Unless the context requires otherwise, the terms "Evergreen Energy," "we," "our," and "us" refer to Evergreen Energy Inc. and its subsidiaries. C-Lock refers to our subsidiary C-Lock Technology, Inc. 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®, GreenCert and GreenCert™, refer to our patented processes and technologies.

Forward-Looking Information May Prove Inaccurate

Some of the information presented in this Quarterly Report on Form 10-Q constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements that include terms such as "may," "will," "intend," "anticipate," "estimate," "expect," "continue," "believe," "plan," or the like, as well as all statements that are not historical facts. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current expectations. Although we believe our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from expectations.

For additional factors that could affect the validity of our forward-looking statements, you should read the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 and the Consolidated Financial Statements contained therein and also see updated risk factors filed on Form 8-K on October 28, 2009. The forward-looking statements included in this quarterly report are subject to additional risks and uncertainties not disclosed in this quarterly report, some of which are not known or capable of being known by us. The information contained in this quarterly report is subject to change without notice. Readers should review future reports that we file with the Securities and Exchange Commission. In light of these and other risks, uncertainties and assumptions, actual events or results may be very different from those expressed or implied in the forward-looking statements in this quarterly report or may not occur. We have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

Evergreen Energy Inc. was founded in 1984 as a cleaner coal technology, energy production and environmental solutions company. In the last two years, we have sharpened our focus on positioning us as a carbon technology company. We have developed two proven, proprietary, patented, and transformative green technologies: the GreenCert suite of software and services and K-Fuel. GreenCert, owned exclusively by Evergreen Energy, is a scientifically accurate, scalable environment intelligence solution that measures greenhouse gases and generates verifiable emissions credits. GreenCert, built on IBM's Service-Oriented Architecture, is the environment intelligence solution that provides customers the end-to-end visibility and traceability necessary to measure their complete environmental footprint. K-Fuel technology significantly improves the performance of low-rank coals yielding higher efficiency on low emissions.

We have developed a three-phase plan to bring our GreenCert solution to market. In the first phase, GreenCert quantifies the company's baseline emissions status and the accuracy of the methodology and data used. In the second phase, we assess and identify the capital expenditure and operating expense improvements that drive efficiencies within the company or specific plant and determines the Green House Gasses ("GHG") savings associated with those efficiency improvements. This phase also elevates methods to reduce the uncertainty of the GHG measurement to improve accuracy. Combined, the first two phases deliver the GHG assessment and result in an understanding of the return on investment for employing the third phase. In this final phase, we deploy the site-specific, highly-customized solution that enables the quantification and monetization of the emissions reductions and efficiency improvements. The deployed solution then enables new improvements to be quantified and monetized going forward.

GreenCert Energy software solution will continue to be refined and enhanced. One of the key improvements to date is the ability to meet the data input and quantification requirements of the European Union Emissions Trading System's GHG Monitoring and Reporting Guidelines. Future upgrades are expected to address localization to meet current interest in Asia as well as integration with key components like business intelligence, business rules engine and asset management. Such enhancements would enable the GreenCert solution to market to energy distribution and transmission, supply chain, petroleum production and transportation companies. In addition, in the long term we can further develop our GreenCert Agriculture software for possible carbon credit needs.

We have been evaluating several alternatives related to strategic positioning of the company, including the potential sale, spin-off or joint venture of certain assets, including our Buckeye Industrial Mining Co. subsidiary ("Buckeye") and our K-Fuel technology. We entered into an exclusivity arrangement to sell Buckeye with one particular party and this exclusivity has expired. We have not executed a definitive agreement with this party. As a result, we are in the process of evaluating investment banking firms to assist us in remarketing Buckeye and anticipate engaging a firm in the very near future. The sale of Buckeye could provide us with immediate access to significant capital that could be reinvested in the growth of our GreenCert technology business. If our Board of Directors does not approve a sale of Buckeye, we will retain it and continue its operations. Actual 2009 cash flows from Buckeye's operations have been less than previously anticipated, due in part to the depressed economy and the unusually mild summer temperatures in the North East region of the United States, both of which have led to lower than previously forecasted coal prices and reduced coal consumption.

