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Exhibit 99.1

EVERGREEN OPERATIONS, LLC

Financial Statements

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| |                                                                                         | Page No.
| | --------------------------------------------------------------------------------------- | --------
| | FINANCIAL STATEMENTS                                                                    |         
| | Report of Independent Registered Public Accounting Firm                                 |         
| | Consolidated Balance SheetsDecember 31, 2007 and 2006                                  |         
| | Consolidated Statements of OperationsYears ended December 31, 2007, 2006 and 2005      |         
| | Consolidated Statement of Member's DeficitYears ended December 31, 2007, 2006 and 2005 |         
| | Consolidated Statements of Cash FlowsYears ended December 31, 2007, 2006 and 2005      |         
| | Notes to Consolidated Financial StatementsYears ended December 31, 2007, 2006 and 2005 |         

F-1

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To
the Membership Interest Owners of
Evergreen Operations, LLC
Denver, Colorado

We
have audited the accompanying consolidated balance sheets of Evergreen Operations, LLC. and subsidiaries (the "Company") (a wholly-owned subsidiary of Evergreen Energy Inc) as
of December 31, 2007 and 2006, and the related statements of income, members' deficit, and cash flows for the years 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 audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. 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 audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Evergreen Operations, LLC and subsidiaries as of
December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.

As
discussed in Note 1, the accompanying consolidated financial statements may not necessarily be indicative of the conditions that would have existed or the results of operations
if the Company had been operated as an unaffiliated entity.

Deloitte &
Touche LLP
Denver, Colorado
March 21, 2008

F-2

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EVERGREEN OPERATIONS, LLC        Consolidated Balance Sheets

|                                                                  |                           | December 31,              |        
|----------------------------------------------------------------- | ------------------------- | ------------------------- | -------
|
|
|Assets                                                            |                           |                           |        
|Current:                                                          |                           |                           |        
|                                                                  | Accounts receivable, net  |                           | $      
|                                                                  | Inventory                 |                           |        
|                                                                  | Prepaid and other assets  |                           |        
|                                                                  |                           |                           |        
|                                                                  |                           | Total current assets      |        
|Property, plant and equipment, net of accumulated depreciation    |                           |                           | 20,596 
|Construction in progress                                          |                           |                           | 5,260  
|Mineral rights and mine development, net of accumulated depletion |                           |                           | 19,363 
|Other assets                                                      |                           |                           | 509    
|                                                                  |                           |                           |        
|                                                                  |                           | $                         | 54,402 
|                                                                  |                           |                           |        
|Liabilities and Member's Deficit                                  |                           |                           |        
|Current liabilities:                                              |                           |                           |        
|                                                                  | Accounts payable          |                           | $      
|                                                                  | Accrued liabilities       |                           |        
|                                                                  | Other current liabilities |                           |        
|                                                                  |                           |                           |        
|                                                                  |                           | Total current liabilities |        
|Due to Parent                                                     |                           |                           | 235,118
|Asset retirement obligations                                      |                           |                           | 6,171  
|Other liabilities, less current portion                           |                           |                           | 1,100  
|                                                                  |                           |                           |        
|                                                                  |                           | Total liabilities         |        
|Commitments and contingencies (note8)                            |                           |                           |        
|Member's deficit:                                                 |                           |                           |        
|                                                                  | Accumulated deficit       |                           |        
|                                                                  |                           |                           |        
|                                                                  |                           | Total member's deficit    |        
|                                                                  |                           |                           |        
|                                                                  |                           | $                         | 54,402 
|                                                                  |                           |                           |        

See
accompanying notes to the consolidated financial statements.

F-3

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EVERGREEN OPERATIONS, LLC        Consolidated Statements of Operations

|                        |                                                     | Years Ended December 31, |         
|----------------------- | --------------------------------------------------- | ------------------------ | --------
|
|
|Operating revenues:     |                                                     |                          |         
|                        | Mining                                              |                          | $       
|                        | K-Fuel refined coal and blended K-Fuel refined coal |                          |         
|                        | Consulting and other                                |                          |         
|                        | Consulting and other to parent                      |                          |         
|                        |                                                     |                          |         
|                        |                                                     | Total operating revenue  |         
|Operating expenses:     |                                                     |                          |         
|                        | General and administrative                          |                          |         
|                        | Coal mining operating costs                         |                          |         
|                        | Plant start-up costs                                |                          |         
|                        | Depreciation and depletion                          |                          |         
|                        | Cost of consulting revenue                          |                          |         
|                        | Cost of consulting revenue to parent                |                          |         
|                        | Asset impairments                                   |                          |         
|                        |                                                     |                          |         
|                        |                                                     | Total operating expenses |         
|                        |                                                     |                          |         
|Operating loss          |                                                     |                          | (157,558
|Other income (expense): |                                                     |                          |         
|                        |                                                     | Other income (expense)   |         
|                        |                                                     |                          |         
|                        |                                                     | Total other income       |         
|                        |                                                     |                          |         
|Net loss                |                                                     | $                        | (157,227
|                        |                                                     |                          |         

See
accompanying notes to the consolidated financial statements.

