Evergreen Energy Inc Announces Third Quarter 2006 Financial Results

DENVER, Nov. 1  /PRNewswire-FirstCall/ -- Evergreen Energy Inc (NYSE:EEE) today reported financial results for the third quarter of 2006. The loss from operations for the third quarter of 2006 was $17.4 million or $0.22 per diluted share compared with $4.9 million or $0.07 per diluted share in the corresponding 2005 period.  The loss for the first nine months of 2006 was $33.1 million or $0.43 per diluted share, as opposed to a $11.7 million loss or $0.18 per diluted share for the same period a year earlier.  The wider loss in the third quarter 2006 is attributed to plant start-up costs as well as higher G&A expenses.

The third quarter 2006 results include a full quarter of operations from the Company's Ft. Union facility in Gillette, Wyoming.  In addition to the financial results, the Company confirmed that several customers have now received shipments of K-Fuel(TM) Refined Coal and are in various stages of scheduling, conducting, or reviewing their test burns.

"In the third quarter, we continued to make progress towards our goal of becoming a vertically integrated energy production Company," commented Mark Sexton, Chairman, and CEO.  "Each time we ship K-Fuel(TM) to a customer, or improve our operational processes, or sign an agreement with a business partner, we take a step closer towards the fulfillment of that vision."

Recent Developments

During the third quarter, Evergreen Energy Inc ramped up production at its Ft. Union K-Fuel(TM) plant and mine in Wyoming's Power River Basin, which is the first plant producing K-Fuel(TM) Refined Coal.  During the course of the quarter, the Company shipped K-Fuel(TM) Refined Coal to several customers.

"Our goals at the Ft. Union plant are simple: to maintain continuous operations and to manage it with a high level of quality, delivering clean, consistent Refined Coal," added Sexton.

Also during the quarter, the Company announced it entered into a Technical Services Agreement with Bechtel Power Corporation for plant engineering standardization and design optimization of K-Fuel(TM) Refined Coal plants. The Company expects this optimization activity to yield a replicable, scalable plant design footprint that will accelerate development of future K-Fuel(TM) and K-Direct plants.

Financial Results

Evergreen Energy Inc revenue for the third quarter of 2006 was $12.1 million compared to $100,000 in the third quarter of 2005.  Revenue for the nine months ended September 30, 2006 was $23.8 million compared to $953,000 during the nine months ended September 30, 2005.

Plant start-up costs were $10.0 million and $458,000 for the third quarter ended 2006 and 2005, respectively.  Plant start-up costs were $17.2 million and $1.5 million for the nine months ended September 30, 2006 and 2005, respectively.

Plant start-up costs were higher than anticipated due to general start-up issues with this first-of-a-kind plant and the acceleration of initial production runs.  The commissioning of the facility at this accelerated pace led to a number of plant operating inefficiencies.  Plant start-up costs included purchased raw materials, coal transportation, outsourced engineering and technical support, fluid processing, by-products and water disposal, and employee-related costs.  The Company incurred higher feed stock costs as they chose to purchase coal from a nearby mine and incurred trucking costs for the transportation of that purchased coal.  Outsourced engineering and employee- related costs were incurred to assist with the acceleration of the initial production. The water handling system was limited in its ability to process water from the production process.  Disposal of excess water required using third parties to transport water to state (or federal) approved disposal sites.  This resulted in higher water disposal costs.

The Company anticipates that the start-up costs will trend downward in the fourth quarter of 2006 through early 2007.  The Company believes that the start-up costs incurred in 2006 are not indicative of future continuous operations.  Continuing operations are being improved by upgrading the existing water treatment system, eliminating plant inefficiencies, enhancing existing processing equipment and reducing support costs.

General and administrative costs for the third quarter 2006 were $8.2 million, compared with $2.9 million for the same period a year earlier.  For the nine month period ended September 30, 2006, G&A was $19.5 million, compared with $9.2 million for the nine month period ended September 30, 2005. This included employee-related costs of $1.9 million in the third quarter 2006, compared to $971,000 in employee-related costs in the third quarter 2005.  The increase was primarily attributable to the addition of staff to support plant operations and corporate functions.  The Company also recognized a non-cash expense for equity compensation in the amounts of $2.6 million and $807,000, as a result of FAS 123(R) and performance based compensation, for the three months ended September 30, 2006 and 2005, respectively. For the nine-month period ended September 30, 2006 and 2005, these non-cash equity compensation costs were $7.4 million and $2 million, respectively.

During 2005, the Company entered into two agreements with Arch Coal, which were extended to allow additional time for evaluation.  In connection with the extension, the expiration date for the warrants associated with the agreements was also extended and, pursuant to SFAS 123R, the Company recognized an additional $1.3 million of non-cash expense for the three and nine months ended September 30, 2006. Based on discussions with Arch Coal, both parties mutually agreed not to further extend these agreements. The agreement expired on September 30, 2006 and the warrant agreement expired on October 31, 2006. As market conditions and other circumstances change, the Company may enter into new agreements with Arch Coal.

