Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                 to


Commission file number: 001-14176

EVERGREEN ENERGY INC.(Exact Name of Registrant as specified in its Charter)

Delaware(State or other jurisdiction of
incorporation or organization)

84-1079971(IRS Employer
Identification No.)1225 17th Street, Suite 1300
Denver, Colorado(Address of Principal Executive Offices)

80202(Zip Code)


Registrant's
Telephone Number, including area code:(303) 293-2992

Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $.001 par value

NYSE Arca


Securities
registered pursuant to Section 12(g) of the Act:None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Exchange
Act. Yes o    No ý

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the common stock held by non-affiliates of the registrant was $21,796,038 computed by reference to the closing price of
the common stock on June 30, 2010, the last trading day of the registrant's most recently completed second fiscal quarter.

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at March 7, 2011Common Stock, $.001 par value

25,701,845 shares


DOCUMENTS INCORPORATED BY REFERENCE

Document

Parts Into Which IncorporatedDefinitive Proxy Statement for the 2011 Annual Meeting

Part III




---





Table of Contents



TABLE OF CONTENTS



Page No.PART IItem 1.

Business

4Item 1A.

Risk Factors

17Item 1B.

Unresolved Staff Comments

32Item 2.

Properties

32Item 3.

Legal Proceedings

33Item 4.

ReservedPART IIItem 5.

Market for Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

36Item 6.

Selected Financial Data

37Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

39Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

56Item 8.

Financial Statements and Supplementary Data

56Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

56Item 9A.

Controls and Procedures

56Item 9B.

Other Information

58PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

58Item 11.

Executive Compensation

58Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

58Item 13.

Certain Relationships and Related Transactions, and Director Independence

58Item 14.

Principal Accountant Fees and Services

58PART IVItem 15.

Exhibits and Financial Statement Schedules

59SIGNATURES

65


2

---





Table of Contents

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that are not statements of historical fact and
may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable.
These statements may also relate to our future prospects, developments and business strategies.

We
have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "will," "plan," "predict," "project" and similar terms and phrases, including references
to assumptions, in this Annual Report on Form 10-K to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning
future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our
control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause
actual results to differ materially from our forward-looking statements:



You
should keep in mind that any forward-looking statement made by us in this Annual Report on Form 10-K or elsewhere speaks only as of the date on which we make it.
New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the
forward-looking statements in this Annual Report on Form 10-K after the date of this filing, except as may be required by law. In light of these risks and uncertainties, you should
keep in mind that any forward-looking statement made in this Annual Report on Form 10-K or elsewhere might not occur.

3

---





Table of Contents

PART I

ITEM 1.    BUSINESS

In this Annual Report on Form 10-K, we use the terms "Evergreen Energy," "we," "our," and "us" to refer to Evergreen
Energy Inc. and its subsidiaries. C-Lock refers to our subsidiary C-Lock Technology, Inc. Buckeye refers to our subsidiary Bimco Inc. (previously known as
Buckeye Industrial Mining Co.) and referred to as "Buckeye" herein. All references to K-Fuel, K-Fuel®, K-Fuel process, K-Fuel refined
coal, K-Fuel refineries, K-Direct®, K-Fuel Plants, K-Fuel facilities, K-Direct facilities, K-Direct®
plants, C-Lock®, and GreenCert, refer to our technologies and patented processes explained in detail throughout this Annual Report on Form 10-K.
As further described in Note 7Temporary Capital and Stockholders' Equity in Item 8 of this
report, effective August 20, 2010, we executed a 1 for 12 reverse stock split and all share and per share amounts have been restated as if the reverse stock split occurred in the applicable
periods. All references to years, unless otherwise noted, refer to our fiscal year, which ends on December 31st.

We
were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company primarily focused on developing and marketing K-Fuel. Today,
Evergreen Energy is comprised of two discrete clean energy business units that own two proprietary and potentially transformative technologies: K-Fuel and the GreenCert suite of software
and services. K-Fuel, our patented clean coal technology, significantly improves the performance of low-rank sub-bituminous and brown coals and lignite yielding
higher efficiency by applying heat and pressure to low-rank coals to reduce moisture. The efficiency increase is variable depending on the type of coal we process. Our GreenCert software
suite provides power generators with operational intelligence analytics that identify fuel and operational efficiency opportunities, and address new regulatory pressures regarding environmental
emissions. The K-Fuel and GreenCert technologies are both business and environmental solutions for energy production and generation industries and processes.

During
2010 and through February 2011, we have executed on a number of our strategic objectives. On February 1, 2011, we completed a private placement of 6.2 million shares
of our common stock and 12.0 million warrants to purchase our common stock, resulting in approximately $15.99 million in gross proceeds and $14.6 in net proceeds, after the offering
expenses. See further discussion in Item 7Management's Discussion and AnalysisLiquidity and Capital Resources.

On
February 1, 2011, we and Buckeye entered into a Forbearance and Settlement Agreement (or, the Settlement Agreement) with certain holders of our 2007 (or, the Settling 2007
Noteholders) and former holders of our 2009 Notes (or, the 2009 Noteholders). The Settlement Agreement provides for the direct redemption of approximately $14.1 million in aggregate face value
of 2007 Notes currently held by the Settling 2007 Noteholders to us, in exchange for the following: (i) the payment of approximately $6.76 million in cash to the Settling 2007
Noteholders; and (ii) the issuance of warrants to the Settling 2007 Noteholders for the purchase of up to 531,250 shares of our common stock at an exercise price of $7.20 per share. The
Settlement Agreement also provides for the 2009 Noteholders to purchase $3.2 million of 2007 Notes from the Settling 2007 Noteholders for $1.6 million. The $3.2 million of 2007
Notes purchased by the 2009 Noteholders will be exchanged by us for a new one year, $1.6 million, 7% note, convertible into shares of our common stock at the market value of the shares on the
date the exchange is to occur and 200,000 warrants to purchase our common stock priced on the date of the exchange. This agreement also calls for the dismissal of the litigation that is now pending
between us, Buckeye, the Settling 2007 Noteholders, and the 2009 Noteholders, which arose out of the sale of certain assets of Buckeye and of Evergreen, which we refer to as the "sale of Buckeye." See
further discussion of these transactions in "Risk Factors" and Item 7Management's Discussion and AnalysisLiquidity and Capital Resources.

On
August 20, 2010, we entered into an agreement to sell certain property and operations in Campbell County, Wyoming, including the Ft. Union plant, to Synthetic Fuels LLC
or its nominee for a

4

---



Table of Contents

cash
purchase price of $2.0 million of which $500,000 will be paid at closing with the remaining $1.5 million to be paid pursuant to a secured two year note. Also, the buyer will pay
additional amounts in connection with the transfer of all of the reclamation bonds pertaining to the sold property, currently totaling $5.2 million, pursuant to a secured one year note. The due
diligence period has ended and the transaction is expected to close in first quarter of 2011; such closing is subject to customary closing conditions. Proceeds of the sale will be used for general
working capital purposes. See further discussion below in "Business HistoryOther."

On
March 12, 2010, we signed a definitive agreement with Rosebud Mining Company ("Rosebud"), for the sale of certain assets of both Buckeye and Evergreen and included all of the
assets and operations of the Mining Segment, for a purchase price of $27.9 million in cash payable at the closing of the transaction. We closed this transaction on April 1, 2010. See
further discussion below in "Business HistoryOther."

We
believe these transactions have better positioned us to focus our resources on a newly defined set of objectives and further clarify our strategic positioning. To this end, we expect
to evaluate several alternatives, including but not limited to: (i) the development of a K-Fuel demonstration plant; (ii) entry into joint ventures, domestically and
internationally, for the further development of K-Fuel; and (iii) assessment of the GreenCert business, including evaluation of its relationship to K-Fuel and potential
sale or joint venture of this business. We are evaluating the engagement of an investment banking firm to assist us in the assessment of the GreenCert business and possible alternatives related to
that business. As we complete stages of this process we may alter our ongoing business plan. The following discussion addresses the current aspects of our business.

K-Fuel

The international community faces key challenges posed by global warming and unfavorable political climate related to the development
and use of fossil fuels balanced against the growing need for energy. With more than 100 years of available lower rank coal reserves and well developed, world-wide distribution
channels, coal will remain a key resource in solving the world's energy needs. To resolve the disparity between environmental concerns and energy needs, it is critical to consider cleaner coal
technologies. Along with this continued reliance upon coal, comes the responsibility to operate coal-fired electric generation efficiently and manage emissions to limit the environmental
impacts of using coal.

K-Fuel,
through the application of our patented process, significantly improves the performance of low-rank sub-bituminous and brown coals and lignite
yielding a higher value product resulting in increased efficiency and lower emissions. Through this proprietary K-Fuel process, we intend to meet the specific needs of coal companies and
mine operators looking to identify and expand the markets for their low-rank coal by transforming the coal into a higher value fuel and chemical manufacturers using coal as a feedstock.
Additional markets may be served by this process, including meeting the needs of public utility, industrial and international customers by providing economical solutions for energy supply, energy
efficiency and compliance with environmental emission standards. Our K-Fuel process uses heat and pressure to physically and chemically transform high-moisture,
low-Btu coals, such as sub-bituminous and brown coals and lignite, into a more energy dense, energy efficient, lower-emission fuel. The inherent efficiency of higher
Btu-lower moisture coal improves power plant performance and reduces emissions on a per kilowatt-hour-generated basis. We believe markets that have plentiful
reserves of high-moisture, low-Btu coals that are experiencing and rapid growth in electric power demand provide the best opportunities for K-Fuel. The goal of our
K-Fuel technology is to transform lower-rank coals into more valuable, efficient and environmentally compliant fuels in order to meet the increasing demand for energy in an
optimal fashion.

5

---



Table of Contents

GreenCert

The power generation industry faces a growing number of operational and regulatory pressures. Our GreenCert software suite provides a
unified software solution that addresses both of these critical issues by providing operational intelligence and analytics to identify fuel and operational efficiencies and to address new regulatory
pressures regarding environmental emissions. The GreenCert solution unlocks the power generation industry's most under utilized asset: data. The power industry has a host of issues related to the lack
of real-time data integration. This causes operators to manage generation assets based upon data that is up to thirty days old and the loss of unique process and operational knowledge
because of an aging work force. Both of these issues are caused, in part, by the lack of a single, consistent view of operational data of their core business. GreenCert works across an enterprise as a
technological solution resulting in an operational intelligence application that provides timely, verifiable and comprehensive decision support capabilities that allow power generators to optimize
their assets by balancing their key performance metrics of cost, reliability and environmental compliance. We believe that GreenCert is positioned to be the perfect Best Available Control Technology,
or BACT, as defined by the Environment Protection Agency (EPA), pursuant to its tailoring rule; therefore, it becomes an essential tool for the power generation industry. GreenCert is substantially
developed using an open architecture that gives us ability to open the platform up to other developers, integrate easily with other business systems, such as enterprise resource planning systems, and
allow customers to leverage the data in ways that are proprietary to
them. Providing access to other developers could create another revenue stream for the GreenCert product line.

Segments

Our business lines include the Technology segment and the GreenCert segment. The Technology segment is comprised of all operations that
use, apply, own or otherwise advance our proprietary, patented K-Fuel process, including our headquarters and related operations, and activities of Evergreen Energy Asia Pacific Corp. and
KFx Technology, LLC, which holds the licenses to our technology. Corporate costs within our Technology segment are allocated to our GreenCert segment, generally on a percentage based on the
number of employees, total segment operating expenses, or segment operating expenses plus segment capital expenditures. The GreenCert segment represents the operations of our GreenCert software suite,
which focuses on providing power generators with operational intelligence and analytics to identify fuel and operational efficiency, and addressing new regulatory pressures regarding environmental
emissions. As a result of the sale of Buckeye and the signing of a definitive agreement for the sale of our Fort Union assets, the Mining and the Plant segments were reclassified to discontinued
operations for our consolidated financial statements. We will continue to evaluate how we manage our business and, as necessary, adjust our segment reporting accordingly. See
Note 11Segments in Item 8 of this report for further details.

Business Strategy

Our long-term strategy is to build our business through a combination of organic growth, acquisitions and joint ventures in
the following areas.



6

---



Table of Contents



7

---



Table of Contents



8

---



Table of Contents



Competitive Strengths

We believe we are uniquely positioned in the energy generation market as a result of the following
strengths:



9

---



Table of Contents



Competition

Our K-Fuel process produces refined coal that is low-moisture, high-Btu content and low sulfur
dioxide, oxides of nitrogen and mercury emissions. The known direct competitors for K-Fuel refined coal include other coal upgrading processes, other high-Btu coal, low sulfur
coal and advanced pollution control technologies. The indirect competition to K-Fuel refined coal includes electrical generation from natural gas, nuclear fuel, oil, wind,
bio-fuels, and other renewable energy sources. Potential customers could choose to install pollution equipment instead of using our K-Fuel refined coal and/or choose to inject
additives to reduce emissions. These alternatives include equipment such as low-nitrogen oxide burners, over-fire air systems, selective catalytic reduction systems, sulfur
scrubbers, fabric filters, electrostatic precipitators, mercury control technology, or other equipment and adding limestone or other chemicals to the combustion and waste stream.

The
market classifies information technology providers to the power generation industry into three categories: (i) process control systems, consisting of process-facing systems
that provide real-time monitoring and control of the various components that comprise the power generating process and include companies such as SmartSignal, General Physics, and OSISoft;
(ii) plant management systems, which are site-specific management systems that support various operations aspects, ranging from procurement to maintenance management, and support
the operations of the entire plant while tracking overall plant performance, and includes companies such as ABB, Emerson, Siemens, and Rockwell; and (iii) business system providers such as SAP
and Oracle. GreenCert is well positioned in comparison to companies providing process control systems and plant management systems because these solutions are inwardly focused and do not address
broader business needs. Likewise, GreenCert competes well against business system providers that have only a small market presence and virtually no presence in the core aspects of power generation.
Currently, we do not believe that there are any competitors that bring operational data together at the enterprise level and provide a rich set of reporting and analytics. The GreenCert software and
methodology provides a level of operational transparency that is not currently available to the power generation industry. In many cases, GreenCert can be used to enhance or complement some of our
competitors' offerings.

10

---





Table of Contents

Intellectual Property

Our success depends in part on our ability to protect our intellectual property, including proprietary knowledge, know-how
and trade secrets, and to prohibit infringement of our intellectual property by third parties. Several patents that cover earlier versions of our K-Fuel technology are near their
expiration dates. Patents that cover newer versions of that technology expire from 2018 through 2024. Our most recently issued patent covers most of the aspects of our current K-Fuel
process. As we make modifications and improvements to our proprietary process, we continue to evaluate our patent protection. As new improvements result, we anticipate filing additional patent
applications. In addition, in 1996, we amended our agreement with Koppelman Ventures, LLC (successor to Edward Koppelman), which we refer to as Koppelman Ventures, to pay Koppelman Ventures 25%
of worldwide licensing and royalty revenue received by us until reaching an aggregate amount of $75.2 million. Mr. Koppelman provided us an indemnification against potential claims made
by certain parties if we licensed the technology. Currently, there is $73.0 million remaining pursuant to the cap.

Our
trademarked GreenCert solution is an accurate and scalable energy intelligence solution that assists in the identification of operating efficiencies and quantifies greenhouse gas
emission avoidances and reductions. The GreenCert solution contains unique and proprietary approaches that integrate software and power generation domain expertise in the areas of analytics
meta-model,
asset configuration model, fleet information model and process analytics. In addition, we have the worldwide exclusive rights to various patents that can be applied to measurements of any emissions
offsets reduction or other environmental attributes.

Business History



Over the past 25 years, we have been principally focused on the development of our K-Fuel technology. We have
obtained multiple patents for different aspects and configurations of the K-Fuel technology using a variety of methods and apparatus to apply heat and pressure to process high moisture
coal feedstocks. We have patents or patent applications for the K-Fuel technology issued or pending in the United States and various foreign countries. As we continue to develop and make
enhancements to either technology or develop new technologies consistent with our business strategy, we anticipate expanding our patent coverage.

The
current K-Fuel process applies heat and pressure to lower-rank coals with high water content, such as those found in Wyoming's Powder River Basin, to reduce
moisture from approximately 30% in the low-Btu coal to 8%-14% in our K-Fuel refined coal. The process boosts the coal's heating value by 25% to 40%, depending on
the process conditions and type of coal feedstock being used. We believe the K-Fuel process results in increased efficiency of the fuel utilized in coal fired power generating, industrial
and institutional facilities. Further, the K-Fuel process removes a significant amount of impurities from the lower-Btu coal that we believe will assist the power generation
industry and smaller industrial coal boilers to economically comply with increasingly stringent air emission standards and environmental regulations. The pre-combustion refinement of raw
coal into K-Fuel refined coal reduces the mercury content, and upon combustion, sulfur dioxide and oxides of nitrogen are also reduced. Our analysis also shows that burning
K-Fuel refined coal with its increased efficiency will reduce carbon dioxide emissions by up to 8% on a per-kilowatt-hour generated basis.

Multiple
laboratory and test burn results have independently verified the effectiveness of the K-Fuel process at removing significant amounts of mercury from
lower-rank coals. The amount of mercury reduction varies depending on the coal source. The K-Fuel process can reduce mercury by up to 70% in Wyoming Powder River Basin coal.
Tests on Indonesian coal showed a 56% mercury reduction, and a test burn of blended K-Fuel at a western Pennsylvania power plant achieved an almost

11

---



Table of Contents

82%
mercury emission reduction at the stack when compared to the mercury emissions from the coal normally burned at that plant.

We
have completed the modifications and improvements of the design and efficiency of the equipment used in the K-Fuel process. Evergreen's teams completed successful testing
of operational systems at our Fort Union plant near Gillette, Wyoming that will support construction and operation of future K-Fuel refineries. The results of these efforts have been
incorporated into our enhanced standard processing tower design that should significantly improve the economics of K-Fuel facilities when compared with prior designs. We believe that we
have now resolved the most substantive technical challenges to scaling and fully commercializing our production process.

Through
the construction and limited operation of our Fort Union facility, we sought to further develop the application of our proprietary K-Fuel technology. The Fort Union
facility realized virtually all of the goals and objectives which we set forth, except for continuous production. In March 2008, we suspended operations at our Fort Union plant in order to redirect
constrained resources, both capital and human, to focus on the commercialization of this process in future K-Fuel plants. Suspending production at Fort Union enabled us to reduce our cash
expenditures. The significant resources invested in the Fort Union plant served four important purposes:



On
August 20, 2010, we executed the second of our strategic positioning plans by signing a definitive agreement to sell our Fort Union assets. We entered into a definitive
agreement with Synthetic Fuels LLC or its nominee for the sale of the assets of our subsidiary Landrica Development Company, including the Fort Union plant and associated property located near
Gillette, Wyoming. The sale will provide approximately $7.1 million of available cash to us, comprised of: (i) cash payments of $2.0 million, of which $500,000 will be paid at
closing, an additional $500,000 on the first anniversary of closing and $1.0 million on the second anniversary of closing; and (ii) the payment for the transfer of all of the reclamation
bonds pertaining to the sold property, currently totaling $5.2 million (after reducing for the $1.2 million we received on November 2, 2010 related to these bonds), pursuant to a
secured one year note. Synthetic Fuels LLC is required to assume these environmental liabilities at the closing and the cash collateral or an equivalent amount will be released to us by the one
year anniversary of the closing. The sale is anticipated to close during the first quarter 2011 and is subject to customary closing conditions. Proceeds of the sale will be used for general working
capital purposes. Concurrent with and as a condition to the sale, Evergreen and Synthetic Fuels, LLC will enter into a lease agreement to provide access to and use of the K-Fuel
testing facility and equipment located on the Fort Union site. This facility has served as an important coal testing facility that allowed Evergreen to build a database of test results from more than
100 coal types drawn from across the globe and will continue to play an important role in the commercialization of K-Fuel.

On
October 13, 2010, Evergreen amended its equity joint venture agreement with Beijing Gang Jing Hong Ren Technology Co. Ltd., to introduce a third party into the
ownership structure of Evergreen-China Energy Technology Co. Ltd., the Sino-Foreign Equity Joint Venture established in mainland China ("Evergreen-China"). This amendment
will obligate the third party to invest

12

---



Table of Contents

$2.0 million
that will be used to pay for engineering services to complete the K-Fuel "China Package"the set of technical documents that include detailed engineering
design information for certain key components of the K-Fuel technology to be used for all projects in China. Pursuant to the terms of the amended agreement, Evergreen, which held a 50%
ownership interest in Evergreen-China, will transfer 20% to the third party as compensation for completing the work necessary to begin plant construction. As a result, Evergreen-China now consists of
50% ownership by Beijing Gang Jing Hong Ren Technology Co. Ltd., 30% ownership by Evergreen and 20% ownership by the third party. All future revenue resulting from licensing fees or
royalties from any proposed or operating K-Fuel plant will be immediately remitted to each owner of Evergreen-China based on their respective ownership percentages.

We
previously announced that we signed a letter of intent with a large Chinese integrated utility and chemical manufacturer to build a K-Fuel plant in Inner Mongolia.
Further, based on positive results of initial laboratory testing and engineering analysis of the coal and K-Fuel process conducted in December 2009 and January 2010, a
three-way agreement with this same party, a Chinese design institute and Evergreen-China was executed in February 2010. The letter of intent and three-way agreement were signed
with Datang Chemical and they expect to initially construct a single-processing plant with a capacity of approximately 500,000 tons per year and to use the K-Fuel technology to upgrade
coal feedstock for ultimate gasification. The completion of the China Package is important not only for Datang Chemical and for our efforts to develop K-Fuel in China, but also for
discussions we are having with other third parties to install K-Fuel facilities in other parts of the word, including Indonesia and the US.



In December 2007, our subsidiary, C-Lock Technology, Inc. began developing an energy intelligence solution called
GreenCert. Certain aspects of GreenCert are patented and available to us through an exclusive licensing agreement.



As described above, we executed on one of our strategic positioning plans by completing the sale of Buckeye. We believe the sale will
allow us to focus all our resources and attention on core clean coal technology business activities, including our K-Fuel and GreenCert technologies. On March 12, 2010, we signed a
definitive agreement with Rosebud Mining Company for the sale of certain net assets of both Buckeye and Evergreen, which we refer to as the "sale of Buckeye", for $27.9 million, in addition to
the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price was deposited into escrow for a period of twelve months to cover amounts payable to
Rosebud pursuant to the indemnification provision of the sales agreement. The sale closed on April 1, 2010, however, we are still subject to some post-closing obligations, including
incurring costs related to the transfer of certain assets and providing support for such transfers. We received $25.1 million from the sale of Buckeye, of which $19.2 million was used to
retire our 2009 Notes principal balance, accrued interest and exit fees. The remaining proceeds were used to fund related transaction expenses estimated at $2.5 million and for general working
capital purposes. In addition, we received $5.0 million of additional cash through December 31, 2010 from the release of our reclamation bonds.

Environmental Regulations Affecting our Market

The following summarizes federal, state, and international programs that may affect the market for our K-Fuel refined coal
and for GreenCert products.

13

---



Table of Contents



14

---



Table of Contents



We
believe that existing and proposed legislation and regulations could affect the profitability of fossil fuel-fired and specifically coal-fired power generating
facilities that can emit substantial levels of sulfur dioxide, nitrogen oxides, mercury and carbon dioxide into the environment. Regulation of these emissions can affect the market for our
K-Fuel refined coal by imposing limits and caps on fossil fuel emissions. Regulation of carbon dioxide and other greenhouse gases can also affect our GreenCert technology solutions by
enhancing market opportunities. The most significant existing national legislation and regulations affecting our K-Fuel market include the Clean Air Act, the Clean Air Interstate Rule and
the Clean Air Mercury Rule, which are implemented by the EPA as previously described.

In
2009, the EPA initiated two actions that could potentially affect K-Fuel refined coal and GreenCert products. The first EPA action was a regulation for the Mandatory
Reporting of Greenhouse Gases. The final rule for this regulation was published in the Federal Register in October 2009. This regulation does not limit or control greenhouse gas emissions, but
requires reporting of greenhouse gas emissions from coal-fired power plants and other large industrial facilities starting with the 2010 calendar year. The EPA also issued the final rule
for the Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule. This rule regulates greenhouse gas emissions from coal-fired power plants and other large
industrial facilities by requiring that these installations include best available control technology for greenhouse gas emissions when initiating or renewing permits under the existing Clean Air Act.
The EPA Administrator has recently stated (February 2010 letter to Senator Rockefeller) that it plans to phase in the greenhouse gas permit requirements over time starting in 2011 with large
stationary sources.

In
addition, the market for K-Fuel refined coal will be affected by additional national policies including the EPA's Nitrogen Oxide State Implementation Plan Call, the EPA's
National Ambient Air Quality Standards for ozone and fine particulate matter, and the Regional Haze Rules, which require emission controls for industrial facilities emitting air pollutants that reduce
visibility by causing or contributing to regional haze.



State and regional policies also affect the market for our proprietary processes. Important regional frameworks include The Regional
Greenhouse Gas Initiative (RGGI), which requires reduction in carbon dioxide emissions from electric generating units, beginning in January 2009 in ten northeastern states. The Western Climate
Initiative, a coalition including seven western states and four Canadian provinces as partners, has developed a regional, economy-wide greenhouse gas cap-and-trade
program, the first phase of which will start in 2012. In the Midwest, six states and one province are full members of the Midwestern Greenhouse Gas Reduction Accord with the aim of establishing a
regional greenhouse gas cap-and-trade market system. Many states have at least nominal economy-wide greenhouse gas reduction targets. A number of these are based
only on Executive Orders, so implementation is not assured. Many states have legislated greenhouse gas targets and/or utility performance standards including California, Connecticut, Illinois, Maine,
Maryland, Massachusetts, Minnesota, Montana, New Jersey, Oregon, and Washington.

15

---



Table of Contents

The
greenhouse gas emission reduction target set by state legislation is more stringent than the target set by RGGI, a regional cap-and-trade program to which
Maryland belongs. RGGI caps carbon dioxide emissions for electric utilities and will achieve a 10 percent reduction in emissions from 2009 levels by 2018. Maryland's legislation also has a
broader scope than RGGI, covering sources across the economy except the manufacturing sector.

Many
states also have mandatory greenhouse gas Reporting Requirements for utilities, including Washington, Oregon, California, New Mexico, Florida, Iowa, Wisconsin, North Carolina,
Maryland, Delaware, Rhode Island, New Jersey, New York, Connecticut, Massachusetts, Vermont, New Hampshire, and Maine. All but eight states have at least some voluntary reporting system, mostly
through the Climate Registry. Many states are also implementing emission reduction policies more stringent than national policies with respect to mercury, sulfur dioxide, nitrogen oxide and
visibility.



Markets for K-Fuel and GreenCert products are also influenced by international regulations. While the Kyoto Protocol to the
UN Framework Convention on Climate Change (UNFCCC), to which the US is not a party, expires in 2012, negotiations continue for a successor treaty that may be more broadly-based. Of primary importance
to future coal markets are the positions of China and India, the two largest coal-based emerging economies. While both have resisted calls for firm greenhouse gas targets, both submitted
voluntary commitments to the Copenhagen Accord, concluded in December 2009. India committed to a 20-25% reduction in the greenhouse gas intensity of its economy by 2020, compared to 2005,
and China to a 40-45% reduction in conjunction with at least a 15% increase in renewable energy use. China in particular has been aggressively investing in renewable energy technologies
such as wind and photovoltaic generation. At the same time, both countries are likely to remain heavy producers and consumers of coal-based energy for the foreseeable future, and
increasing levels of environmental consciousness and regulation will likely heighten interest in the benefits of K-Fuel refined coal. The UNFCCC Clean Development Mechanism (CDM) provides
market opportunities for GreenCert products in greenhouse gas reduction projects in developing countries such as China and India. Market opportunities in developed countries are provided by the UNFCCC
Joint Implementation (JI) mechanism and the European Union Emissions Trading Scheme (EU ETS).

Environmental Regulations Affecting the Construction and Operation of our Plants and Mining of Coal

We are subject to numerous state and federal regulations that (i) seek to limit the amount of certain emissions into the
environment, (ii) govern the handling and disposal of solid waste materials as well as potentially hazardous materials, and (iii) impose certain employee safety requirements. As we
expand our operations we may become subject to more regulation. For example, if we build additional plants we may install coal-fueled electric generating units, which are subject to
substantial federal, state, and local permitting requirements and more environmental regulation than gas-fueled electric generating units. If we have any mining activities, we may also be
subject to additional regulations including the Coal Mine Health and Safety Act of 1969, the Federal Mine Safety and Health Act of 1977, the Black Lung Benefits Revenue Act of 1977 and other
regulations that seek to protect the health and safety of employees.

In
the United States, K-Fuel refined coal is not expected to be subject to unusual levels of local, state or federal regulation with respect to its transportation and
distribution. However, any future production plants will require numerous permits, approvals and certificates from appropriate federal, state and local governmental agencies before construction of
each facility can begin and will be required to comply with applicable environmental laws and regulations (including obtaining operating permits) once facilities begin production. The most significant
types of permits that are typically required for commercial production facilities include an operating and construction permit under the

16

---



Table of Contents

Clean
Air Act and a wastewater discharge permit under the Clean Water Act, and a treatment, storage and disposal permit under the Resource Conservation and Recovery Act. Some federal programs have
delegated regulatory authority to the states and as a result, facilities may be required to secure state permits. Finally, the construction of new facilities may require review under the National
Environmental Policy Act, or a state equivalent, which requires analysis of environmental impacts and potentially, the implementation of measures to avoid or minimize these environmental impacts.

Any
international K-Direct or K-Fuel plants will also be subject to various permitting and operational regulations specific to each country. International
initiatives, such as the Kyoto Protocol, are expected to create increasing pressures on the electric power generation industry on a world-wide basis to reduce emissions of various
pollutants, which management expects will create additional demand for our products and services.

Employees

At March 4, 2011, we had 23 full-time employees.

Access to Information

Our web site address iswww.evgenergy.com. We make available, free of charge on the
Investor Info section of our web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all
amendments to those reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission. We also make available through
our web site other reports electronically filed with the SEC under the Securities Exchange Act of 1934, including our proxy statements and reports filed by officers and directors under
Section 16(a) of that Act. Additionally, we make available press releases and presentation material including slides and other
investor information. We do not intend for information contained in our web site to be part of this Annual Report on Form 10-K.

ITEM 1A.    RISK FACTORS

In addition to risk and uncertainties in the ordinary course of business that are common to all businesses, important factors that are
specific to our industry and our company could materially impact our future performance and results. We have provided below a list of these risk factors that should be reviewed when considering our
business and securities. These are not all the risks we face, and other factors currently considered immaterial or unknown to us may impact our future operations.

17

---



Table of Contents

Business Risks

Our financial condition continued to deteriorate during 2010.We have been working to focus our business on the further
development of our
K-Fuel and GreenCert technologies by selling certain assets of Buckeye and Evergreen, which we refer to as the "sale of Buckeye." We entered into an agreement to sell certain assets and
property in Wyoming, including certain Ft. Union assets; executing an agreement to settle litigation and a portion of the 2007 Notes; and raising additional capital through a private transaction. As
part of our strategic analysis, we have investigated a number of financing alternatives, but have not yet obtained sufficient additional financing to complete our strategic re-positioning.
In October 2009 we completed a financing transaction totaling $7.0 million resulting in net proceeds of $5.0 million, excluding transaction costs, and again completed a financing
transaction in January 2010 totaling $8.7 million resulting in net proceeds of $8.0 million. We completed another financing transaction in March 2010 totaling $9.3 million and
resulting in net proceeds of $5.0 million, excluding transaction costs. Lastly, in February 2011, we completed the private placement of our common stock resulting in net proceeds of
approximately $14.6 million. Notwithstanding these financings and the sale of Buckeye, we continue to require additional capital.

As a result of the preceding, we are in need of capital during the next twelve months. We are continuing to evaluate restructuring and capital raising alternatives. Without
an additional influx of capital, we will not be able to pursue our business plan and may not be able to remain a going concern.

We have a history of losses, deficits, and negative operating cash flows and will likely continue to incur losses in the future. Such losses may impair our ability to pursue
our business plan and our independent registered public accounting firm has expressed substantial doubt over our ability to continue as a going concern.

We continue to incur operating losses and negative cash flows from operations for the foreseeable future. We have made, and will
continue to make, substantial capital and other expenditures before we will have sufficient operating income and cash flow to recover all of our investments. We are not able to accurately estimate
when, if ever, our cash flows from operating activities will increase sufficiently to cover these investments. Further, we may not achieve or maintain profitability or generate cash from operations in
future periods. Our working capital (the amount by which our current assets exceed our current liabilities), accumulated deficit, net loss and cash used in operating activities are as follows:

Year Ended December 31,2010

2009

2008(In Thousands)Working capital from continuing operations

$
(1,109
)
$
(21,550
)
$
2,029Accumulated deficit


(550,285
)

(529,939
)

(473,303
)Loss from continuing operations


(16,290
)

(29,063
)

(48,160
)Cash used in operating activities from continuing operations

$
(15,692
)
$
(13,157
)
$
(27,555
)


We have substantial capital requirements and as a result, we have been, and continue to be, dependent on financing activities or sales of our equity securities to fund our
operating costs. The inability to raise funds through traditional financing means or sale of our equity securities may require us to sell assets to fund our operating costs.