F-4

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EVERGREEN OPERATIONS, LLC        Consolidated Statements of Member's Deficit        For the Years ended December 31, 2007, 2006 and 2005

|                           |  | Total
Member's
Deficit |         
|-------------------------- |  | ---------------------- | --------
|Balance, January 1, 2005   |  | $                      | (1,087  
|Net loss                   |  |                        | (3,494  
|                           |  |                        |         
|Balance, December 31, 2005 |  |                        | (4,581  
|Net loss                   |  |                        | (32,187 
|                           |  |                        |         
|Balance, December 31, 2006 |  |                        | (36,768 
|Net loss                   |  |                        | (157,227
|                           |  |                        |         
|Balance, December 31, 2007 |  | $                      | (193,995
|                           |  |                        |         

See
accompanying notes to the consolidated financial statements.

F-5

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EVERGREEN OPERATIONS, LLC        Consolidated Statements of Cash Flows

|                                                 |                                                                                       | Years ended December 31,                                 |        
|------------------------------------------------ | ------------------------------------------------------------------------------------- | -------------------------------------------------------- | -------
|
|
|Operating activities:                            |                                                                                       |                                                          |        
|                                                 | Net loss                                                                              |                                                          | $      
|                                                 | Adjustments to reconcile net loss to cash (used in) provided by operating activities: |                                                          |        
|                                                 |                                                                                       | Share-based compensation expense to employees and others |        
|                                                 |                                                                                       | Depreciation and depletion                               |        
|                                                 |                                                                                       | Asset impairments                                        |        
|                                                 |                                                                                       | Asset retirement obligation accretion                    |        
|                                                 |                                                                                       | Gain sale of fixed assets                                |        
|                                                 |                                                                                       | Other                                                    |        
|                                                 | Changes in operating assets and liabilities:                                          |                                                          |        
|                                                 |                                                                                       | Accounts receivable                                      |        
|                                                 |                                                                                       | Inventory                                                |        
|                                                 |                                                                                       | Prepaids and other assets                                |        
|                                                 |                                                                                       | Other current obligations                                |        
|                                                 |                                                                                       | Accounts payable and accrued expenses                    |        
|                                                 |                                                                                       |                                                          |        
|Cash (used in) provided by operating activities  |                                                                                       |                                                          | (38,342
|                                                 |                                                                                       |                                                          |        
|Investing activities:                            |                                                                                       |                                                          |        
|                                                 | Purchases of construction in progress                                                 |                                                          |        
|                                                 | Purchases of property, plant and equipment                                            |                                                          |        
|                                                 | Proceeds from the sale of assets                                                      |                                                          |        
|                                                 | Cash paid for acquisition, net of cash received                                       |                                                          |        
|                                                 | Purchases of mineral rights                                                           |                                                          |        
|                                                 | Restricted cash                                                                       |                                                          |        
|                                                 | Other                                                                                 |                                                          |        
|                                                 |                                                                                       |                                                          |        
|Cash used in investing activities                |                                                                                       |                                                          | (26,845
|                                                 |                                                                                       |                                                          |        
|Financing Activities:                            |                                                                                       |                                                          |        
|                                                 | Payments to parent                                                                    |                                                          |        
|                                                 | Advances from parent                                                                  |                                                          |        
|                                                 | Payments on capital leases and note payable                                           |                                                          |        
|                                                 |                                                                                       |                                                          |        
|Cash provided by financing activities            |                                                                                       |                                                          | 65,187 
|                                                 |                                                                                       |                                                          |        
|Increase (decrease) in cash and cash equivalents |                                                                                       |                                                          |       
|Cash and cash equivalents, beginning of year     |                                                                                       |                                                          |       
|                                                 |                                                                                       |                                                          |        
|Cash and cash equivalents, end of year           |                                                                                       | $                                                        |       
|                                                 |                                                                                       |                                                          |        

See
accompanying notes to the consolidated financial statements.

F-6

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EVERGREEN OPERATIONS, LLC        Notes to Consolidated Financial Statements        Years ended December 31, 2007, 2006 and 2005

Unless the context requires otherwise, the terms "Evergreen Operations," "we," "our," and "us" refer to Evergreen Operations, LLC and its subsidiaries. All
references to K-Fuel and K-Fuel® refer to Evergreen Energy Inc.'s patented process and technology. All references to Evergreen Energy refer to Evergreen
Energy Inc.