While we have investigated a number of financing alternatives, we have not yet obtained sufficient additional financing. Recently we completed a financing transaction resulting in gross proceeds of $7.0 million, with net proceeds of $5.0 million to us prior to transactions costs, as described further below. However, we continue to require capital and are investigating sources of additional capital. On October 28, 2009, we filed a universal shelf registration to enable us future financing options. Because of the immediate need for additional capital to fund operations and repay short-term borrowings, there is substantial doubt as to our ability to continue to operate as a going concern for the foreseeable future.

We believe we are uniquely positioned for success by mitigating the inevitable collision between the world's increasing reliance on coal-fired energy and its simultaneously mounting expectations toward reducing greenhouse gas emissions. Through licensing, joint ventures and other partnerships, we are responding to these global market demands through the development and delivery of our two proprietary and proven technologies. As part of our strategy to transition from a capital intensive build, own and operate model to a 'capital-light' pure licensing and joint venture model, we have been evaluating options for selling some of our non-core assets. We have been negotiating the sale of Buckeye with one particular party, but we do not yet have a definitive agreement. If we do not sell Buckeye to that party, we will continue its operations and renew our marketing efforts.

Significant Trends

For the last several years, our operations have been focused on developing our technologies and enhancing the K-Fuel plant design. As a result, we have limited revenues from K-Fuel refined coal and, historically most of our costs are related to general and administrative expenses. With the addition of Buckeye, we began to generate revenue and incur more substantial mining costs. In the future, we plan to generate revenue from licensing our proprietary technologies including entering into joint ventures and other partnerships, both domestically and internationally. While we anticipate our Plant costs to decline in 2009 in comparison to 2008, we will continue to incur various costs related to maintaining the site in a non-operational mode. As our operations expand, we expect our revenue and cost structure will also increase. The following discussion and analysis is focused on the events and trends that we believe have or will in the future have the most significant impact on our business.

See our Annual Report on Form 10-K for the year ended December 31, 2008 for further discussion related to our anticipated revenue and expense trends.

RESULTS OF OPERATIONS

Our segments include the C-Lock segment, the Plant segment, the Mining segment and the Technology segment. The C-Lock segment reflects activities related to the measurement of green house gases and third-party certification of environmental improvements as carbon credits, called GreenCert. The Plant segment primarily represents revenue and costs related to our Fort Union plant in Gillette, Wyoming, at which we suspended operations in 2008. The Mining segment primarily represents the mining operations of our subsidiary Buckeye and includes certain marketing personnel, the ash disposal facility and the preparation and blending facility. The Technology segment is comprised of all other operations that use, apply, own or otherwise advance our proprietary, patented K-Fuel process, including our headquarters and related operations and the activities of KFx Technology, LLC, which holds the patents to our technology. Corporate costs within our Technology segment are allocated to our other segments, generally on a percentage based on the number of employees, total segment operating expenses, or segment operating expenses plus segment capital expenditures. Our operations are principally conducted in the United States. We will continue to evaluate how we manage our business and, as necessary, adjust our segment reporting accordingly.

Revenue

Total revenues for the third quarter of 2009 and 2008 were $9.2 million and $14.0 million, respectively.

Revenues in our Mining segment for the third quarter of 2009 and 2008 were $9.0 million and $14.0 million respectively, as follows:

· Coal revenue includes mined raw and prepared coal sales within our Buckeye operations. Coal revenues were $8.0 million and $12.0 million for the third quarter of 2009 and 2008, respectively. Coal sales for the third quarter ended 2009 were 99,000 tons at $65.66 sales realization per ton sold compared to 177,000 tons at $56.50 sales realization, net of transportation cost of $1.5 million and $2.0 million, per ton sold, for the third quarter 2008. Our coal price per ton increased due to our increase in our pre sold negotiated price per ton. However, revenues decreased due principally in part to the depressed economy and the unusually mild summer temperatures in the North East region of the United States, both of which have led to lower than previously forecasted coal prices and reduced coal consumption.