As a result of negative cash flows from operations, we have been, and continue to be, dependent on financing activities and sales of
our equity securities to fund the operating and substantial capital costs associated with our business. Our success is dependent on our ability to utilize existing resources and to generate sufficient
cash flows to meet our obligations on a timely basis, to obtain financing or refinancing as may be required, to attain profitability, or a combination thereof. The continued

18

---



Table of Contents

economic
downturn has had, and may continue to have, an impact on our business and our financial condition. In addition, the economic downturn may present significant challenges for us if conditions
in the financial markets do not improve or worsen. We have limited ability to access traditional bank loan financing in current market conditions. Further, our ability to access capital markets, for
example, may be severely restricted at times when we need adequate funding to pay our existing indebtedness, pursue our business strategy, meet our contractual and settlement obligations, respond to
changing business and economic conditions and competitive pressures, absorb negative operating results and fund our continuing operations, capital expenditures or increased working capital
requirements. We may also need to sell assets to fund our operating costs to the extent that we are unable to raise adequate funds in the capital markets. Given the economic downturn, we may not be
able to sell assets on favorable terms or at all.

We have a limited operating history as a technology solutions company, and our business and prospects should be considered in light of the risks and difficulties typically
encountered by a company with a limited operating history.

You should consider our business and prospects in light of the risks and difficulties typically encountered by a company with a limited
operating history. The specific risks include whether we will be able to:



We
may not be successful in addressing these and other risks. As a result, our financial condition, results of operations and cash flows may be adversely affected.

We are subject to certain litigation matters and may be subject to additional litigation in the future.

As described in Item 3Legal Proceedings, we are subject to certain litigation matters. If these litigation matters
were to be determined in a manner adverse to us, we could be subject to damages or other remedies which could be material to our financial condition. Furthermore, for so long as such matters are
pending, we are subject to payment of litigation expenses.

19

---



Table of Contents

We have entered into a Settlement Agreement with certain holders of our 2007 Notes and 2009 Notes. If certain events occur, portions of the transaction could potentially
unwind causing litigation to be reinstated.

As described above and under Item 3Legal Proceedings, on February 1, 2011, Evergreen and Buckeye entered
into a Settlement Agreement with the Settling 2007 Noteholders and the 2009 Noteholders. There are several risks associated with this transaction. Upon execution of the Settlement Agreement, we
transferred the settlement consideration to the Settling 2007 Noteholders, which included cash, warrants and releases of claims against the Settling 2007 Noteholders. The Settling 2007 Noteholders'
obligations to transfer their 2007 Notes, deliver a release of their claims against us, and dismiss the Litigation will not occur for a period of between 90 to 140 days subsequent to
February 1, 2011. During that period, events could occur which would excuse the Settling 2007 Noteholders from certain obligations under the Settlement Agreement, including, specifically, their
obligation to transfer the 2007 Notes upon, among other things, the occurrence of a new Event of Default under the 2007 Indenture (other than our delisting); the filing of an uncured bankruptcy
petition or default by us with respect to any of our obligations under the Settlement Agreement.

Should
an event occur that would excuse the Settling 2007 Noteholders from their further obligations under the Settlement Agreement, including their obligations to transfer their 2007
Notes, the Settling
2007 Noteholders have the right to elect not to proceed with the transfers of the 2007 Notes for redemption and such election will be entitled to retain all of the property previously transferred to
them by us under the Settlement Agreement. This retained property could include up to $6.8 million in cash, a total of 531,250 warrants for the issuance of our common stock with an exercise
price of $7.20, and a release executed by the Evergreen and Buckeye of all claims they have against the Settling 2007 Noteholders. Of that property, $1.45 million would be treated as a
forbearance fee due the Settling 2007 Noteholders in exchange for their agreement for having entered into the Settlement Agreement. The remaining property would be deemed a payment on account of the
obligations owed by us to the Settling 2007 Noteholders.

Given
our financial condition, there can be no assurance that we will be able to raise sufficient funds in order to comply with all of our obligations under the Settlement Agreement,
that a new Event of Default (as defined in the 2007 Indenture) will not occur, that an involuntary bankruptcy petition will not be filed against us or a subsidiary guarantor of the 2007 Notes, or that
we will not voluntarily file a petition for bankruptcy. Accordingly, there can be no assurance under the terms of the Settlement Agreement that the approximately $17.3 million face value
of 2007 Notes held by the Settling 2007 Noteholders will be redeemed by us and the Litigation dismissed as a result of us entering into the Settlement Agreement.

Competition from other companies in the clean coal, alternative fuel and emission-reducing equipment industries, including competition resulting from deregulation in the
United States power industry, could adversely affect our competitive position.

Competition in the clean coal, alternative fuel and emission-reducing equipment industries could impact our ability to generate revenue
from our K-Fuel process. Many of these companies in the clean coal, alternative fuel technology and emission-reducing equipment industries have financial resources greater than ours.
Providers of alternative or competing technologies in these industries may be subject to less regulation, or alternatively, may enjoy subsidies that provide them with increased financial strength, or
make their products or services more attractive to coal resource owners and energy consumers. Due to any of these competitive advantages, our existing and future competitors may be able to offer
products more competitively priced and more widely available than ours. These companies also may have the resources to create new technologies and products that could make our process and products
obsolete. Our future revenues may depend on our ability to address competition in these industries. In addition, deregulation in the United States power generating industry may result in increased
competition from other producers of energy-efficient coal products, other clean fuel sources,

20

---



Table of Contents

and
other products, services and technologies designed to provide environmental and operating cost benefits similar to those which we believe are available from our K-Fuel refined coal.

Competition from other companies that have developed or may develop other systems that improve power plant efficiency, measure greenhouse gases and/or certify carbon
credits, could adversely affect our competitive position. Further, competition could increase depending upon the level of regulation ultimately enacted in the United States and international markets,
which could further adversely affect our competitive position.

We believe our GreenCert solution is a first-of-its-kind, web-based platform that
brings together operational data that include highly accurate measurement of greenhouse gas emissions. Numerous competitors, with greater resources, provide performance information inside individual
power plants. In addition, a number of companies are developing greenhouse gas and carbon measurement alternatives and many of these companies have greater resources than ours. Carbon measurement
regulation, in both the United States and internationally, is evolving and there is no clear consensus on how carbon emissions should be measured. While we believe that our measurement tool is the
most accurate tool because it is scientifically based, regulations could be enacted allowing for less precise methods and therefore, less costly methodologies to be applied. Further, there is a risk
that our GreenCert technology will not be accepted by regulators and customers even though we believe it is compliant. Future revenues will be dependent upon our ability to identify and address
competition in the process control and power plant management systems industries and adapt to our competition and the changing regulatory environment.

We rely on key personnel and if we are unable to retain or attract qualified personnel, we may not be able to execute our business plan.

Our success is currently dependent on the performance of a small group of senior managers, key technical personnel and independent
contractors that have a wide range of technical experience and expertise. For K-Fuel, this experience and expertise includes coal refining, coal thermal upgrading, thermal processing, coal
gasification, coal liquefaction, engineering analysis and design and general plant operations. For GreenCert this expertise includes carbon measurement, carbon emission modeling, power generation,
carbon sequestration and oxides of nitrogen and sulfur dioxide reduction analysis. In addition, our business strategy will require us to attract and retain a substantially greater number of qualified
personnel and/or hire additional contractors in these key areas. The inability to retain key managerial and technical personnel or attract and retain additional highly qualified managerial or
technical personnel in the future could harm our business or financial condition.

Overseas development of our K-Fuel and GreenCert businesses is subject to international risks, which could adversely affect our ability to license, construct
overseas plants or profitably operate our businesses overseas.

We believe a portion of the growth opportunity for our businesses lies outside the United States. Doing business in foreign countries
may expose us to many risks that are not present domestically. We lack significant experience dealing with such risks, including political, military, privatization, technology piracy, currency
exchange and repatriation risks, and higher credit risks associated with customers. In addition, it may be more difficult for us to enforce legal obligations in foreign countries, and we may be at a
disadvantage in any legal proceeding within the local jurisdiction. Local laws may also limit our ability to hold a majority interest in the projects that we develop.

If the national and world-wide financial downturn continues or intensifies it could adversely impact demand for our technology and products.

Continued market disruptions could cause broader economic downturns, which may lead to lower demand for our technology or products,
increased incidence of customers' inability to pay their

21

---



Table of Contents

accounts,
or insolvency of our customers, any of which could adversely affect our results of operations, liquidity, cash flows, and financial condition.

Our inability to adequately protect and defend our proprietary K-Fuel and GreenCert processes could harm our business, increase our costs and decrease sales of
our products and services.

Our success depends, in part, upon our proprietary processes. We rely on a combination of patent, trademark and trade secret rights to
establish and protect our proprietary rights. We currently have a series of patents and patent applications on our K-Fuel process and our GreenCert technology. However, competitors may
successfully challenge the validity or scope of one or more of our patents, or any future patents. These patents alone may not provide us with any significant competitive advantage. Further, while our
most recently issued K-Fuel patent protection covers what we believe are the unique aspects of our K-Fuel process as it is currently conducted, not all of the claims we filed
were allowed. An additional patent application has been filed to address the examiner's comments and we expect some of the revised claims to be allowed. While we continue our efforts regarding these
claims there can be no assurance that we will be able to obtain patent protection in the United States or abroad to
protect these or any other aspects of our intellectual property, or that, in the absence of any such patent protection, that the combination of additional methods that we currently employ to maintain
the confidentiality of our processes will adequately safeguard our proprietary processes and information. If our intellectual property is not adequately protected, this may have a material adverse
impact on our financial condition, results of operations, cash flows and future prospects.

Third
parties could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently. The protection of our proprietary rights may be
inadequate and our competitors could independently develop similar technology, duplicate our solutions, or design around any patents or other intellectual property rights we hold.

Any
actions taken by us to enforce our patents or other property rights could result in significant expense as well as the diversion of management time and resources. In addition,
detecting infringement and misappropriation of patents or intellectual property can be difficult, and there can be no assurance that we would detect any infringement or misappropriation of our
proprietary rights. Even if we are able to detect infringement or misappropriation of our proprietary rights, litigation to enforce our rights could cause us to divert significant financial and human
resources from our business operations, and may not ultimately be successful. If we are required to divert significant resources and time to the enforcement of our proprietary rights, even if the
enforcement is successful, our business could be materially adversely affected.

Our success will depend on our ability to operate without infringing on or misappropriating the proprietary rights of others.

We may be sued for infringing or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and,
even if we prevail, the cost of such litigation could adversely affect our business. In addition, litigation is time consuming and could divert management attention and resources away from our
business. If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances, these damages could be triple the
actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be
obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or
damages paid to the patent holder.

If
a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products or processes, we may be prevented from manufacturing or
marketing

22

---



Table of Contents

our
infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Any required license might not be available to us on
acceptable terms, or at all. Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to market future products, which could have a material adverse effect on our business.

Our acquisition or joint venture activities may not be successful.

As part of our business strategy, we may make acquisitions of or joint venture with, businesses and technologies that have operations
that are complementary to our business model and strategy. However, suitable acquisition or joint venture candidates may not be available on terms and conditions we find acceptable. Further, these
types of transactions pose substantial risks to our financial condition, results of operations and cash flows. In pursuing these activities, we compete with other companies, many of which have greater
financial and other resources to acquire or joint venture with attractive companies and properties. Even if future acquisitions or joint ventures are completed, the following are some of the risks
associated with these activities:



K-Fuel Process Risks

We faced technical and operational issues at our Fort Union plant prior to suspending operations at the plant. These technical and operational problems may adversely impact
our ability to develop future K-Fuel or K-Direct facilities, resulting in delays in achieving full scale commercial production of our K-Fuel refined coal.

Research and development is an iterative process and our K-Fuel process has been evolving for over 25 years. Our
Fort Union plant was a third generation facility developed for this purpose. The first facility was a research and development plant that currently serves as our research laboratory and test facility.
The second facility was a commercial demonstration plant that we constructed with a joint venture partner and commenced operations in 1998. In June 1999, our joint venture partner suspended production
at the plant due to its strategic restructuring. Thereafter, we sold our interest in the plant to our joint venture partner and in September 2002, the major equipment at the plant was purchased by a
third party and removed from the site. As part of the continued development of the K-Fuel process, we analyzed the operations of this plant and some of the problems that we encountered
with respect to operations and product quality and made modifications to the K-Fuel process that we believe addressed these issues. We built upon this knowledge base in designing and
constructing the Fort Union plant.

23

---



Table of Contents

While redesigned equipment and systems tested at the Fort Union plant showed positive results, we faced technical and operational problems in attempting to
achieve commercial production of K-Fuel and decided to suspend operations at the plant in March 2008. Our goal was to dedicate our limited capital and human resources to building new
plants built around the enhanced design and systems tested at the Fort Union plant. Problems we encountered included cost overruns, delays, technical issues, availability of workers and contractors,
and weather. We may encounter similar problems at any future facilities we are able to build. Additionally, any future facilities may encounter the following additional
problems:



Our
ability to effectively operate and develop K-Fuel and K-Direct facilities may be harmed to the extent these and other technical or operational problems
materialize. Should we be unable to effectively develop K-Fuel or K-Direct facilities, our ability to generate revenues and profits from future facilities and future licensing
opportunities may be negatively impacted. In particular, because we were unable to consistently operate our Fort Union plant for sustained periods of time to produce commercial quantities of
K-Fuel refined coal, it will likely be more difficult for us to enter into arrangements with customers for their regular purchase of K-Fuel refined coal at future facilities.

We do not know if K-Fuel refined coal is commercially viable.

While our Fort Union plant previously produced limited amounts of K-Fuel refined coal, we do not know whether
K-Fuel refined coal can be produced and sold on a commercial basis in a cost effective manner after taking into account the cost of the feedstock, our production costs and the cost of
transportation. As our Fort Union plant was not able to achieve full scale commercial production, we have not yet developed an efficient cost structure. We are currently using the knowledge base
developed at our Fort Union plant along with supporting engineering analyses to understand our pricing and costs, as well as the quality of the product when used in K-Fuel test burns, and
intend to leverage this knowledge base when constructing any additional K-Fuel plants or any K-Direct plants. We experienced technical problems with respect to the
K-Fuel refined coal produced at our Fort Union plant, including coal dusting. If we fail to adequately address these technical problems to the extent they occur at future
K-Fuel or K-Direct facilities, or any other unforeseen problems that may occur in the future, it could make K-Fuel refined coal more expensive to transport and
store, and therefore more expensive to burn. Failure to address both known and unforeseen technical challenges of K-Fuel refined coal, obtain feedstock in sufficient quantity and at
acceptable prices and to arrange for transportation services at reasonable prices, may materially and adversely affect our business, results of operations and financial condition.

Construction of future K-Fuel or K-Direct facilities may require substantial lead time and significant additional financing if constructed by us or
Evergreen-China.

We do not currently have any definitive contracts to construct additional K-Fuel facilities or K-Direct
facilities. To the extent that we identify businesses to construct K-Fuel or K-Direct facilities, a lengthy permitting and construction process may commence. We estimate that
it could take six months or longer to obtain necessary permits and approvals and that, depending on local circumstances, the required time could be much longer or shorter. Thereafter, construction of
a facility with a capacity of approximately 1.5 million tons of K-Fuel refined coal per year could take an estimated further period of 18 to 24 months.

24

---



Table of Contents

Prior
to suspending operations at our Fort Union plant in March 2008, we estimate that we spent approximately $110 million in constructing our Fort Union plant. We estimate that
the cost of constructing additional facilities, such as a 1.5 million ton per year facility, could be greater depending on additional variables, including site location, material handling
equipment and design, seismic zones, labor issues, and weather and climate conditions. Such variables could potentially increase costs. We or our partners would be required to obtain substantial
amounts of financing or equity contributions to undertake any such project and there can be no assurance that such financing or equity contributions would be available to us or our partners. Inability
to construct additional facilities to produce K-Fuel, or to finance the construction thereof on acceptable terms, will adversely affect our financial condition.

Any negative results from the continuing evaluation of K-Fuel refined coal produced at future facility sites by us or third parties could have a material adverse
effect on the marketability of K-Fuel refined coal and future prospects.

We and certain third parties are continuing to evaluate the attributes of K-Fuel refined coal. Further, in February 2011,
we reactivated our test plant and are identifying new coals to test and we plan to test coals for potentially new applications for K-Fuel refined coal. There can be no assurance that these
evaluations will result in positive findings concerning the moisture content, heating value, emission-levels, burn qualities, new applications or other aspects of our K-Fuel refined coal.
Furthermore, even if current evaluations indicate that our K-Fuel refined coal performs to design specifications, there can be no assurance that later tests will confirm these current
results or that our K-Fuel refined coal will be readily accepted by the market. The process of introducing our K-Fuel refined coal into the market may be further delayed if
these test results are negative or if potential customers conduct their own tests of the K-Fuel refined coal to determine whether it meets their individual requirements and the results are
not acceptable. Substantially all of our evaluations of K-Fuel refined coal at our Fort Union plant used Powder River Basin low-grade coal as the feedstock and we conducted
only limited tests of the K-Fuel process at Fort Union using other feedstocks. However, we have conducted numerous tests of the K-Fuel process using other feedstocks in
laboratories and at our test facility. The ability to use feedstocks from other locations in the United States or overseas will depend on the results of future tests on different types of coal. If
these tests limit the range of viable low-grade coal feedstocks for use in the K-Fuel process, site locations for future K-Fuel or K-Direct plants may
be limited and the commercial appeal of the process may be less than anticipated. If this continuing process of evaluation and market introduction results in negative findings concerning the
K-Fuel process, this could have a material adverse effect on the marketability of K-Fuel refined coal and on our financial condition, results of operations and future
prospects.

Due to the uncertain market for, and commercial acceptance of, our K-Fuel refined coal, we may not be able to realize significant revenues from the sale of
K-Fuel refined coal or licensing of our technology.

While we believe that a commercial market is developing both domestically and internationally for cleaner coal products such as
K-Fuel refined coal, we may face the following risks due to the developing market for our cleaner coal technology:



25

---



Table of Contents



If
we are unable to develop markets for our K-Fuel technology, our ability to generate revenues and profits may be negatively impacted.

If we are unable to license and commercialize K-Fuel production plants, our ability to generate profits from this process will be impaired.

Our future success will be adversely affected if we can not locate, develop, construct, and/or license future commercial
K-Fuel production plants and have them operate at a profit. Prior to suspending operations at our Fort Union plant, we were not able to achieve commercial production. A number of different
variables, risks and uncertainties affect our successful construction of future K-Fuel production plants and our ability to operate such plants at a profit
including:



If
we are unable to successfully address these risks, our results from operations, financial condition and cash flows may be adversely affected.

Regulation of the K-Fuel process and K-Fuel refined coal may adversely affect our financial condition and results of operations and cash flows.

Our K-Fuel refined coal is currently subject to federal, state, local, and foreign laws and regulations. In addition, as
products and commercial applications are introduced into the market, governments may impose new regulations which may increase our costs and price of our product. If the cost of compliance with
applicable laws and regulations increases past that forecasted, our ability to profitably market and sell K-Fuel refined coal may be jeopardized.

Compliance with environmental laws and regulations may increase our costs and reduce our future sales.

Our operations are subject to stringent and complex federal, state and local environmental laws and regulations. Failure to comply with
these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements,
and the issuance of orders enjoining future operations. Certain environmental statutes impose strict joint and several liabilities for costs required to clean up and restore sites where hazardous
substances have been disposed or otherwise released.

26

---



Table of Contents

Moreover,
it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of substances or other waste
products into the environment.

Future changes in the law may adversely affect our ability to sell our products and services.

A significant factor in expanding the potential U.S. market for K-Fuel refined coal is the numerous federal, state and
local environmental regulations, which provide various air emission requirements for power generating facilities and industrial coal users. We believe that the use of clean-burning fuel technologies,
like K-Fuel refined coal, will help utility companies comply with the air emission regulations and limitations. We are unable to predict future regulatory changes and the impact on the
demand for our products. While more stringent laws and regulations, including mercury emission standards, limits on sulfur dioxide emissions and nitrogen oxide emissions, may increase demand for our
products, such regulations may result in reduced coal use and increased reliance on alternative fuel sources. Similarly, amendments to the numerous federal and state environmental regulations that
relax emission limitations would have a material adverse effect on our prospects.

We do not know if the planned K-Fuel demonstration plant is viable.

We are evaluating a plan to construct a demonstration scale facility that would be used to support the commercial viability of the
K-Fuel process in the market. We believe that this demonstration plant could provide K-Fuel refined coal in quantities sufficient to: (i) validate the detailed fuel
characteristics as required by resource owners and the
comprehensive fuel acceptance processes of power generation facilities; (ii) support project development opportunities domestically and internationally; and (iii) explore further process
enhancement concepts. The plant could also be used to provide additional process validation data of the core process and support systems. In the construction of the Fort Union plant, we encountered
problems including cost overruns, construction and commissioning delays, technical and design issues, labor shortages and the limited availability of skilled contractors. We may encounter similar
problems in the construction of the K-Fuel demonstration plant and additional difficulties, including:



In
addition to construction and design risks, the K-Fuel refined coal produced at the planned demonstration plant may not meet the technical specifications required by our
customers or other customer requirements. We anticipate that our customers will complete evaluations concerning the moisture content, heating value, emission-levels, burn qualities, coal handling or
other aspects of our K-Fuel refined coal produced at the demonstration plant. There can be no assurance that these or any other future evaluations will result in positive findings.

This
demonstration plant will not confirm whether K-Fuel refined coal can be produced and sold on a commercial basis in a cost effective manner after taking into account
capital costs, the cost of the feedstock, our production costs and the cost of transportation.

Our
ability to effectively operate and develop future commercial-scale K-Fuel and K-Direct facilities may be harmed to the extent technical or operational
problems materialize at the demonstration plant. Should we be unable to effectively develop K-Fuel or K-Direct facilities, our ability to generate revenues and profits from
future facilities and future licensing opportunities may be negatively impacted.

27

---



Table of Contents

GreenCert Technology Risks

We do not know if our GreenCert technology is commercially viable. Further, due to the uncertain market for, and commercial acceptance of our GreenCert technology, we may
not be able to realize significant revenues from this technology.

Our GreenCert technology is in an evolving market and as a result we do not know whether our GreenCert technology will be accepted by
customers to evaluate operational efficiencies, measure greenhouse gas emissions or utilize it to manage their power generation assets more effectively. While we believe that a commercial market is
developing both domestically and internationally for these attributes, we may face the following risks due to the developing market for our technology:



If
we are unable to develop markets for our GreenCert technology, our ability to generate revenues and profits may be negatively impacted.

Future changes in the law may adversely affect our ability to sell products and services based on our GreenCert technology.

A significant factor in expanding the potential market for the measurement and reporting of greenhouse gases and certification of
carbon credits is the continuation and expansion of emissions regulations both in the U.S. and internationally. We are unable to predict future regulatory changes and their impact on the demand for
our products. While more stringent laws and regulations may increase demand for our products, such regulations may result in reduced reliance on various sources of emissions, including coal fired
power plants, or increased reliance on alternative energy sources, which do not result in the emission of greenhouse gases. Similarly, amendments to the numerous federal and state environmental
regulations that relax emission limitations would have a material adverse effect on our prospects.

Our success depends upon our ability to develop and enhance our products and services.

Rapid technological advances and evolving standards in computer hardware, software development and communications infrastructure,
changing and increasingly sophisticated customer needs and frequent new product introductions and enhancements characterize the market in which we compete. If we are unable to continue to develop our
products and services in a timely manner or to position and/or price our products and services to meet market demand, customers may not buy licenses or renew licenses. In addition, IT standards from
both consortia and formal standards-setting forums as well as de facto marketplace standards are rapidly evolving. We cannot provide any assurance that the standards on which we choose to develop our
products will allow us to compete effectively for business opportunities this emerging area.

We may need to change our pricing models to compete successfully.

The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure
on us to change our prices. If our competitors offer discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer
other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our license renewals are anticipated to be priced as a
percentage of our net new license fees. Our competitors may offer lower percentage pricing on renewals, which could put pressure on us to further discount our new license prices.

28

---





Table of Contents

As we release our software solution, we might experience significant errors or security flaws in our products and services.

Despite testing prior to their release, software products frequently contain errors or security flaws, especially when first introduced
or when new versions are released. The detection and correction of any security flaws can be time consuming and costly. Errors in software products that underlie our solution could affect the ability
of our products to work with other hardware or software products, could delay the development or release of new products or new versions of our products and could adversely affect market acceptance of
our products. If we experience errors or delays in releasing new products or new versions of our products, we could lose revenues. End users, who rely on our products and services for applications
that are critical to their businesses, may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Product errors and security flaws
in our products or services could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services. In
addition, we may be legally required to publicly report security breaches of our services, which could adversely impact future business prospects for those services.

Risks Relating to Our Debt, Our Common Stock and Other Risks.

Our debt obligations may affect our business, operating results and financial condition.

We have a significant amount of debt, especially given our limited cash flow from operations. In July 2007, we issued
$95.0 million long-term debt due August 1, 2012, ("2007 Notes"), of which $21.6 million of principal balance was outstanding as of December 31, 2010. See
further discussion in Item 8Note 7Debt of our Annual Report on Form 10-K.

Our
debt service obligations could adversely affect us in a number of ways, including by:



In
addition, our ability to generate cash flow from operations sufficient to make scheduled payments on our debts as they become due will depend on our future performance, our ability to
successfully implement our business strategy and our ability to obtain other financing, which may be influenced by economic, financial, competitive, legislative, regulatory and other factors that are
beyond our control.

29

---



Table of Contents

Our ability to pay principal and interest on outstanding indebtedness depends upon our receipt of dividends or other intercompany transfers from our subsidiaries, and claims
of creditors of our subsidiaries that do not guarantee our indebtedness will have priority over claims you may have as for our guaranteed indebtedness with respect to the assets and earnings of those
subsidiaries.

We are a holding company and substantially all of our properties and assets are owned by, and all our operations are conducted through,
our subsidiaries. As a result, we are dependent upon cash dividends and distributions or other transfers from our subsidiaries to meet our debt service obligations, including payment of the interest
on and principal of our indebtedness when due, and other obligations. The ability of our subsidiaries to pay dividends and make other payments to us may be restricted by, among other things,
applicable corporate, tax and other laws and regulations in the United States and abroad and agreements made by us and our subsidiaries, including under the terms of our existing and potentially
future indebtedness. In addition, claims of creditors, including trade creditors, of our subsidiaries will generally have priority with respect to the assets and earnings of such subsidiaries over the
claims of our creditors, except to the extent the claims of our creditors are guaranteed by these subsidiaries. In the event of our dissolution, bankruptcy, liquidation or reorganization, the holders
of such indebtedness will not receive any amounts from our non-guarantor subsidiaries with respect to such indebtedness until after the payment in full of the claims of the creditors of
those subsidiaries.

We may not have the ability to repurchase the 2007 Notes for cash upon the occurrence of a fundamental change as required by the Indenture governing the 2007 Note.

Holders of our 2007 Notes will have the right to require us to repurchase the 2007 Notes for cash upon the occurrence of a fundamental
change, which would include, among other things, the failure of our common stock to be listed on the NYSE Arca or another national securities exchange or quoted on an established automated
over-the-counter trading market. We may not have sufficient funds to repurchase the 2007 Notes or have the ability to arrange necessary financing on acceptable terms. Our
ability to repurchase the 2007 Notes for cash may be limited by law or the terms of other agreements relating to our indebtedness outstanding at the time. Our failure to repurchase the 2007 Notes when
required would result in an event of default with respect to the 2007 Notes and could result in the acceleration of the maturity of our then-existing indebtedness. This repurchase right
may actually have the effect of making us a less attractive candidate for a fundamental change transaction.

Conversion of the 2007 Notes may dilute the ownership interest of existing stockholders, including holders who have previously converted their 2007 Notes.

To the extent we deliver common stock upon conversion of the 2007 Notes, the ownership interests of existing stockholders may be
diluted. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion
of the 2007 Notes into shares of our common stock could depress the price of our common stock.

We may not be able to refinance the 2007 Notes if required or if we so desire.

We may need or desire to refinance all or a portion of the 2007 Notes or any other future indebtedness that we incur on or before the
maturity of the 2007 Notes. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

We may be unable to deduct for tax purposes the interest or original issue discount, if any, paid or accrued on the 2007 Notes.

No deduction is allowed for U.S. federal income tax purposes for interest paid on a disqualified debt instrument. A disqualified debt
instrument generally includes any indebtedness of a corporation

30

---



Table of Contents

which
is payable in equity of the issuer. Although we believe and intend to take the position that the 2007 Notes are not disqualified debt instruments, the 2007 Notes may be treated as disqualified
debt instruments, and we may be prohibited from deducting the interest due on the Notes. Consequently, we may have less cash available with which to satisfy our obligations.

Our common stock could be delisted from the NYSE Arca if we do not comply with its continued listing standards.

On November 29, 2010, we were notified by the NYSE Arca, Inc. ("NYSE Arca") that were we not in compliance with the
continued listing standards under Rule 5.5(b)(2) of the NYSE Arca Equities Rules. The standard requires that a listed common stock must maintain an average closing price in excess of $1.00 over
a consecutive 30 trading-day period. We were granted a recovery period through February 28, 2011, subject to ongoing monitoring, to regain compliance with the NYSE Arca price
condition, or we could have been subject to suspension and delisting procedures. On February 28, 2011, we were notified by the NYSE Arca that we were in compliance but will be subject to a
12 month review to ensure on-going compliance with the continued listing standards. Subject to NYSE Arca rules, during the recovery period, our common stock was listed, and traded
on NYSE Arca. At the end of the recovery period, we were deemed to be in compliance because we had at least a $1.00 share price and maintained a $1.00 average closing share price over the preceding 30
consecutive trading days. If our stock were to be delisted, it could reduce the liquidity of an investment in our common stock and also make it more difficult for us to raise capital in the future. In
addition, efforts to maintain our listing on the NYSE Arca may result in the incurrence of costs that could be material in any given period.

Our stock price has been volatile historically and may continue to be volatile. The price of our common stock may fluctuate significantly, which may make it difficult for
holders to resell the shares of our common stock when desired or at attractive prices.

The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in
response to a number of events and
factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and recommendations by
securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends in our markets or general economic
conditions.

In
addition, the stock market in general, and prices for companies in our industry in particular, have experienced volatility that often has been unrelated to the operating performance
of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Additionally, lack of positive performance
in our stock price may adversely affect our ability to retain key employees.

Sales of a significant number of shares of our common stock in the public markets, or the perception of such sales, could depress the market price of the 2007 Notes, our
common stock, or both.

Sales of a substantial number of shares of our common stock or other equity-related securities in the public markets could depress the
market price of the 2007 Notes, our common stock, or both, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of
our common stock or other equity-related securities would have on the market price of our common stock or the value of the 2007 Notes. The price of our common stock could be affected by possible sales
of our common stock by investors who view the 2007 Notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity which we expect to occur
involving our common stock. This hedging or arbitrage could, in turn, affect the market price of the 2007 Notes.

31

---



Table of Contents

Our stock price continues to be volatile, and any investment in our common stock could suffer a decline in value.

An investment in our common stock is risky, and stockholders could suffer significant losses and wide fluctuations in the market value
of their investment. The market price of our common stock has been extremely volatile. During 2010, the sale prices of our common stock on the NYSE Arca on a post-reverse split basis
ranged from a low of $0.53 to a high of $7.20. We expect our common stock to continue to be subject to fluctuations. Broad market and industry factors may adversely affect the market price of our
common stock, regardless of our actual operating performance. Volatility in the market price of shares may prevent investors from being able to sell their shares of common stock at prices they view as
attractive. In the past, securities class action
litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's
attention and resources.

We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of us or limit the price investors might be willing to
pay for our stock, which could adversely affect the performance of our stock.

We have adopted a stockholder rights plan, commonly known as a "poison pill," under which each stockholder holds one share purchase
right, which we refer to as a Right, for each share of common stock held. The Rights become exercisable upon the occurrence of certain events and may make our acquisition more difficult and expensive.
In addition our certificate of incorporation, and Delaware General Corporation Law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our
stockholders. The stockholder rights plan, provisions of our certificate of incorporation, and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our board of
directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, such provisions may also discourage acquisition proposals or delay or prevent a
change in control, which could harm our stock price.

We have not paid cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future.

We anticipate that we will retain all future earnings and other cash resources for the future operation and development of our
business. Accordingly, we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Payment of any future dividends will be at the discretion of our board of
directors after taking into account many factors, including our operating results, financial conditions, current and anticipated cash needs and plans for expansion.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES



We lease 32,727 square feet of office space in Denver, Colorado for our headquarters pursuant to a ten year lease that commenced in
April 2007. We believe this space is sufficient for our near-term goals and growth projections.