(1) Business and Summary of Significant Accounting Policies

Evergreen Operations, LLC is wholly owned by Evergreen Energy Inc. (Parent or Evergreen Energy). The subsidiaries of Evergreen Operations, which
consist of KFx Plant, LLC (KFx Plant), a Wyoming limited liability company, KFx Operations, LLC (KFx Operations), a Wyoming limited liability company, Landrica Development Company
(Landrica), a South Dakota corporation, and Buckeye Industrial Mining Company (Buckeye), an Ohio corporation, were wholly owned subsidiaries of Evergreen Energy, a Delaware corporation, prior to being
merged into Evergreen Operations, and are considered to be predecessors to the Evergreen Operations. The merger transaction, whereby the wholly owned subsidiaries of Evergreen Energy became wholly
owned subsidiaries of Evergreen Operations, has been accounted for as a transfer of net assets between entities under common control at historical cost in a manner similar to a pooling of interests.

Our
goal is to facilitate Evergreen Energy's goal of leveraging a vertically integrated, coal-based platform to deliver clean, efficient and affordable energy. Evergreen
Energy and we intend to meet the specific needs of public utility and industrial market customers by providing economical solutions to environmental emission standards compared to other emission
standard alternatives. Evergreen Energy's proprietary K-Fuel process uses heat and pressure to physically and chemically transform high moisture, low-Btu coals, such as
sub-bituminous coal and lignite, into a more energy efficient, lower-emission fuel.

Evergreen
Energy, along with our engineering consultants, Bechtel Power Corporation, have completed the modifications and improvements of the design and efficiency of the equipment used
in the K-Fuel process. Bechtel and Evergreen's operations team at Fort Union completed successful testing of new operational systems that will support construction of future
K-Fuel refineries, including a new standard tower design. This work signals that we and Bechtel have resolved the most substantive technical challenges to scaling and fully commercializing
our production process. In February 2007, we expanded our contractual relationship with Bechtel to assist with future designs of additional K-Fuel facilities we may build or
license, including any K-Fuel facilities located at coal-fired power generating plants, which we refer to as K-Direct facilities. On September 19, 2007, we
amended and restated our Umbrella Agreement with Bechtel Power Corporation. Through this new Program Management Agreement, we committed to provide Bechtel with $1 billion in construction
contracts through 2013. This restated agreement increases the scope of engineering, procurement and construction services which may be performed by Bechtel. We intend to use Bechtel's services to
oversee both technical development and implementation of all new facilities and existing plants, including both K-Fuel and K-Direct plants.

The
Fort Union plant and mine site in Wyoming's Powder River basin, which was our first plant to implement the current K-Fuel process, has accomplished virtually all of the
goals and objectives we set forth for this site. Most notably, as a result of operations at the Fort Union plant, we have:



F-7

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EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

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



As
of March 19, 2008, we have chosen to suspend operations at our Fort Union plant and mine site. This will enable us to focus on future K-Fuel or K-Direct
plants by redirecting constrained resources, both capital and human, to focus on the commercialization of our process. Bechtel has completed the enhanced standard processing tower design based upon
the results of the testing completed by us at the Fort Union plant. Additionally, suspending production at this site will further enable us to reduce our cash utilization. If the need arises, we are
positioned to resume operations at Fort Union plant to demonstrate the technology or to provide K-Fuel product for test burns at utilities or other industrial sites. Alternatively, we are
evaluating redeploying some of the equipment to a future K-Fuel plant site, as discussed further below. We have incurred an asset impairment charge of $109.5 million related to the
Fort Union plant and mine site as of December 31, 2007.

On
April 3, 2006, Evergreen Energy completed the acquisition of Buckeye Industrial Mining Company 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 and to industrial end users.
Buckeye also operates one of the largest ash disposal facilities in the state of Ohio, disposing of up to one million tons of dry and conditioned ash per year. The acquisition of Buckeye
complements our strategy to transition from an energy technology company into an energy production company.

Basis of presentation and consolidation.Evergreen Operations, through its predecessor, commenced
operations in 2004. We have incurred net losses since inception and, as of December 31, 2007, had an accumulated deficit of $194.0 million. Our parent has committed to provide us with
necessary funding to meet our obligations as they come due for the foreseeable future.

The
consolidated financial statements include the accounts of Evergreen Operations and its subsidiaries and have been prepared in accordance with accounting principles generally accepted
in the United States. The consolidated financial statements may not necessarily be indicative of the conditions that would have existed or the results of our operations if we had operated as an
unaffiliated entity. Transactions between Evergreen Operations and Evergreen Energy have been identified in the combined statements as transactions between us and our Parent (see Note 2). All
intercompany account balances, transactions and profits (loss) between Evergreen Operations and its subsidiaries have been eliminated. In the opinion of management, all adjustments have been reflected
that are necessary for a fair presentation of the combined financial statements.