· Brokered coal sales, net are derived from revenues less the costs associated with the purchase of coal from other coal producers, which we ship directly to customers. Brokered coal sales, net were $0 for the third quarter of 2009 compared to $248,000 for the third quarter of 2008. We enter into brokered coal sales as opportunities arise or as needed to meet certain customers requests, and as a result, revenues in this area fluctuate.

· Ash disposal revenue includes revenue generated from the disposal of coal combustion bi-products at our ash pit in Ohio. Ash disposal revenues were $859,000 for the third quarter of 2009 compared to $1.8 million for the third quarter of 2008. The decrease for the three months ended September 30, 2009 was due to decreased disposal volume from one of our large customers.

Total revenues for the nine months ended September 30, 2009 and 2008 were $41.0 million and $42.2 million, respectively.

Revenues in our Mining segment for the nine months ended September 30, 2009 and 2008 were $40.5 million and $41.7 million, respectively, as follows:

· Coal revenues were $37.1 million and $35.4 million for the nine months ended September 30, 2009 and 2008, respectively. Coal sales for the nine months ended September 30, 2009 were 452,000 tons at $66.37 sales realization, net of transportation costs of $7.1 million and $6.5 million, per ton sold compared to 548,000 tons at $52.74 sales realization per ton sold, for the nine months ended September 30, 2008. Our coal price per ton increased due to our increase in our pre sold negotiated price per ton. However, revenues decreased due to the depressed economy and the unusually mild summer temperatures in the North East region of the United States, both of which have led to lower than previously forecasted coal prices and reduced coal consumption. However, sale realization for the nine months ended September 30, 2009 increased primarily due to higher coal prices realized during the first quarter of 2009 compared to the same period ended 2008.

· Brokered coal sales, net were $5,000 for the nine months ended September 30, 2009 compared to $315,000 for the same period ended 2008.

· Ash disposal revenues were $3.2 million for the nine months ended September 30, 2009 compared to $6.0 million for the same period ended 2008. The decrease for the nine months ended September 30, 2009 was due to decreased disposal volume from one of our large customers.

K-Fuel refined coal revenue is comprised of sales of our K-Fuel product to third parties. Blended K-Fuel refined coal revenue represents the proportionate revenue related to K-Fuel that has been blended with other raw or prepared coal from our Buckeye operations and sold to third parties. The remaining revenue related to the raw or prepared coal is reflected in Mining revenues. K-Fuel refined coal and blended K-Fuel refined coal sales were $0 for the nine months ended September 30, 2009 compared to $463,000 for the same period ended 2008. We expect to have no revenue for the remainder of 2009.

Coal Mining Operating Costs

Our coal mining operating expenses primarily include all costs associated with the mining of coal and costs relating to our coal ash disposal facility at Buckeye, which principally comprises our Mining segment.

Coal mining operating expenses

Coal mining operating expenses include employee-related costs, outside contracted mining costs for our underground mines, internal and external coal transportation costs, blasting, drilling, heavy equipment costs, purchased coal and other mining-related costs. Coal mining operating expenses were $8.4 million and $9.9 million for the third quarters ended 2009 and 2008, respectively. Coal mining operating cost for the nine months ended September 30, 2009 and 2008 were $34.0 million and $31.1 million, respectively. The increase during the three months and nine months ended September 30, 2009, was primarily due to more than expected ash and rock content thus increasing transportation costs and preparation/separation costs.

Ash disposal

Ash disposal expenses include employee-related costs, consulting costs, costs of repairs and maintaining culverts and drainage ponds, transportation, and heavy equipment costs and other costs associated with the ash disposal facility. Ash disposal expenses were $752,000 and $1.6 million for the quarters ended September 30, 2009 and 2008, respectively. Ash disposal expenses for the nine months ended September 30, 2009 and 2008 were $2.7 million and $4.2 million, respectively. The decrease in the third quarter 2009 and the nine months ended September 30, 2009 is in correlation with the decrease in revenue when compared to the same periods ended 2008.