In May 2004, we purchased Landrica Development Company, ("Landrica"). Through Landrica, we own approximately 1,000 acres of land
located in Campbell County, Wyoming (near Gillette, Wyoming), on which our Fort Union plant is located. The land also includes various coal processing

32

---



Table of Contents

equipment,
certain industrial buildings, waste injection wells, producing water wells, a coal-mining pit with limited reserves and a railroad spur.

On
August 20, 2010, we executed the second of our strategic positioning plans by signing a definitive agreement to sell our Fort Union assets. We entered into a definitive
agreement with Synthetic Fuels LLC, or its nominee, for the sale of the assets of our subsidiary Landrica Development Company, including the Fort Union plant and associated property located
near Gillette, Wyoming. The sale will provide approximately $7.1 million of available cash to us, comprised of: (i) cash payments of $2.0 million, of which $500,000 will be paid
at closing, an additional $500,000 on the first anniversary of closing and $1.0 million on the second anniversary of closing; and (ii) the payment for the transfer of all of the
reclamation bonds pertaining to the sold property, currently totaling $5.2 million, pursuant to a secured one year note. Synthetic Fuels LLC is required to assume these environmental
liabilities at the closing and the cash collateral or an equivalent amount will be released to us by the one year anniversary of the closing. The sale is anticipated to close during the first quarter
2011 and is subject to
customary closing conditions. Proceeds of the sale will be used for general working capital purposes.

ITEM 3.    LEGAL PROCEEDINGS

Litigation

2007 Notes Litigation

Subsequent to the closing of the sale to Rosebud Mining Company (under the Asset Purchase Agreement, dated March 12, 2010, the
"Rosebud Agreement") of certain assets of our Buckeye Industrial Mining Co. subsidiary ("Buckeye") and certain assets of Evergreen Energy Inc. and payment of the 2009 Notes, on
April 1, 2010, certain holders of our outstanding 2007 Convertible Notes commenced litigation initially against Buckeye and the holders of the 2009 Notes (the "2009 Noteholders"), in a case
denominated: AQR Absolute Return Master Account L.P., et al., v. Centurion Credit Funding LLC, Level 3 Capital Fund, LP, Buckeye Industrial Mining Company, et al., Case
No. 10CV340 (Ct. Com. Pl. Columbiana County, OH) (the "Litigation"). Evergreen was subsequently added as a defendant in the action. In the litigation, plaintiffs sought: (i) to void all
obligations of Buckeye with respect to the 2009 Notes, including the security interests granted in connection therewith, (ii) to enjoin the further transfer of or recover "for Buckeye's
benefit" certain proceeds from the asset sale (particularly in satisfaction of the obligations owed to the holders of the 2009 Notes); and (iii) to appoint a receiver to take control of
Buckeye's assets.

In
response to certain defenses raised in the litigation, certain of the plaintiffs made further claims that the assertion of such defenses constituted an Event of Default under the 2007
Note Indenture. In response, we filed a counterclaim in the Litigation naming those plaintiffs as counterclaim defendants. The counterclaim asserts lender liability and other tort claims in connection
with the counterclaim defendants' conduct. The counterclaim also seeks a declaratory judgment that the defenses raised do not constitute an Event of Default under the 2007 Notes Indenture and the
recovery of monetary damages related to the counterclaim defendants' wrongful conduct in asserting the Event of Default.

The
Court initially issued anex partetemporary restraining order limiting the Company's ability to utilize, for working capital or other
purposes, the portion of the proceeds which Evergreen received at the time of the closing (i.e., the net proceeds following the payment of the 2009 Notes and closing fees and expenses).
However, on June 8, 2010, the Court issued a ruling in our favor of lifting the temporary restraining order and rejecting the plaintiff's request for a further injunction on the use of these
funds as well as the use, upon release by the State of Ohio Department of Environmental Quality, of $5.0 million collateralizing certain environmental reclamation bonds. In its ruling, the
Court stated, "The notes have never been in default, the interest has been paid on time and the principal is not due until 2012." Although the Court has issued a ruling in our favor of with respect to
the portion of the Complaint requesting a preliminary injunction, the remaining claims have not been fully resolved, and the Litigation is continuing. On August 31, 2010, US Bank National
Association, in its

33

---



Table of Contents

capacity
as Trustee for the 2007 Notes, moved to intervene in the Litigation citing, among other things, its interest in a legal determination of whether the 2007 Notes are in default. To date, the
Court has not ruled upon the US Bank motion.

On
February 1, 2011, Evergreen and Buckeye entered into a Forbearance and Settlement Agreement (the "Settlement Agreement") with certain holders of the 2007 Notes (the "Settling
2007 Noteholders") and the 2009 Noteholders. The Settlement Agreement provides for the direct redemption of approximately $14.1 million in aggregate face value of 2007 Notes currently held by
the Settling 2007 Noteholders by us, in exchange for the following: (i) the payment of approximately $6.76 million in cash to the Settling 2007 Noteholders; and (ii) the issuance
of warrants to the Settling 2007 Noteholders for the purchase of up to 531,250 shares of our common stock at an exercise price of $7.20 per share. The Settlement Agreement also provides for the 2009
Noteholders to purchase $3.2 million of 2007 Notes from the Settling 2007 Noteholders for $1.6 million, which we will redeem as further described below. Of the approximately
$6.76 million in cash payments, it is anticipated that $2 million will come from the escrow established at the time of the sale of Buckeye, which is scheduled to be released in April
2011. Evergreen and Buckeye have assigned to and granted a security interest in favor of the Settling 2007 Noteholders in up to $2 million of proceeds.

The
Settlement Agreement provides for the initial transfer of consideration by us starting with the signature date and running through the final transfer of consideration among the
parties on a date to be determined (the "Final Settlement Date") but no less than approximately 95 days and no more than approximately 140 days following February 1, 2011. If,
prior to the Final Settlement Date, an Event of Default (as defined in the 2007 Indenture) occurs for which a notice of acceleration has not been previously transmitted to the 2007 Trustee other than
the delisting of Evergreen from the NYSE Arca Exchange, a bankruptcy petition is filed by or against Evergreen or any of the subsidiary guarantors of the 2007 Notes which is not cured within specified
time limits, or we default on any of our obligations set forth in the Settlement Agreement or certain other agreements underlying the Settlement Agreement, then the Settling 2007 Noteholders will have
the option of retaining the property which has been transferred to them by us up to the complete consideration we are obligated to transfer under the Settlement Agreement without further obligation to
transfer their 2007 Notes. Exercising such an option would relieve the 2009 Noteholders of their obligations under the Settlement Agreement and would prevent us from redeeming the 2007 Notes held by
the Settling 2007 Noteholders according to the terms set forth in the Settlement Agreement. Should this occur, whatever property we have
transferred to the plaintiffs as a part of the Settlement Agreement will be retained by them and set off against the obligations owed to them by Evergreen, except that the initial payment of
$1.45 million would be treated as a forbearance fee. The Settlement Agreement includes the exchange of releases among and between the various parties as well as the dismissal of the Litigation
which is now pending. Upon satisfaction of all obligations pursuant to the Settlement Agreement, the 2007 Notes Litigation will be resolved.

As
described above, the 2009 Noteholders will be purchasing $3.2 million of 2007 Notes on the Final Settlement Date from the Settling 2007 Noteholders. Contemporaneously with
execution of the Settlement Agreement, we have entered into an agreement with the 2009 Noteholders to replace the $3.2 million of 2007 Notes on the Final Settlement Date with a new convertible
note with the following terms: (i) a principal amount of $1.55 million; (ii) one year term commencing with the Final Settlement Date; (iii) a stated interest rate of 7% per
annum; and (iv) a convertibility feature under which the note is convertible at any time after the Final Settlement Date until payment in full at the holder's option into our common stock at a
conversion price equal to the market value of the shares on the Final Settlement Date. At the same time we will also issue warrants for the purchase of up to 200,000 shares of our common stock at an
exercise price equal to the at the market value of the shares issued on the Final Settlement Date. The date of issuance of the convertible note and warrants to the 2009 Noteholders will be the Final
Settlement Date and the issuance of the convertible note is contingent upon the occurrence of a Final Settlement Date.

34

---



Table of Contents

New Coal Holdings Litigation

On April 2, 2010, Evergreen and Buckeye filed suit in the United States District Court for the Northern District of Ohio naming
as defendants New Coal Holdings LLC and New Coal Holdings Inc. The action is captioned:Buckeye Industrial Mining Co. et al., v. New Coal
Holdings LLC, et al.,Case No. 4:10-cv-00699-JRA (N.D. Ohio). The action arises out of an agreement between the parties
concerning the possible acquisition of Buckeye or its assets. On December 9, 2010, the parties entered into a settlement agreement resulting in the dismissal of the New Coal Holdings Litigation
on December 15, 2010. Per the settlement agreement, we paid New Coal Holdings $425,000.

C-Lock, Inc. Arbitration

On June 11, 2010, C-Lock Inc. filed a Demand for Arbitration and Complaint captioned C-Lock Inc. v. C-Lock Technology Inc.(JAMS Arbitration No. 11931). Our subsidiary, C-Lock
Technology, Inc. previously entered into an Exclusive Patent Sublicense Agreement with C-Lock Inc. whereby C-Lock Inc. granted to C-Lock
Technology an exclusive sublicense of certain patent rights in order to develop and commercialize such rights. The complaint alleges claims for breach of contract and breach of the covenant of good
faith and fair dealing and seeks an unspecified amount of money damages and termination of the Sublicense Agreement. C-Lock Technology filed counterclaims against
C-Lock Inc. alleging fraud, breach of the covenant of good faith and fair dealing and unjust enrichment. The counterclaims are based on C-Lock Inc.'s acceptance
of a $500,000.00 royalty payment (called for by the Sublicense) under false pretenses. We plan to prosecute our affirmative claims and believe we have meritorious defenses to the claims made against
us.

C-Lock Technology, Inc./Evergreen Energy Inc. v. C-Lock Inc. et al.

On December 14, 2010, the Company filed suit against C-Lock Inc. and two of our former employees,
Dr. Patrick Zimmerman and Scott Zimmerman, inEvergreen Energy Inc. and C-Lock Technology, Inc. v. Dr. Patrick Zimmerman, Scott
Zimmerman and C-Lock, Inc., Case No. 10CV9640 (District Court for the City and County of Denver, Colorado). Dr. Patrick Zimmerman and his son
Scott Zimmerman were former high ranking employees of our subsidiary, C-Lock Technology, Inc. The Zimmermans (and their company, C-Lock, Inc.) breached their
fiduciary duty to us. Additionally, they misappropriated trade secrets and corporate assets to include filing a patent that was incomplete as to proper inventorship.

The
Complaint states claims for: (i) declaratory judgment (relating to the improperly filed patent); (ii) breach of fiduciary duty; (iii) misappropriation of trade
secrets; (iv) misappropriation of corporate assets; (v) breach of contract; (vi) aiding and abetting breach of fiduciary duty and duty of loyalty; (vii) civil conspiracy;
and (viii) unjust enrichment. We believe we have meritorious claims and intend to vigorously prosecute them.

C-Lock Technology, Inc. Employee Litigation

In 2010, two former employees, Vince Cook and Jim Bitonti brought suit against the Company and several directors in Denver District
Court. Each employee received shares of stock of a subsidiary, C-Lock Technology, Inc. as part of their compensation. When they left their employment, the Company notified them that
it intended to repurchase the shares at fair market value pursuant to the share award agreement. The plaintiffs claim that the Company had no authority to purchase their shares and failed to pay them
fair market value. We believe we have meritorious defenses to the claims and intend to defend ourselves vigorously in the action.

35

---





Table of Contents

PART II

ITEM 5.    MARKET FOR COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Principal Market and Price Range of Common Stock

Our common stock trades on the NYSE Arca exchange under the market symbol "EEE." The following table sets forth the range of high and
low sales prices per share of common stock for the periods indicated, as adjusted by our reverse stock split on August 20, 2010.

Year

Period

High

Low2010

Fourth Quarter

$
1.33

$
0.53Third Quarter

$
2.88

$
0.84Second Quarter

$
3.12

$
1.20First Quarter

$
7.20

$
2.282009

Fourth Quarter

$
7.32

$
3.36Third Quarter

$
13.56

$
6.96Second Quarter

$
16.80

$
11.40First Quarter

$
17.16

$
3.36


As
of March 7, 2011, we had approximately 237 holders of record of our common stock. This does not include holdings in street or nominee names. On March 7,
2011 the closing price of our common stock was $3.75 per share.

Comparative Performance Graph

The following Performance Graph and related information shall not deemed "soliciting material" or be "filed"
with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that we specifically incorporates it by reference.

Comparison of 5 Year Cumulative Total Return  Assumes Initial Investment of $100  December 2010

GRAPHIC

The
Securities and Exchange Commission requires that we include in this Form 10-K a line-graph presentation comparing cumulative, five-year
stockholder returns (assuming reinvestment of dividends) for our common stock with a broad-based market index and either a nationally recognized industry standard or an index of peer companies
selected by us. The following graph assumes $100 invested on December 31, 2005 in our common stock, two Peer Groups of companies and the NASDAQ Composite

36

---



Table of Contents

Index.
The stock price performance shown on the following graph is not necessarily indicative of future price performance.

Our
peer group is comprised of the following companies; Beacon Power Corp.; Orion Energy Systems; Lime Energy; PowerSecure; ADA-ES; Acorn Energy; Rentech Energy; Guidance
Software; Pervasive Software Inc; and QAD Inc. All companies in the new Peer Group are listed on U.S. stock exchanges or the NASDAQ system.

We
are excluded from the Peer Group for purposes of the comparative performance graph.

Dividend Policy

We have never paid cash dividends and do not anticipate paying dividends in the foreseeable future. We expect that we will retain all
available earnings generated by our operations for the development and growth of our business. Payment of any future dividends will be at the discretion of our board of directors after taking into
account many factors, including our operating results, financial condition, current and anticipated cash needs and plans for expansion. Historically, we have not repurchased any common stock.

Recent Sales of Unregistered Securities

During the quarter ended December 31, 2010, we did not have any sales of securities in transactions that were not registered
under the Securities Act that have not been reported in a Form 8-K.

On
February 14, 2011 we entered into debt-for-equity exchanges pursuant to section 3(a) (9) of the Securities Act with a certain noteholder
of our 2007 Notes and issued 237,500 shares of our common stock in exchange for $1.4 million of principal balance.

Issuer Purchasers of Equity Securities

We did not repurchase any of our shares of common stock during the quarter ended December 31, 2010.

ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and related
notes thereto contained in Item 8 of this report and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this report. The selected
consolidated results of operations and cash flow data for each of the three years in the period ended December 31, 2010 and balance sheet data as of December 31, 2010 and 2009 are
derived from, and qualified by reference to, our audited Consolidated Financial Statements, in Item 8 of this report. The selected consolidated results of operations and cash flow data related
to 2007 and 2006 and selected consolidated balance sheet data related to 2008, 2007 and 2006 are unaudited. The data have been derived from financial statements not included in this report and have
been restated from previously filed information to reflect the discontinued operations related to

37

---



Table of Contents

the
sale of Buckeye and certain assets of Evergreen, Fort Union assets and to give effect for our 1 for 12 reverse stock split.

Year ended December 31,2010

2009

2008

2007

2006(In thousands, except per share amounts)Statement of operations data:Operating revenues from continuing operations

$
403

$
423

$
4

$
169

$
319Operating expenses from continuing operations


21,308


27,963


48,145


50,423


27,875Operating loss from continuing operations


(20,905
)

(27,540
)

(48,141
)

(50,254
)

(27,557
)Loss from continuing operations(1)


(16,290
)

(29,063
)

(48,160
)

(51,040
)

(20,889
)Loss from discontinued operations(2)


(4,732
)

(29,474
)

(17,070
)

(153,636
)

(30,638
)Net loss attributable to common shareholders


(24,658
)

(58,609
)

(65,230
)

(204,676
)

(51,527
)Basic and diluted loss from continuing operations per common share(3)

$
(0.97
)
$
(2.63
)
$
(6.37
)
$
(7.45
)
$
(3.22
)Basic and diluted loss from discontinuing operations per common share(3)

$
(0.28
)
$
(2.67
)
$
(2.26
)
$
(22.42
)
$
(4.73
)Basic and diluted loss per common share(3)

$
(1.47
)
$
(5.31
)
$
(8.63
)
$
(29.87
)
$
(7.95
)Weighted average shares of common stock outstanding(3)


16,803


11,037


7,556


6,853


6,482Balance sheet data:Cash, cash equivalents and marketable securities of continuing operations(4)

$
2,974

$
2,207

$
7,666

$
51,458

$
84,276Property, plant and equipment,, net, and construction in progress of continuing operations


11,594


16,309


16,092


9,010


4,044Total assets of continuing operations


19,528


31,395


37,140


118,085


108,809Long-term obligations of continuing operations


31,871


38,767


36,625


106,133


6,968Net assets (liabilities) of discontinued operations


4,598


29,279


51,277


44,446


131,511Stockholders' (deficit) equity


(13,495
)

(5,877
)

43,850


46,699


224,984Working capital from continuing operations(5)


(1,109
)

(21,550
)

2,029


42,572


77,605


(1)Net
loss from continuing operations for the year ended December 31, 2008 includes an impairment charge of $18.6 million.(2)Net
loss from discontinued operations for the year ended December 31, 2009 and 2007 includes an impairment charge of $20.1 million to Mining
assets and $111.0 million impairment charge to Fort Union, respectively.(3)Weighted
average shares outstanding and Basic and Diluted shares data reflects our 1 for 12 reverse stock split as if the split occurred on the applicable
dates.(4)Cash,
cash equivalents and marketable securities represent our cash and cash equivalents as reflected in our consolidated balance sheets and increased by
our marketable securities outstanding as of the same balance sheet date. As of December 31, 2008, marketable securities totaling $1.8 million were included in long-term other
assets in our consolidated balance sheet.(5)Working
capital from continuing operations represents the difference between our current assets from continuing operations and our current liabilities from
continuing operations.


38

---





Table of Contents

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and are
qualified by reference to, our Consolidated Financial Statements and related notes thereto in Item 8 of this report and Selected Financial Data included in Item 6 of this report. Certain
statements set forth below under this caption constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform of 1995. Refer to the "Cautionary Statement About
Forward Looking Statements" preceding Item 1 of this report. Also, for a discussion of certain risk factors applicable to our business and operations see "Risk Factors" in Item 1A of
this report.

We
were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company primarily focused on developing and marketing K-Fuel. Today,
Evergreen Energy is comprised of two discrete business units within the clean energy technology sector, which utilize two proprietary and potentially transformative technologies: K-Fuel
and the GreenCert suite of software and services. K-Fuel, our patented clean coal technology,
significantly improves the performance of low-rank sub-bituminous and brown coals and lignite yielding higher efficiency by applying heat and pressure to low-rank
coals to reduce moisture. The increase is variable depending on the type of coal we process. Our GreenCert software suite focuses on providing power generators with operational intelligence; analytics
to identify fuel and operational efficiency; and address new regulatory pressures regarding environmental emissions. The K-Fuel and GreenCert technologies are both business and
environmental solutions for energy production and generation industries and processes.

During
2010 and through February 2011, we have executed on a number of our strategic objectives. On February 1, 2011, we completed a private placement to sell 6.2 million
shares of our common stock and 12.0 million warrants to purchase our common stock, resulting $14.6 million of net proceeds, after the offering expenses. Also, on February 1, 2011,
we executed an agreement to settle a significant portion of our 2007 Notes and the associated litigation. See further discussion of both of these transactions in "Liquidity and Capital Resources" and
"Note 16Subsequent Events" in Item 8 of this report. In addition, we executed on two other strategic positioning plans by completing the sale of Buckeye and signing a
definitive agreement to sell our Fort Union assets. See further discussion in "Liquidity and Capital Resources" and "Note 15Discontinued Operations" in Item 8 of this
report.

We
believe these transactions have better positioned us to focus our resources on a newly defined set of objectives and further clarify our strategic positioning. To this end, we expect
to evaluate several alternatives, including but not limited to: (i) the development of a K-Fuel demonstration plant; (ii) entry into joint ventures for the further
development of K-Fuel; and (iii) assessment of the GreenCert business, including evaluation of its relationship to K-Fuel and potential sale or joint venture of this
business. We have been evaluating the engagement of an investment banking firm to assist us in the assessment of the GreenCert business and possible alternatives related to that business. As stages of
this process are completed, it may alter our ongoing business plan.

The
consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. All intercompany transactions and balances have been
eliminated. We do not consolidate Evergreen-China Energy Technology Co., Ltd, our 30% owned company in China (Evergreen-China); but record the activity using the equity method of
investment. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Our
business lines include the Technology segment and the GreenCert segment. The Technology segment is comprised of all operations that use, apply, own or otherwise advance our
proprietary, patented K-Fuel process, including our headquarters and related operations, and activities of Evergreen Energy Asia Pacific Corp. and KFx Technology, LLC, which holds
the licenses to our technology.

39

---



Table of Contents

Corporate
costs within our Technology segment are allocated to our GreenCert segment, generally on a percentage based on the number of employees, total segment operating expenses, or segment operating
expenses plus segment capital expenditures. The GreenCert segment represents the operations of our GreenCert software suite, which focuses on providing power generators with operational intelligence;
analytics to identify fuel and operational efficiency; and address new regulatory pressures regarding environmental emissions. As a result of the sale of Buckeye and the signing of a definitive
agreement for the sale of our Fort Union assets, the Mining and the Plant segments were reclassified to discontinued operations for our consolidated financial statements. We will continue to evaluate
how we manage our business and, as necessary, adjust our segment reporting accordingly.



For the last several years, our operations have been focused on developing our two technologies, K-Fuel and GreenCert, and
the construction of the Fort Union plant. To date, we have not yet generated significant revenues from either of these technologies or from the plant. Historically, most of our expenses are related to
general and administrative expenses and plant costs. With the addition of Buckeye, we generated revenue and incurred more substantial mining costs. As a result of the sale of Buckeye and our Fort
Union assets, the results of operations for the mining segment and plant segment are shown as discontinued operations and prior year comparative information is also restated and reflected in
discontinued operations. Further, we do not expect there to be any mining or plant revenues and limited mining expenses after the completion of these sales.

Revenue Trends

In the future we expect to generate revenue from the following sources:



Expense Trends



As we identify business development opportunities and generally expand our business, including hiring additional personnel and
increasing certain outsourced professional services, we will incur additional expenses, the most significant of which are:



We
anticipate that accounting for non-cash, share-based compensation will add approximately $3.0 million to $6.0 million per year in the foreseeable future to
our expenses. In the event we should achieve certain stock price targets, we would significantly accelerate recognition of these costs. Costs such as payroll and related burdens, professional support
fees and utilities are variable costs that

40

---



Table of Contents

increase
with size and adding locations. As we focus our efforts on the development of our K-Fuel process, we expect these costs to increase in future periods.



We will incur costs to develop and implement our GreenCert technology, principally including: payroll and related burdens, certain
outsourced professional fees, licensing fees and support fees. As previously discussed, we are evaluating our strategic positioning related to the GreenCert business, which may result in changes to
these expenses.



We anticipate entering into joint ventures to construct future K-Fuel facilities and possibly K-Direct
facilities. If these facilities are
constructed and begin continuous operation, additional operational expenses will be incurred through these joint ventures, the most significant being:



See
further discussion of the royalty owed to Koppelman Ventures in Note 3Restricted Cash and Other Assets in Item 8 of this report.

Results of Operations

Comparison of Years Ended December 31, 2010 and 2009

Note that prior year amounts of corporate allocations were restated due to the discontinued operations treatment.



Revenues for the year ended December 31, 2010 were $403,000 compared to $423,000 for the same period ended December 31,
2009.

41

---



Table of Contents



The following table summarizes our general and administrative costs for the years ended December 31, 2010 and 2009.

Year Ended
December 31,2010

2009(in thousands)Non-cash, share-based compensation

$
3,289

$
4,509Employee-related costs


4,225


9,323Professional fees


4,029


4,888Office and travel costs


1,226


3,892Insurance and other


2,289


2,471Total general and administrative

$
15,058

$
25,083


Non-cash,
share-based employee compensation expenses were $3.3 million and $4.5 million for the years ended December 31, 2010 and 2009, respectively,
related to our Technology segment and GreenCert segment. The decrease for the year ended 2010 was primarily due to reduced headcount and the related forfeiture of these grants. In addition, we granted
fewer options and restricted shares when comparing 2010 to 2009. Furthermore, we recognized a one-time decrease in 2009 due to the retirement of a former officer and the impact of his
retirement on his restricted stock grant. Since the restricted shares never vested and were forfeited upon retirement, the cumulative non-cash compensation expense recorded since 2005 was
reversed. This reversal of non-cash compensation totaled $2.9 million for the year ended December 31, 2009. The decrease was partially offset by a transition agreement we
entered into with another former officer. Pursuant to that agreement, we accelerated his restricted stock grant and recorded $1.6 million and $3.3 million of non-cash
compensation for the years ended December 31, 2010 and 2009, respectively.

Employee-related
costs primarily include salaries and wages, temporary employees, bonuses, benefits, employer payroll taxes and education and training. The following table summarizes our
employee-related costs related to each of our segments for the years ended December 31, 2010 and 2009.

Year Ended
December 31,2010

2009(in thousands)Technology

$
1,993

$
4,723GreenCert


2,232


4,600Total Employee-related

$
4,225

$
9,323


Employee-related
costs were $4.2 million and $9.3 million for the years ended December 31, 2010 and 2009, respectively. The decrease for the year ended
December 31, 2010 in comparison to the same period in 2009 was primarily due to lower head count in both our Technology and GreenCert segments. In addition, we incurred $525,000 of accrued
severance expense relating to two former executive officers in our Technology segment for the year ended December 31, 2009.

42

---



Table of Contents

Professional
fees include legal, audit and accounting, public relations, governmental relations and similar costs. The following table summarizes our professional fees related to each of
our segments for the years ended December 31, 2010 and 2009.

Year Ended
December 31,2010

2009(in thousands)Technology

$
3,505

$
3,916GreenCert


524


972Total Professional fees

$
4,029

$
4,888


Professional
fees for the year ended December 31, 2010 were $4.0 million compared to $4.9 million for the year ended December 31, 2009. The decrease for the
year ended December 31, 2010 compared to the year ended December 31, 2009 was due to legal fees in 2009 related to certain financing transactions that were not consummated, fees related
to marketing and international work in 2009 all related to our Technology segment, and filing patent applications in 2009 for our GreenCert technology. These decreases were partially offset by an
increase in legal expenses which totaled $1.3 million during the year ended December 31, 2010.

Office
and travel costs include airfare, lodging, meals, office rent, marketing, office supplies, phone, publications, subscriptions and utilities. The following table summarizes our
office and travel costs related to each of our segments for years ended December 31, 2010 and 2009.

Year Ended
December 31,2010

2009(in thousands)Technology

$
711

$
2,097GreenCert


515


1,795Total Office and travel

$
1,226

$
3,892


The
decrease for the year ended December 31, 2010 compared to the year ended December 31, 2009 is primarily related to less international travel. Furthermore, during 2009,
we incurred a non-recurring charge of $1.0 million due to consolidating our employees into a smaller section of our office space to enable us to potentially sublease the remaining
office space at our corporate location. The amortization of this loss in 2010 reduced our office expense for the year ended December 31, 2010.

Insurance
and other costs primarily include costs related to our property and commercial liability, other insurance and all costs that cannot be categorized elsewhere and include, among
other costs, various business and franchise taxes, licensing fees, repair and maintenance, engineering and technical services and director expenses. The following table summarizes our insurance and
other costs related to each of our segments for the years ended December 31, 2010 and 2009.

Year Ended
December 31,2010

2009(in thousands)Technology

$
1,677

$
2,471GreenCert


612


Total Insurance and other

$
2,289

$
2,471


43

---



Table of Contents



Depreciation and amortization are principally comprised of amortization related to our patents and depreciation on other fixed assets
using the straight-line method. Depreciation and amortization expenses were $1.7 million for the year ended December 31, 2010 compared to $2.4 million during the same
period ended 2009.



Research and development costs primarily represent the development of our GreenCert software energy module and increased due to the
development of this module. Research and development costs were $888,000 and $49,000 for the years ended 2010 and 2009, respectively.



Due to the uncertainties relating to certain cap and trade legislation proposals, we impaired capitalized costs related to our
GreenCert agricultural software module by $3.7 million, of which $2.9 million was previously reflected as construction in progress and $735,000 in property plant and equipment in our
consolidated balance sheets. However, we do not believe impairment is necessary with respect to the Energy module where we have concentrated most of our work since early 2010. GreenCert Energy is
focused on business intelligence solutions for power plant operators and the EPA has issued new rule making orders to monitor stationary assets for their greenhouse gas emissions independent of
legislative sentiment.



During the year ended December 31, 2010, we entered into multiple individually negotiated agreements with certain existing 2007
noteholders to exchange $5.6 million in aggregate principal amount of the 2007 Notes, for an aggregate of 2.0 million shares of our common stock. We recorded a $2.9 million gain
related to these exchanges for the year ended December 31, 2010.



We recorded a loss on the early extinguishment of the 2009 notes primarily related to the acceleration of debt issuance costs, the
acceleration of exit fees and the write-off of the derivatives associated with these notes. We allocated this loss on a percentage basis between continuing operations and discontinued
operations.



Interest income was $23,000 and $65,000 for the years ended December 31, 2010 and 2009, respectively.



Interest expense for the year ended December 31, 2010 was $2.4 million compared to $4.2 million for the same
period ended 2009. The interest expense relates to the 2007 Notes and 2009 Notes more fully described in Note 6Debt to the consolidated financial statements included Item 8
of this report. Pursuant to discontinued operations accounting guidance, interest expense related to our 2009 Notes is reflected in (loss) gain from discontinued mining operations for all periods
presented. Debt issuance costs prior to the extinguishment of the 2009 Notes are reflected as interest expense in our continuing operations. The decrease in interest expense for the year ended
December 31, 2010 compared to the same period in 2009 is primarily related to the amortization of finance charges related to the 2009 Notes.

44

---



Table of Contents



We are required to evaluate the fair value of the embedded derivatives at the end of each reporting period. These fair value
adjustments are non-cash items, and each quarter's estimations are impacted, in part, by our stock price. We recognized a $5.6 million gain on the fair value adjustments for our
embedded derivatives for the year ended December 31, 2010 compared to a $2.0 million gain for the year ended December 31, 2009. The increase from the year ended in 2010 compared
to the year ended in 2009 was due to the new financings in 2010. See Liquidity and Capital Resources and Note 7Temporary Capital and Stockholders Equity in Item 8 of this
report.



During the year ended December 31, 2010, other income was $772,000 as compared to $417,000 for the same period ended 2009.

Discontinued Mining Operations

Discontinued Mining Operations is comprised of the following:

Year Ended
December 31,2010

2009(in thousands)Mining revenue

$
12,619

$
50,248Coal mining operating costs


(12,035
)

(43,458
)General and administrative


(1,566
)

(3,993
)Depreciation, depletion & amortization


(1,281
)

(7,518
)Other loss


(2,578
)

(23,579
)Loss from discontinued mining operations

$
(4,841
)
$
(28,300
)


Amounts
for the year ended December 31, 2010 represent Buckeye operations for the three months ended March 31, 2010 through the closing date of the sale which occurred on
April 1, 2010. Further, other loss for the year ended December 31, 2009 includes impairment charges of $20.1 million related to certain assets in our mining operations.

Discontinued Plant Operations

Discontinued Plant Operations is comprised of the following:

Year Ended
December 31,2010

2009(in thousands)Plant costs

$
(646
)
$
(1,554
)General and administrative





(6
)Depreciation, depletion & amortization





(26
)Other income


755


412Income (loss) from discontinued plant operations

$
109

$
(1,174
)


45

---



Table of Contents

Comparison of Years Ended December 31, 2009 and 2008



Revenues for the year ended December 31, 2009 were $423,000 compared to $4,000 for the same period ended December 31,
2008.



The following table summarizes our general and administrative costs for the years ended December 31, 2009 and 2008.

Year Ended
December 31,2009

2008(in thousands)Non-cash, share-based compensation

$
4,509

$
5,204Employee-related costs


9,323


10,154Professional fees


4,888


3,787Office and travel costs


3,892


3,577Insurance and other


2,471


4,808Total general and administrative

$
25,083

$
27,530


Non-cash,
share-based compensation expenses were $4.5 million and $5.2 million for the years ended December 31, 2009 and 2008, respectively, most of
which related to our Technology segment. The decrease for the year ended 2009 was primarily due to the reduction of our workforce and the related forfeiture of the grants. We also recognized a
one-time decrease due to the retirement of a former officer and the impact of his retirement on his restricted stock grant. Since the restricted shares never vested and were forfeited upon
retirement, the cumulative non-cash compensation expense recorded since 2005 was reversed. This reversal of non-cash compensation totaled $2.9 million for the year ended
December 31, 2009. The decreases were partially offset by a transition agreement we entered into with another former officer. Pursuant to that agreement, we accelerated the restricted stock
grant and recorded $3.3 million of non-cash compensation for the year ended December 31, 2009.

Employee-related
costs primarily include salaries and wages, temporary employees, bonuses, benefits, employer payroll taxes and education and training. The following table summarizes our
employee-related costs related to each of our segments for the years ended December 31, 2009 and 2008.