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,

F-8

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EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

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

assumptions
and judgments when accounting for items and matters such as asset retirement obligations, mineral reserves, capitalized premining costs, capitalized plant costs, depletion, depreciation,
asset valuations, asset life, acquisitions, allowance for bad debts for receivables, taxes, recoverability of assets, impairments, reserves 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.

Fair value of financial instruments.The carrying amount of cash and cash equivalents, accounts
receivable, other current assets, accounts payable, accrued liabilities and other current liabilities in the consolidated financial statements approximate fair value because of the
short-term nature of the instruments.

Receivables and allowance for doubtful accounts.Accounts receivable are recorded at their estimated
net realizable value. As of December 31, 2007, three customers from our mining segment accounted for 27%, 18%, 13% and 13% of total accounts receivables, respectively, while two customers in
our mining segment accounted for 32% and 13% of total revenues. 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, 2007 and 2006 we have an allowance for doubtful accounts of $28,000 and $4,000, respectively.

Inventory.Inventory, which includes washed or prepared coal, raw coal and inventory in transit as
well as consumable parts, materials and supplies, are stated at the lower of cost or market. Our practice is to value coal based on the average cost method by the applicable type of coal. Inventory
consisted of $1.1 million and $1.2 million of washed or prepared coal, raw coal, K-fuel refined coal and inventory in transit and $317,000 and $104,000 of spare parts and
supplies as of December 31, 2007 and 2006, respectively.

Plant, property and equipment.Plant, property and equipment consists of our wash plant facility,
buildings, furniture and fixtures, computers, vehicles, coal handling system, Fort Union plant and land. 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 or
units-of-production method using total processed tonnage for our Fort Union plant.

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. Costs incurred to develop coal mines or to expand the capacity of operating
mines are capitalized. Repair and maintenance costs incurred that extend the useful life of mining machinery and equipment are capitalized. Costs incurred to maintain current production capacity at a
mine and exploration expenditures are charged to operating costs as incurred. Employee-related costs directly related to construction are also capitalized during the construction phase.

F-9

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EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

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

Mineral rights and mine development.A significant portion of our coal reserves are controlled
through leasing arrangements. Costs to obtain coal lands and leased mineral rights, including capitalized premining costs, are depleted to operations using the
units-of-production method based on tons produced utilizing only proven and recoverable reserves in the depletion base and are assumed to have no residual value. Premining
costs include drilling, permitting, county and state filing fees and initial overburden removal. Also, included in mineral rights are the costs to
establish the related asset retirement obligations. The leases have primary terms ranging from 3 to 10 years and substantially all of the leases contain provisions that allow for automatic
extension once mining commences and for as long as some mining activity continues.

Health care costs.Our employees participate in Evergreen Energy's health insurance plans. Evergreen
Energy is self-insured, subject to a stop-loss policy, for individuals and all participants as a group. These costs are allocated to us by Evergreen Energy. The liability for
outstanding medical costs has been estimated based on historical claims and is included in our due to Parent.

Asset retirement obligations and restricted cash.We calculate the present value of all asset
retirement costs, for which we have a legal obligation, and record all such costs as liabilities with an equivalent amount added to the asset cost and depreciated over an appropriate period or
depleted using actual tons mined or actual tons produced. The liability is then accreted over time by applying an interest method of allocation to increase the liability. We have identified legal
retirement obligations related to our project site near Gillette, Wyoming and our surface and deep mines in Ohio. The Department of Environmental Quality for the state of Wyoming required us set aside
cash as collateral pledged toward our asset retirement obligation. Evergreen Energy funded this obligation and the restricted cash is reflected on their balance sheet.

Exploration costs.Mineral exploration costs are expensed as incurred. When it has been determined
that it is economically feasible to extract coal and the permitting process has been initiated, the costs incurred to further delineate and develop the mine are considered premining costs and are
included in construction in progress in our consolidated balance sheets.

Long-lived assets.We evaluate long-lived assets based on estimated future
undiscounted net cash flows or other fair vlaue measures whenever significant events or changes in circumstances occur that indicate the carrying amount may not be recoverable. If that evaluation
indicates that an impairment has occurred, a charge is recognized to the extent the carrying amount exceeds the fair values of the asset, whichever is more readily determinable. In addition, we
capitalized 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. We recognize revenue from coal sales at the time
risk of loss passes to the customer, either at our shipping point or upon delivery, depending on contractual terms. When sales include delivery to the customer, transportation costs are billed by us
to our customers. We had $8.7 million and $5.9 million of transportation costs included in both cost of

F-10

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EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

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

sales
and mining revenues for the year ended December 31, 2007 and 2006 respectively. Ash disposal revenue is recognized when coal combustion bi-products are received at our ash
disposal facility.