Plant costs

Subsequent to the idling of the Fort Union plant, costs primarily consist of liability insurance, salaries and wages, security and repair and maintenance. Previously plant costs primarily included purchased raw materials, coal transportation, outsourced engineering and technical support, fluid processing, byproducts and water disposal, and employee-related costs, which are reflected in our Plant segment. Plant costs were $293,000 and $2.4 million for the three months ended September 30, 2009 and 2008, respectively. Plant costs were $1.3 million and $16.5 million for the nine months ended September 30, 2009 and 2008, respectively. Plant costs decreased for the three and nine months ended September 30, 2009 due to the idling of our Fort Union plant in late March 2008. While we anticipate further plant costs reductions, we will continue to incur various costs related to maintaining the site in a non-operating mode.

General and Administrative

Corporate costs within our Technology segment are allocated to our other segments, generally on a percentage based on the number of employees, total segment operating expenses or segment operating expenses plus segment capital expenditures. As a result of idling our Fort Union plant, these allocated costs have significantly decreased in our Plant segment and increased in other segments most notably in our Technology segment, when comparing the three and nine months ended September 30, 2009 to the same periods ended September 30, 2008.

The following table summarizes our general and administrative costs for the three and nine months ended September 30, 2009 and 2008.

                                       Three Months Ended          Nine Months Ended
                                          September 30,              September 30,
                                        2009          2008         2009          2008
                                                       (in thousands)

Non-cash, share-based compensation   $     2,349     $ 1,319     $   2,981     $  4,683
Employee-related costs                     2,834       3,274         9,477       10,097
Professional fees                          2,613       1,033         5,119        2,994
Office and travel costs                    1,515         879         3,199        2,886
Insurance and other                        1,493       2,036         4,018        4,572
Total general and administrative     $    10,804     $ 8,541     $  24,794     $ 25,232

Non-cash, share-based compensation expenses were $2.3 million and $1.3 million for the three months ended September 30, 2009 and 2008, respectively, substantially all of which related to our Technology segment. Non-cash

compensation expenses were $3.0 million and $4.7 million for the nine months ended September 30, 2009 and 2008, respectively, substantially all of which relate to our Technology segment. The increase for the three month ended September 30, 2009 can be attributed to a transition agreement we entered onto with a former officer. Pursuant to the agreement, we accelerated his restricted stock grant and recorded $1.6 million of non-cash compensation. The decrease for the nine months ended September 30, 2009 is primarily due to the retirement, of our former Chief Executive Officer and his restricted stock grant. Since his restricted shares never vested and were forfeited upon his retirement the cumulative non-cash compensation expense recorded since 2005 was reversed. This reversal of non-cash compensation totaled $2.9 million for the nine months ended September 30, 2009.

Employee-related costs primarily include salaries and wages, bonuses, benefits, employer payroll taxes and education and training. The following table summarizes our employee-related costs in each of our segments for the three and nine months ended September 30, 2009 and 2008.

                           Three Months Ended          Nine Months Ended
                              September 30,              September 30,
                            2009          2008         2009          2008
                                           (in thousands)

Technology               $      757      $ 1,547     $   3,052     $  4,858
C-Lock                        1,253          768         3,550        1,674
Mining                          731          635         2,507        1,900
Plant                            93          324           368        1,665
Total employee-related   $    2,834      $ 3,274     $   9,477     $ 10,097

Employee-related costs were $2.8 million and $3.3 million for the three months ended September 30, 2009 and 2008, respectively. Employee-related costs were $9.5 million and $10.1 million for the nine months ended September 30, 2009 and 2008, respectively. The decrease for the three months ended September 30, 2009 is primarily due to our cost cutting measures which resulted in lower employee count in our Technology segment. Offsetting these decreases for nine months ended September 30, 2009, were primarily due to adding personnel to our C-Lock segment and accrued severance expense for two former executive officers in the amount of $557,000 in our Technology segment.