Year Ended
December 31,2009

2008(in thousands)Technology

$
4,723

$
7,516GreenCert


4,600


2,638Total Employee-related

$
9,323

$
10,154


The
decrease for the year ended December 31, 2009 in comparison to the same period in 2008 was primarily due to our cost cutting measures which resulted in lower employee count in
our Technology segment. This decrease was offset by the addition of personnel to our GreenCert segment and severance expense for two former executive officers in the amount of $525,000 in our
Technology segment.

46

---



Table of Contents

Professional
fees include legal, audit and accounting, public relations, governmental relations and similar costs. The following table summarizes our professional fees related to each of
our segments for the years ended December 31, 2009 and 2008.

Year Ended
December 31,2009

2008(in thousands)Technology

$
3,916

$
2,957GreenCert


972


830Total Professional fees

$
4,888

$
3,787


The
increase for the year ended December 31, 2009 compared the year ended 2008 was due to legal fees related to certain financing transactions that were not consummated, fees
related to the marketing of Buckeye and international work, all related to our Technology segment, and filing patent applications for our GreenCert technology in our GreenCert segment.

Office
and travel costs include airfare, lodging, meals, office rent, marketing, office supplies, phone, publications, subscriptions and utilities. The following table summarizes our
office and travel costs related to each of our segments for years ended December 31, 2009 and 2008.

Year Ended
December 31,2009

2008(in thousands)Technology

$
2,097

$
2,696GreenCert


1,795


881Total Office and travel

$
3,892

$
3,577


The
increase in office and travel for the year ended December 31, 2009 is primarily due to a non-recurring charge of $1.0 million due to consolidating our
employees into a smaller section of our office space to enable us to potentially sublease the remaining office space at our corporate location. The majority of this non-recurring charge
was allocated to our GreenCert segment based on the number of employees, total segment operating expenses or segment operating expenses plus segment capital expenditures.

Insurance
and other costs primarily include costs related to our property and commercial liability, other insurance and all costs that cannot be categorized elsewhere and include, among
other costs, various business and franchise taxes, licensing fees, repair and maintenance, engineering and technical services and director expenses. The following table summarizes our insurance and
other costs related to each of our segments for the years ended December 31, 2009 and 2008.

Year Ended
December 31,2009

2008(in thousands)Technology

$
2,471

$
3,987GreenCert





821Total Insurance and other

$
2,471

$
4,808


Costs
decreased for the year ended December 31, 2009 mainly due to the idling of our Ft. Union plant in 2008 and the resulting decrease in Engineering and Technical services
expense in our Technology segment.

47

---



Table of Contents



Depreciation and amortization are principally comprised of amortization related to our patents and depreciation on other fixed assets
using the straight-line method. Depreciation and amortization expenses were $2.4 million for the year ended December 31, 2009 compared to $1.9 million during the same
period ended 2008.



Research and development costs include costs incurred to advance, test, or otherwise modify our proprietary K-Fuel
technology or develop new technologies and primarily include costs incurred to operate and maintain our laboratory facilities and professional engineering fees related to off-site testing
of our K-Fuel refined coal. Research and development costs were $49,000 and $79,000 for the years ended 2009 and 2008, respectively.



Asset impairment charges were $413,000 and $18.6 million for the years ended December 31, 2009 and 2008, respectively.
The asset impairment charges for the year ended December 31, 2009 relate to the impairment of our leasehold improvements of the vacated office space that we are attempting to sublease and is
reflected in our Technology segment. Asset impairment charges for the year ended December 31, 2008 relate to further impairment of our boiler island which was classified as assets held for
sale. See Note2 Property Plant and Equipment in Item 8 of this report for further details.



Interest income was $65,000 and $1.3 million for the years ended December 31, 2009 and 2008, respectively. The decrease
in interest income for the year ended December 31, 2009 was principally attributable to a lower cash balance in 2009.



Interest expense for the years ended December 31, 2009 and December 31, 2008 was $4.2 million and
$6.1 million, respectively. The interest expense relates to the 2007 Notes and 2009 Notes more fully described in Note 6Debt in Item 8 of this report.



We are required to evaluate the fair value of the embedded derivatives at the end of each reporting period. We recognized a
$2.0 million gain on the fair value adjustments for our embedded derivatives for the year ended December 31, 2009. These fair value adjustments are non-cash items, and each
quarter's estimations are impacted, in part, by our stock price. See Note 6Debt and Note 7Temporary Capital and Stockholders' Equity in Item 8 of this
report.



During the year ended December 31, 2009, other income was $417,000 as compared to $342,000 of other expense for the same period
ended 2008.

48

---



Table of Contents

Discontinued Mining Operations

Discontinued Mining Operations is comprised of the following:

Year Ended
December 31,2009

2008(in thousands)Mining revenue

$
50,248

$
58,434Coal mining operating costs


(43,458
)

(47,799
)General and administrative


(3,993
)

(4,033
)Depreciation, depletion & amortization


(7,518
)

(7,024
)Other (loss) income


(23,579
)

86Loss from discontinued mining operations

$
(28,300
)
$
(336
)


Discontinued Plant Operations

Discontinued Plant Operations is comprised of the following:

Year Ended
December 31,2009

2008(in thousands)Revenue

$


$
463Plant costs


(1,554
)

(17,630
)General and administrative


(6
)

(401
)Depreciation, depletion & amortization


(26
)

(56
)Other income


412


890Loss from discontinued plant operations

$
(1,174
)
$
(16,734
)


Liquidity and Capital Resources Discussion

Overall, we have increased our cash used in operations by $7.7 million, when comparing the year ended December 31, 2010
to the same period in 2009. Our cash used in
operating activities from continuing operations increased by $2.5 million when compared to the prior year period, primarily due to disbursements for accounts payable and other liabilities and
was somewhat offset by reduced professional fees and other general and administrative costs. Our cash used in discontinued operating activities increased by $5.2 million when compared to the
prior year period, primarily due to the acceleration of payments of Buckeye's liabilities as we exited our mining operations, including selling and exit costs and additional interest expense related
to our 2009 Note restructuring. In addition, we have invested $1.4 million in capital expenditures, primarily related to development of GreenCert, during the year ended December 31,
2010.

We
have reduced our cash flow used in operations by $23.4 million when comparing the year ended December 31, 2009 to the same period in 2008. This reduction was due, in
part to the decrease in cash used in operating activities from continuing operations of $14.4 million, primarily due to the reduction of our professional fees and other general and
administrative costs. These cost reductions were offset by the expansion of our GreenCert operations, including the addition of personnel and other administrative costs associated with developing the
business. Our discontinued operating activities generated cash rather than a net utilization of cash, resulting in an $9.0 million fluctuation, when compared to the prior year period, primarily
due to revenues earned at Buckeye and suspending operations at our Fort Union plant. In addition, we have invested $3.8 million in capital expenditures,

49

---



Table of Contents

primarily
related to GreenCert and K-Fuel process development during the year ended December 31, 2009.

Actual
2009 and first quarter 2010 cash flows from Buckeye's operations were less than anticipated and combined with the on-going costs associated with corporate,
K-Fuel and GreenCert operations, required us to raise additional capital in 2010 and again in February 2011. As a result, we completed three financing transactions: (i) on
March 16, 2010, we entered into a securities purchase agreement, and received gross proceeds of approximately $9.3 million; (ii) on January 26, 2010, we consummated a
registered direct public offering and raised gross proceeds of approximately $8.7 million; and (iii) on February 1, 2011, we completed a private placement to sell
6.2 million shares of our common stock and 12.0 million warrants to purchase our common stock, resulting $14.6 million of net proceeds, after the offering expenses. See
Note7Temporary Capital and Stockholders' Equity in Item 8 of this report for further description of these financings.

As
previously mentioned, we executed on two of our strategic positioning plans by completing the sale of Buckeye and signing a definitive agreement to sell our Fort Union assets. We
believe these sales have allowed us to focus our resources on core business activities, primarily our K-Fuel process. On March 12, 2010, we signed a definitive agreement with
Rosebud Mining Company for the sale of Buckeye, for $27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase
price was deposited into escrow for a period of twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The sale closed on April 1,
2010. We received $25.1 million from the sale of Buckeye, of which $19.2 million was used to retire our 2009 Notes principal balance, accrued interest and exit fees. The remaining
proceeds were used to fund related transaction expenses estimated at $2.5 million and for
general working capital purposes. In addition, we received $5.0 million of additional cash from the release of our reclamation bonds through December 31, 2010.

On
August 20, 2010, we executed the second of our strategic positioning plans by signing a definitive agreement to sell our Fort Union assets. We entered into a definitive
agreement with Synthetic Fuels LLC, or its nominee, for the sale of the assets of our subsidiary Landrica Development Company, including the Fort Union plant and associated property located
near Gillette, Wyoming. The sale will provide approximately $7.1 million of available cash to us, comprised of: (i) cash payments of $2.0 million, of which $500,000 will be paid
at closing, an additional $500,000 on the first anniversary of closing and $1.0 million on the second anniversary of closing; and (ii) the payment for the transfer of all of the
reclamation bonds pertaining to the sold property, currently totaling $5.2 million, pursuant to a secured one year note. Synthetic Fuels LLC is required to assume these environmental
liabilities at the closing and the cash collateral or an equivalent amount will be released to us by the one year anniversary of the closing. The sale is anticipated to close during the first quarter
2011 and is subject to customary closing conditions. Proceeds of the sale will be used for general working capital purposes.

As
previously described, on February 1, 2011, we executed a Settlement Agreement that provides for, assuming the final settlement date is reached and the settlement is completed,
the settlement of an aggregate of $17.3 million of the 2007 Notes and the issuance of a new note for $1.6 million due on the one year anniversary of the final settlement date, that bears
interest at 7% and is convertible into shares of our common stock at the market value of the shares on the date the exchange. This agreement also calls for the dismissal of the litigation that is now
pending between us, Buckeye, the Settling 2007 Noteholders, and the 2009 Noteholders. Further, on February 14, 2011, we entered into an agreement to exchange $1.4 million of face value
of 2007 Notes for 237,500 shares of our common stock. After this exchange and assuming that we close on the Settlement Agreement, there will remain $2.8 million of 2007 Notes outstanding.
Further, this will decrease interest incurred from $1.9 million for the year ended December 31, 2010 to an estimated $340,000 on an annualized basis.

50

---



Table of Contents

We
have a history of losses, deficits and negative operating cash flows and may continue to incur losses in the future. Any of continued market disruptions associated with the economic
downturn, lower demand for our technology or products, increased incidence of customers' inability to pay their accounts, or insolvency of our customers, any of which could adversely affect our
results of operations, liquidity, cash flows, and financial condition. We continue to evaluate our cash position and cash utilization and may make additional adjustments to capital or certain
operating expenditures.

As
stated above, we continue to require additional capital to fund the development of our K-Fuel process and our GreenCert technology and expect to investigate sources of
additional capital. Further, as opportunities arise to accelerate the expansion of our K-Fuel technology or our anticipated operating cash outflows are greater than expected,
we may need to obtain further funding. We believe we have the ability to raise additional capital from time to time as needed principally through: (i) equity offerings; (ii) debt or debt
offerings; and (iii) partnering with third parties. While we believe we will obtain additional capital through one or more of the alternatives described, we can provide no assurance that any of
the alternatives will be available or be on acceptable terms.

Payment Obligations

The following table summarizes our future commitments as of December 31, 2010:

Payments due by period2011

2012

2013

2014

2015

Thereafter

Total(in thousands)Operating leases

$
663

$
652

$
641

$
657

$
673

$
1,028

$
4,314Consulting and service commitments


500


500


10,500


500


500


500


13,000Long-term debt


1,724


23,279














25,003Total commitments

$
2,887

$
24,431

$
11,141

$
1,157

$
1,173

$
1,528

$
42,317


This
table does not include accounts payable, accrued liabilities, or asset retirement obligations, which are reported in our December 31, 2010 consolidated balance sheet. We
generally have not included any obligation in which either party has the right to terminate except as discussed below. Additionally, we have not included K-Fuel royalty payments, as we
cannot presently determine when such payments will be made as such payments are based upon our receipt of cash for licensing and royalties.

We
are obligated under non-cancelable operating leases with initial terms exceeding one year relating to office space. Rent expense for the years ended December 31,
2010, 2009 and 2008 was $1.0 million, $1.2 million, and $1.1 million, respectively.

Consulting
and service commitments include an exclusive patent sub-license agreement with the developer of a proprietary technology for the measurement of carbon emissions.
The agreement provides us with an exclusive worldwide sub-license to a technology to standardize the measurement of carbon emissions in energy and agricultural related activities. The
agreement was amended and restated to expand the energy and agricultural activities to all applications of the technology and eliminates other operating requirements. In order to maintain this
licensing arrangement, we are required to make minimum annual royalty payments of $500,000 to the developer of the proprietary technology, with each payment extending the arrangement for one year if
the parties are in material compliance with the contract. Additionally, consulting and service commitments includes our amended and restated umbrella agreement with Bechtel. Through this new program
management agreement, we committed to provide Bechtel with $1 billion in construction contracts through 2014. Failure to meet this commitment by 2013 could cost us up to the $10 million
in termination fees, which is included in the above table.

51

---



Table of Contents

Long-term
debt includes our principal amount due 2012 and the 8% interest payments. See Note 10Commitments and Contingencies and Litigations for further
details related to the contingent settlement and retirement of a portion of these notes.

While
our former investment banking firm may claim that we owe them up to $1.0 million related to the sale of Buckeye, we do not believe that this fee is payable due to the lack
of the counterparties meeting certain performance and contractual criteria. If a claim is made for this contingent payment, we intend to vigorously dispute this claim. This potential obligation is not
included in the table above.

Historical View



Cash used in operating activities of continuing operations were $15.7 million, $13.2 million, and $27.6 million
for the years ended December 31, 2010, 2009 and 2008, respectively. The majority of the cash used in operating activities of continuing operations relates to cash utilized in our
on-going operations, as adjusted for non-cash items, and changes in operating assets and liabilities. The most significant adjustments to net loss to arrive at cash used in
operating activities are as follows:





Cash provided by (used in) investing activities of continuing operations were $3.7 million, $(1.3) million, and
$28.2 million for the years ended December 31, 2010, 2009 and 2008, respectively. The majority of the sources and uses of cash relate to the following:



52

---



Table of Contents



Cash (used in) provided by financing activities of continuing operations were $(6.9) million, $17.1 million, and $(3.7) million
for the years ended December 31, 2010, 2009 and 2008, respectively. The majority of the sources and uses of cash relate to the following:



Cash (used in) provided by operating activities of discontinued mining and plant operations was $(4.9) million, $248,000 and $(8.7)
million for the years ended December 31, 2010,
2009 and 2008, respectively. The net increase in operating cash used from the year ended in 2010 compared to 2009 was due to payment of interest on the 2009 Notes, the sale of certain Buckeye and
Evergreen assets on April 1, 2010, and related selling and exit costs. After April 1, 2010, Buckeye operations ceased.

Cash
provided by (used in) investing activities of discontinued mining and plant operations was $24.7 million, $(8.4) million, and $(7.6) million for the years ended
December 31, 2010, 2009 and 2008, respectively. The increase from the year ended in 2009 compared to the year ended in 2010 is related to the cash received from the sale of certain of Buckeye
and Evergreen assets.

53

---





Table of Contents

Critical Accounting Policies and Estimates

We have identified the policies and estimates below as critical to our current and future business operations and the understanding of
our results of operations. For a detailed discussion on the application of these and other significant accounting policies see the notes to our Consolidated Financial Statements in Item 8 of
this Annual Report. These policies and estimates are considered "critical" because they either had a material impact or they have the potential to have a material impact on our financial statements,
and because they require significant judgments, assumptions or estimates. The preparation of our financial statements in this Annual Report on Form 10-K requires us to make
estimates and judgments that affect both the results of operations as well as the carrying values of our assets and liabilities. Some of our accounting policies require us to make difficult and
subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We base estimates on historical experience and/or on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities as of the date of the financial
statements that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, making it possible that a change in these
estimates could occur in the near term. Set forth below is a summary of our most critical accounting policies. These policies are focused on our continuing operations.

Revenue Recognition.We expect to derive GreenCert and K-Fuel revenue from licensing arrangements that include licenses,
technical
support, and professional services.

For
each arrangement, we recognize revenue when: (i) persuasive evidence of an arrangement exists (e.g., a signed contract); (ii) delivery of the product has
occurred and there are no remaining obligations or substantive customer acceptance provisions and all obligations are satisfied; (iii) the fee is fixed or determinable; and
(iv) collection of the fee is reasonably assured. Any up-front fees received are deferred and recognized over the provision of specific deliverables as defined in the agreements. As
our history related to customer relationships is limited, we may be required to change the estimated period over which we recognize our revenue as more information becomes available. Arrangements that
include multiple deliverables are evaluated to determine whether the elements are separable based on objective evidence. If the elements are deemed separable, total consideration is allocated to each
element and the revenue associated with each element is recognized as earned. If the elements are not deemed separable, total consideration is deferred and recognized ratably over the longer of the
contractual period or the expected customer relationship period. We believe that the accounting estimates related to customer relationship periods and to the assessment of whether bundled elements are
separable are "critical accounting estimates" because: (i) they require management to make assumptions about how long we will retain customers, for which we have limited history;
(ii) the assessment of whether bundled elements are separable can be subjective; and (iii) the impact of changes in actual retention periods versus these estimates on the revenue amounts
reported in our consolidated statements of operations could be material.

Accounts and Notes Receivable and Allowances.Receivables are recorded at their estimated net realizable value. The allowance
for doubtful accounts
is determined through an analysis of the past-due status of receivables and assessments of risk regarding collectability. If the financial condition of the customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be required.

Capitalization of Costs.We capitalize all purchases of machinery, equipment, software, engineering costs and similar
expenditures, where the useful
life of the asset is greater than one year or the expenditures extend the useful life of an existing asset. All costs that are directly related to, or allocable to, developing a K-Fuel
plant site are capitalized and separately identified as belonging to that site. Judgment is exercised in determining: (i) if costs extend the life of an asset; (ii) if costs increase

54

---



Table of Contents

production
volumes; and (iii) the feasibility of extracting coal. If these judgments are incorrect, we may capitalize more costs than we otherwise should.

Valuation of Long-Lived Assets.The valuation of our long-lived and intangible assets, including the remaining assets at our
Fort Union plant, and patents, have significant impact on our results of operations and financial condition. We must assess the realizable value of these assets for potential impairment whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of these assets, we must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective assets. We must make assumptions regarding the useful lives of these assets. If these estimates or their related assumptions
change in the future, we may be required to record impairment charges for these assets.

Accounting for stock grants, options and warrants.We issue stock grants, options and warrants to employees, board of directors
and consultants in
connection with our various business activities. In accounting for these awards we are required to make estimates of the fair value of the related instruments, the periods benefited and forfeiture
rates. These estimates may affect such financial statement categories as stockholders' equity and general and administrative expense. If these estimates are incorrect, we may be required to incur
additional expense in the future.

Accounting for derivative financial instruments.Derivatives may be embedded in financial instruments (the "host instrument").
Embedded derivatives
are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host instrument. The terms of the embedded derivative are similar
to those of a stand-alone derivative and the combined contract is not held for trading or designated at fair value. These embedded derivatives are measured at fair value and any subsequent changes are
recognized in the statement of operations. We are required to make estimates and assumptions including, but not limited to, estimating the future market price of our common stock and probability of a
change in control. If these assumptions and estimates are incorrect, we may be required to incur additional expense in the future.

Accounting for Acquisitions.The acquisition of businesses is an element of our strategy. We are required to record the net
assets acquired at the
estimated fair value at the date of acquisition. The determination of the fair value of the assets acquired and liabilities assumed requires us to make significant estimates and assumptions that
affect our financial statements. For example, the value and estimated life of assets may affect the amount of future period depletion and depreciation expense for the assets as well as possible
impairment charges that may be incurred.

Marketable Securities.As of December 31, 2009 and 2008, our balance sheet reflects $0 and $1.8 million of
marketable securities, which are auction rate securities, respectively. These auction rate securities consisted of student-loan backed securities. During the year ended December 31,
2008, we reduced the carrying amount of our student loan-backed auction rate security by $200,000, which is reflected in general and administrative expense. In February 2009, we entered a
reverse repurchase transaction for $1.8 million of our auction rate security which had a $2.0 million par value. In March 2009, we liquidated the auction rate security at
$2.0 million, resulting in a gain of $200,000, which has been recorded in Other Income for the year ended December 31, 2009.

Recent Accounting Pronouncements

Refer to Note 1Recent Accounting Pronouncementsof the accompanying
notes to Consolidated Financial Statements included in Item 8 of this report for information regarding recent accounting pronouncements.

55

---



Table of Contents

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Ignoring embedded derivatives, we own (or hold) no derivative instruments or floating rate debt and do not expect to derive a material
amount of our revenues from such interest bearing securities. Currently, we have no significant foreign operations. We hold no equity market securities, which are subject to equity market risk
relative to our own equity securities.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required pursuant to this item are included in Item 15 of this Annual Report on
Form 10-K and begin on page F-1. The supplementary financial information required by this item is included in "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied
its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.

Our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of such date to provide assurance that information required
to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and
forms
of the Securities and Exchange Commission, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding disclosures.

Management's Annual Report on Internal Control over Financial Reporting

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our
financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining
records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable

56

---



Table of Contents

assurance
that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of
the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Management,
with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of
December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
ControlIntegrated Framework. Based on this assessment, management, with the participation of the Chief Executive Officer and Chief Financial Officer, has determined that we have
maintained effective internal controls over financial reporting as of December 31, 2010. Based on this assessment, management, with the participation of the Chief Executive Officer and Chief
Financial Officer, believes that as of December 31, 2010, our internal control over financial reporting is effective, based on these criteria.

This
annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the company to provide only management's
report in this annual report.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting during the quarter ended December 31, 2010 that has
materially affected our internal controls over financial reporting.

57

---





Table of Contents

ITEM 9B.    OTHER INFORMATION

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2011 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 11.    EXECUTIVE COMPENSATION

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2011 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2011 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2011 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

ITEM 14.    PRINCIPAL
ACCOUNTANT FEES AND SERVICES

The required information for this item is incorporated by reference to our Definitive Proxy Statement for the 2011 Annual Meeting of
Stockholders, since such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year pursuant to
Regulation 14A.

58

---



Table of Contents

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

15(a)(1)The following documents are filed as part of this Annual Report on Form 10-K:

The
following consolidated financial statements of Evergreen Energy Inc. are filed as part of this report:



Reports of Independent Registered Public Accounting Firms


F-1Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Changes in Stockholders' Equity


F-5Consolidated Statements of Cash Flows


F-6Notes to Consolidated Financial Statements


F-7 - F-59


15(a)(2)  Financial Statement Schedules.Schedules are omitted because they are not required or because the information is
provided elsewhere in the financial statements.

15(a)(3)  Exhibits.

EXHIBIT
NUMBER

DESCRIPTION3.1

Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 2.1 to our Form 10-KSB for the year ended December 31, 1993).3.2

Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 2.2 to our Form 10-KSB for the year ended December 31, 1993).3.3

Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to our Form 10-KSB, as amended, for the year ended December 31, 1995).3.4

Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to our Form 10-K for the year ended December 31, 2006).3.5

Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to our Form 10-Q for the quarter ended June 30, 2006).3.6

Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.6 to our Form 10-K for the year ended December 31, 2006).3.7

Certificate of Amendment to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Form 8-K filed July 16, 2008).3.8

Certificate of Designation, Preference and Rights of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.01 to our Form 8-K filed December 4, 2008).3.9

Third Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to our Form 8-K filed February 27, 2007).3.10

Amendments to the Third Amended Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Form 8-K filed July 16, 2008).


59

---



Table of Contents

EXHIBIT
NUMBER

DESCRIPTION4.1

Indenture, dated July 30, 2007, by and between Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye Industrial
Mining Co. and U.S. Bank National Association, including the form of 8.00% Convertible Secured Note due 2012 (included as Exhibit A to the Indenture) (incorporated by reference to Exhibit 4.1 to our Form 8-K filed July 30,
2007).4.2

Registration Rights Agreement dated as of July 30, 2007, by and among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company,
Buckeye Industrial Mining Co. and the initial purchasers listed therein (incorporated by reference to Exhibit 4.2 to our Form 8-K filed July 30, 2007).4.3

Security Agreement, dated as of July 30, 2007, by and among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye
Industrial Mining Co. and U.S. Bank National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.3 to our Form 10-Q for the quarter ended September 30, 2007).4.4

Supplemental Indenture dated September 30, 2008, by and among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye
Industrial Mining Co. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 1, 2008).4.5

Section 3(a)(9) exchange letter agreement, dated August 28, 2008, with Aristeia International Limited, Aristeia Special Investments Master, L.P. (incorporated by reference to Exhibit 4.2 to our
Form 10-Q for the quarter ended September 30, 2008).4.6

Section 3(a)(9) exchange letter agreement, dated September 30, 2008, with Fidelity Advisors Series I: Fidelity Advisors Balanced Fund, Fidelity Puritan Trust: Fidelity Balanced Fund, and Variable
Insurance Products Fund II: Balanced Portfolio (incorporated by reference to Exhibit 4.3 to our Form 10-Q for the quarter ended September 30, 2008).4.7

Section 3(a)(9) exchange letter agreement, dated September 30, 2008, with Highbridge International, LLC and Highbridge Convertible Arbitrage Master Fund L.P. (incorporated by reference to
Exhibit 4.4 to our Form 10-Q for the quarter ended September 30, 2008).4.8

Section 3(a)(9) exchange letter agreement, dated September 30, 2008, with Whitebox Convertible Arbitrage Partners, L.P. and Whitebox Special Opportunities Partners, Series B, L.P.
(incorporated by reference to Exhibit 4.5 to our Form 10-Q for the quarter ended September 30, 2008).4.9

Rights Agreement, dated as of December 4, 2008, between the Company and Interwest Transfer Company, Inc., as Rights Agent (incorporated by reference to Exhibit 4.1 to our Form 8-K filed
December 4, 2008).4.10

Note Purchase Agreement, dated as of March 20, 2009, by and between Evergreen Energy Inc., Evergreen Operations, Buckeye Industrial Mining Co. and Centurion Credit Funding LLC (incorporated by
reference as Exhibit 4.10 to our Form 10-K for the year ended December 31, 2008).4.11

Certificate of Designation and Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 22,
2009).4.12

Security Purchase Agreement dated October 21, 2009 (incorporated by reference as Exhibit 4.2 to our Form 10-Q for the quarter ended September 30, 2009).


60

---



Table of Contents

EXHIBIT
NUMBER

DESCRIPTION4.13

Registration Rights Agreement dated October 21, 2009 (incorporated by reference as Exhibit 4.3 to our Form 10-Q for the quarter ended September 30, 2009).4.14

Common Stock Purchase Warrant dated October 21, 2009 (incorporated by reference as Exhibit 4.4 to our Form 10-Q for the quarter ended September 30, 2009).4.15

Common Stock Purchase Warrant dated January 26, 2010 (incorporated by reference as Exhibit 4.1 to our Form 8-K filed January 27, 2010).4.16

Form of Common Stock Purchase Warrant to be Issued by Evergreen Energy (incorporated by reference as Exhibit 4.1 to our Form 8-K filed March 17, 2010).4.17

Form of Certificate of Designation from Series C Convertible Stock (incorporated by reference as Exhibit 4.2 to our Form 8-K filed March 17, 2010).4.18

State of Delaware Certificate of Correction (incorporated by reference as Exhibit 4.3 to our Form 8-K/A filed March 18, 2010).4.19

Second Amendment and Forbearance Agreement dated January 12, 2010.4.20

Warrant Extension letter (incorporated by reference to Exhibit 4.1 to our Form 8-K filed August 26, 2010).4.21

(3)(a)(9) Exchange Agreement dated August 24, 2010 with KVO Capital Partners, LP, Montpelier Investment Holdings, Ltd. and Trimarc Capital Advisors, LLC (incorporated by reference to
exhibit 4.21 to our Form 10-Q for quarter ended September 30, 2010).4.22

(3)(a)(9) Exchange Agreement dated September 27, 2010 with Dynamis Energy Fund, LP (incorporated by reference to Exhibit 4.22 to our Form 10-Q for the quarter ended September 30,
2010).4.23

Warrant Extension letter (incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 20, 2010).4.24

Warrant Extension letter (incorporated by reference to Exhibit 4.1 to our Form 8-K filed November 3, 2010).10.1

Amendments to Agreements Between Theodore Venners, S.A. Wilson, Koppelman Fuel Development Company, and the Koppelman Group dated December 29, 1992 (incorporated by reference to Exhibit 6.1 to our
Form 10-KSB for the year ended December 31, 1993).**10.2

Royalty Agreement dated December 29, 1992 between the Company and the Koppelman Group (incorporated by reference to Exhibit 6.7 to our Form 10-KSB for the year ended December 31, 1993).10.3

Stock Option Plan dated December 16, 1993 (incorporated by reference to Exhibit 6.19 to our Form 10-KSB for the year ended December 31, 1993).**10.4

Gross Royalty Share Agreement dated August 17, 1995 between the Company and Fort Union, Ltd. (incorporated by reference to Exhibit 10.51 to our Registration Statement on Form SB-2 (File
No. 33-97418)).10.5

Letter of Agreement dated August 15, 1995 between the Company and Edward Koppelman (incorporated by reference to Exhibit 10.53 to our Registration Statement on Form SB-2 (File No. 33-97418)).


61

---



Table of Contents

EXHIBIT
NUMBER

DESCRIPTION10.6

Royalty Amendment Agreement dated June 3, 1996 between the Company, Edward Koppelman and Theodore Venners (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30,
1996).**10.7

1999 Stock Incentive Plan (incorporated by reference from Annex A-1 of the Company's Proxy Statement filed May 4, 1999).**10.8

1996 Stock Option and Incentive Plan of KFx Inc. (incorporated by reference to Exhibit 10.1 to our Form 10-K for the year ended December 31, 2000).**10.9

Common Stock and Warrant Purchase Agreement dated as of March 28, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed April 2, 2002).10.10

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated April 30, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed May 7, 2002).10.11

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated July 1, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed July 3, 2002).10.12

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated July 19, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed July 24, 2002)10.13

Common Stock and Warrant Purchase Agreement between KFx Inc. and the Investors dated August 21, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed August 28,
2002).10.14

Waiver of Penalty Warrants dated September 25, 2002 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed September 27, 2002).10.15

KFx Inc. 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our Form 8-K filed December 17, 2004).**10.16

Waiver Agreement dated December 17, 2004 between KFx Inc. and Theodore Venners (incorporated by reference to Exhibit 10.60 to our Form 10-K for the year ended December 31, 2004).**10.17

Employment Agreement between KFx Inc. and William G. Laughlin (incorporated by reference to Exhibit 10.61 to our Form 8-K filed March 15, 2005).**10.18

K-Fuel Projects Participation and Development Agreement Dated May 5, 2005 (incorporated by reference to Exhibit 10.63 to our Form 10-Q for the quarter ended March 31, 2005).10.19

First Amendment to Fourth Amended and Restated Investors' Rights Agreement (incorporated by reference to Exhibit 10.64 to our Form 10-Q for the quarter ended March 31, 2005).10.20

Employment Agreement between KFx Inc. and Kevin R. Collins (incorporated by reference to Exhibit 10.66 to our Form 8-K filed October 25, 2005).**10.21

KFx Inc. 2005 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.67 to our Form S-8 filed November 4, 2005).**10.22

Employment Agreement between KFx Inc. and Theodore Venners (incorporated by reference to Exhibit 10.69 to our Form 8-K filed December 22, 2005).**10.23

Business Development and Intellectual Property Rights Agreement, dated January 2, 2003 (incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 31, 2006).