Brokered coal.We act as an agent in certain transactions involving the brokering of coal produced by
others. As we generally do not take title to the coal or bear the risk of loss, we have recognized the net amount of profit related to the transactions in our consolidated statements of operations.

Income taxesNo provision for incomes taxes related to income, deductions, gains, losses and credits
has been made in the consolidated financial statements related to the operating results of KFx Plant, KFx Operations, and Evergreen Operations, on an unconsolidated basis, as such items are reportable
on the income tax returns of the members of these limited liability corporations. Our subsidiaries Buckeye and Landrica are corporations subject to tax under the federal income tax code. Consequently,
we follow the liability method of accounting for income taxes for Buckeye and Landrica, pursuant to 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 carryforwards. 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. Tax rate changes are reflected in the period such changes are enacted. Evergreen Energy files consolidated tax returns on our behalf
whenever possible.

Deferred income taxes.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 be required to reduce this valuation allowance, resulting in income tax
benefits in our consolidated statement of operations. We evaluate the deferred tax assets annually and assess the need for the valuation allowance.

Accounting for stock grants, options and warrants.Our employees participate in Evergreen Energy's
stock plans. On January 1, 2006, Evergreen Energy adopted Statement of Financial Accounting Standards 123R, "Share-Based Payments", or SFAS 123R. Evergreen Energy issues stock grants and
options to our employees and consultants in connection with our various business activities. These are accounted for in accordance with the provisions of SFAS 123R and Emerging Issues Task
Force Abstract No. 96-18, "Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services" as well as other
authoritative accounting pronouncements. Evergreen Energy is required to make estimates of the fair value of the
related instruments and recognize expense over the period benefited, usually the vesting period. We recognized $1.1 million, $582,000 and $0 of non-cash compensation expense for the
periods ended December 31, 2007, 2006 and 2005, respectively, related to share-base payment expense allocated to us by Evergreen Energy.

Prior
to the adoption of SFAS 123R, Evergreen Energy accounted for share-based payment awards in accordance with Accounting Principals Board 25 "Accounting for Stock Issued to
Employees", which generally provided that no compensation expense was recorded in connection with the granting of employee and non-employee directors stock options if the options were
granted at prices at least equal to the fair value of the common stock at date of grant. Stock options granted to employees and

F-11

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EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

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

non-employee
directors were measured using the Black-Scholes option pricing model and reflected in our proforma disclosures pursuant to Statement of Financial Accounting Standard 123
"Accounting for Stock-Based Compensation." Stock options and other share-based payments granted by Evergreen to non-employees and related to our operations were accounted for in accordance
with SFAS No. 123, and Emerging Issues Task Force Abstract No. 96-18, "Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services." Accordingly, stock options granted by Evergreen Energy to non-employees were measured using the Black Scholes option pricing model and
reflected in the consolidated financial statements under guidance of SFAS 123 over the expected service period.

Had
expense for Evergreen Energy's allocation of compensation related to stock options granted by it to our employees been recognized based on the fair value over the vesting period for
the awards consistent with the method of SFAS 123, our pro forma net loss would have been reported as follows:

Year ended December 31, 2005(in thousands)Net loss, as reported

$
(3,494
)Less: Share-based employee compensation expense included in reported net loss


Total share-based employee compensation expense determined under a fair value based method


(80
)Pro forma net loss


(3,574
)


Recently adopted accounting pronouncements.In September 2006, the U.S. Securities and
Exchange Commission, or SEC, released Staff Accounting Bulletin No. 108, or SAB No. 108, "Financial Statement Misstatements." SAB No. 108 expresses the SEC staff's view
regarding the process of quantifying financial statement misstatements. The Interpretations in SAB No. 108 are being issued to address diversity in practice in quantifying financial statement
misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. SAB No. 108 is effective for annual financial statements covering the first
fiscal year ending after November 15, 2006. The adoption of this pronouncement did not have any impact on our financial position or results our operations.

In
July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement No. 109," ("FIN 48") which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize, in our condensed financial statements, the
impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 were effective as of
January 1, 2007. We have evaluated our tax positions and determined that the adoption of this pronouncement as of January 1, 2007 did not have a material impact on our financial position
or results of operations. 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.

F-12

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EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

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

Recently issued accounting pronouncements.In September 2006, the Financial Accounting
Standards Board issued SFAS No. 157, "Fair Value Measurement". This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some
entities, the application of this statement will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We have evaluated the adoption of this pronouncement and do not expect any material effect on our position or results of operations.