Evergreen Energy Inc incurred $10.8 million in coal mining operating expenses in the third quarter 2006, up from $0 in the third quarter 2005.  On a nine-month basis, ended September 30, 2006, mining expenses were $20.7 million, compared with $0 for the period ended September 30, 2005.

Depreciation and amortization expense was $1.7 million for the third quarter 2006 compared to $188,000 for the 2005 third quarter.  For the nine month period ended September 30, 2006, Evergreen Energy Inc reported $3.6 million and reported $542,000 for the nine month period ended September 30, 2005.  Evergreen Energy Inc expects depreciation expense to increase in the third quarter of 2006 as the Ft. Union plant moves into continuous commercial operations.  Amortization on patents was $42,000 and $32,000 for the third quarters ended 2006 and 2005, respectively.

Other income was $1.5 million during the three months ended September 30, 2006 as compared to $503,000 for the same period ended in the prior year.   On a nine month basis ended September 30, 2006 and September 30, 2005, other income was $5.3 million and $1.4 million, respectively. The majority of the increase in the third quarter 2006 is attributed to interest income, which was significantly higher compared to the same period in 2005, primarily as a result of its public stock offering in February 2006.

The initial capital budget for 2006 was $90 million for Evergreen.  The Company has spent $31.3 million during the nine months ended September 30, 2006 on capital expenditures.  Evergreen is reducing its capital expenditures to $44 million in 2006.  The decrease is due to not purchasing a coal fired boiler for Ft. Union at the present time, as well as fewer costs on new construction projects that we now anticipate incurring in 2007.

Evergreen Energy Inc's combined cash, marketable securities and restricted cash balance at the end of the 2006 third quarter was $108 million, compared with $34 million on December 31, 2005.  At September 30, 2006 Evergreen Energy Inc had no long-term debt.

Conference Call

Evergreen Energy Inc will host a conference call on Wednesday, November 1, 2006 at 11:30 a.m. Eastern Time (9:30 a.m. MT, 8:30 a.m. PT) with investors, analysts and other interested parties.  Investors can access the conference call via a live webcast on the Company's website, http://www.kfx.com/, or by dialing 1-866-383-8108.  Access code is 53274457 or Evergreen Energy Inc Conference Call.  Investors calling from international locations should dial 617-597- 5343.

An on-line archive of the call will be available at http://www.kfx.com/ for thirty days.  Additionally, a replay of the call will be available by dialing 888- 286-8010(domestic) or 617-801-6888 (International), pass code 79126719, through November 10, 2006.

About Evergreen Energy Inc

Evergreen Energy Inc is leveraging a vertically integrated, coal-based platform to deliver combined energy, environmental and economic solutions, producing clean, efficient and affordable energy. Evergreen Energy is meeting the specific needs of vital industrial, international and public utility market customers.  Our proprietary K-Fuel(TM) process uses heat and pressure to physically and chemically transform high moisture, low BTU coals into a more energy efficient, lower emission fuel. A co-benefit of the K-Fuel(TM) process is the removal of significant amounts of mercury and reductions in the emissions of carbon dioxide, sulfur dioxide and nitrogen oxides.

  Please visit http://www.kfx.com/ for more information.

  Forward Looking Statements


Statements in this news release that relate to future plans or projected results of Evergreen Energy Inc are 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933, as amended by the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), and Section 21E of the Securities Exchange Act of 1934, as amended by the PSLRA, and all such statements fall under the 'safe harbor' provisions of the PSLRA. Our actual results may vary materially from those described in any 'forward- looking statement' due to, among other possible reasons, the realization of any one or more of the risk factors described in our Annual Report on Form 10- K, or in any of our other filings with the Securities and Exchange Commission, all of which filings any reader of this news release is encouraged to study. Readers of this news release are cautioned not to put undue reliance on forward-looking statements.

                                 KFx INC
                        d/b/a EVERGREEN ENERGY INC
                  CONDENSED CONSOLIDATED BALANCE SHEETS

                                               September 30,    December 31,
                                                   2006            2005
                                                (unaudited)
                                                       (in thousands)

            Assets
  Current:
     Cash and cash equivalents                     $ 99,111        $ 28,793
     Marketable securities                            4,000               -
     Accounts receivable                              5,040               -
     Inventory                                        2,707              64
     Prepaid and other current assets                 2,252             900
        Total current assets                        113,110          29,757
  Property, plant and equipment, net of
   accumulated depreciation                         106,138           4,679
  Mineral rights and mine development,
   net of accumulated depletion                      22,175               -
  Construction in progress                           13,386          71,612
  Restricted cash                                     4,976           5,198
  Patents, net of accumulated amortization            1,082           1,123
  Deferred royalty cost, less current portion         1,448           1,461
  Other assets                                          293             342
                                                   $262,608        $114,172