62

---



Table of Contents

EXHIBIT
NUMBER

DESCRIPTION10.24

Addendum to Business Development and Intellectual Property Rights Agreement, dated January 8, 2004 (incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 31, 2006).10.25

First Amendment to the Business Development and Intellectual Property Rights Agreement, dated May 21, 2004 (incorporated by reference to Exhibit 99.3 to our Form 8-K filed January 31,
2006).10.26

Professional Services Agreement, dated July 16, 2003 (incorporated by reference to Exhibit 99.4 to our Form 8-K filed January 31, 2006).10.27

Marketing, Distribution and Transportation Logistics Service Agreement with DTE Coal Services, Inc. dated June 6, 2006 (incorporated by reference to Exhibit 10.79 to our Form 10-Q for the quarter
ended June 30, 2006).10.28

Net lease agreement between Company and Seventeenth Street Plaza Realty Holding Company dated November 17, 2006 (incorporated by reference to Exhibit 10.37 to our Form 10-K for the year ended
December 31, 2006).10.29

Purchase Agreement dated as of July 25, 2007, among Evergreen Energy Inc., Evergreen Operations, LLC, KFx Plant, LLC, KFx Operations, LLC, Landrica Development Company, Buckeye Industrial
Mining Co. and the initial purchasers named therein (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 2007).10.30

Program Management Agreement, dated September 19, 2007 (incorporated by reference to Exhibit 10.39 to our Form 10-K for the year ended December 31, 2007).10.31

Pledge Agreement, dated March 20, 2009, by and between Evergreen Operations LLC and Centurion Credit Funding LLC (incorporated by reference as Exhibit 10.31 to our Form 10-K for the year ended
December 31, 2009).10.32

Security Agreement, dated as of March 20, 2009, by and between Evergreen Energy Inc., Evergreen Operations, LLC, Buckeye Industrial Mining Co. and Centurion Credit Funding LLC (incorporated by
reference as Exhibit 10.32 to our Form 10-K for the year ended December 31, 2009).10.33

Severance Agreement and Waiver and Release Agreement Dated May 12, 2009 between Evergreen Energy Inc. and Steve Wolff (incorporated by reference to Exhibit 10.1 to our form 10-Q for the quarter
ended June 30, 2009).10.34

Severance Agreement and Waiver and Release Agreement Dated May 27, 2009 between Evergreen Energy Inc. and Kevin R. Collins (incorporated by reference to Exhibit 10.2 to our form 10-Q for the
quarter ended June 30, 2009).10.35

Employment Agreement Dated June 24, 2009 between Evergreen Energy Inc. and Thomas H. Stoner, Jr. (incorporated by reference to Exhibit 10.3 to our form 10-Q for the quarter ended
June 30, 2009).***10.36

Transition Agreement Dated July 1, 2009 between Evergreen Energy Inc. and Theodore Venners (incorporated by reference to Exhibit 10.4 to our form 10-Q for the quarter ended June 30,
2009).10.37

Consulting Agreement Dated June 1, 2009 between Evergreen Energy Inc. and Wolff & Company, Alternative Energy Advisors, Inc. (incorporated by reference to Exhibit 10.5 to our
form 10-Q for the quarter ended June 30, 2009).


63

---



Table of Contents

EXHIBIT
NUMBER

DESCRIPTION10.38

Form of Securities Purchase Agreement dated January 26, 2010 (incorporated by reference to Exhibit 10.1 of our 8-K filed January 27, 2010).10.39

Form of Securities Purchase Agreement dated March 16, 2010 (incorporated by reference to Exhibit 10.1 of our 8-K filed March 17, 2010).10.40

Asset Purchase Agreement dated March 12, 2010 among Rosebud Mining Company, Buckeye Industrial Mining Co. and Evergreen Energy, Inc. (incorporated by reference to Exhibit 10.40 to our 10-K filed on
March 31, 2010)10.41

Escrow Agreement dated March 12, 2010 among Rosebud Mining Company, Buckeye Industrial Mining Co. and Evergreen Energy, Inc. (incorporated by reference to Exhibit 10.40 to our 10-K filed on
March 31, 2010)10.42

Amendment No. 1 to Asset Purchase Agreement dated March 29, 2010 among Rosebud Mining Company, Buckeye Industrial Mining Co. and Evergreen Energy, Inc. (incorporated by reference to
Exhibit 10.40 to our 10-K filed on March 31, 2010)21.1

Subsidiaries of the registrant.*23.1

Consent of Hein & Associates LLP.*23.2

Consent of Deloitte & Touche LLP.*31.1

Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2

Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*Filed
herewith.**Management
contracts and compensatory plans.


64

---





Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

EVERGREEN ENERGY INC.Date: March 14, 2011

By:

/s/ THOMAS H. STONER, JR Thomas H. Stoner, Jr Chief Executive Officer and Director
(Principal Executive Officer)/s/ DIANA L. KUBIK Diana L. Kubik Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)


POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Diana L. Kubik or Thomas H.
Stoner, Jr. as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place, stead,
in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith,
including all amendments thereto, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Date: March 14, 2011

/s/ THOMAS H. STONER, JR Thomas H. Stoner, Jr., Chief Executive Officer and Director
(Principal Executive Officer)Date: March 14, 2011

/s/ DIANA L. KUBIK Diana L. Kubik, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


65

---



Table of Contents

Date: March 14, 2011

/s/ GUIDO R. BARTELS Guido Bartels, DirectorDate: March 14, 2011

/s/ MANUEL H. JOHNSON Manuel H. Johnson, DirectorDate: March 14, 2011

/s/ ROBERT S. KAPLAN Robert S. Kaplan, DirectorDate: March 14, 2011

/s/ ILYAS KHAN Ilyas Khan, ChairmanDate: March 14, 2011

/s/ PETER B. MOSS Peter B. Moss, DirectorDate: March 14, 2011

/s/ RICHARD B. PERL Richard B. Perl, DirectorDate: March 14, 2011

/s/ CHESTER N. WINTER Chester N. Winter, Director


66

---



Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders
Evergreen Energy, Inc.

We
have audited the accompanying consolidated balance sheet of Evergreen Energy, Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of
income, stockholders' (deficit) equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Evergreen Energy, Inc. and subsidiaries
as of December 31, 2010 and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company has suffered recurring losses from operations and has had recurring cash used in operations. This raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also disclosed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.

As
discussed in Note 15 to the consolidated financial statements, the Company discontinued its mining and plant operations. We audited the adjustments necessary to restate the
consolidated financial statements as of December 31, 2009 and for the years ended December 31, 2009 and 2008 to reflect discontinued operations. In our opinion, such adjustments are
appropriate and have been properly applied. As discussed in Note 7 to the consolidated financial statements, effective August 20, 2010, the Company effected a 1 for 12
reverse stock split. We audited the adjustments necessary to restate the 2009 and 2008 share and per share amounts as if the reverse stock split occurred in the applicable periods.

/s/HEIN& ASSOCIATES LLPDenver, Colorado
March 14, 2011

F-1

---



Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Evergreen Energy Inc.
Denver, Colorado

We
have audited, before the effects of the retrospective adjustments for the discontinued operations and the reverse stock split discussed in Note 15 and Note 7,
respectively, to the consolidated financial statements, the accompanying consolidated balance sheet of Evergreen Energy Inc. and subsidiaries (the "Company") as of December 31, 2009, and
the related consolidated statements of operations, stockholders' (deficit) equity, and cash flows for the years ended December 31, 2009 and 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such 2009 and 2008 consolidated financial statements, before the effects of the retrospective adjustments for the discontinued operations and the reverse stock split
discussed in Note 15 and Note 7, respectively, to the consolidated financial statements, present fairly, in all material respects, the financial position of Evergreen Energy Inc.
and subsidiaries as of December 31, 2009, and the results of their operations and their cash flows for the years ended December 31, 2009 and 2008, in conformity with accounting
principles generally accepted in the United States of America.

We
were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the discontinued operations and the reverse stock split discussed in Note 15 and
Note 7, respectively, to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are
appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company's recurring losses from operations and stockholders' deficit raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also
discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/
Deloitte & Touche LLP
Denver, Colorado
March 31, 2010

F-2

---



Table of Contents



EVERGREEN ENERGY INC.

Consolidated Balance Sheets

(in thousands, except per share amounts)

December 31,2010

2009AssetsCurrent:Cash and cash equivalents

$
2,974

$
2,207Accounts receivable





590Debt issue costs, net of amortization





2,089Prepaid and other assets


1,664


1,346Assets of discontinued plant operations


7,210


8,325Assets of discontinued mining operations


2,820


34,784Total current assets


14,668


49,341Property, plant and equipment, net of accumulated depreciation


1,734


3,850Construction in progress


9,860


12,459Restricted cash and marketable securities





5,052Debt issue costs, net of amortization


512


994Other assets


2,784


2,808$
29,558

$
74,504Liabilities, Temporary Capital and Stockholders' DeficitCurrent liabilities:Accounts payable

$
2,698

$
3,790Accrued liabilities


2,367


6,048Short-term debt





16,022Other current liabilities


682


1,922Liabilities of discontinued plant operations


4,823


4,588Liabilities of discontinued mining operations


609


9,242Total current liabilities


11,179


41,612Long-term debt


21,821


27,898Deferred revenue


7,865


8,265Derivative liabilities


972


1,265Other liabilities, less current portion


1,213


1,339Total liabilities


43,050


80,379Commitments and contingencies (Note 10)Temporary Capital:Preferred stock, $.001 par value, $1,000 stated value, 7 shares authorized; .003 outstanding


3


2Stockholders' equity:Preferred stock, $.001 par value, shares authorized 19,993; none outstanding





Common stock, $.001 par value, shares authorized 280,000; 18,888 and 12,278 shares issued and outstanding, respectively


19


12Additional paid-in capital


539,348


525,951Accumulated deficit


(550,285
)

(529,939
)Deficit attributable to Evergreen Energy Inc. stockholders


(10,918
)

(3,976
)Deficit attributable to noncontrolling interest


(2,577
)

(1,901
)Total stockholders' deficit


(13,495
)

(5,877
)$
29,558

$
74,504


See accompanying notes to the consolidated financial statements.

F-3

---



Table of Contents



EVERGREEN ENERGY INC.

Consolidated Statements of Operations

Years Ended December 31,2010

2009

2008(in thousands, except per
share amounts)Operating revenues:GreenCert licensing

$
403

$


$
Consulting and other





423


4Total operating revenue


403


423


4Operating expenses:General and administrative


15,058


25,083


27,530Depreciation and amortization


1,678


2,418


1,921Research and development


888


49


79Asset impairment


3,684


413


18,615Total operating expenses


21,308


27,963


48,145Operating loss


(20,905
)

(27,540
)

(48,141
)Other income (expense):Gain on debt-for-equity exchange transactions


2,941


167


6,138Loss on extinguishment of 2009 Notes


(2,267
)




Interest income


23


65


1,251Interest expense


(2,434
)

(4,208
)

(6,132
)Gain (loss) on fair value derivatives


5,580


2,036


(934
)Other income (expense), net


772


417


(342
)Total other income (expense)


4,615


(1,523
)

(19
)Loss from continuing operations


(16,290
)

(29,063
)

(48,160
)Loss from discontinued mining operations (includes $1.1 million gain on sale), net of tax of $0 for each period


(4,841
)

(28,300
)

(336
)Income (loss) from discontinued plant operations, net of tax of $0 for each period


109


(1,174
)

(16,734
)Net loss


(21,022
)

(58,537
)

(65,230
)Less net loss attributable to noncontrolling interest


676


1,901


Net loss attributable to Evergreen Energy

$
(20,346
)
$
(56,636
)
$
(65,230
)Dividends on preferred stock


(4,312
)

(1,973
)

Net loss attributable to common shareholders

$
(24,658
)
$
(58,609
)
$
(65,230
)Basic and diluted loss per common share from continuing operations

$
(0.97
)
$
(2.63
)
$
(6.37
)Basic and diluted loss per common share from discontinued mining and plant operations

$
(0.28
)
$
(2.67
)
$
(2.26
)Basic and diluted net loss per common share

$
(1.47
)
$
(5.31
)
$
(8.63
)Weighted-average common shares outstanding


16,803


11,037


7,556


See
accompanying notes to the consolidated financial statements.

F-4

---



Table of Contents



EVERGREEN ENERGY INC.

Consolidated Statements of Stockholders' Deficit Equity

For the Years ended December 31, 2010, 2009 and 2008

Common StockAdditional
Paid-in
Capital

Accumulated
Deficit

Non-
controlling
interestShares

Amounts

Total(in thousands)Balance, January 1, 2008


7,027

$
7

$
454,765

$
(408,073
)



$
46,699Common stock issued on exercise of options, warrants and other


6





55








55Share-based compensation expense related to employees and others


27





6,444








6,444Debt for equity exchange transactions


3,280


3


55,879








55,882Net Loss











(65,230
)




(65,230
)Balance, December 31, 2008


10,340


10


517,143


(473,303
)




43,850Common stock issued for services


129





982








982Share-based compensation expense related to employees and others


453


1


5,280








5,281Issuance of common stock upon the conversion of preferred stock


964


1


2,224








2,225Debt for equity exchange transaction


332





322








322Net Loss











(56,636
)

(1,901
)

(58,537
)Balance, December 31, 2009


12,218


12


525,951


(529,939
)

(1,901
)

(5,877
)Common stock issued for services


42





14








14Share-based compensation expense related to employees and others


121





3,576








3,576Issuance of common stock upon the conversion of preferred stock


2,083


2


2,524








2,526Common stock issued in registered direct offering


2,436


3


4,659








4,662Debt-for-equity exchange transactions


1,988


2


2,624








2,626Net Loss











(20,346
)

(676
)

(21,022
)18,888

$
19

$
539,348

$
(550,285
)
$
(2,577
)
$
(13,495
)


See
accompanying notes to the consolidated financial statements.

F-5

---



Table of Contents



EVERGREEN ENERGY INC.

Consolidated Statements of Cash Flows

Years ended December 31,2010

2009

2008(in thousands)Operating activities:Loss from continuing operations

$
(16,290
)
$
(29,063
)
$
(48,160
)Adjustments to reconcile net loss from continuing operations to cash used in operating activities:Share-based compensation expense to employees and others


3,560


5,281


6,339Depreciation and amortization


1,678


2,418


1,921Gain on debt-for-equity-exchange transactions


(2,941
)

(167
)

(6,138
)Derivative fair value adjustment


(5,580
)

(2,036
)

934Amortization of initial fair value of derivative


(171
)

(158
)

(453
)Loss from subleasing





1,027


Asset impairment


3,684


413


18,615Amortization of debt issuance costs


2,406


2,624


777(Gain) loss on disposal of fixed assets


(415
)




Other than temporary impairment of marketable security





(200
)

200Other


(80
)

(9
)

477Changes in operating assets and liabilities:Accounts receivable


553


(591
)

40Prepaid and other assets


(55
)

896


670Deferred revenue and other liabilities


(373
)

2,150


28Accounts payable and accrued liabilities


(1,668
)

4,258


(2,805
)Cash used in operating activities of continuing operations


(15,692
)

(13,157
)

(27,555
)Cash (used in) provided by operating activities of discontinued mining and plant activities


(4,943
)

248


(8,708
)Cash used in operating activities


(20,635
)

(12,909
)

(36,263
)Investing activities:Purchases of construction in progress


(1,367
)

(3,804
)

(11,352
)Purchases of property, plant and equipment





(163
)

Proceeds from the sale of assets





180


Purchases of marketable securities








(5,000
)Proceeds from marketable securities





2,000


27,500Restricted cash and marketable securities, net


5,052


905


17,205Other





(421
)

(111
)Cash provided by (used in) investing activities of continuing operations


3,685


(1,303
)

28,242Cash provided by (used in) investing activities of discontinued mining and plant operations


24,651


(8,381
)

(7,618
)Cash provided by (used in) investing activities


28,336


(9,684
)

20,624Financing Activities:Proceeds from issuance of convertible debt





15,000


Payments on debt for equity exchange transactions








(3,500
)Proceeds from issuance of convertible preferred stock, net of closing costs


8,746


6,515


Proceeds from common stock sale, net of closing costs


8,043





Proceeds from reverse repurchase transaction





1,800


Payments on short term debt


(17,250
)




Payments on reverse repurchase transaction





(1,800
)

Payment of dividends on convertible preferred stock


(4,312
)

(1,973
)

Payments of debt issuance costs


(2,179
)

(2,387
)

(200
)Other


18


(22
)

48Cash (used in) provided by financing activities of continuing operations


(6,934
)

17,133


(3,652
)Increase (decrease) in cash and cash equivalents


767


(5,460
)

(19,291
)Cash and cash equivalents, beginning of year


2,207


7,667


26,958Cash and cash equivalents, end of year

$
2,974

$
2,207

$
7,667


See accompanying notes to the consolidated financial statements.

F-6

---



Table of Contents



EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements

Years ended December 31, 2010, 2009 and 2008

In this Annual Report on Form 10-K, we use the terms "Evergreen Energy," "we," "our," and "us" to refer to Evergreen Energy Inc. and its subsidiaries.
C-Lock refers to our subsidiary C-Lock Technology, Inc. Buckeye refers to our subsidiary Bimco Inc. (previously known as Buckeye Industrial Mining Co.) and
referred to as "Buckeye" herein. All references to K-Fuel, K-Fuel®, K-Fuel process, K-Fuel refined coal, K-Fuel refineries,
K-Direct®, K-Fuel Plants, K-Fuel facilities, K-Direct facilities, K-Direct® plants, C-Lock®,
and GreenCert, refer to our technologies and patented processes explained in detail throughout this Annual Report on Form 10-K. As further described in
Note 7Temporary Capital and Stockholders' Equity, effective August 20, 2010, we effected a 1 for 12 reverse stock split and all shares and per share amounts have been
restated as if the reverse stock split occurred in the applicable periods. All references to years, unless otherwise noted, refer to our fiscal year, which ends on December 31st.

(1) Business and Summary of Significant Accounting Policies

Overview and Financial Condition

We were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company primarily focused on
developing and marketing K-Fuel. Today, Evergreen Energy is comprised of two discrete business units within the clean energy technology sector, which utilize two proprietary and
potentially transformative technologies: K-Fuel and the GreenCert suite of software and services. K-Fuel, our patented clean coal technology, significantly improves the
performance of low-rank sub-bituminous and brown coals and lignite yielding higher efficiency by applying heat and pressure to low-rank coals to reduce moisture.
The increase is variable depending on the type of coal we process. Our GreenCert software suite focuses on providing power generators with operational intelligence; analytics to identify fuel and
operational efficiency; and address new regulatory pressures regarding environmental emissions. The K-Fuel and GreenCert technologies are both business and environmental solutions for
energy production and generation industries and processes.

During
2010 and through February 2011, we have executed on a number of our strategic objectives. On February 1, 2011, we completed a private placement to sell 6.2 million
shares of our common stock and 12.0 million warrants to purchase our common stock, resulting $14.6 million of net proceeds, after the offering expenses. Also, on February 1, 2011,
we executed an agreement to settle a significant portion of our 2007 Notes and the associated litigation. See further discussion of both of these transactions in Note 10Commitments
and Contingencies and Note 16Subsequent Events. In addition, we executed on two of our strategic positioning plans by completing the sale of Buckeye and signing a definitive
agreement to sell our Fort Union assets. See further discussion in Note 15Discontinued Operations.

Actual
2009 and first quarter 2010 cash flows from Buckeye's operations were less than anticipated and combined with the on-going costs associated with corporate,
K-Fuel and GreenCert operations, required us to raise additional capital in 2010 and again in February 2011. As a result, we completed three financing transactions: (i) on
February 1, 2011, we completed a private placement to sell 6.2 million shares of our common stock and 12.0 million warrants to purchase our common stock, resulting
$14.6 million of net proceeds, after the offering expenses; (ii) on March 16, 2010, we entered into a securities purchase agreement, and received gross proceeds of approximately
$9.3 million; and (iii) on January 26, 2010, we consummated a registered direct public offering and raised gross proceeds of approximately $8.7 million.

F-7

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

We
continue to require additional capital to fully fund the development of our K-Fuel process and our GreenCert technology. Further, as opportunities arise to accelerate the
expansion of our K-Fuel technology or our anticipated operating cash outflows are greater than expected due to among other things, unexpected costs in the development of our
K-Fuel process, we may need to obtain further funding. We have a history of losses, deficits and negative operating cash flows and may continue to incur losses in the future. We continue
to evaluate our cash position and cash utilization and have and will make additional adjustments to capital or certain operating expenditures. However, because of the need for additional capital,
there is substantial doubt as to our ability to continue to operate as a going concern for the foreseeable future.

As
of December 31, 2010, our accumulated deficit was $550.3 million. In addition, our net losses and cash flow used in operations for each of the years ending
December 31, 2010, 2009 and 2008 are summarized as follows:

December 31,2010

2009

2008(in thousands)Net loss from continuing operations

$
(16,290
)
$
(29,063
)
$
(48,160
)Cash used in operating activities from continuing operations

$
(15,692
)
$
(13,157
)
$
(27,555
)


Overall,
we have increased our cash flow used in operations by $7.7 million, when comparing the year ended December 31, 2010 to the same period in 2009. Our cash used in
operating activities from continuing operations increased by $2.5 million when compared to the prior year period, primarily due to disbursements for accounts payable and other liabilities and
was somewhat offset by reduced professional fees and other general and administrative costs. Our cash used in discontinued operating activities increased by $5.2 million when compared to the
prior year period, primarily due to the acceleration of payments of Buckeye's liabilities as we exited our mining operations, including selling and exit costs and additional interest expense related
to our 2009 Note restructuring.



K-Fuel, our patented clean coal technology, significantly improves the performance of low-rank
sub-bituminous and brown coals and lignite yielding higher efficiency by applying heat and pressure to low-rank coals to reduce moisture. The inherent efficiency of higher
Btu-lower moisture coal improves power plant performance and reduces emissions on a per kilowatt-hour-generated basis. Through this proprietary K-Fuel
process, we intend to meet the specific needs of coal companies and mine operators looking to identify and expand the markets for their low-rank coal by transforming the coal into a higher
value fuel and chemical manufacturers using coal as a feedstock. Additional markets may be served by this process, including meeting the needs of public utility, industrial and international customers
by providing economical solutions for energy supply, energy efficiency and compliance with environmental emission standards. We believe markets that have plentiful reserves of
high-moisture, low-Btu coals and rapid growth in electric power demand provide the best opportunities for K-Fuel. The goal of our K-Fuel technology is
to transform those lower-rank coals into more valuable, efficient

F-8

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

and
environmentally compliant fuels in order to meet the increasing demand for energy in an optimal fashion.



GreenCert software suite focuses on providing power generators with operational intelligence; analytics to identify fuel and
operational efficiency; and address new regulatory pressures regarding environmental emissions. GreenCert works across an enterprise as a technological solution resulting in an operational
intelligence application that provides timely, verifiable and comprehensive decision support capabilities that allow power generators to optimize their assets by balancing their key performance
metrics of cost, reliability and environmental compliance. We believe that GreenCert is positioned to be the perfect Best Available Control Technology, or BACT, as defined by the Environment
Protection Agency, or EPA, pursuant to its tailoring rule; therefore, it becomes an essential tool for the power generation industry.

We
are evaluating strategic alternatives related to GreenCert, including but not limited to evaluation of its relationship to and integration with our K-Fuel technology,
potential sale or joint venture of this business. Our evaluation will primarily take into consideration: (i) how our K-Fuel and GreenCert technologies interrelate and how their
target markets overlap;
(ii) our available capital resources; (iii) the value of GreenCert's assets, long-term forecasted revenue, expenses and capital expenditures; and (iv) general market
conditions. If this evaluation indicates significant synergies between the two technologies and that sale or joint venture is not appropriate at this time, we will retain and continue to operate the
GreenCert business, although likely scaled-back. Alternatively, a sale or joint venture of the GreenCert business could provide Evergreen with an opportunity to realize value for our
shareholders without diverting its resources into continued development of this business segment.



On April 3, 2006, we completed the acquisition of Buckeye for a total purchase price of $39.1 million, including cash
paid, stock issued, liabilities assumed and costs incurred in the acquisition. Buckeye's primary business is to mine, process, blend and sell high-quality coal to electric utilities,
industrial and institutional end users.

During
2010, we executed one of our strategic positioning plans by completing the sale of Buckeye. On March 12, 2010, we signed a definitive agreement with Rosebud Mining Company
for the sale of certain assets of both Buckeye and Evergreen for $27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. The sale includes inventory,
property, plant, equipment, mineral rights, Evergreen's dock facilities and the assumption of asset retirement obligations and obligations related to the 47-year dock lease, which,
collectively, we refer to as the "sale of Buckeye". This sale closed on April 1, 2010.

Basis of Presentation.The consolidated financial statements include our accounts and the accounts of our wholly and
majority-owned subsidiaries. All
intercompany transactions and balances have been eliminated. We do not consolidate Evergreen-China Energy Technology Co., Ltd, our 30% owned company in China (Evergreen-China); but
record the activity using the equity method of investment.

F-9

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

The
financial statements have been prepared on a "going concern" basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At
December 31, 2010, we had negative working capital. For the period starting from the year of incorporation 1988 through December 31, 2010, we have incurred a cumulative net loss of
$550.0 million. These factors raise substantial doubt regarding our ability to continue as a going concern. We plan to obtain additional
equity capital to finance our K-Fuel development and marketing initiatives and our future operations. However, there is no assurance that we will be successful in accomplishing this
objective. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America, or
GAAP, requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during the periods presented. We believe that the significant estimates, assumptions and judgments when accounting for items and
matters such as asset retirement obligations, capitalized plant costs, depreciation, amortization, asset valuations, asset life, technology, deferred revenue, acquisitions, stock option and restricted
stock grants and warrants, allowance for bad debts for receivables, taxes, recoverability of assets, impairments, customer retention, fair value of derivatives and other provisions are reasonable,
based upon information available at the time they are made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term. The
following accounting policies focus on our continuing operations.

Fair value of financial instruments.The carrying amount of cash and cash equivalents, accounts receivable, other current assets,
accounts payable,
accrued liabilities, short-term debt and other current liabilities in the consolidated financial statements approximate fair value because of the short-term nature of the
instruments. As of December 31, 2010 the carrying amount of our long-term debt was $21.8 million. We pay interest semi-annually at a rate of 8.00% per annum. The
2007 Notes mature on August 1, 2012. We are unable to estimate the fair value of our debt without incurring excessive costs because a quoted market price is not available, we have not developed
the valuation model necessary to make the estimate, and the cost of obtaining an independent valuation would be excessive.

Cash and cash equivalents.Cash and cash equivalents are highly liquid investments that consist primarily of short-term money
market
instruments and overnight deposits with insignificant interest rate risk and original maturities of three months or less at the time of purchase. To preserve capital and maintain liquidity, we invest
with financial institutions we deem to be of sound financial condition and in high quality and relatively risk-free investment products. Our investments are in low-risk
instruments and we limit our credit exposure in any one institution or type of investment instrument based upon criteria including creditworthiness.

Marketable Securities.As of December 31, 2010 and 2009, we had no marketable securities. Prior to December 31, 2009 we
invested in
marketable securities, which are auction rate securities. These auction rate securities consisted of student-loan backed securities. During the year ended December 31,

F-10

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

2008,
we reduced the carrying amount of our student loan-backed auction rate security by $200,000. In February 2009, we entered a reverse repurchase transaction for $1.8 million of
our auction rate security which had a $2.0 million par value. In March 2009, we liquidated the auction rate security at $2 million, resulting in a gain of $200,000, which has been
recorded in Other Income for the year ended December 31, 2009.

Receivables and allowance for doubtful accounts.Accounts receivable and note receivable, which is reflected in prepaids and
other assets, are
recorded at their estimated net realizable value. The allowance for doubtful accounts is determined through an analysis of the past-due status of accounts receivable and assessments of
risk regarding collectability. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As
of December 31, 2010 and 2009, we have an allowance for doubtful accounts of $1.3 million and $1.3 million, respectively, primarily relating to a note receivable.

Property, plant and equipment.Property, plant and equipment consist of buildings, furniture and fixtures, computers, third
party software
implementation and development costs, and leasehold improvements. Expenditures that extend the useful lives of the assets or increase production capacity are capitalized. Repairs and maintenance that
do not extend the useful lives of the assets are expensed as incurred. We begin depreciation on property, plant and equipment assets once the assets are placed into service. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the property and equipment.

Construction in progress.All costs that are directly related to the engineering, design, purchase or fabrication of plant
equipment and are expected
to be used in a commercial K-Fuel plant project are capitalized. All costs that are directly related to, or allocable to, developing a specific K-Fuel plant site are
capitalized and separately identified as belonging to that site. Employee-related costs directly related to construction are also capitalized during the construction phase.

Restricted cash and marketable securities.As of December 31, 2010, and 2009, we had $0 and $5.1 million of restricted
cash. Cash and
marketable securities are set aside as collateral pledged toward our asset retirement obligations, related to our discontinued operations, and to secure certain other obligations. Until the asset
retirement obligations are relieved, or our other obligations are fulfilled, the cash will remain restricted.

Patents.All costs incurred to the point when a patent application is to be filed are expensed as incurred as research and
development. Patent
application costs, generally legal costs, thereafter incurred are capitalized and are included in other assets. The costs of defending and maintaining patents are expensed as incurred. Patents are
amortized over the expected useful lives of the patents, which is generally 14 to 15 years. Patent amortization expense, including amortization of existing patents, was $151,000, $151,000 and
$142,000 in 2010, 2009, and 2008, respectively. We estimate amortization expense of approximately $160,000 for each of the years ending December 31, 2011, 2012 and 2013.

Health care costs.We are self-insured, subject to a stop-loss policy, for individuals and all participants as a group, for
our employee's health care costs. The liability for outstanding medical costs

F-11

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

has
been estimated based on historical claims and is included in accrued liabilities in our consolidated balance sheets.

Long-lived assets.We evaluate long-lived assets for impairments based on estimated future undiscounted net cash flows or
other fair value measures whenever significant events or changes in circumstances occur that indicate the carrying amount may not be recoverable. We evaluate capitalized software quarterly based on
estimated future undiscounted net cash flows or other fair value measures. If that evaluation indicates that impairment has occurred a charge is recognized to the extent the carrying amount exceeds
the discounted cash flows or fair values of the asset, whichever is more readily determinable. In addition, we periodically capitalize certain costs related to investigating potential sites for future
facilities. We evaluate the status of these potential sites and if any site has been abandoned or we anticipate that it will be abandoned, we write-off all associated costs.

Revenue.We recognize revenue when there is persuasive evidence of an arrangement, generally when an agreement has been signed,
all significant
obligations have been satisfied, the fee is fixed or determinable, and collection is reasonably assured. Any up-front fees received are deferred and recognized over the provision of
specific deliverables as defined in the agreements. Deferred revenue, including current portion, was $8.4 million and $8.8 million as of December 31, 2010 and 2009, respectively.
The $8.4 million balance as of December 31, 2010 was primarily comprised of $6.7 million related to an agreement executed in 2004 to construct a potential K-Fuel plant
and $1.7 million related to an agreement with a customer in our GreenCert segment. As our history related to customer relationships is limited, we may be required to change the estimated period
over which we recognize our revenue as more information becomes available. Arrangements that include multiple deliverables are evaluated to determine whether the elements are separable based on
objective evidence. If the elements are deemed separable, total consideration is allocated to each element and the revenue associated with each element is recognized as earned. If the elements are not
deemed separable, total consideration is deferred and recognized ratably over the longer of the contractual period or the expected customer relationship period.

Research and development.Costs incurred to advance, test, or otherwise modify our proprietary technology or develop new
technologies are considered
research and development costs until such time as the modification or new technology is ready for protection through patent and are expensed when incurred. Once patents are applied for, certain of
these costs are capitalized as a cost of obtaining the patents. Costs incurred to develop our GreenCert technology are considered research and development until we reach technological feasibility and
are expensed as incurred. These costs primarily represent third party software development costs.

Accounting for Derivative Financial Instruments.Derivatives may be embedded in financial instruments (the "host instrument").
Embedded derivatives
are treated as separate derivatives when the economic characteristics and risks are not clearly and closely related to those of the host instrument, the terms of the embedded derivative are similar to
those of a stand-alone derivative and the combined contract is not held for trading or designated at fair value. These embedded derivatives are measured at fair value and any subsequent changes are
recognized in the statement of operations. We are required to make significant estimates and assumptions when fair valuing these derivatives. See Notes 6Debt and
Note 7Temporary Capital and Stockholders' Equity for further discussion.

F-12

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

Income taxes.We follow the liability method of accounting for income taxes under which deferred tax
assets and liabilities are recognized for future tax consequences. A deferred tax asset or liability is computed for both the expected future impact of differences between the financial statement and
tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry-forwards. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized, based upon an assessment of both negative and positive evidence, in future tax returns. We have provided a full valuation reserve related to
our substantial deferred tax assets. In the future, if sufficient evidence of our ability to generate future taxable income becomes apparent, we may reduce this valuation allowance, resulting in
income tax benefits in our consolidated statement of operations. Tax rate changes are reflected in the period such changes are enacted.

Advertising costs.We recognize advertising expense when incurred.

Accounting for stock grants, options and warrants.We measure and recognize compensation expense for all stock grants, options
and warrants granted
to employees, members of our board of directors and consultants, based on estimated fair values. Beginning in 2009, we granted restricted stock awards that vest upon the achievement of certain market
conditions (the price of our common stock).We estimate the fair value of share-based payment awards on the grant date. We use the Black-Scholes option pricing model to calculate the fair value of
stock options. Restricted stock grants, without market conditions, are valued based upon the closing price of our common stock on the date of grant. In measuring and recognizing compensation expense,
we are required to make estimates of the fair value of the related instruments and the period benefited. Related to the restricted stock grants containing market conditions, we are required to make
significant estimates and assumptions when fair valuing these awards including probabilities of our future stock prices, historical volatility and risk free interest rates. We use a Monte-Carlo fair
value model run with many iterations to fair value these market vesting awards. For all grants, the fair value is recognized as expense and additional paid-in capital over the requisite
service period, which is usually the vesting period, if applicable, in our consolidated financial statements.

Net loss per common share.Basic net loss per common share is based on the weighted-average number of common shares actually
outstanding during each
respective period and reduced by shares that are subject to a contingency.