In
February 2007, the FASB issued SFAS No. 159 "Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement
No. 115". This standard permits the use of fair value measurement of financial assets and liabilities in the balance sheet with the net change in fair value recognized in periodic net income.
The Standard is effective for fiscal years
beginning after November 15, 2007. We have evaluated the adoption of this pronouncement and do not expect any material effect on our position or results of operations.

(2) Related Party Transactions

Included in General and Administrative expenses for the years ended December 31, 2007, 2006 and 2005 are $4.5 million, $2.9 million,
$1.3 million, respectively, of costs which have been allocated to us from our Parent. These costs relate to general and administrative services provided by our Parent and are generally
allocated on a percentage basis based either on number of employees or on total operating expenses plus capital expenditures. Periodically, third parties bill for services provided to us that are paid
for on our behalf by our Parent. In addition, third parties bill either Evergreen Energy or one of their subsidiaries for services provided to numerous Evergreen Energy affiliate entities. Evergreen
Energy pays these bills and passes through to the Evergreen Energy affiliates their respective expense amounts. Evergreen Energy pays all invoices on behalf of KFx Plant, Landrica, and KFx Operations
and funds all expenditures by Buckeye and these transactions are reflected in Due to Parent. Beginning June 2007, Evergreen Energy began paying all invoices on behalf of Buckeye.

The
Due to Parent includes our obligations related to these allocated balances and other pass through charges incurred by Evergreen Energy on our behalf. The balance in the Due to Parent
line item is treated similar to a revolving credit arrangement. All cash receipts related to the operations of Buckeye and KFx Plant are received by Evergreen Energy and such funds are reflected as
payments to Evergreen Energy. The payable to Parent is non-interest bearing and is payable upon demand. Our Parent has asserted that payment will not be demanded in 2008. We anticipate
that we will continue to generate net losses and negative net cash flows into the foreseeable future. Additionally, we do not have a third party borrowing capacity to fund our operations for the next
twelve months. Evergreen Energy has committed to continue to fund our operations for the foreseeable future.

On
December 7, 2006, Evergreen Energy entered into a memorandum of understanding and real estate lease with Hills Products Group, Inc., or Hills Products. Hills Products is
owned by Mr. Stanford Adelstein who serves on Evergreen Energy's Board of Directors. Evergreen Energy has leased certain

F-13

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(2) Related Party Transactions (Continued)

real
estate and facilities, including a train load-out facility, for the sole purpose of trans-loading our K-Fuel refined coal from over-the-road truck
into railcars. Prior to the execution of this agreement, Evergreen Energy's independent Board members approved this transaction. Evergreen Energy believes the terms and contracted amounts would be
similar if they had entered into this agreement with an unrelated third party. Per the agreement, Evergreen Energy has committed to a monthly payment in the amount of $1,500, plus an additional fee
based on tonnage of K-Fuel refined coal loaded after agreed upon monthly tonnages are exceeded. As KFx Plant is utilizing these services, all such costs are reflected in these financial
statements. We incurred $24,000 pursuant to the agreement for the year ended December 31, 2007.

(3) Acquisitions



On April 3, 2006, Evergreen Energy completed the acquisition of Buckeye for a total purchase price of $39.1 million, consisting of
$35.0 million in cash and Evergreen Energy's common stock valued at $2.2 million. Evergreen Energy incurred $1.0 million in acquisition costs and reimbursed Buckeye's former
parent $900,000 for cost incurred relating to capital projects. Buckeye's primary business is to mine, process, blend and sell coal to electric utilities and to industrial and institutional end users.
Buckeye also operates one of the largest ash disposal facilities in the state of Ohio, disposing of up to one million tons of dry and conditioned ash per year. We believe the acquisition has
added value through access to Buckeye's established markets, infrastructure and coal reserves. The benefits of the acquisition include the addition of an experienced coal marketing and mining team and
cash flow. Their operations have been included in our consolidated financial statements as of the effective purchase date of April 3, 2006.

The
acquisition of Buckeye has been accounted for as a purchase in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations, or SFAS 141,
with us being treated as the acquirer. Following is a summary of the estimated fair values of the assets acquired and liabilities assumed as of the effective date of the acquisition (in thousands):

Cash

$
Accounts receivable


4,649Inventory


2,138Other current and long-term assets


743Property, plant and equipment


7,812Ash disposal facility


7,557Mineral rights and mine development


20,720Construction in progress


1,442Total assets acquired


45,061Less: Current liabilities assumed


4,182Asset retirement obligations


1,772Net purchase price

$
39,107


F-14

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(3) Acquisitions (Continued)

Pro
forma acquisition information represents our unaudited results of operations as if the acquisition had occurred on January 1, 2006 and January 1, 2005 (in thousands).