     Liabilities and Stockholders' Equity
  Current liabilities:
     Accounts payable                              $  4,745        $  1,303
     Accrued liabilities                              7,267           8,365
     Other current liabilities                          218             179
        Total current liabilities                    12,230           9,847
  Deferred revenue, less current portion              6,737           6,751

  Asset retirement obligations                        5,556           3,558
  Other liabilities, less current portion               275             375
  Total liabilities                                  24,798          20,531

  Stockholders' equity:
     Preferred stock, $.001 par value, shares
      authorized 20,000; none outstanding
     Common stock, $.001 par value, shares
      authorized 280,000; 82,019 and 68,143
      shares issued and outstanding, respectively        82              68
     Additional paid-in capital                     422,728         245,443
     Accumulated deficit                           (185,000)       (151,870)
        Total stockholders' equity                  237,810          93,641
                                                   $262,608        $114,172



                                 KFx INC
                        d/b/a EVERGREEN ENERGY INC
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                               (unaudited)

                                    Three Months Ended   Nine Months Ended
                                       September 30,        September 30,
                                      2006      2005       2006      2005
                                                 (in thousands, except for
                                                       per share amounts)

  Operating revenues:
   Mining                            $11,849   $     -   $ 23,262  $      -
   Licensing                              42         5        277       782
   K-Fuel                                192         -        192         -
   Consulting and other                   14        95         50       171
       Total operating revenue        12,097       100     23,781       953

  Operating expenses:

   General and administrative          8,195     2,938     19,528     9,197
   Coal mining operating costs        10,841         -     20,713         -
   Plant start-up costs                9,956       458     17,173     1,543
   Depreciation, depletion and
    amortization                       1,735       188      3,613       542
   Research and development              262       549      1,091     1,154
   Cost of licensing and
    consulting revenue                    15        71        100       422
   Bad debt                                -     1,255          -     1,255
       Total operating expenses       31,004     5,459     62,218    14,113

  Operating loss                     (18,907)   (5,359)   (38,437)  (13,160)

  Other income (expense):

   Other income (expense), net             4         1      1,082       (16)
   Interest income, net                1,540       502      4,225     1,451
       Total other income              1,544       503      5,307     1,435

  Net loss                          $(17,363)  $(4,856)  $(33,130) $(11,725)

  Basic and diluted net loss
   per common share                 $  (0.22)  $ (0.07)  $  (0.43) $  (0.18)
  Weighted-average common shares
   outstanding                        79,582    66,397     76,917    65,767



                                 KFx INC
                        d/b/a EVERGREEN ENERGY INC
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (unaudited)

                                                       Nine Months Ended
                                                         September 30,
                                                      2006           2005
                                                        (in thousands)

  Increase (decrease) in cash and cash equivalents

  Operating activities:
   Net loss                                         $(33,130)      $(11,725)
   Adjustments to reconcile net loss to cash used
    in operating activities:
     Share-based compensation expense to employees
      and others                                       8,622          2,509
     Depreciation, depletion and amortization          3,613            542
     Bad debt                                              -          1,255
     Asset retirement obligation accretion               159            104
     Other                                               (55)            72
   Changes in operating assets and liabilities, net
    of assets acquired:
     Accounts receivable                                (391)             -
     Accounts receivable from related party                -            750
     Inventory                                          (506)             -
     Prepaid expenses and other assets                  (589)          (233)
     Deferred revenue and other current obligations       25           (702)
     Accounts payable and accrued expenses             2,583           (856)
  Cash used in operating activities                  (19,669)        (8,284)

  Investing activities:
   Purchases of construction in progress             (32,182)       (30,419)
   Purchases of property, plant and equipment         (2,493)          (703)
   Purchase of marketable securities                  (7,974)             -
   Proceeds of marketable securities                   3,974              -
   Purchases of mineral rights and development        (1,026)             -

   Cash paid for acquisition, net of cash received   (36,913)          (574)
   Restricted cash                                       222              -
   Other                                                 (46)           310
  Cash used in investing activities                  (76,438)       (31,386)

  Financing Activities:
   Proceeds from exercise of options and warrants     21,922          7,167
   Proceeds from issuance of common stock, net of
    offering costs                                   144,559              -
   Payments on capital leases and note payable           (56)          (209)
   Cash provided by financing activities             166,425          6,958


  Increase (decrease) in cash and cash
   equivalents                                        70,318        (32,712)
  Cash and cash equivalents, beginning of period      28,793         79,381
  Cash and cash equivalents, end of period          $ 99,111       $ 46,669


DATASOURCE: Evergreen Energy Inc



CONTACT:  Analyst Contact - Karli Anderson, Director of Investor

Relations, [phone], Media and Public Affairs Contact - Paul Jacobson,

Vice President of Corporate Communications, [phone], both of Evergreen

Energy Inc



Web site:  http://www.kfx.com/ 

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