The
calculation of diluted net earnings per common share adds the weighted- average number of potential common shares outstanding to the weighted-average common shares outstanding, as
calculated for basic loss per share, except for instances in which there is a net loss. Our total incremental potential common shares outstanding as of December 31, 2010, 2009 and 2008 were
7.2 million, 2.5 million, and 2.2 million respectively, and are comprised of outstanding stock options, restricted stock grants, warrants to purchase our common stock and
potential conversion of our convertible debt into common stock. All potential common shares outstanding have been excluded from
diluted net loss per common share because the impact of such inclusion on a net loss would be anti-dilutive.

F-13

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

In a prior year, we granted 167,667 shares of restricted stock to three of our then executive officers, which were to immediately vest upon the attainment of certain performance or
market criteria, but no later than the seventh anniversary of the date of the agreement. Such unvested shares were transferred to an escrow agent during the first quarter of 2006. As a result, 50,000,
33,334 and 83,333 such shares were reflected as outstanding in the consolidated financial statements. However, shares for which the vesting criteria were not attained were excluded from the net loss
per share calculations due to the contingent status of the shares.

On
July 22, 2009, one of the executive officers referred to above transitioned his officer positions and board seat (s) to our current chief executive officer. As a result,
50,000 of the former officer's shares were fully vested as of March 31, 2010. See further discussion in Note8 Stock Options, Stock Grants and Employee Benefit Plans.

On
May 31, 2009, another of the executive officers referred to above retired from his position and the restricted shares never vested and were forfeited upon his retirement.

On
April 19, 2007, we ceased our relationship with one of the executive officers referred to above. Pursuant to the terms of his employment agreement, he was entitled to
acceleration of vesting with respect to 74,916 of the 83,333 shares of unvested common stock he was awarded in connection with his employment agreement.

Recent accounting pronouncements.In August 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update
2009-05 ("ASU 2009-05"), "Measuring Liabilities at Fair Value," which updates ASC 820 (Topic 820,"Fair Value Measurements and
Disclosures"). ASU 2009-05 addresses the impact of transfer restrictions on the fair value of a liability that is traded as an asset as an input to the valuation of
the underlying liability, and clarifies when to make adjustments to fair value. ASU 2009-05 is effective for periods ending after August 26, 2009. The implementation of this
standard did not have a material impact on our financial condition, results of operations or cash flows.

In
June 2009, the FASB issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the "Codification"). The Codification
became the single official source of authoritative, nongovernmental GAAP. The Codification did not change GAAP but reorganizes the literature. The Codification is effective for interim and annual
periods ending after September 15, 2009; we adopted the Codification during the three months ended September 30, 2009.

In
May 2009, the FASB issued authoritative guidance included in ASC 855 "Subsequent Events" which incorporates the accounting and disclosure requirements related to subsequent events
found in auditing
standards into GAAP, effectively making management directly responsible for subsequent events accounting and disclosures. The guidance also requires disclosure of the date through which subsequent
events have been evaluated. The guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We have adopted this pronouncement
beginning with the interim period ended September 30, 2009 and it did not have an impact on our results of operations, financial position, or cash flows.

In
April 2009, the FASB issued authoritative guidance included in ASC 825 "Financial Instruments". This guidance required disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The provisions included in ASC 825

F-14

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

"Financial
Instruments" became effective on April 1, 2009. We are unable to estimate the fair value of our debt without incurring excessive costs because a quoted market price is not available,
we have not developed the valuation model necessary to make the estimate, the market conditions have dramatically changed and the cost of obtaining an independent valuation would be excessive. The
adoption of this pronouncement did not have a material impact on our financial statements. See Note 7Debt for further details.

In
April 2009, the FASB issued authoritative guidance included in ASC 820 "Fair Value Measurements and Disclosures" that provides additional guidance for estimating fair value in
accordance with ASC 820 "Fair Value Measurements and Disclosures" when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide
interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. The guidance is effective for interim and annual reporting periods ending after June 15, 2009
and is to be applied prospectively. The adoption of this guidance did not have a material impact on our financial statements.

We
adopted the provisions included in ASC 810 "Consolidations", effective January 1, 2009. The provision clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in a consolidated entity, which should be reported as equity in the parent's consolidated financial statements. ASC 810 "Consolidations" requires disclosure, on the face of the consolidated
income statements, of those amounts of consolidated net income and other comprehensive income attributable to controlling and noncontrolling interests, eliminating the past practice of reporting
amounts of income attributable to noncontrolling interests as an adjustment in arriving at consolidated net income. The standard requires the parent to attribute to noncontrolling interests their
share of losses even if such attribution results in a deficit noncontrolling interest balance within the parent's equity accounts, and in some instances, requires a parent to recognize a gain or loss
in net income when a subsidiary is deconsolidated. As of December 31, 2008 we had granted C-Lock shares to employees and others that, at that time, represented a 23.3%
noncontrolling interest. During 2009 we notified the holders of our intention to reacquire C-Lock shares from certain former employees and a consultant for which the first payment was made
in 2010. After repurchasing these shares, our non-controlling interest will be 8% see Note 10Commitments and Contingencies for further discussion.

In
connection with our adoption of the guidance included in ASC 810 "Consolidations", we recorded into our consolidated equity accounts the noncontrolling interests in C-Lock
Technology, Inc. At December 31, 2008, the carrying amount of noncontrolling interests was zero, due to the accumulated net losses and the application of the guidance. We are not
permitted to attribute losses incurred prior to the adoption of ASC 810 "Consolidations" to our noncontrolling interest. Under ASC 810 "Consolidations", we attribute losses to
noncontrolling interest even if such attribution results in a deficit noncontrolling interest balance within our equity accounts.

In
January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements," which amends ASC Subtopic 820-10, "Fair Value
Measurements and Disclosures," requiring new disclosures of significant transfers in and out of Levels 1 and 2, the reasons for the transfers, and separate reporting of purchases, sales,
issuances and settlements in the roll forward of Level 3 activity. The new ASU also clarifies that fair value measurement disclosures should be provided for each class of assets and liabilities
and disclosures also should be provided about valuation

F-15

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(1) Business and Summary of Significant Accounting Policies (Continued)

techniques
and inputs used to measure fair value for recurring and nonrecurring fair value measurements. The disclosures are required for either Level 2 or Level 3 fair value
measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures
about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15,
2010 (including interim periods within those fiscal years). The adoption of this pronouncement did not have a material impact on our financial statements.

Recently Issued accounting pronouncements.In October 2009, the FASB issued Accounting Standards Update 2009-13, "Multiple-Deliverable Revenue Arrangementsa consensus of the EITF,"("ASU 2009-13") which amends ASC 605 (Topic 605, "Revenue Recognition"). This amended guidance
addresses the determination of when individual deliverables within an arrangement may be treated as
separate units of accounting and modifies the manner in which transaction consideration is allocated across the separately identifiable deliverables. The guidance is effective for fiscal years
beginning on or after June 15, 2010, and early adoption is permitted. We are currently evaluating the impact, if any, on our financial statements.

In
October 2009, the FASB amended the accounting standards for revenue arrangements with software elements. The amended guidance modifies the scope of the software revenue recognition
guidance to exclude tangible products that contain both software and non-software components that function together to deliver the product's essential functionality. The pronouncement is
effective for fiscal years beginning on or after June 15, 2010, and early adoption is permitted. This guidance must be adopted in the same period an entity adopts the amended revenue
arrangements with multiple elements guidance described above.

(2) Property, Plant & Equipment, Construction in Progress

Property, plant and equipment consisted of the following:

December 31,Lives

2010

2009(in years)

(in thousands)Computer software and equipment


3 - 5

$
4,694

$
5,284Office leasehold improvements and equipment


3 - 10


4,586


4,584Vehicles


3 - 5


115


115Total




$
9,395

$
9,983Less accumulated depreciation





(7,661
)

(6,133
)Property, plant and equipment, net of accumulated depreciation




$
1,734

$
3,850


Depreciation
expense was $1.5 million, $2.3 million, and $1.8 million, in 2010, 2009 and 2008, respectively.

We
transferred $100,000, $0, and $3.4 million from construction in progress to property, plant and equipment during the years ended December 31, 2010, 2009 and 2008,
respectively. Property, plant and

F-16

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(2) Property, Plant & Equipment, Construction in Progress (Continued)

equipment
includes $34,000, $0 and $5,000 of accounts payable and other liabilities as of December 31, 2010, 2009 and 2008, respectively.

Construction
in progress consisted of the following:

December 31,2010

2009(in thousands)Future plant sites and equipment

$
7,555

$
7,505GreenCert technology development


2,305


4,954Total construction in progress

$
9,860

$
12,459


Total
construction in progress includes $476,000, $1.3 million and $2.5 million of accounts payable and other costs as of December 31, 2010, 2009 and 2008,
respectively.



We are required to test our GreenCert capitalized software development costs for recoverability at each reporting period. Due to the
unlikelihood that greenhouse gas legislation will be passed in the United States in the foreseeable future that would establish a cap and trade market for carbon off-sets, we believe that
there is uncertainty as to whether we can generate revenue by selling carbon credits for the agricultural sector in the near future. Therefore, due to the uncertain market for carbon credit selling
for the agricultural sector, we have not projected sufficient revenue for this sector to recover certain costs. As a result of this recoverability test, we impaired capitalized costs related to our
GreenCert agricultural software module by $3.7 million, of which $3.0 million was previously reflected in construction in progress and $736,000 in property plant and equipment in our
consolidated balance sheet during the year ended December 31, 2010. However, we believe that the impact of the legislative uncertainty does not apply to the energy sector where we have
concentrated most of our work since early 2010. GreenCert Energy is independent of any regulatory or legislative compliance requirements. As a result our cash flow projections related to our GreenCert
Energy module are sufficient to cover costs already incurred and future anticipated costs.



In June 2006, we entered into an agreement to purchase a 700,000 pound per hour Circulating Fluidized Bed boiler island. In March 2007,
we decided to sell this boiler and classified the costs associated with the boiler as assets held for sale. Effective January 31, 2008, we and the fabricator of the boiler island agreed to
terminate the contract and as a result, all future financial obligations were also terminated. As of December 31, 2008, we computed a fair value analysis using the following: (i) the
probabilities of the sale of the boiler at the current recorded value; (ii) the probabilities of selling the boiler at less than its carrying value; and (iii) the probabilities of not
selling the boiler. As a result of the analysis of the probabilities, we calculated an estimated fair value of the boiler and recorded an impairment charge of $18.6 million in our Technology
segment for the year ended December 31, 2008.

F-17

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(3) Restricted Cash Marketable Securities and Other Assets

Included in restricted cash for the years ended December 31, 2010 and 2009 was $0 and $5.0 million related to cash collateral for our reclamation obligations. The
liabilities associated with the reclamation liabilities are reflected in discontinued operations.

In
February 2009, we entered a reverse repurchase transaction for $1.8 million of our auction rate security which had a $2.0 million par value. In March 2009, we liquidated
the auction rate security at $2 million, resulting in a gain of $200,000, which has been recorded in Other Income for the twelve months ended December 31, 2009.

Included
within other assets are deferred royalty costs, totaling $1.4 million as of December 31, 2010 and 2009; patents totaling $1.0 million and
$1.1 million as of December 31, 2010 and 2009 respectively

In
1996, we amended our agreement with Koppelman Ventures, LLC (successor to Edward Koppelman), which we refer to as Koppelman Ventures, to pay Koppelman Ventures 25% of worldwide
licensing and royalty revenue received by us until reaching an aggregate amount of $75.2 million. Mr. Koppelman provided us an indemnification against potential claims made by certain
parties if we licensed the technology. Currently, there is $73.0 million remaining pursuant to the cap. We paid Mr. Koppelman a total of $500,000 pursuant to the agreement as a
prepayment. The $500,000 has no specified expiration date and recognition is solely dependent upon the issuance of licenses. We are amortizing the $500,000 payment as license revenue is generated. In
addition, Mr. Theodore Venners, our founder, is entitled to a 50% share of net royalties paid to Koppelman Ventures. Also, see discussion in Note 10Commitments and
ContingenciesK-Fuel Royalties and Other Rights. The deferred royalty costs associated with the issuances of licenses for K-Fuel represent the licensing fees paid
to Koppelman Ventures. Such costs are amortized over the same period as the deferred revenue related to the underlying contracts.

(4) Assets and Liabilities Measured at Fair Value

Fair Value Measurements and Disclosures establish a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of
inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:



A
financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

F-18

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(4) Assets and Liabilities Measured at Fair Value (Continued)



The following table presents information about our net assets (liabilities) measured at fair value on a recurring basis as of
December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value.

Fair Value Measurements UsingFair
Value

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)(in thousands)Recurring:2007 Notes embedded derivatives

$
7







$
7Put Warrant liabilityOctober 2009 preferred stock transaction

$
118







$
118Put Warrant liabilityMarch 2010 preferred stock transaction

$
395







$
395Put Warrant liabilityJanuary 2010 common stock offering

$
459







$
459


The
following table represents the change in fair value for the year ended December 31, 2010:

Balance at
December 31,
2009

Issuance

Unrealized
(Loss)
gain

Realized
(loss)

Balance at
December 31,
2010(in thousands)2007 Notes embedded derivatives(1)

$
7










$
7Put Warrant liabilityOctober 2009 preferred stock transaction

$
1,265




$
1,147




$
118Put Warrant liabilityMarch 2010 preferred stock transaction




$
1,853

$
1,458




$
395Put Warrant liabilityJanuary 2010 common stock offering




$
3,434

$
2,975




$
4592009 Notes embedded derivatives(1)

$
705







$
(213
)
$



(1)The
2009 Notes embedded derivative write off was allocated on a percentage of cash used from the proceeds of the 2009 Notes to continuing operations and
discontinued operations.




Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair
value on an ongoing basis but are subject to fair value adjustments in certain circumstances. As of September 30, 2010, we were required to test our agricultural module, related to our
GreenCert suite, for recoverability based on future cash flows. As a result of this recoverability test, we reduced the net book value of this module to zero by recording an impairment charge of
$3.7 million. We estimated the fair value of the agricultural module based on a cash flow approach using significant unobservable inputs (Level 3).

F-19

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(4) Assets and Liabilities Measured at Fair Value (Continued)



The following table presents information about our net assets measured at fair value on a recurring basis as of December 31,
2009, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value.

Fair Value Measurements UsingFair
Value

Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)(in thousands)Recurring:2007 Notes embedded derivatives

$
7

$


$


$
7Put Warrant liability October 2009 preferred stock transaction

$
1,265







$
1,2652009 Notes embedded derivatives

$
705

$


$


$
705


The
following table represents the change in fair value for the year ended December 31, 2009:

Balance at
December 31,
2008

Issuance

Settlement

Unrealized
(Loss) gain

Realized gain

Balance at
December 31,
2009(in thousands)2007 Notes embedded derivatives(1)

$
25







$
(8
)



$
7Auction rate securities(2)

$
1,800




$
2,000




$
200


Put Warrant liability October 2009 preferred stock transaction(1)




$
2,265




$
1,000




$
1,2652009 Notes embedded derivatives




$
1,705




$
1,000




$
705


(1)We
are required to make significant estimates and assumptions when fair valuing these derivatives including probabilities of change in control,
probabilities of equity offerings, probabilities of stock option grants and probabilities of our future stock prices. We use a Monte-Carlo fair value model run with thousands of iterations to fair
value these derivatives. In addition, we use lattice models and Black Scholes models. Our embedded derivatives are recorded in other long-term assets and other long-term
liabilities with the fair value adjustment for the unrealized and realized gains/losses recorded in total other (Expense)/ Income on our consolidated balance sheet and our consolidated statements of
operations, respectively.(2)We
are required to make significant estimates and assumptions when fair valuing auction rate securities. Our estimate is based upon consideration of various
factors including the overall credit market, the issuer and guarantor credit ratings, credit enhancement structures, projected yields, discount rates and terminal periods. On February 17, 2009,
we entered a Reverse Repurchase Transaction for our $1.8 million auction rate security. Through a reverse repurchase transaction, we are able to borrow up 90% of the par value of the auction
rate security with interest rate comparable to the interest earned on the auction rate security.


F-20

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(4) Assets and Liabilities Measured at Fair Value (Continued)




Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair
value on an ongoing basis but are subject to fair value adjustments in certain circumstances. During the year ended December 31, 2009, we were required to test certain of our mining assets for
recoverability based on future cash flows. As a result of this recoverability test, we wrote down certain mining assets by $20.1 million. We estimated the fair value of these assets based on a
cash flow approach using significant unobservable inputs (Level 3). Additionally, during the year ended December 31, 2009, certain leasehold improvements were required to be measured at
fair value in conjunction with the abandonment of a portion of our corporate office space. The leasehold improvements related to the unused office space had a net book value of $413,000 and were
written down to an estimated value of zero, resulting in an impairment charge of $413,000. We estimated the fair value of these assets based on an income approach using significant unobservable inputs
(Level 3). In addition, we recorded a loss associated with the abandonment of our unused office space in the amount of $1.0 million. We estimated the fair value of the loss based on an
income approach using significant unobservable inputs (Level 3).



The following table represents the change in fair value for the year ended December 31, 2008:

Balance at
December 31,
2007

Transfers

Realized
loss

Unrealized
loss

Balance at
December 31,
2008(in thousands)Embedded derivatives

$
1,470




$
(511
)
$
(934
)
$
25Auction Rate Securities

$


$
2,000

$


$
(200
)
$
1,800


(5) Accrued liabilities

Accrued liabilities consist of:

December 31,2010

2009(in thousands)Employee-related

$
431

$
1,169Accrued interest on the 2007 Notes and 2009 Notes


719


913Services or goods received, not invoiced


1,138


3,656Taxes, other than income taxes


79


281Other





29Total accrued liabilities

$
2,367

$
6,048


Employee-related
principally includes paid time-off and payroll. Services or goods received not invoiced primarily consist of goods and services rendered at our corporate
headquarters and in the GreenCert operations. Taxes, other than income taxes, represent various accrued taxes including property, use and franchise taxes.

F-21

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(6) Debt

2009 Notes



On March 20, 2009, we executed a Senior Secured Convertible Note Agreement which provided for the issuance of up to
$15 million in aggregate principal amount of 10% Senior Secured Promissory Notes ("2009 Notes"), in three $5 million tranches. The first $5 million tranche was funded in March
2009, the second $5 million tranche was funded in April 2009 and the third tranche was funded in July 2009. These 2009 Notes bore interest at a rate of 10% per annum beginning on the funding
date of each tranche, which was required to be prepaid at the time the 2009 Notes were issued and is non-refundable. We prepaid $375,000 of interest related to the closing of the first
tranche and issued 18,250 warrants to purchase our common stock at an exercise price of $15.60. In connection with the second tranche, we prepaid $351,000 of interest and issued 18,250 warrants to
purchase our common stock at an exercise price of $15.60. In connection with the third tranche we prepaid $225,000 of interest and issued 18,250 warrants to purchase our common stock at an exercise
price of $15.60.

The
following table summarizes the assumptions used to value the warrants issued for the three tranches:

Tranche 1

Tranche 2

Tranche 3Weighted-average:Risk free interest rate


1.7
%

2.4
%

2.3
%Expected option life (years)


5


5


5Expected volatility


91
%

81
%

81
%Expected dividends


None


None


None


The
outstanding principal balance was due and payable on the earliest of (i) December 20, 2009, (ii) the date all obligations and indebtedness are accelerated in
accordance with the provisions under the purchase agreement, and (iii) a sale of the capital stock, or the assets secured, of Buckeye (the "Maturity Date"). Prior to the Maturity Date, a holder
may elect to convert its 2009 Notes into a number of fully paid and non-assessable shares of Evergreen's common stock, par value $0.001 per share at the applicable conversion rate on any
day up to and including the business day prior to the Maturity Date, subject to adjustment upon the occurrence of certain events. The initial conversion rate for the 2009 Notes was equivalent to a
conversion price of $43.80 per share of our common stock.

The
2009 Notes were secured by the assets of Buckeye pursuant to a security agreement dated as of March 20, 2009. The security agreement provided holder with a security interest
in, but not limited to, all of Buckeye's property, equipment and fixtures, accounts, negotiable collateral, cash, and cash equivalents, subject to certain exceptions. The security interest created in
the collateral was a first priority, subject to the permitted encumbrances provided in the security agreement, and such first priority security interest was perfected to the extent such security
interest can be perfected by the filing of a financing statement. The security agreement also provided that on or before April 3, 2009, Buckeye shall deliver to holder a first priority mortgage
on each fee interest in real property now or hereafter owned by Buckeye. Further, in order to induce holder to extend credit to the Companies, Evergreen Operations, LLC ("Evergreen Ops")
entered into a pledge agreement with Investor dated March 20, 2009. The pledge agreement provided that Evergreen Ops would pledge to holder all of its

F-22

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(6) Debt (Continued)

common
stock in Buckeye, and in an event of default, as defined in the purchase agreement, holder's rights under the pledge agreement include, but were not limited to, the right to vote the pledged
shares, or transfer such shares, in whole or in part, into its or its nominee's name. The pledge agreement survived until our obligations are met and the purchase agreement was terminated.

We
incurred $4.4 million of debt issuance costs. We were amortizing the debt issuance costs over the term of the note. Debt issue costs were $2.1 million and
$2.3 million for the periods ended December 31, 2010 and 2009, respectively.



We are required to adjust the conversion price upon the occurrence of a future issuance of stock or warrants at a price less than the
2009 Notes conversion price. This potential adjustment to the conversion price was concluded to be an embedded derivative that needed to be bifurcated for valuation purposes. We used a fair value
modeling technique to value this derivative and recorded $1.7 million of short-term liability and a corresponding decrease in short-term debt in our consolidated balance
sheet for the year ended December 31, 2009. Furthermore, we were required to fair value the derivative at each reporting period and, as a result, we recorded $705,000 and $1.0 million of
other income during the years ended December 31, 2010 and 2009, respectively.



On December 21, 2009, we restructured and extended the terms of our 2009 Notes extending the maturity date to the earlier of the
sale of Buckeye or June 30, 2010. As part of the restructuring, the stated principal amount was increased by $2.25 million representing the 15% exit fee, pursuant to the original terms
of the 2009 Notes, as of that date, bringing the aggregate principal amount of 2009 Notes to $17.25 million. Interest shall be due and payable at maturity of the 2009 Notes and the rate
remained 10% per annum. The restructuring agreement also retained an exit fee in the amount of 15% of the par value of the 2009 Notes upon the payment of the 2009 Notes.

Per
the terms of the restructured agreement, we were required to raise additional common equity on or before January 30, 2010, utilizing a portion of the proceeds to pay a
$1.8 million cash extension fee due to our lenders. Additionally, we were required to execute a binding agreement for the sale of Buckeye on or before March 31, 2010. The failure to
complete either of these items would be deemed to be an "Event of Default" under the terms of the 2009 Notes. In addition, the extension terms required us to raise additional common equity by
January 15, 2010, or the repayment amount would be increased by $350,000. We incurred this additional $350,000 because our equity raise was consummated after January 15, 2010. On
January 26, 2010, we raised approximately $8.7 million of gross proceeds from our registered direct offering and paid the $1.8 million extension fee. We were required to pay not
less than 30% of the proceeds of any subsequent common equity offering to reduce the outstanding balance of the 2009 Notes. In March 2010, we paid $1.5 million reducing the principal balance
with the funds received in our 2010 Preferred Stock transaction as further described in Note 7Temporary Capital and Stockholders' Equity.

On
April 1, 2010, we closed the sale of Buckeye and repaid the outstanding notes, including accrued interest and fees, totaling $19.2 million. We recorded a loss on the
early extinguishment of

F-23

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(6) Debt (Continued)

these
notes totaling $3.7 million primarily related to the acceleration of debt issuances costs, the acceleration of exit fees and the write-off of our derivatives. In addition,
pursuant to discontinued operations guidance, the interest expense for the 2009 Notes has been reflected in discontinued mining operations for the periods ended December 31, 2010 and 2009.

2007 Notes due 2012

On July 30, 2007, we completed the sale of $95.0 million of our Convertible Secured Notes due 2012 ("2007 Notes") that
were resold in a private offering to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. During the year ended December 31, 2008, we entered into multiple individually negotiated agreements with
certain existing noteholders to exchange $67.1 million in aggregate principal amount of the 2007 Notes, for an aggregate of 4.1 million shares of our common stock and $3.5 million
in cash, which was paid on October 1, 2008. Further, we received the requisite consents to amend the indenture and in compliance with the terms and provisions of the indenture, we, each of the
guarantors and the trustee, executed a supplemental indenture. The supplemental indenture amends the indenture to eliminate substantially all of the restrictive covenants, to release the security
interests in the collateral securing the 2007 Notes, which included the release of $18.0 million of cash that was held in escrow and to make certain other conforming changes to the indenture.
We closed all transactions and issued all the shares by December 2008, except for a portion of one of the transactions. During the year ended December 31, 2009, we closed the remaining portion
of this transaction and issued an aggregate of 775,000 shares, representing $12.5 million in aggregate principal amount of the 2007 Notes.

During
the year ended December 31, 2009, we issued an additional 28,000 shares pursuant to another individually negotiated agreement, representing $500,000 principal amount of the
2007 Notes. Furthermore, during the year ended December 31, 2010 we entered into two individually negotiated agreements with certain existing noteholders to exchange $5.8 million in
aggregate principal amount for an aggregate of 2.0 million shares of our common stock.

Prior
to each exchange of 2007 Notes for common stock, each of the converting noteholders agreed to release each guarantee issued pursuant to the indenture with respect to such 2007
Notes being exchanged such that, at the time of each exchange, such 2007 Notes being exchanged were not guaranteed securities and were solely securities of Evergreen Energy. We recognized
$2.9 million, $167,000 and $6.1 million gain, after reduction for transaction costs and the non-cash write off of debt issue costs and related embedded derivatives associated
with these exchange transactions for the periods ended December 31, 2010, 2009 and 2008, respectively.

We
pay interest semi-annually at a rate of 8.00% per annum, due on February 1 and August 1 of each year, beginning on February 1, 2008. The 2007 Notes
mature on August 1, 2012.

Holders
may convert their 2007 Notes into a number of shares of common stock or cash or a combination thereof, at our option, at the applicable conversion rate on any day up to and
including the business day prior to the maturity date. The initial conversion rate for the 2007 Notes is 190.4762 shares of our common stock per $1,000 principal amount of 2007 Notes, equivalent to a
conversion price of approximately $63.00 per share, subject to adjustment upon the occurrence of certain events. If we undergo certain fundamental changes, as defined in the indenture, the holders of
the 2007 Notes

F-24

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(6) Debt (Continued)

may
require us to repurchase the 2007 Notes in cash at 100% of the principal amount plus any accrued and unpaid interest. Additionally, upon a fundamental change, the holders, if they elect to
convert, could receive a conversion rate adjustment that will require us to increase the number of shares based on our stock price and the passage of time.

At
issuance, the 2007 Notes were senior secured obligations guaranteed by our 100% owned subsidiary, Evergreen Operations, LLC, and its subsidiaries, and secured by a
first-priority security interest in: (i) all of our equity interest in Evergreen Operations, LLC; (ii) an escrow account established in connection with the offering; and
(iii) our and each of Evergreen Operations, LLC and its subsidiaries' bank, investment, brokerage or similar accounts holding cash and cash equivalents, subject to certain exceptions.
Our intellectual property rights relating to the K-Fuel refined coal process are held by a wholly owned subsidiary, which is not a subsidiary of Evergreen Operations, LLC and
consequently, none of these intellectual property rights were included in the collateral securing the 2007 Notes. Additionally, our subsidiaries C-Lock Technology, Inc. and
Evergreen Energy Asia Pacific Corp. were also excluded from the collateral securing the 2007 Notes. The 2007 Notes contained covenants, which among other things, limited our ability and the ability of
our subsidiary guarantors to incur additional debt or issue certain preferred shares; pay dividends on or make distributions in respect to our capital stock; create liens on certain assets to secure
debt; and sell certain assets. The collateral and restricted covenant provisions have been amended by the supplemental indenture as described above.

If
the closing price of our common stock for at least 20 trading days in any 30 consecutive trading day period is at least the conversion price, or the reduced interest rate threshold,
then the initial interest rate will be permanently decreased to 5.00%. In addition, if the closing price of our common stock for at least 20 trading days in any 30 consecutive trading day period is at
least 130% of the then applicable conversion price, or the collateral release threshold, then the security will be released, and the 2007 Notes will become automatically subordinated. At such time as
the security is released, we may redeem the 2007 Notes at a redemption price payable in cash equal to 100% of the principal amount, plus any accrued and unpaid interest and an additional "coupon make
whole payment." The "coupon make-whole" amount per $1,000 principal amount of 2007 Notes will be equal to the present value of all remaining scheduled payments of interest on each 2007
Note to be redeemed through the maturity date. The provisions relating to the collateral release threshold have been amended by the supplemental indenture as described above. See
Note 16Subsequent Events and Note 10Commitments and Contingencies for further detail of our settlement.

We
incurred $6.0 million of debt issuance costs relating to our 2007 Notes offering. We are amortizing the debt issuance costs using the effective interest rate method over the
life of our debt. The portion of the debt issue costs related to the debt exchanged for equity were written-off by reducing the gain. Debt issue costs were $512,000, $1.0 million
and $1.3 million as of December 31, 2010, 2009 and 2008, respectively.

F-25

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(6) Debt (Continued)



At issuance, we evaluated the 2007 Notes and concluded that our conversion adjustment upon the occurrence of a fundamental change is an
embedded derivative that needed to be bifurcated for valuation purposes. Additionally, we have concluded that the potential decrease in our interest rate based on our common stock price is also an
embedded derivative that needed to be bifurcated. Both of these derivatives were determined to not be clearly and closely related to the host instrument. We used a fair value modeling technique to
value these derivatives and recorded $3.2 million of long-term assets and a corresponding increase in long-term debt in our consolidated balance sheets at the date of
issue of the 2007 Notes. Furthermore, we are required to fair value these derivatives at each reporting period and, as a result, we recorded $0, $8,000 and $934,000 of other expense during the years
ended December 31, 2010, 2009, and 2008 by decreasing the net derivative assets contained within other long-term assets to $6,000, $6,000 and $25,000 in our consolidated balance
sheet at December 31, 2010, 2009 and 2008 respectively.

Interest on all debt

We paid $7.4 million, $3.7 million, and $7.2 million of interest for the years ended December 31, 2010,
2009 and 2008, respectively. We capitalized $536,000, $1.0 million, and $761,000 of interest for the years ended December 31, 2010, 2009 and 2008, respectively.

(7) Temporary Capital and Stockholders' Equity

Effective August 20, 2010, following the approval of the proposed reverse stock split at the Annual meeting of the Shareholders, our Board of Directors approved a 1 for 12 reverse
stock split of our common stock. As a result of the reverse stock split, every 12 shares of our common stock issued and outstanding on August 20, 2010 were combined into one share of common
stock. The reverse stock split did not change the authorized number of shares or the par value of our common stock. No fractional shares were issued in connection with the reverse stock split. If, as
a result of the reverse stock split, a stockholder would otherwise hold a fractional share, the number of shares received by such stockholder was rounded up to the next whole number. All share and per
share amounts in the accompanying financial statements have been retstated to give effect to the reverse stock split.



On March 16, 2010, we and certain institutional investors entered into a securities purchase agreement, pursuant to which we
agreed to sell an aggregate of 9,312.5 shares of our Series C Preferred Stock, or "2010 Preferred Stock" and warrants to purchase 1,041,667 shares of common stock to such investors for gross
proceeds of approximately $9.3 million.

Each
share of preferred stock has a stated value of $1,000 per share. The 2010 Preferred Stock is convertible into the number of shares of common stock, $.001 par value determined by
dividing the stated value of the preferred stock by the conversion price per share of $4.47. The conversion price is subject to certain adjustments for stock splits, stock dividends, combinations of
shares and similar recapitalization transactions. The 2010 Preferred Stock accrues dividends at the rate of 9.261% per annum, payable semi-annually on June 30 and
December 31, commencing on June 30, 2010 and on

F-26

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(7) Temporary Capital and Stockholders' Equity (Continued)

each
conversion date until March 16, 2015. The Certificate of Designation includes a provision under which we have deposited with an escrow agent $4,312,500 of the gross proceeds of the
offering. If the 2010 Preferred Stock is converted prior to March 16, 2015, the escrow amount would be paid to the holders, upon conversion, in an amount equal to $463.09 per $1,000 of stated
value converted, less the amount of dividends paid prior to the conversion date. Subject to certain ownership limitations, the warrants are immediately exercisable for a five year period after closing
at an exercise price of $3.72 per share. The exercise price of the warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions. In March 2010, 9,311.5 shares of the 2010 Preferred Stock were converted into common shares, and as of December 31, 2010, one share of 2010 Preferred Stock was outstanding. The
net proceeds from the above registered direct public offering, after deducting placement agent fees and our estimated offering expenses and amounts placed in escrow, and excluding the proceeds, if
any, from the future exercise of the warrants issued in the offering, were $4.5 million.

The
detachable warrants issued with the 2010 Preferred Stock agreement contain certain provisions, such as a contingent cash redemption feature or adjustments to the exercise price of
the warrant upon the occurrence of a change of control. These features were concluded to result in the warrants being recorded as liabilities. We used a fair value modeling technique to initially
value this put warrant liability and recorded $1.9 million of long-term liability in our consolidated balance sheet at the date of the transaction. Furthermore, we are required to
fair value this put warrant liability at each reporting period and, as a result, we recorded $1.5 million of other income during the year ended December 31, 2010.