December 31,2006

2005Revenue

$
49,844

$
50,548Net income (loss)

$
(32,210
)
$
1,477




MR&E LLC, a research and engineering firm focused on thermal process engineering, including the upgrading and processing of clean coal, was acquired due to
its significant expertise in thermal process engineering. Evergreen Energy acquired all of the outstanding membership interests effective March 1, 2005 for cash of $656,000, including cash
received of $83,000. Their operations have been included in our financial statements as of the effective purchase date of March 1, 2005. Effective October 11, 2007, Evergreen Energy sold
all of the assets of MR&E for a sales price of $800,000.

The
operating results, including revenue and net income, for the year ended December 31, 2005 were insignificant. Therefore, pro forma results as if the acquisition had occurred
at the beginning of the period are not presented. As of August 1, 2006, MR&E was legally merged into KFx Operations, another wholly owned subsidiary.

(4) Property, Plant and Equipment, Construction in Progress, and Mineral Rights and Mine Development

Property plant and equipment consisted of the following:

December 31Year Lives

2007

2006(unaudited)(in thousands)Fort Union plant and equipment



$
2,022

$
84,093Machinery and equipment

3 - 15


13,039


9,948Ash facility and wash plant

5 - 10


8,937


8,526Other

3 - 30


3,601


5,742Total




27,599


108,309Less accumulated depreciation




(7,003
)

(4,036
)Property, plant and equipment, net of accumulated depreciation



$
20,596

$
104,273


On
March 19, 2008, we decided to suspend operations at our Fort Union plant and mine site. We have incurred an asset impairment charge of $93.5 million related to the Fort
Union plant and mine site as of December 31, 2007.

During
the year ended December 31, 2007 we moved $13.6 million from construction in progress to property plant and equipment.

F-15

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(4) Property, Plant and Equipment, Construction in Progress, and Mineral Rights and Mine Development (Continued)

Property,
plant and equipment includes:



Depreciation
and depletion expense was $7.2 million, $4.9 million and $361,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

Construction
in progress consisted of the following (in thousands):

December 31,2007

2006Fort Union plant and operating equipment

$


$
4,478Mine and site improvements


737


2,597Mining equipment refurbishment


4,523


2,307Other





144Total construction in progress

$
5,260

$
9,526


On
March 19, 2008, we decided to suspend operations at our Fort Union plant and mine site. As a result, of this decision we incurred $14.0 million of impairment charges
related to the construction in progress at the Fort Union plant site for the year ended December 31, 2007.

Total
construction in progress includes:



During
the third quarter 2006, we placed our Fort Union plant into service and as a result moved $84.1 million of costs from construction in progress to property, plant and
equipment.

Mineral
rights are comprised of leases and mine development costs from the acquisition of Buckeye and our mine site in Wyoming. Costs are capitalized during the premining phase and are
depleted using the units-of-production method based on actual tons mined. We impaired $1.7 million of mineral rights related to our Fort Union and mine site in Gillette,
Wyoming during the year ended December 31, 2007.

F-16

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(5) Asset Retirement Obligation

Our asset retirement obligations relate to our surface and deep mines in Ohio, our Gillette, Wyoming mine site, and the improvements we have made at the site on
which our Fort Union plant and train loadout silo are located. The following table reconciles the change in the asset retirement obligation during the period:

Changes in
Asset
Retirement
Obligations(in thousands)Balance at December 31, 2006

$
5,626Liability incurred


270Liability settled


(12
)Accretion


287Balance at December 31, 2007

$
6,171


We
allocate asset retirement costs to the underlying assets based on the fair value using an expected cash flow approach, in which multiple cash flow scenarios are used to reflect a
range of possible outcomes and a credit-adjusted risk-free rate. The liabilities are then accreted over time by applying an interest method of allocation. As the assets are placed into
service we are depreciating and depleting the related assets on a units-of-production method based on actual tonnage processed and actual tonnage mined.

(6) Accrued liabilities

Accrued liabilities consist of (in thousands):

December 31,2007

2006Employee-related

$
1,250

$
867Services or goods received, not invoiced


1,116


1,600Taxes, other than income taxes


596


1,033Other





78Total accrued liabilities

$
2,962

$
3,578


Employee-related
includes paid time off, payroll and bonuses. Services or goods received not invoiced primarily consists of goods and services at our Fort Union plant and Buckeye. Taxes,
other than income taxes represents various accrued taxes including property, use and franchise taxes.

(7) Employee Benefit Plans

Our employees participate in Evergreen Energy's employee benefit plans. Expenses related to these benefit plans are allocated from Evergreen Energy consistent
with other employee allocations as described in Note 2Related Party. Expenses related to stock grants and option grants are based upon the grant date fair value and are recognized
over the applicable service period.

F-17

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(8) Commitments and Contingencies

Payment Obligations

We have not presented a future commitments table as we have no significant commitments or obligations that are not disclosed elsewhere in accounts payable,
accrued expenses and asset retirement obligations. Further, obligations in which either party has the right to terminate are excluded from the future commitments table.