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 three and nine months ended September 30, 2009 and 2008.

                            Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                             2009          2008          2009         2008
                                            (in thousands)

Technology                $    2,072      $   644     $    3,701     $ 1,916
C-Lock                           264          139            840         415
Mining                           272          165            534         321
Plant                              5           85             44         342
Total professional fees   $    2,613      $ 1,033     $    5,119     $ 2,994

Professional fees were $2.6 million and $1.0 million for the three months ended September 30, 2009 and 2008, respectively. Professional fees were $5.1 million and $3.0 million for the nine months ended September 30, 2009 and 2008, respectively. The increase for the three and nine months ended September 30, 2009 compared to the same periods ended September 30, 2008 was due to legal fees related to previous financing transactions that were not consummated, fees related to the sale of Buckeye, international work all in our Technology segment and filing patent applications for our GreenCert technology in our C-Lock 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 the three and nine months ended September 30, 2009 and 2008.

                            Three Months Ended          Nine Months Ended
                               September 30,              September 30,
                             2009           2008         2009         2008
                                            (in thousands)

Technology                $       387       $ 515     $    1,312     $ 1,683
C-Lock                          1,040         226          1,641         629
Mining                             32          48            154         152
Plant                              56          90             92         422
Total office and travel   $     1,515       $ 879     $    3,199     $ 2,886

The increase in office and travel for the three and nine months is primarily due to consolidating our employees into a smaller section of our office space to enable us to potentially sublease a portion of the remaining office space at our corporate location. As a result of our attempt to sublease the unused office space we incurred a non-recurring charge of $1.0 million in our Technology segment. The majority of this non-recurring charge was allocated to our C-Lock and Plant segments 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 and director expenses. The following table summarizes our insurance and other costs related to each of our segments for the three and nine months ended September 30, 2009 and 2008.

                              Three Months Ended          Nine Months Ended
                                 September 30,              September 30,
                               2009          2008          2009         2008
                                              (in thousands)

Technology                  $    1,164      $ 1,635     $    2,673     $ 3,081
C-Lock                             157          228            732         603
Mining                             168          124            587         500
Plant                                4           49             26         388
Total insurance and other   $    1,493      $ 2,036     $    4,018     $ 4,572

Insurance and other costs were $1.5 million and $2.0 million for the three months ended September 30, 2009 and 2008, respectively. Insurance and other costs were $4.0 million and $4.6 million for the nine months ended September 30, 2009 and 2008, respectively. During the three and nine months ended September 30, 2009, we impaired $413,000 of leasehold improvements related to our unused corporate office space. We are in the process of trying to sublease this unused office space. During the three and nine months ended September 30, 2008 we incurred costs associated with the abandonment of projects which were replaced with more cost efficient projects.

Other Income Expense

Interest income

Interest income for the third quarter 2009 was $5,000 compared to $201,000 for the same period ended 2008. Interest income for the nine months ended September 30, 2009 was $62,000 compared to $1.2 million for the same period ended 2008. The decrease in interest income for the third quarter and nine months ended September 30, 2009 compared to the same periods ended September 30, 2008 was attributed to a lower cash balance and reduced interest rates in the market place during 2009.

Interest expense

Interest expense for the quarter ended September 30, 2009 was $2.3 million compared to $1.7 million for the same period ended 2008. Interest expense for the nine months ended September 30, 2009 was $4.4 million compared to $5.3 million for the same period ended 2008. The interest expense relates to the 2007 Notes and 2009 Convertible Notes more fully described in Note 4 - Debt. We anticipate interest expense to continue to decrease in future periods due to the conversion of a significant portion of our outstanding 2007 Notes, which began occurring in the third quarter of 2008. This decrease will be offset by . . .