On January 26, 2010, we consummated a registered direct public offering of common stock and raised gross proceeds of
approximately $8.8 million. The securities were offered pursuant to a shelf registration statement on Form S-3 that was previously declared effective by the Securities and
Exchange Commission (SEC) on January 19, 2010. In total, we sold an aggregate of 2,436,389 shares of our common stock and warrants to purchase 1,218,194 shares of our common stock. The common
stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase 0.50 of a share of common stock. The purchase price per unit was $3.60. Subject
to certain ownership limitations, the warrants are exercisable commencing six months following the closing date of the offering and for a five year period thereafter
at an exercise price of $4.63. The exercise price of the warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions. The net proceeds to us from this registered direct public offering, after deducting placement agent fees and our estimated offering expenses, and excluding the proceeds, if any, from the
future exercise of the warrants issued in the offering, are $8.0 million.

The
detachable warrants issued in the common stock offering contain certain provisions, such as a contingent cash redemption feature or adjustments to the exercise price of the warrant
upon the occurrence of a change of control. These features were concluded to result in the warrants being recorded as liabilities. We used a fair value modeling technique to initially value this put
warrant liability and recorded $3.4 million of long-term liability in our consolidated balance sheet at the date of the transaction. Furthermore, we are required to fair value this
put warrant liabilities at each reporting

F-27

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(7) Temporary Capital and Stockholders' Equity (Continued)

period
and, as a result, we recorded $2.9 million of other income during the year ended December 31, 2010.



On October 21, 2009, we completed the sale of an aggregate offering price of $6,973,380 of Series B Convertible preferred
stock, or "2009 preferred stock" and detachable warrants. The 2009 Preferred Stock accrues dividends at the rate of 5.66% per annum, payable semi-annually on June 30 and
December 31, commencing on December 31, 2009 and on each conversion date until October 21, 2014. Each share of 2009 Preferred Stock has a stated value of $1,000 per share. The
2009 Preferred Stock is convertible into the number of shares of common stock, $.001 par value determined by dividing the stated value of the preferred stock by the conversion price per share. The
conversion price per share is $7.23, subject to adjustment under certain circumstances, including events of default under the 2009 Preferred Stock. Upon an event of default, the holders of the 2009
Preferred Stock may require us to redeem the preferred stock at an amount equal to, at a minimum, 130% of the stated value. The certificate of designation includes a provision under which we deposited
with an escrow agent $1,973,380 of the gross proceeds of the offering. If the 2009 Preferred Stock was converted prior to October 21, 2014, the escrow amount will be used to pay to the holder,
upon conversion, an amount equal to $282.99 per $1,000 of stated value converted, less the amount of dividends paid prior to the conversion date. All but two of the 2009 Preferred Shares were
converted to common stock in the fourth quarter of 2009 and substantially all the escrow deposit was paid to the holders as a dividend. Upon the conversion of the preferred shares, we issued 964,284
shares of our common stock. The warrants are exercisable for an aggregate of 482,253 shares of common stock, at an exercise price of $7.78 per share, subject to certain adjustments. The warrants are
exercisable immediately and have a term of exercise equal to five years. The warrants are not redeemable by us. On February 14, 2011, one share of the 2009 Preferred Stock was converted into
139 shares of our common stock.

The
detachable warrants issued with the 2009 Preferred Stock agreement contain certain provisions, such as a contingent cash redemption feature or adjustments to the exercise price of
the warrant upon the occurrence of a change of control. These features were concluded to result in the warrants being recorded as liabilities. We used a fair value modeling technique to value this put
warrant liability and recorded $2.3 million of long-term liability in our consolidated balance sheet at the date of the transaction. Furthermore, we are required to fair value this
put warrant liability at each reporting period and, as a result, we recorded $1.1 million and $1.0 million of other income during the years ended December 31, 2010 and 2009,
respectively. On February 14, 2011 321,502 warrants were converted into 321,502 shares of our common stock at a reduced exercise price of $3.20. per share.



On December 4, 2008, we entered into a rights agreement. In connection with the adoption of the rights agreement, on
December 2, 2008, the Board of Directors declared a dividend distribution of one right ("Right") for each outstanding share of our common stock on December 19, 2008. The Rights generally
become exercisable only in the event that an acquiring party accumulates 15% or more of our outstanding common stock. Each Right, when exercisable, entitles the registered holder to purchase
one-thousandth of one share of Series A Junior Participating Preferred Stock ("Series A Preferred

F-28

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(7) Temporary Capital and Stockholders' Equity (Continued)

Stock")
at a price of $4.00 per one-thousandth share (the "Purchase Price"), subject to adjustment. If this were to occur, subject to certain exceptions, each Right (except for the Rights
held by the acquiring party) would allow its holder to purchase common stock with a value equal to twice the exercise price of the Right. In the event that, after an acquiring party has accumulated
15% or more of our outstanding common stock, we are acquired in a merger or other business combination transaction or 50% or more of its assets or earning power are sold, each unexercised Right
(except for the Rights held by the acquiring party) would thereafter allow its holder to purchase stock of the acquiring company (or our common stock if it is the surviving company to the transaction)
with a value equal to twice the purchase price of the Right. If the Rights were fully exercised, the shares issued would cause substantial dilution to the acquiring party or the shareholders of the
acquiring company. The Rights Agreement provides a period of time during which we may redeem the Rights, in whole, but not in part, at a price of $0.001 per Right, such that this period will end on
the earlier of (i) the tenth business day following the date a person or group becomes the beneficial owner of 15% or more of the common stock or (ii) the final expiration date of the
Rights, which is December 19, 2018.

On
January 26, 2011, we and our transfer agent, Interwest Transfer Company, Inc. executed an amendment to the Rights Agreement. The amendment clarifies that stockholders
who become beneficial owners of more than 15% of the outstanding shares of our common stock as a result of their participation in an Approved Financing Transaction, will not be considered Acquiring
Persons for purposes of the Rights Agreement. An "Approved Financing Transaction" is a financing transaction at a price equal to or above the current market price for the common stock on the date of
the closing of
such transaction, provided the transaction has been approved by not less than two-thirds of our continuing independent directors.



During 2002, we entered into a series of transactions with three investor groups whereby we issued a total of 566,667 shares of our
common stock and 1.2 million warrants. The investors have certain rights pursuant to an investor rights agreement, including the right for one group to select two persons to serve on our Board
of Directors. As of December 31, 2010, these two positions were not filled. This provision remains in force until the investors hold less than 33,334 shares of our common stock. During 2005, we
renegotiated the investor rights agreement executed in connection with the issuance of the shares in 2002 to provide us greater flexibility in constructing and operating plants. Subsequent to the
renegotiation, we and the investors have the following rights:



F-29

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(7) Temporary Capital and Stockholders' Equity (Continued)



Except
for the right to select persons to serve on our Board of Directors all other rights expire 20 years after the 25 million ton annual capacity threshold is reached or
earlier, if the investors exercise their rights to 50 million tons of annual capacity.

(8) Stock Options, Stock Grants and Employee Benefit Plans

We have six qualified stock plans, under which 3.3 million shares were reserved and 1.6 million shares are available for grant as of December 31, 2010. Pursuant to
these plans we granted stock options, restricted stock and stock appreciation rights to directors, employees and outside consultants. All but one of the five qualified plans has been registered with
the Securities and Exchange Commission. We have also issued stock related to various compensation and fee agreements with certain employees that were not issued from our six plans. These grants were
made pursuant to certain stock exchange rules. The non-plan awards are generally registered with other registration statements that we periodically file. The six qualified stock plans and
the non-plan awards are collectively referred to as "the plans."

These
plans are administered by the Compensation Committee of our Board of Directors, (Committee), which has the authority to determine the specific terms of awards under these plans,
including exercise price and vesting term, subject to certain restrictions of the Internal Revenue Code regarding incentive stock options. The Committee can accelerate the vesting of an outstanding
award at its sole discretion. Certain of the plans contain provisions requiring the acceleration of vesting of all outstanding awards in the event of a change in control, as defined in those plans. In
addition, certain
employee grants per the individual grant agreements contain provisions that accelerate the vesting of unvested outstanding awards upon a change in control. Stock options granted under the plans
generally expire not more than ten years from the date of grant.

Share-based
compensation expense recognized during the current period is based on the value of the portion of share-based payment awards that are ultimately expected to vest, assuming
estimated forfeitures at the time of grant. Historically, the majority of option grants outstanding were to executives, consultants and to our founder. We have estimated the forfeiture rate on each of
these grantee groups based upon historical data. In the fourth quarter of 2005, we started granting restricted shares to non-executive employees. We have based the forfeiture rate for this
grantee group on the historical data of the executives, as we do not have sufficient historical data for non-executive employees. Lastly, during the fourth quarter of 2005, we granted
restricted stock awards to certain of our executive officers, as further described below, which contain accelerated vesting provisions. Our estimate of forfeitures for these grants is that they all
will vest and, as a result, we have not reduced our expense by estimated forfeitures. Total non-cash compensation expense was $3.6 million, $5.7 million and
$6.3 million for the years ended December 31, 2010, 2009 and 2008, respectively, which are primarily reflected in general and administrative expenses.

F-30

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(8) Stock Options, Stock Grants and Employee Benefit Plans (Continued)



The following table summarizes the assumptions used to value stock options granted in 2010, 2009 and 2008:

Year Ended December 31,2010

2009

2008Weighted-average:Risk free interest rate


1.65
%

2.28
%

3.11
%Expected option life (years)


3.00


6.04


8.4Expected volatility


101
%

88
%

72
%Expected dividends


None


None


None


We
use the Black-Scholes option-pricing model to value our outstanding stock options. The Black-Scholes model requires the use of a number of assumptions, including the volatility of our
stock price, a weighted average risk-free interest rate, and the weighted average expected life of the options. Generally, our option grants to non-employee board members vest
immediately and expire on the third anniversary of the date of grant. As we do not pay dividends, the dividend rate variable in the Black-Scholes model is zero. The volatility assumption is based on
the historical weekly price data of our stock over a period equivalent to the expected life of the options. We evaluated whether there were factors during the period which were unusual and which would
distort the volatility figure used to estimate future volatility and concluded that there were no such factors. The risk-free interest rate assumption is based upon the note principal U.S.
Treasury Strips rates determined at the date of grant. The expected life of the stock options represents the life of the option up to the expiration date. This is based upon an analysis of the
historical exercise pattern of our employees and directors.

On
June 24, 2009, the Board of Directors appointed Thomas H. Stoner, Jr. as President and Chief Executive Officer. In connection with his employment, Mr. Stoner was granted
options to purchase 41,667 shares of common stock at an exercise price of $11.52 per share. The options fully vested on June 24, 2009 and expire on June 24, 2014. All of the options are
considered inducement options as defined by the NYSE Arca and are not issued pursuant to a plan.

Stock
options granted under the plans to employees generally vest from three to five years from the grant date until fully vested and generally expire ten years from grant date. Stock
options granted to directors usually vest 100% on date of grant and expire three years from the date of grant. All of the stock options granted during the three years ended December 31, 2010,
2009, and 2008, were at exercise prices that were equal to or greater than the fair market value of our common stock on the

F-31

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(8) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

date
of grant. The following table summarizes our stock option activity, including both plan and non-plan options, for the three-year period ended December 31, 2010:

Years Ended December 31,2010

2009

2008Total

Weighted-
Average
Exercise
Price
Per Share

Total

Weighted-
Average
Exercise
Price
Per Share

Total

Weighted-
Average
Exercise
Price
Per Share(shares in thousands)Outstanding, beginning of period


258

$
38.40


241

$
90.12


227

$
111.12Granted


16


5.40


177


10.44


74


21.60Exercised

















Expired and forfeited


(99
)

22.67


(160
)

85.56


(60
)

87.60Outstanding, end of period


175

$
43.95


258

$
38.40


241

$
90.12Options exercisable and options expected to vest as of December 31, 2010


174

$
44.07Options exercisable, end of period


159

$
46.88


Plan
and non-plan stock options outstanding and exercisable as of December 31, 2010 are summarized below:

Stock Options Outstanding

Stock Options ExercisableRange of Exercise Prices

Number of
Shares

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise
Price

Number of
Shares

Weighted
Average
Exercise
Price(in thousands)





(in thousands)$0.01 - $32.80


140


3.6

$
10.79


123

$
10.15$32.81 - $65.60














$65.61 - $98.40


2


0.7


91.63


2


91.63$98.41 - $131.20


4


0.7


100.08


4


100.08$131.21 - $164.00


4


1.0


154.56


4


154.56$164.01 - $199.00


25


1.2


198.36


26


198.36175








159


F-32

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(8) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

The
following table summarizes the fair value of our stock option activity, including both plan and non-plan options, for non-vested option shares during the year
ended December 31, 2010:

Total

Weighted-
Average
Grant Date
Fair Value(shares in
thousands)Non-vested, beginning of period


59

$
31.32Granted


16


5.40Vested


(40
)

34.46Expired and forfeited


(19
)

17.33Non-vested, end of period


16

$
15.64


The
total intrinsic value of options exercised is the difference between the exercise price of the option and the closing price of our common stock on the exercise date. No options were
exercised during the years ended December 31, 2010, 2009 or 2008.

The
aggregate intrinsic value of stock options is the difference between our closing stock price on December 31, 2010 and the exercise price multiplied by the number of options.
The majority of our outstanding options, exercisable options and exercisable and expected to vest options had exercise prices greater than the closing price of our common stock at December 31,
2010. As a result, the options had no aggregate intrinsic value at December 31, 2010.

Years Ended December 31,2010

2009

2008(in thousands except
per share amounts)Weighted average per share grant date fair value

$
5.40

$
10.44

$
21.60Total fair value

$
1,366

$
3,747

$
2,912Total unrecognized compensation expense

$
67


Total
unrecognized compensation expense is expected to be recognized over a weighted average period of 0.5 years.



Restricted stock grants to certain executive officers contain accelerated vesting criteria and are more fully described below.
Restricted stock awards to employees under the plans contain time and performance or market vesting criteria. These grants usually vest over a three to
five year period with 20% to 33% vesting each year, if the agreed upon performance criteria have been achieved, if applicable.

F-33

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(8) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

The
following table summarizes our restricted stock grant activity for the years ended December 31, 2010, 2009 and 2008:

Years Ended
December 31,2010

2009

2008(in thousands)Outstanding, beginning of period


399


144


168Granted


1,223


354


23Vested


(236
)

(55
)

(33
)Expired and forfeited


(119
)

(44
)

(14
)Outstanding, end of the period


1,267


399


144Outstanding and expected to vest as of December 31, 2010


771




Years Ended December 31,2010

2009

2008(in thousands, except
for per share amount)Aggregate intrinsic value outstanding

$823

$136

$40Aggregate intrinsic value expected to vest

$501

$135

$34Weighted-average remaining vesting term

1.0 years

2.4 years

3.4 yearsWeighted-average grant date fair value

$1.45

$0.48

$1.38


The
fair value of restricted stock is calculated by multiplying the number of restricted shares by the closing price of our common stock on December 31 of each year. The total
fair value of restricted stock vested during the years ended December 31, 2010, 2009 and 2008 were $223,000, $558,000, and $687,000, respectively.

As
of December 31, 2010, total unrecognized compensation expense related to outstanding restricted stock grants is $2.1 million. This expense is expected to be recognized
over a weighted-average period of 1.0 years.

During
the third quarter of 2010, we granted 812,500 shares of restricted stock to our Executive Officers. The restricted stock vesting is subject to the attainment of certain market
conditions and assuming continuous employment. All of these restricted shares were issued from one of our approved plans, as follows:



F-34

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(8) Stock Options, Stock Grants and Employee Benefit Plans (Continued)

During
the second quarter of 2009, we granted 250,000 shares of restricted stock to our current Chief Executive Officer. The restricted stock vesting is subject to the attainment of
certain market conditions and assuming continuous employment. All of these restricted shares are considered inducement options as defined by the NYSE Arca and are not issued pursuant to a plan, as
follows:



Furthermore
during the fourth quarter of 2009, we granted our former President and Chief Operating Officer 70,833 shares of restricted stock from one of our plans. The restricted stock
vesting was subject to the attainment of certain market conditions and assuming continuous employment. Upon the execution of a separation agreement in the third quarter of 2010, the restricted shares
never vested and were forfeited, the cumulative non-cash compensation expense recorded since 2009 was reversed during the year ended December 31, 2010. This reversal of
non-cash compensation totaled $42,000.

During
the fourth quarter of 2005, we granted 166,667 shares of restricted stock to three of our then-executive officers.

On
July 22, 2009, one of the executive officers referred to above transitioned his officer positions and board seat to our current chief executive officer. As a result, 50,000 of
the former officer's shares fully vested in March 2010. Pursuant to the agreement, we accelerated the vesting of the restricted stock
grant and recorded $1.6 million and $3.3 million of non-cash compensation for the year ended December 31, 2010 and 2009, respectively.

On
May 31, 2009, another of the executive officers referred to above retired from his position. Since the restricted shares never vested and were forfeited upon his retirement,
the cumulative non-cash compensation expense recorded since 2005 was reversed in the second quarter of 2009. This reversal of non-cash compensation totaled $2.9 million
for the year ended December 31, 2009.

F-35

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(8) Stock Options, Stock Grants and Employee Benefit Plans (Continued)



During the third quarter of 2005 the establishment of an Employee Stock Purchase Plan was approved. We have reserved 8,333 shares of
our common stock that are eligible for issuance to employees. Until June 30, 2006, employees were able contribute to the plan, subject to certain maximum contributions, and be eligible for a
discount on the lower of the November 1, 2005 or on June 30, 2006 closing price, the first purchase date pursuant to the plan. After June 30, 2006, our employees are eligible for
monthly purchases at the month end market price less a 15% discount that we contribute for our employees.

(9) Warrants

Associated with various financing and other transactions and professional service agreements, we have issued transferable warrants to purchase common stock, which generally immediately
vest. The following table summarizes the outstanding warrant activity for years ended December 31, 2010, 2009, and 2008:

Year Ended December 31,2010

2009

2008Number of
Potentially
Exercisable
Shares

Number of
Potentially
Exercisable
Shares

Number of
Potentially
Exercisable
Shares(in thousands, except for price per share)Outstanding, beginning of period

1,405

602


608Granted

3,769

803


Exercised






(1
)Expired and cancelled






(5
)Outstanding, end of period

5,174

1,405


602Expiration

2011 - 2015

2010 - 2015


2010Weighted average exercise price per share

$7.17

$21.00

$
33.00


In
addition to the table above, we have entered into an Advisory Agreement with a third party dated March 23, 2009. Pursuant to the terms of the agreement, we have agreed to
issue, as a success fee, warrants to purchase up to 208,333 shares of common stock as follows: (i) 104,167 warrants will be issued upon the execution of a definitive agreement to construct a
plant utilizing our K-Fuel technology, and (ii) 104,167 warrants will be issued upon the commencement of the construction of the plant utilizing our K-Fuel technology.
The exercise price of the warrants will be the volume weighted average of the daily per share closing price the common stock for the six month period ending on the date of the execution of a letter of
intent, memorandum of understanding or a public statement which results in a definitive agreement to build a plant. The warrants will be immediately exercisable and will have a five-year
term from the date of grant.

The
table above includes warrants further described in Note 13Related Party Transactions. On January 2, 2011, our Board of Directors, upon the recommendation
of the Corporate Governance and Nominating Committee, appointed Ilyas Khan to the Board of Directors as Executive Chairman. In connection with Mr. Khan's election, we became party to a
Professional Services Agreement ("PSA")

F-36

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(9) Warrants (Continued)

with
Crosby Special Situations Fund ("CSSF") effective December 31, 2010, which is a related party. Pursuant to the PSA, we will compensate CSSF through the issuance of warrants to purchase an
aggregate of 1,238,150 shares of common stock, with the following exercise prices: 495,540 shares at $.65 per share; 371,655 shares at $.98 per share; 185,828 shares at $1.14 per share; and 185,828
shares at $1.46 per share. See Note 13Related Party Transactions for further discussion.

(10) Commitments and Contingencies

Payment Obligations

The following table summarizes our future commitments as of December 31, 2010:

Payments due by period2011

2012

2013

2014

2015

Thereafter

Total(in thousands)Operating leases

$
663

$
652

$
641

$
657

$
673

$
1,028

$
4,314Consulting and service commitments


500


500


10,500


500


500


500


13,000Long-term debt


1,724


23,279














25,003Total commitments

$
2,887

$
24,431

$
11,141

$
1,157

$
1,173

$
1,528

$
42,317


This
table does not include accounts payable, accrued liabilities, or asset retirement obligations, which are reported in our December 31, 2010 consolidated balance sheet. We
generally have not included any obligation in which either party has the right to terminate except as discussed below. Additionally, we have not included K-Fuel royalty payments, as we
cannot presently determine when such payments will be made as such payments are based upon our receipt of cash for licensing and royalties.

We
are obligated under non-cancelable operating leases with initial terms exceeding one year relating to office space. Rent expense for the years ended December 31,
2010, 2009 and 2008 was $1.0 million, $1.2 million, and $1.1 million, respectively.

Consulting
and service commitments include an exclusive patent sub-license agreement with the developer of a proprietary technology for the measurement of carbon emissions.
The agreement provides us with an exclusive worldwide sub-license to a technology to standardize the measurement of carbon emissions in energy and agricultural related activities. The
agreement was amended and restated to expand the energy and agricultural activities to all applications of the technology and eliminates other operating requirements. In order to maintain this
licensing arrangement, we are required to make minimum annual royalty payments of $500,000 to the developer of the proprietary technology, with each payment extending the arrangement for one year if
the parties are in material compliance with the contract. Additionally, consulting and service commitments includes our amended and restated umbrella agreement with Bechtel. Through this new program
management agreement, we committed to provide Bechtel with $1 billion in construction contracts through 2013. Failure to meet this commitment by 2014 could cost us up to the $10 million
in termination fees, which is included in the above table.

F-37

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(10) Commitments and Contingencies (Continued)

Long-term
debt includes our principal amount due 2012 and the 8% interest payments. See Note 16Litigations below for further details related to the
contingent settlement and retirement of a portion of these notes.

While
our former investment banking firm may claim that we owe them up to $1.0 million related to the sale of Buckeye, we do not believe that this fee is payable due to the lack
of the counterparties meeting certain performance and contractual criteria. If a claim is made for this contingent payment, we intend to vigorously dispute this claim. This potential obligation is not
included in the table above.

Litigation

2007 Notes Litigation

Subsequent to the closing of the sale to Rosebud Mining Company (under the Asset Purchase Agreement, dated March 12, 2010, the
"Rosebud Agreement") of certain assets of our Buckeye Industrial Mining Co. subsidiary ("Buckeye") and certain assets of Evergreen Energy Inc. and payment of the 2009 Notes, on
April 1, 2010, certain holders of our outstanding 2007 Convertible Notes commenced litigation initially against Buckeye and the holders of the 2009 Notes (the "2009 Noteholders"), in a case
denominated: AQR Absolute Return Master Account L.P., et al., v. Centurion Credit Funding LLC, Level 3 Capital Fund, LP, Buckeye Industrial Mining Company, et al., Case
No. 10CV340 (Ct. Com. Pl. Columbiana County, OH) (the "Litigation"). Evergreen was subsequently added as a defendant in the action. In the litigation, plaintiffs sought: (i) to void all
obligations of Buckeye with respect to the 2009 Notes, including the security interests granted in connection therewith, (ii) to enjoin the further transfer of or recover "for Buckeye's
benefit" certain proceeds from the asset sale (particularly in satisfaction of the obligations owed to the holders of the 2009 Notes); and (iii) to appoint a receiver to take control of
Buckeye's assets.

In
response to certain defenses raised in the litigation, certain of the plaintiffs made further claims that the assertion of such defenses constituted an Event of Default under the 2007
Note Indenture. In
response, we filed a counterclaim in the Litigation naming those plaintiffs as counterclaim defendants. The counterclaim asserts lender liability and other tort claims in connection with the
counterclaim defendants' conduct. The counterclaim also seeks a declaratory judgment that the defenses raised do not constitute an Event of Default under the 2007 Notes Indenture and the recovery of
monetary damages related to the counterclaim defendants' wrongful conduct in asserting the Event of Default.

The
Court initially issued anex partetemporary restraining order limiting the Company's ability to utilize, for working capital or other
purposes, the portion of the proceeds which Evergreen received at the time of the closing (i.e., the net proceeds following the payment of the 2009 Notes and closing fees and expenses).
However, on June 8, 2010, the Court issued a ruling in our favor lifting the temporary restraining order and rejecting the plaintiff's request for a further injunction on the use of these funds
as well as the use, upon release by the State of Ohio Department of Environmental Quality, of $5.0 million collateralizing certain environmental reclamation bonds. In its ruling, the Court
stated, "The notes have never been in default, the interest has been paid on time and the principal is not due until 2012." Although the Court has issued a ruling in our favor with respect to the
portion of the Complaint requesting a preliminary injunction, the remaining claims have not been fully resolved, and the Litigation is continuing. On August 31, 2010, US Bank National
Association, in its capacity as

F-38

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(10) Commitments and Contingencies (Continued)

Trustee
for the 2007 Notes, moved to intervene in the Litigation citing, among other things, its interest in a legal determination of whether the 2007 Notes are in default. To date, the Court has not
ruled upon the US Bank motion.

On
February 1, 2011, Evergreen and Buckeye entered into a Forbearance and Settlement Agreement (the "Settlement Agreement") with certain holders of the 2007 Notes (the "Settling
2007 Noteholders") and the 2009 Noteholders. The Settlement Agreement provides for the direct redemption of approximately $14.1 million in aggregate face value of 2007 Notes currently held by
the Settling 2007 Noteholders by us, in exchange for the following: (i) the payment of approximately $6.76 million in cash to the; Settling 2007 Noteholders; and (ii) the issuance
of warrants to the Settling 2007 Noteholders for the purchase of up to 531,250 shares of our common stock at an exercise price of $7.20 per share. The Settlement Agreement also provides for the 2009
Noteholders to purchase $3.2 million of 2007 Notes from the Settling 2007 Noteholders for $1.6 million, which we will redeem as further described below. Of the approximately
$6.76 million in cash payments, it is anticipated that $2 million will come from the escrow established at the time of the sale of Buckeye, which is scheduled to be released in April
2011. Evergreen and Buckeye have assigned to and granted a security interest in favor of the Settling 2007 Noteholders in up to $2 million of proceeds.

The
Settlement Agreement provides for the initial transfer of consideration by us starting with the signature date and running through the final transfer of consideration among the
parties on a date to be determined (the "Final Settlement Date") but no less than approximately 95 days and no more than approximately 140 days following February 1, 2011. If,
prior to the Final Settlement Date, an Event of Default (as defined in the 2007 Indenture) occurs for which a notice of acceleration has not been previously transmitted to the 2007 Trustee other than
the delisting of Evergreen from the NYSE Arca Exchange, a bankruptcy petition is filed by or against Evergreen or any of the subsidiary guarantors of the 2007 Notes which is not cured within specified
time limits, or we defaults on any of our obligation
set forth in the Settlement Agreement or certain other agreements underlying the Settlement Agreement, then the Settling 2007 Noteholders will have the option of retaining the property which has been
transferred to them by us up to the complete consideration we are obligated to transfer under the Settlement Agreement without further obligation to transfer their 2007 Notes. Exercising such an
option would relieve the 2009 Noteholders of their obligations under the Settlement Agreement and would prevent us from redeeming the 2007 Notes held by Settling 2007 Noteholders according to the
terms set forth in the Settlement Agreement. Should this occur, whatever property we have transferred to the Settling 2007 Noteholders as a part of the Settlement Agreement will be retained by them
and set off against the obligations owed to them byEvergreen, except that the initial payment of $1.45 million would be treated as a forbearance fee. The Settlement Agreement includes the
exchange of releases among and between the various parties as well as the dismissal of the Litigation which is now pending. Upon satisfaction of all obligations pursuant to the Settlement Agreement,
the 2007 Notes Litigation will be resolved.

As
described above, the 2009 Noteholders will be purchasing $3.2 million of 2007 Notes on the Final Settlement Date from the Settling 2007 Noteholders. Contemporaneously with
execution of the Settlement Agreement, we have entered into an agreement with the 2009 Noteholders to replace the $3.2 million of 2007 Notes on the Final Settlement Date with a new convertible
note with the following terms: (i) a principal amount of $1.55 million; (ii) one year term commencing with the Final Settlement

F-39

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(10) Commitments and Contingencies (Continued)

Date;
(iii) a stated interest rate of 7% per annum; and (iv) a convertibility feature under which the note is convertible at any time after the Final Settlement Date until payment in
full at the holder's option into our common stock at a conversion price equal to the market value of the shares on the Final Settlement Date. At the same time we will also issue warrants for the
purchase of up to 200,000 shares of our common stock at an exercise price equal to the at the market value of the shares issued on the Final Settlement Date. The date of issuance of the convertible
note and warrants to the 2009 Noteholders will be the Final Settlement Date and the issuance of the convertible note is contingent upon the occurrence of a Final Settlement Date.



On April 2, 2010, Evergreen and Buckeye filed suit in the United States District Court for the Northern District of Ohio naming
as defendants New Coal Holdings LLC and New Coal Holdings Inc. The action is captioned,Buckeye Industrial Mining Co. et al., v. New Coal
Holdings LLC, et al.,Case No. 4:10-cv-00699-JRA (N.D. Ohio). The action arises out of an agreement between the parties
concerning the possible acquisition of Buckeye or its assets. On December 9, 2010, the parties entered into a settlement agreement resulting in the dismissal of the New Coal Holdings Litigation
on December 15, 2010. Per the settlement agreement, we paid New Coal Holding $425,000.

C-Lock, Inc. Arbitration

On June 11, 2010, C-Lock Inc. filed a Demand for Arbitration and Complaint captioned C-Lock Inc. v. C-Lock Technology Inc.(JAMS Arbitration No. 11931). Our subsidiary, C-Lock
Technology, Inc. previously entered into an Exclusive Patent Sublicense Agreement with C-Lock Inc. whereby C-Lock Inc. granted to C-Lock
Technology an exclusive sublicense of certain patent rights in order to develop and commercialize such rights. The complaint alleges claims for breach of contract and breach of the covenant of good
faith and fair dealing and seeks an unspecified amount of money damages and termination of the Sublicense Agreement. C-Lock Technology filed counterclaims against
C-Lock Inc. alleging fraud, breach of the covenant of good faith and fair dealing and unjust enrichment. The counterclaims are based on C-Lock Inc.'s acceptance
of a $500,000 royalty payment (called for by the Sublicense) under false pretenses. We plan to prosecute our affirmative claims and believe we have meritorious defenses to the claims made against us.

C-Lock Technology, Inc./Evergreen Energy Inc. v. C-Lock Inc. et al.

On December 14, 2010, the Company filed suit against C-Lock Inc. and two of our former employees,
Dr. Patrick Zimmerman and Scott Zimmerman, inEvergreen Energy Inc. and C-Lock Technology, Inc. v. Dr. Patrick Zimmerman, Scott
Zimmerman and C-Lock, Inc., Case No. 10CV9640 (District Court for the City and County of Denver, Colorado). Dr. Patrick Zimmerman and his son
Scott Zimmerman were former high ranking employees of our subsidiary, C-Lock Technology, Inc. the Zimmermans (and their company, C-Lock, Inc.) breached their
fiduciary duty to us. Additionally, the complaint alleges that they misappropriated trade secrets and corporate assets to include filing a patent that was incomplete as to proper inventorship.

The
Complaint states claims for: (i) declaratory judgment (relating to the improperly filed patent); (ii) breach of fiduciary duty; (iii) misappropriation of trade
secrets; (iv) misappropriation of corporate

F-40

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(10) Commitments and Contingencies (Continued)

assets;
(v) breach of contract; (vi) aiding and abetting breach of fiduciary duty and duty of loyalty; (vii) civil conspiracy; and (viii) unjust enrichment. We believe we
have meritorious claims and intend to vigorously prosecute them.

C-Lock Technology, Inc. Employee Litigation

In 2010, two former employees, Vince Cook and Jim Bitonti brought suit against the Company and several directors in Denver District
Court. Each employee received shares of stock of a subsidiary, C-Lock Technology, Inc. as part of their compensation. When they left their employment, the Company notified them that
it intended to repurchase the shares at fair market value pursuant to the share award agreement. The plaintiffs claim that the Company had no authority to purchase their shares and failed to pay them
fair market value. We believe we have meritorious defenses to the claims and intend to defend ourselves vigorously in the action.



We owe royalty payments to parties related to certain rights that support our patents and our proprietary technology, primarily related
to Koppelman Ventures. As described in further detail in Note 3Restricted Cash and Other Assets.