We are not engaged in any material legal proceedings to which we or any of our subsidiaries are a party.

(9) Segments

We have identified two segments: Plant and Mining. Our results of operations are evaluated and allocations of capital resources are based upon the overall
operations of these segments. The Plant segment represents revenue and costs related our Fort Union plant and our mine site in Gillette, Wyoming. The Mining segment primarily represents our mining
operations at our Buckeye location and

F-18

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(9) Segments (Continued)

includes
certain marketing personnel, the ash disposal facility and the blending facility. Our operations are principally conducted in the United States.

For the year ended December 31, 2007Plant

Mining

Total(in thousands)Operating revenues:Mining

$
36

$
47,326

$
47,362K-Fuel refined coal and blended K-Fuel refined coal


1,081





1,081Consulting and other


45





45Consulting and other to parent


161





161Total operating revenue


1,323


47,326


48,649Operating expenses:General and administrative


6,166


4,380


10,546Coal mining operating costs





42,377


42,377Plant start-up costs


34,720





34,720Cost of license and consulting revenue


24





24Cost of license and consulting revenue to parent


161





161Total segment operating expense


41,071


46,757


87,828Segment operating loss income

$
(39,748
)
$
569

$
(39,179
)Total assets

$
2,822

$
51,580

$
54,402Reconciliation to net loss:Total Segment operating loss







$
(39,179
)Asset impairments








(111,180
)Depreciation and depletion








(7,199
)Other income (expense)








331Net loss







$
(157,227
)


F-19

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(9) Segments (Continued)

|
|

For the year ended December 31, 2006Plant

Mining

Total(in thousands)Operating revenues:Mining

$
127

$
35,810

$
35,937K-Fuel refined coal and blended K-Fuel refined coal


420





420Consulting and other


34





34Consulting and other to parent


663





663Total operating revenue


1,244


35,810


37,054Operating expenses:General and administrative


2,758


2,493


5,251Coal mining operating costs





31,728


31,728Plant start-up costs


26,635





26,635Cost of consulting and other


22





22Cost of consulting and other to parent


663





663Total segment operating expense


30,078


34,261


64,299Segment operating loss income

$
(28,834
)
$
1,549

$
27,245Total assets

$
96,835

$
47,171

$
144,006Reconciliation to net loss:Total Segment operating loss







$
27,245Asset impairments








(40
)Depreciation and depletion








(4,915
)Other income (expense)








13Net loss







$
(32,187
)


F-20

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(9) Segments (Continued)

|
|

For the year ended December 31, 2005Plant

Mining

Total(in thousands)Operating revenues:Consulting and other

$
132

$


$
132Consulting and other to parent


649





649Total operating revenue


781





781Operating expenses:General and administrative


1,641





1,641Plant start-up costs


1,484





1,484Cost of license and consulting revenue


142





142Consulting and other to parent


649





649Total segment operating expense


3,916





3,916Segment operating (loss)

$
(3,135
)
$


$
(3,135
)Reconciliation to net loss:Total Segment operating loss







$
(3,135
)Depreciation








(361
)Other income (expense)








2Net loss







$
(3,494
)


(10) Income Taxes

Our operations are principally domestic, with income taxable at the federal statutory rate of 34% plus applicable state rates. The tables below reflect the
deferred tax asset (liabilities) for our wholly owned C corporation subsidiaries Buckeye and Landrica. These entity's tax obligations are reflected in Evergreen Energy's consolidated return. Deferred
tax assets (liabilities) were comprised of the following:

2007

2006(in thousands)Gross deferred tax assets:Net operating loss carryforwards

$
7,031

$
2,518Depreciation and amortization


1,013


(1
)Accrued liabilities


677


420Gross deferred tax assets


8,721


2,937Deferred tax assets valuation allowance


(8,721
)

(2,937
)Net deferred tax assets

$


$



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, 2007 our tax return net operating

F-21

---



EVERGREEN OPERATIONS, LLC

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2007, 2006 and 2005

(10) Income Taxes (Continued)

loss
carryforwards were $19 million that expire in various amounts in 2008. The remaining net operating loss carryforwards will expire in varying amounts over the next several years.

Our
total provision for income taxes in 2007, 2006 and 2005 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:

2007

2006

2005(in thousands)Expected tax benefit on loss before income taxes

$
(5,486
)
$
(1,984
)
$
(354
)Expected state tax benefit, net


(532
)

(193
)

(34
)Stock options, restricted stock and warrant exercises


220





Non-deductible items and other


14


2


(267
)Expiring net operating loss








Increase in valuation allowance


5,784


2,175


655$


$


$



F-22

---