarter, based on the full year guidance, there's a potential that you guys could be negative in the quarter, and I know you touched on some of the added costs on the FUEL CHEM side. Is there any way you could sort of quantify that or quantify your expectations for margins in the fourth quarter that might you might expect, or I guess lead that to happen?

Well, I think you could probably do that yourself. John broke out the revenue of $36 million to $37 million on FUEL CHEM, $43m to $44 million for APC for the fourth quarter. If you assume APC is going to hold its own, then the difference in dollar volume and in margins are really coming on the FUEL CHEM side and it's really driven, and there's not a lot of costs in our other units, you just don't get profit when you're in the Demo phase. The other exception to that is, we did spend a good bit of money on a technical issue that we had in our R&D area that was around FUEL CHEM, and it was very important item. We learned a lot and improved the product a lot. For the fourth quarter, the major costs that are going to be driving us down are going to be costs in India, that are being incurred now, and in China that has been recently incurred this quarter so far.

Okay. Great. Thanks for the color, guys.

Our next question will come from the line of (inaudible), please proceed.

Hi, John. Thanks for taking the call.

Hey, Scott. Good to talk to you again.

You, too. I just have a couple of really quick questions. What's the average selling price of the CASCADE?

We put that out there on our various sheets, it's on a dollar per kilowatt basis, but for an average size unit, we can probably put a CASCADE in there for $15 million plus or minus $5 million, depending on the layout that would provide SCR equivalent or close to it levels of performance. An SCR for a 300 or 400-megawatt units would cost of $150 million. So it's about ten times as expensive as us.

Okay. On the APC side, can you give me the average selling price of the NOx equipment roughly?

Yes, those units are, again, you can get the specific kinds of details, Scott, on our investor presentations that are on our website. But to answer your question, an SNCR, for a typical kind of utility, a utility customer is about $2 million a unit, an industrial customer is about a million dollars a unit or so, maybe a little more expensive in China for those, ULTRAs are slightly more expensive than that, but in that same kind of ballpark. For a medium sized kind of coal unit ULTRA might be a couple of million bucks, a little more for larger units.

Okay. Just a couple of sales force questions. In the US, how many sales force members do you have?

It's a couple of dozen with about that many more, about twice that many more in manufacture's reps. Hold on a second. I can add these things up. Direct sales, its maybe about 18 or so, and then about two times that in manufacture reps.

That's US, right? John, the trend of that sales force, is that declining, flat or increasing?

Oh, it's increasing.

Okay.

It's going to increase.

Got it. Overseas, can you just give me a little refresher on the ITOCHU relationship, and are they the people that are selling for you in India as well?

The answer to the latter is no. We have another rep that's doing the India. But ITOCHU is in China. It's 50/50. They do the selling with us helping them, but they are really the ones that are out there at the pointy edge of the sword in the sales process with their whole team.

Okay. Is that separate from the Beijing office or is the Beijing office part of that?

That's totally separate. The Beijing office does our APC work there.

The APC work, got it. On just the final question, with the product portfolio being a high return on investment portfolio, especially in a not as good economic period, wouldn't you assume that there would be more demand for, Fuel Tech products, especially, you can't really say that a $2 million SNCR or $3 million ULTRA is part of a capital equipment budget. For utility, that's, I would think, a small number. I'm just trying to get to the disconnect?

Well, we do believe that they will, Scott, I am not sure there is a disconnect. We do believe that they will go forward. An ULTRA would be part of an SCR, so the ULTRA would be used for, as the ammonia supply for a big SCR.

That would be an add-on to somebody else's CapEx sale in other words?

Yes. That would be part of that same sale. So they would be impacted by that. SNCRs are not, together, if they do two or three units, that's $6 million or so. You would say, well, that's kind of down in the noise. For normal operations, that's true. Right now, the utilities we're talking to, and we're talking to almost every one of them, nothing is down in the noise. They're looking at everything.

Okay. John, thank you very much.

Okay, Scott thanks. Good talking to you.

Me too. Thanks.

(Operator Instructions). Our next question is a follow-up question from Michael Carboy with Signal Hill. Please proceed.

Thanks for the follow-up, John. In the past outage cycles or I should say the unpredictability of outage cycles, or sometimes the devil's operations, now that we're well into the fourth quarter here, what are you hearing with regard to outage cycles both this quarter and next quarter? Just trying to get a handle on whether we have a potential risk for any disruption there.

For outages, I haven't heard a lot. I have had one unit that they canceled an outage that they were planning on going into in about two weeks. That surprised me, because you have to have the labor and all of that lined up, and they just said we're canceling it and taking an operational risk, we can't afford to spend that $2 million on that outage, $2 to $2.5 million is typically what an outage would entail. So they're just going to leave the unit in operation. It doesn't impact us much, unless we're trying to get a FUEL CHEM installed. Once a FUEL CHEM is running, that actually tends to have a somewhat positive impact, because the outages don't happen and they continue to run, albeit at a lower level across a low power usage time like right now. I don't think outages, Michael, are going to be as detrimental one way or the other unlike our chemical usage. You're going to see that more of an impact, but if they do go into an outage, once they get the workers out of there, how quickly they come out of it, that could happen. They could just leave a unit off for the next couple of weeks while they're down and just run other units. We could see some of that. To be honest, utilities are in this huge turmoil right now, running through their options, and we don't know yet what their plans are coming out of those. Those meetings are still going on.

All right. Thanks a lot.

Okay.

Our next question is another follow-up question from Graham Mattison with Lazard Capital Markets. Please proceed.

Hi. Thanks, guys. Just wanted your comment on your cash position in terms of your outlook, and also in terms of acquisitions, possibility for stock buy backs or dividends given the near-term outlook.

Who knows what we might do. We always look at that sort of stuff, but I think that right now in the current financial situation, prices for other things like M&A might present better opportunities than for any sort of a dividend or today even a stock buy back. That cash has got to work for us. It's not working doing a lot right now just sitting in the bank earning interest, because the interest rates are pretty low that are being paid out. So we'll try to put that cash to the best use we can for the shareholders.

Then in terms of the acquisition, the acquisition outlook or the activity in the market, has that picked up at all recently or has the outlook on that changed? Are people more willing to sell now at better prices than they were six months ago? Have you seen that yet?

Well, I think in every case, that you would look at folks and they would say, hey, how long is the economic downturn going to take. Is my business still as valuable as I thought it was? I think all of us, if you look at stock prices, you're looking across the board at stuff that is a hell lot lower than it was, certainly in my 401(k) account it's a hell of a lot more than it was six months ago or three months ago. Graham, I think there are opportunities out there. Whether we do it there or the Board decides to do something else with the cash is something that we will and are looking at as a Board of Directors, who want to do the best thing for our shareholders. But as we've said all along, I think the best thing we can do for our money is put it in some way that grows this business. I'm not sure a that stock buy back right now really qualifies, is the best necessarily use for that.

Okay. Great. Thank you very much.

At this time I show no more questions in queue. I would like to turn the call back over to John Norris for closing remarks.

Thank you very much. Thanks for your interest in our company. We're working real hard to help take this company forward for our investors and that's where we're focused right now with 100% of our efforts. Thank you for your interest and have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.