We
have granted certain rights and limited licenses for the use of certain K-Fuel technology. The following is a summary of the significant parties and the
rights:



F-41

---





Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(11) Segments

Our business lines include the Technology segment and the GreenCert segment. The Technology segment is comprised of all operations that use, apply, own or otherwise advance our
proprietary, patented K-Fuel process, including our headquarters and related operations, and activities of Evergreen Energy Asia Pacific Corp. and KFx Technology, LLC, which holds
the licenses to our technology. Corporate costs within our Technology segment are allocated to our GreenCert segment, generally on a percentage based on the number of employees, total segment
operating expenses, or segment operating expenses plus segment capital expenditures. The GreenCert segment represents the operations of our GreenCert software suite, which focuses on providing power
generators with operational intelligence; analytics to identify fuel and operational efficiency; and address new regulatory pressures regarding environmental emissions. Our operations are principally
conducted in the United States. Data through segment operating (loss)/ income is what is provided to our Chief Operating Decision Maker. As a result of the sale of Buckeye and the signing of a
definitive agreement for the sale of our Fort Union assets, the Mining and the Plant segments were reclassified to discontinued operations for our consolidated financial statements. Note that prior
year amounts of corporate allocations were not restated due to the discontinued operations treatment. As a result, these allocated costs have significantly increased in our remaining segments, most
notably in our Technology and GreenCert segments when compared to 2009. We will continue to evaluate how we manage our business and, as necessary, adjust our segment reporting accordingly.

For The Year Ended
December 31, 2010GreenCert

Technology

TotalOperating revenues:GreenCert licensing

$
403

$


$
403Total segment revenue


403





403Operating expenses:General and administrative


4,050


10,844


14,894Total segment operating expense:


4,050


10,844


14,894Segment operating loss

$
(3,647
)
$
(10,844
)
$
(14,491
)Total assets

$
2,773

$
16,755

$
19,528Reconciliation to net loss:Total segment operating (loss) Income







$
(14,491
)Corporate costs no longer allocated to discontinued operations








(164
)Depreciation and Amortization








(1,678
)Research and development








(888
)Impairment








(3,684
)Other income (expense), net








4,615Loss from discontinued operations








(4,732
)Net loss attributable to noncontrolling interest








676Net loss attributable to Evergreen Energy Inc.







$
(20,346
)


F-42

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(11) Segments (Continued)



For The Year Ended
December 31, 2009GreenCert

Technology

TotalOperating revenues:Consulting and other

$
423

$


$
423Total segment revenue


423





423Operating expenses:General and administrative


9,037


14,488


23,525Total segment operating expense:


9,037


14,488


23,525Segment operating loss

$
(8,614
)
$
(14,488
)
$
(23,102
)Total assets

$
7,489

$
30,190

$
37,679Reconciliation to net loss:Total segment operating (loss) Income







$
(23,102
)Corporate costs no longer allocated to discontinued operations








(1,558
)Depreciation and amortization








(2,418
)Research and development








(49
)Impairment








(413
)Other income (expense), net








(1,523
)Loss from discontinued operations








(29,474
)Net loss attributable to noncontrolling interest








1,901Net loss attributable to Evergreen Energy Inc.







$
(56,636
)


F-43

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(11) Segments (Continued)



For The Year Ended
December 31, 2008GreenCert

Technology

TotalOperating revenues:Consulting and other

$
4

$


$
4Total segment revenue


4





4Operating expenses:General and administrative


5,749


18,526


24,275Plant cost





213


213Total segment operating expense:


5,749


18,739


24,488Segment operating loss

$
(5,745
)
$
(18,739
)
$
(24,484
)Reconciliation to net loss:Total segment operating (loss) Income







$
(24,484
)Corporate costs no longer allocated to discontinued operations








(3,042
)Depreciation and amortization








(1,921
)Research and development








(79
)Impairment








(18,615
)Other income (expense), net








(19
)Loss from discontinued operations








(17,070
)Net loss attributable to Evergreen Energy Inc.







$
(65,230
)


(12) Income Taxes

Our operations are principally domestic, with income taxable at the federal statutory rate of 34% plus applicable state rates. Deferred tax assets (liabilities) were comprised of the
following:

2010

2009(in thousands)Gross deferred tax assets:Net operating loss carryforwards

$
133,712

$
122,478Depreciation and amortization


32,783


36,203Accrued liabilities


732


1,237Stock options and warrants


8,506


7,307Deferred revenue


2,861


2,946Reserve on note receivable


428


428Prepaid expenses


(484
)

(484
)Other


150


150Gross deferred tax assets


178,688


170,265Deferred tax assets valuation allowance


(178,688
)

(170,265
)Net deferred tax assets

$


$



F-44

---





Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(12) Income Taxes (Continued)

We have recorded a valuation allowance for the full amount of our net deferred asset because, based upon an assessment of both negative and positive evidence, it is more likely than not
that we will not realize such benefits in future tax returns. As of December 31, 2010 our tax return net operating loss carryforwards are approximately $352 million expiring in various
amounts beginning in 2008. Certain limitations apply to the annual amount of net operating losses that can be used to offset taxable income due to certain ownership changes, as defined in
Section 382 of the Internal Revenue Code. Our tax return net operating loss carryforwards are significant. The tax years in which losses arose may be subject to audit by the Internal Revenue
Service when such carryforwards are utilized to offset taxable income in future periods.

Our
total provision for income taxes in 2010, 2009 and 2008 were different from the amount expected by applying the statutory federal income tax rate to our net loss as reported in our
Consolidated Statement of Operations. The approximate differences are as follows:

2010

2009

2008(in thousands)Expected tax benefit on loss before income taxes (34%)

$
(7,148
)
$
(19,903
)
$
(22,178
)Expected state tax benefit, net


(279
)




(2,153
)Stock options and warrant exercises


19


133


94Non-deductible items and other


(1,015
)

93


(253
)State deferred tax adjustments


0


11,424


Increase in valuation allowance


8,423


8,253


24,490$


$


$



(13) Related Party Transactions



On January 2, 2011, our Board of Directors, upon the recommendation of the Corporate Governance and Nominating Committee,
appointed Ilyas Khan to the Board of Directors as Executive Chairman. In connection with Mr. Khan's election, we became party to a Professional Services Agreement ("PSA") with Crosby Special
Situations Fund ("CSSF") effective December 31, 2010, pursuant to which CSSF will assist us with business development and financing services. Mr. Khan is designated as the lead
consultant under the PSA and was elected as Executive Chairman of the Board pursuant thereto. Mr. Kahn is an indirect owner and a strategic advisor to CSSF. We will compensate CSSF as follows:
(i) the issuance of warrants to purchase an aggregate of 1,238,150 shares of common stock, with the following exercise prices: 495,540 shares at $0.65 per share; 371,655 shares at $.98 per
share; 185,828 shares at $1.14 per share; and 185,828 shares at $1.46 per share; and a monthly fee, payable in arrears, totaling £250,000 per year. CSSF also receives reimbursement for out
of pocket expenses, not to exceed £150,000 per year. The total annual compensation to CSSF related to the PSA is approximately $390,000 per year, based upon current exchange rates.

In
connection with the private placement, we became party to a Professional Services Agreement with Crosby (Hong Kong) Limited ("CHKL") effective January 20, 2011.
We will compensate CHKL

F-45

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(13) Related Party Transactions (Continued)

by
(i) a cash fee payment of $633,750 in the first quarter of 2011, and (ii) issuance of warrants to purchase 283,654 shares of our common stock with an exercise price of $2.60 per
share. The warrants were issued effective February 1, 2011.

We
had consulting agreements with Venners & Company, Ltd. for governmental affairs services, primarily for advice on proposed legislation and regulations and to advocate
our interests before the U.S. Congress and regulatory agencies. Venners & Company, Ltd. is controlled by John P. Venners, the brother of Theodore Venners, our founder. We entered into
agreements with Venners & Company for the providing of these services at a fixed monthly fee plus certain performance bonuses. In August 2007, we terminated one of the agreements and pursuant
to the other agreement we were obligated to make payments of $7,500 per month through May 2008 for previous legislative consulting work. In May 2008, after the final payment, our obligation ceased.
During the year ended December 31, 2008, we paid Venners & Company $38,000, in cash for consulting fees. We have not incurred any costs under this consulting agreement after the year
ended December 31, 2008.



In February 2007 we entered into an exclusive patent sub-license agreement with the developer of a proprietary technology
for the measurement of carbon emissions and formed a subsidiary, C-Lock Technology, Inc. The agreement provides us with an exclusive worldwide sub-license to a
technology to standardize the measurement of carbon emissions in energy and agricultural related activities. The agreement was amended and restated to expand the energy and agricultural activities to
all applications of the technology and eliminates other operating requirements. In order to maintain this licensing arrangement, we are required to make minimum annual royalty payments of $500,000 to
a company controlled by the developer of the proprietary technology, with each payment extending the arrangement for one year if the parties are in material compliance with the contract. See
Note 10Commitments and Contingencies for further details.

We
utilized Enterprise Information Management, Inc. (EIM) to help assist us in the development of our GreenCert software. One of our former non-executive employees
serves on the board of directors of EIM. We believe the terms and contracted amounts would have been similar if we had entered into this agreement with a third party. We had incurred costs of
$2.3 million and $4.8 million during the years ended December 31, 2009 and 2008, respectively. On December 9, 2009, we entered into an agreement with EIM to issue an
aggregate of 128,601 shares of restricted common stock to settle $500,000 of incurred costs owed to EIM at that time. As the former employee ceased employment with us in July 2009, EIM is no longer
considered a related party and thus payments to EIM during 2010 are no longer disclosed.

We
granted shares from our majority owned subsidiary C-Lock Technology, Inc. to certain executive officers of Evergreen Energy, certain employees of C-Lock
Technology, Inc. and others. In the aggregate, these share grants as of December 31, 2010 and December 31, 2009 represent an 8% ownership interest in C-Lock
Technology, Inc.

F-46

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(13) Related Party Transactions (Continued)



In December 2004, we entered into a licensing agreement with Cook Inlet Coal, an affiliate of Kanturk Partners LLC, under which
we agreed to license to Cook Inlet Coal our proprietary coal processing technology for use at a coal processing plant to be operated by Cook Inlet Coal. Kanturk Partners owns approximately a 12%
interest in Cook Inlet Coal. Mr. John Venners, brother of our founder, Mr. Theodore Venners, has an approximately 4.5% interest in Kanturk Partners. Effective May 1, 2007, the
licensing agreement was assigned to a third party. Effective December 10, 2008, the third party reassigned the licensing agreement to Cook Inlet Coal.



In addition, we are obligated to make licensing and royalty payments to a party related to Theodore Venners, our founder. See further
discussion in Note 5Other Assets and Note 12Commitments and Contingencies.

(14) Financial Statements of Guarantors

The following information sets forth our consolidating statements of operations for the years ended December 31, 2010, 2009 and 2008, our consolidating balance sheets as of
December 31, 2010 and December 31, 2009, and our consolidating statements of cash flows for the years ended December 31, 2010, 2009 and 2008. Pursuant to SEC regulations, we have
presented in columnar format the financial information for Evergreen Energy Inc., the issuer of the 2007 Notes, Evergreen Operations, LLC, the guarantor, and all
non-guarantor subsidiaries on a combined basis. The 2007 Notes are fully and unconditionally guaranteed, on a senior, unsecured basis by, Evergreen Operations, LLC. As a result of
the sale of Buckeye on April 1, 2010 the results of operations for the mining segment are shown as discontinued operations and prior year comparative information is also restated and reflected
in discontinued operations. Further, the assets and liabilities of the mining segment have been reclassified to assets of discontinued mining operations, and liabilities of discontinued mining
operations, respectively. In addition, as a result of our signing of a definitive agreement to sell our Fort Union assets, our plant segment that primarily represents revenue and costs related to our
Fort Union plant in Gillette has been reclassified to assets of discontinued plant operations and liabilities of discontinued plant operations for our consolidated financial statements. We did not
re-allocate our corporate costs nor restate our operating segments results in the comparative periods ended December 31, 2009 and 2008 as a result of the presentation of the mining
operations and plant operations as discontinued operations.

The
consolidating statements of operations, cash flows, and balance sheets include the effects of elimination of intercompany transactions and balances. Except for Evergreen Energy Asia
Pacific, which is 96% owned by us, and C-Lock Technologies which is 92% owned by us, all of our other subsidiaries are 100% owned. The accounting principles used to determine the amounts
reported in this note are consistent with those used in our consolidated financial statements. Transactions effecting our consolidated stockholders' equity include net loss, exercise of options and
warrants, vesting of restricted stock, issuance of common stock, warrant issuances and debt issue costs. These transactions for all periods relate to our parent, Evergreen Energy Inc. with the
exception of the sale of stock in

F-47

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

Evergreen
Asia Pacific for $3.6 million in the second quarter of 2007, which is included as equity in the column labeled Other.

EVERGREEN ENERGY INC.  CONSOLIDATING BALANCE SHEETS  DECEMBER 31, 2010

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)AssetsCurrent:Cash and cash equivalents

$
2,946

$


$
28

$


$
2,974Prepaid and other assets


1,616





48





1,664Assets of discontinued mining and plant operations





10,030








10,030Total current assets


4,562


10,030


76





14,668Property, plant and equipment, net of accumulated depreciation


1,142





592





1,734Construction in progress


7,556





2,304





9,860Debt issuance costs, net of amortization


512











512Investment in consolidated subsidiaries


(295,730
)







295,730


Due from subsidiaries


295,796








(295,796
)

Other assets


1,361





1,423





2,784$
15,199

$
10,030

$
4,395

$
(66
)
$
29,558Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
2,398

$


$
300

$


$
2,698Accrued liabilities


2,361





6





2,367Other current liabilities


132





550





682Liabilities of discontinued mining and plant operations





5,432








5,432Total current liabilities


4,891


5,432


856





11,179Long-term debt


21,821











21,821Deferred revenue








7,865





7,865Due to parent





243,481


52,315


(295,796
)

Derivative liability


972











972Other liabilities, less current portion


1,007





206





1,213Total liabilities


28,691


248,913


61,242


(295,796
)

43,050Commitments and contingenciesTemporary Capital


3











3Total equity (deficit)


(13,495
)

(238,883
)

(56,847
)

295,730


(13,495
)$
15,199

$
10,030

$
4,395

$
(66
)
$
29,558


F-48

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING BALANCE SHEETS  DECEMBER 31, 2009

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)AssetsCurrent:Cash and cash equivalents

$
2,165

$


$
42

$


$
2,207Accounts receivable, net


6





584





590Receivable from Parent 2009 convertible notes





16,022





(16,022
)

Debt issue cost, net of amortization


2,089











2,089Prepaid and other assets


1,343





3





1,346Assets from discontinued mining and plant operations


2,476


40,633








43,109Total current assets


8,079


56,655


629


(16,022
)

49,341Property, plant and equipment, net of accumulated depreciation


1,693





2,157





3,850Construction in progress


7,504





4,955





12,459Restricted cash


5,052











5,052Debt issuance costs, net of amortization


994











994Investment in consolidated subsidiaries


(286,147
)







286,147


Due from subsidiaries


312,327








(312,327
)

Other assets


1,385





1,423





2,808$
50,887

$
56,655

$
9,164

$
(42,202
)
$
74,504Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
3,235

$


$
555

$


$
3,790Accrued liabilities


5,480





568





6,048Short-term debt


16,022


16,022





(16,022
)

16,022Other current liabilities


1,372





550





1,922Liabilities of discontinued mining and plant operations


245


13,585








13,830Total current liabilities


26,354


29,607


1,673


(16,022
)

41,612Long-term debt


27,898











27,898Deferred revenue








8,265





8,265Due to parent





265,737


46,590


(312,327
)

Derivative liability


1,265











1,265Other liabilities, less current portion


1,245





94





1,339Total liabilities


56,762


295,344


56,622


(328,349
)

80,379Commitments and contingenciesTemporary Capital


2











2Total equity (deficit)


(5,877
)

(238,689
)

(47,458
)

286,147


(5,877
)$
50,887

$
56,655

$
9,164

$
(42,202
)
$
74,504


F-49

---





Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF OPERATIONS  DECEMBER 31, 2010

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Operating revenues:GreenCert licensing

$


$


$
403

$


$
403Total operating revenue








403





403Operating expenses:General and administrative


11,038





4,020





15,058Depreciation and amortization


701





977





1,678Research and development








888





888Impairment








3,684





3,684Total operating expenses


11,739





9,569





21,308Operating loss


(11,739
)




(9,166
)




(20,905
)Other income (expense):Gain on debt for equity exchange


2,941











2,941Loss on extinguishment of debt


(2,267
)










(2,267
)Interest income


23











23Interest expense


(2,434
)










(2,434
)Gain on fair value derivatives


5,580











5,580Other income (expense), net


795





(23
)




772Total other (expense) income


4,638





(23
)




4,615Loss from continuing operations


(7,101
)




(9,189
)




(16,290
)Loss from discontinued mining operations


(2,525
)

(2,316
)







(4,841
)Gain from discontinued plant operations





109








109Equity in loss of subsidiaries


(11,396
)







11,396


Net loss


(21,022
)

(2,207
)

(9,189
)

11,396


(21,022
)Less: net loss attributable to non-controlling interest











676


676Net (loss) gain attributable to Evergreen Energy Inc.

$
(21,022
)
$
(2,207
)
$
(9,189
)
$
12,072

$
(20,346
)


F-50

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF OPERATIONS  DECEMBER 31, 2009

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands, except per share amounts)Operating revenues:Consulting and other

$


$


$
423





423Total operating revenue








423





423Operating expenses:General and administrative


15,074





10,009





25,083Depreciation and amortization


1,226





1,192





2,418Research and development








49





49Asset impairments


413











413Total operating expenses


16,713





11,250





27,963Operating loss


(16,713
)




(10,827
)




(27,540
)Other income (expense):Gain on equity exchange transactions


167











167Interest income


40





25





65Interest expense


(4,208
)










(4,208
)Gain on fair value derivatives


2,036











2,036Other (expense) income, net


522





(105
)




417Total other (expense) income


(1,443
)




(80
)




(1,523
)Loss from continuing operations


(18,156
)




(10,907
)




(29,063
)Loss from discontinued mining operations


(2,458
)

(25,842
)







(28,300
)Loss from discontinued plant operations





(1,174
)







(1,174
)Equity in loss of subsidiaries


(37,923
)







37,923


Net loss


(58,537
)

(27,016
)

(10,907
)

37,923


(58,537
)Less: net loss attributable to noncontrolling interest











1,901


1,901Net loss attributable to Evergreen Energy

$
(58,537
)
$
(27,016
)
$
(10,907
)
$
39,824

$
(56,636
)


F-51

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF OPERATIONS  DECEMBER 31, 2008

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands, except per share amounts)Operating revenues:Consulting and other

$


$


$
4

$



4Intercompany Consulting and other





171





(171
)

Total operating revenue





171


4


(171
)

4Operating expenses:General and administrative


20,233





7,297





27,530Depreciation and amortization


1,537





384





1,921Research and development








79





79Cost of intercompany consulting and other revenue





171





(171
)

Asset impairments


18,615











18,615Total operating expenses


40,385


171


7,760


(171
)

48,145Operating loss


(40,385
)




(7,756
)




(48,141
)Other income (expense):Gain on equity exchange transactions


6,138











6,138Interest income


1,128





123





1,251Interest expense


(6,132
)










(6,132
)Loss on fair value derivatives


(934
)










(934
)Other (expense) income, net


(395
)




53





(342
)Total other (expense) income


(195
)




176





(19
)Loss from continuing operations


(40,580
)




(7,580
)




(48,160
)Loss from discontinued plant operations


(617
)

(16,117
)







(16,734
)Loss from discontinued mining operations





(336
)







(336
)Equity in loss of subsidiaries


(24,033
)







24,033


Net loss

$
(65,230
)
$
(16,453
)
$
(7,580
)
$
24,033

$
(65,230
)


F-52

---





Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF CASH FLOW  DECEMBER 31, 2010

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Cash used in operating activities from continued operations

$
(10,966
)
$


$
(4,726
)
$


$
(15,692
)Cash used in operating activities from discontinued mining and plant operations





(4,943
)







(4,943
)Cash used in operating activities


(10,966
)

(4,943
)

(4,726
)




(20,635
)Investing activities:Purchases of construction in progress


(518
)




(849
)




(1,367
)Restricted cash and marketable securities, net


5,052











5,052Cash used in investing activities from continuing operations


4,534





(849
)




3,685Cash used in investing activities from discontinued mining and plant operations





24,651








24,651Cash provided by (used in) investing activities


4,534


24,651


(849
)




28,336Financing Activities:Payments to parent/subsidiaries


(19,580
)







19,580


Advances /from parent/subsidiaries


30,412





5,561


(35,973
)

Distribution from subsidiaries


3,315











3,315Proceeds from issuance of convertible preferred stock, net of closing costs


8,746











8,746Proceeds from issuance of common stock, net of closing costs


8,043











8,043Payments on short-term debt


(17,250
)










(17,250
)Payment of dividends on convertible preferred stock


(4,312
)










(4,312
)Payment of debt issuance costs


(2,179
)










(2,179
)Other


18











18Cash provided by financing activities from continuing operations


7,213





5,561


(16,393
)

(3,619
)Cash provided by financing activities from discontinued mining and plant operations





(19,708
)




16,393


(3,315
)Cash (used in) provided by financing activities


7,213


(19,708
)

5,561





(6,934
)Increase (decrease) in cash and cash equivalents


781





(14
)




767Cash and cash equivalents, beginning of year


2,165





42





2,207Cash and cash equivalents, end of year

$
2,946

$


$
28

$


$
2,974


F-53

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF CASH FLOW  DECEMBER 31, 2009

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Cash used in operating activities of continuing operations

$
(7,392
)
$


$
(5,765
)
$


$
(13,157
)Cash provided by operating activities of discontinued mining and plant operations





248








248Cash (used in) provided by operating activities


(7,392
)

248


(5,765
)




(12,909
)Investing activities:Purchases of construction in progress


(707
)




(3,097
)




(3,804
)Purchases of property, plant and equipment


(88
)




(75
)




(163
)Proceeds from sale of assets


180











180Proceeds from maturities of marketable securities








2,000





2,000Restricted cash and marketable securities, net


905











905Other


(421
)










(421
)Cash used in investing activities from continuing operations


(131
)




(1,172
)




(1,303
)Cash used in investing activities from discontinued mining and plant operations





(8,381
)







(8,381
)Cash used in investing activities


(131
)

(8,381
)

(1,172
)




(9,684
)Financing Activities:Payments to parent/subsidiaries


(68,490
)




(2,000
)

70,490


Advances /from parent/subsidiaries


54,495





7,862


(62,357
)

Proceeds from issuance of convertible debt


15,000











15,000Proceeds from issuance of convertible preferred stock


6,515











6,515Proceeds from reverse repurchase transaction


1,800











1,800Payments on reverse repurchase transaction


(1,800
)










(1,800
)Payment of dividends on convertible preferred stock


(1,973
)










(1,973
)Payment of debt issuance costs


(2,387
)










(2,387
)Other


(22
)










(22
)Cash provided by financing activities from continuing operations


3,138





5,862


8,133


17,133Cash provided by (used in) financing activities discontinued mining and plant operations





8,133





(8,133
)

Cash provided by financing activities


3,138


8,133


5,862





17,133Decrease in cash and cash equivalents


(4,385
)




(1,075
)




(5,460
)Cash and cash equivalents, beginning of year


6,550





1,117





7,667Cash and cash equivalents, end of year

$
2,165

$


$
42

$


$
2,207


F-54

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(14) Financial Statements of Guarantors (Continued)

EVERGREEN ENERGY INC.  CONSOLIDATING STATEMENTS OF CASH FLOW  DECEMBER 31, 2008

Evergreen
Energy Inc.

Evergreen
Operations,
LLC

Other

Eliminations

Evergreen
Energy
Consolidated(in thousands)Cash used in operating activities from continuing operations

$
(20,956
)
$


$
(6,599
)
$


$
(27,555
)Cash used in operating activities from discontinued mining and plant operations





(8,708
)







(8,708
)Cash used in operating activities


(20,956
)

(8,708
)

(6,599
)




(36,263
)Investing activities:Purchases of construction in progress


(7,654
)




(3,698
)




(11,352
)Purchases of property, plant and equipment














Purchase of marketable securities


(5,000
)










(5,000
)Proceeds from maturities of marketable securities


27,500











27,500Restricted cash and marketable securities, net


17,205











17,205Other


(111
)










(111
)Cash provided by (used in) investing activities from continuing operations


31,940





(3,698
)




28,242Cash used in investing activities from discontinued mining and plant operations





(7,618
)







(7,618
)Cash provided by (used in) investing activities


31,940


(7,618
)

(3,698
)




20,624Financing Activities:Payments to parent/subsidiaries


(87,578
)




(150
)

87,728


Payments on debt for equity exchange transactions


(3,500
)










(3,500
)Advances /from parent/subsidiaries


61,602





9,800


(71,402
)

Payment of debt issue cost


(200
)










(200
)Other


48











48Cash (used in) provided by financing activities of continuing operations


(29,628
)




9,650


16,326


(3,652
)Cash provided by (used in) financing activities of discontinued mining and plant operations





16,326





(16,326
)

Cash (used in) provided by financing activities


(29,628
)

16,326


9,650





(3,652
)Decrease in cash and cash equivalents


(18,644
)




(647
)




(19,291
)Cash and cash equivalents, beginning of year


25,194





1,764





26,958Cash and cash equivalents, end of year

$
6,550

$


$
1,117

$


$
7,667


F-55

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(15) Discontinued Mining and Plant Operations

Mining Operations

We executed on one of our strategic positioning plans by completing the sale of Buckeye. On March 12, 2010, we signed a
definitive agreement with Rosebud Mining Company for the sale of certain net assets of both Buckeye and Evergreen for $27.9 million, in addition to the release of $5.0 million of cash
reclamation bonds. Further, $2.8 million of the purchase price was deposited into escrow for a period of twelve months to cover amounts payable to Rosebud pursuant to the indemnification
provision of the sales agreement. The sale closed on April 1, 2010, however, we are still subject to some post-closing obligations, including incurring costs related to the transfer
of certain assets and providing support for such transfers. Accordingly, the results of operations for the mining segment are shown as discontinued operations and prior year comparative information is
also restated and reflected in discontinued operations. Further, the assets and liabilities of the mining segment have been reclassified to assets of discontinued mining operations and liabilities of
discontinued mining operations, respectively.

The
assets and liabilities classified as assets held for sale included in the assets and liabilities of discontinued mining operations in the accompanying consolidated balance sheets are
as follows:

December 31,
2010

December 31,
2009(in thousands)Accounts receivable, net

$


$
4,604Inventory





1,747Restricted cash


2,785


Construction in progress





4,836Pre-mining development and mineral rights





9,945Property, plant, and equipment





12,772Other assets


35


880Accounts payable and accrued liabilities


(609
)

(6,681
)Other liabilities





(112
)Asset retirement obligations





(2,449
)Net assets held for sale in discontinued mining operations

$
2,211

$
25,542


Pursuant
to the sales agreement, inventory, property, plant, equipment, mineral rights, Evergreen's dock facilities and the assumption of asset retirement obligations and obligations
related to a multi year dock lease were transferred to Rosebud. Evergreen retains the rights to accounts receivable and obligations related to accounts payable, restricted cash and accrued liabilities
that existed on the sale date of April 1, 2010. As of December 31, 2010, we had recognized $3.0 million in exit costs, which include selling and legal fees related to the sale. We
recorded a net gain of $1.0 million from our sale of Buckeye and Evergreen assets and are included in our discontinued operating loss for the year ended December 31, 2010.

F-56

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(15) Discontinued Mining and Plant Operations (Continued)

Discontinued
Mining operations consisted of the following:

2010

Year Ended
December 31,
2009

2008(in thousands)Mining revenue

$
12,619

$
50,248

$
58,434Coal mining operating costs


(12,035
)

(43,458
)

(47,799
)General and administrative


(1,566
)

(3,993
)

(4,033
)Depreciation, depletion & amortization


(1,281
)

(7,518
)

(7,024
)Other (loss) income


(2,578
)

(23,579
)

86Loss from discontinued mining operations

$
(4,841
)
$
(28,300
)
$
(336
)


Loss
from discontinued mining operations for the year ended December 31, 2009 includes a $20.1 million impairment charge.

Income
from discontinued mining operations primarily consists of coal and ash revenues and direct expenses of coal mining. Interest from the 2009 Notes (more fully described in
Note 6Debt), that is required to be repaid as a result of the sale, was fully allocated to discontinued mining operations. General corporate overhead costs were not allocated to
discontinued operations.

Fort Union site

On August 20, 2010, we entered into an agreement to sell certain property and operations in Campbell County, Wyoming, including
the Ft. Union plant, to Synthetic Fuels LLC or its nominee for a cash purchase price of $2.0 million of which $500,000 will be paid at closing with the remaining $1.5 million to
be paid pursuant to a secured two year note. Also, the buyer will pay additional amounts in connection with the transfer of all of the reclamation bonds pertaining to the sold property, currently
totaling $5.2 million, pursuant to a secured one year note. The due diligence period has ended and the transaction is expected to close in first quarter of 2011; such closing is subject to
customary closing conditions. Proceeds of the sale will be used for general working capital purposes.

As
a result of the signing of the definitive agreement, we have accounted for our plant segment as assets held for sale on our consolidated balance sheets and restated prior year's
balance to reflect this classification. In addition, we have accounted for revenues and expenditures related to our plant segment as discontinued plant operations for all periods presented.

F-57

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(15) Discontinued Mining and Plant Operations (Continued)

The
assets and liabilities classified as assets held for sale included in the assets and liabilities of our plant segment in the accompanying consolidated balance sheets are as follows:

December 31,
2010

December 31,
2009(in thousands)Property, Plant and Equipment

$
2,038

$
2,038Restricted cash


5,172


6,287Accounts payable and accrued expenses


(177
)

(168
)Asset retirement obligation


(4,646
)

(4,420
)Net assets in discontinued plant operations

$
2,387

$
3,737


Discontinued
Plant Operations is comprised of the following:

2010

Year Ended
December 31,
2009

2008(in thousands)Revenue

$


$


$
463Plant costs


(646
)

(1,554
)

(17,630
)General and administrative





(6
)

(401
)Depreciation, depletion & amortization





(26
)

(56
)Other (loss) income


755


412


890Gain (loss) from discontinued plant operations

$
109

$
(1,174
)
$
(16,734
)


(16) Subsequent events



On February 1, 2011,we completed a private placement to sell 6,150,003 shares of Common Stock and 12,000,003 Warrants to
purchase Common Stock pursuant to the terms of a securities purchase agreement (the "Securities Purchase Agreement"), resulting in approximately $15.99 million in gross proceeds to us, and
$14.6 in net proceeds after the offering expenses.

The
sale included an aggregate of $15,990,000 of Common Stock. The stock price of the Common Stock was $2.60 per share. Each of the investors has entered into a Registration Rights
Agreement which requires us to prepare and file a registration statement with the Securities and Exchange Commission registering for resale by the investors the shares of Common Stock acquired
pursuant to the Securities Purchase Agreement on or prior to 10 days following the filing of our 10-K for the year ended December 31, 2010.

The
warrants are exercisable for an aggregate of 12,000,003 shares of common stock, with 50% of the Warrants at an exercise price of $2.60 per share, with 25% of the warrants at an
exercise price of $2.73 per share, and the remaining 25% of the warrants at an exercise price of $2.80 per share, all subject to certain adjustments. The warrants are exercisable commencing
August 1, 2011 and have a term of exercise equal to three years. The Warrants are not redeemable by us.

F-58

---



Table of Contents

EVERGREEN ENERGY INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010 and 2009

(17) Selected Quarterly Financial Data (Unaudited)

The following table presents selected unaudited quarterly financial data for the years ended
December 31, 2010 and 2009:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Total(in thousands, except per share amounts)2010Revenues

$
100

$
103

$
100

$
100

$
403Operating loss


(5,891
)

(3,758
)

(7,310
)

(3,946
)

(20,905
)Loss from Continuing Operations


(4,016
)

(4,567
)

(4,766
)

(2,941
)

(16,290
)Loss from Discontinued Operations


(4,215
)

(221
)

(215
)

(81
)

(4,732
)Net loss


(8,231
)

(4,788
)

(4,981
)

(3,022
)

(21,022
)Basic and diluted net loss per common share

$
(0.89
)
$
(0.20
)
$
(0.26
)
$
(0.12
)
$
(1.47
)2009Revenues

$
134

$
16

$
260

$
13

$
423Operating loss


(7,373
)

(5,444
)

(10,109
)

(4,614
)

(27,540
)Loss from Continuing Operations


(7,169
)

(6,455
)

(11,498
)

(3,941
)

(29,063
)Gain (loss) from Discontinued Operations


315


(2,303
)

(3,352
)

(24,134
)

(29,474
)Net loss


(6,854
)

(8,758
)

(14,850
)

(28,075
)

(58,537
)Basic and diluted net loss per common share

$
(0.61
)
$
(0.78
)
$
(1.27
)
$
(2.65
)
$
(5.31
)


Fourth Quarter 2009 Discussion

We incurred $20.1 million of impairment charges during the fourth quarter in our loss from discontinued operation. In addition,
we recorded a $2.1 million gain related to the fair value adjustment to our embedded derivatives and put warrant liability in our continuing operations.

F-59

---