EEE - Sector: Technology---Industry: Software & Programming

[David Randolph]

1. Introduction

Rmagos solicited this analysis by e-mail. This won't be the first time that I look at EEE, but quite frankly I don't remember what I've studied about this company in the past. This is why I now have this Watch List, to keep information organized.

2. Business Description

Evergreen Energy, Inc. (EEE), together with its subsidiaries, provides energy, environmental, and economic solutions to industrial and public utility markets in the United States and internationally. Its K-Fuel process uses heat and pressure to physically and chemically transform high moisture and low-Btu coals, such as subbituminous coal and lignite, into lower-emission fuel. The K-Fuel process also reduces mercury content, sulfur dioxide, nitrous oxides, and carbon dioxide emissions. In addition, Evergreen licenses its technology to third parties. The company was founded in 1981. It was formerly known as KFx, Inc. and changed its name to Evergreen Energy, Inc. in 2006. Evergreen is headquartered in Denver, Colorado.

3. Empirical Analysis

The company has this business of providing services to energy utilities, but it has been losing more than it sells each quarter. For example, in Q3 2007 EEE had revenue of $12 M and it lost ($19 M). And there wasn't any revenue growth when compared to Q3 2006.

Because of this EEE needs to finance operations by recurring infusions of fresh new capital, which dilute existing shareholders value. This is probably a good part of the explanation of the following medium term chart:



However, over the short term, the stock had a 144% jump in just 6 trading days:



This strong rebound was motivated by the previous very oversold status and the following article published by Fortune magazine:

Hooking up a greenhouse gas meter

This idea and product sound great, but I think we're still very early in the process to know if it will really generate revenues or not.

Over the short term EEE is plagued with heavy losses and dilution. The company made a private placement in 2007 which has the potential to almost double the share count ... and probably the lower EEE goes, the more new shares will have to be issued upon conversion:

«The number of shares of common stock issuable upon conversion of the notes shown in the table assumes conversion of the full amount of notes held by each selling securityholder at an initial conversion rate of 190.4762 shares per $1,000 principal amount of notes.  This conversion price is subject to adjustment in certain events.  Accordingly, the number of conversion shares may increase or decrease from time to time.  The percentages of common stock beneficially owned and being offered are based on the number of shares of our common stock that were outstanding as of December 31, 2007.  Because the selling securityholders may offer all or some portion of the notes or the shares of common stock issuable upon conversion of the notes pursuant to this prospectus supplement, we have assumed for purposes of the table below that the selling securityholders will sell all of the notes and all of the shares of common stock offered by this prospectus supplement pursuant to this prospectus supplement.  In addition, the selling securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their notes in transactions exempt from the registration requirements of the Securities Act since the date on which they provided the information to us regarding their holdings.  As of December 31, 2007, we had $95,000,000 in principal amount of convertible secured notes due 2012 and 84,326,914 shares of common stock outstanding.»

Assuming the $95 M in principal amount of convertible secured notes would be converted at yesterday's closing prices, they would mean 41.3 million new shares to be added to the existing 84.3 million. This would total 125.6 million shares outstanding and the market cap would then be $289 M.

I don't think that a company losing about ($80 M) a year can be worth $289 M. If this new "carbon-meter" doesn't start selling a lot and fast, soon EEE will be out of capital again and it will need another private placement. And I don't think the carbon-meter will sell a lot and fast.

I guess the current rally is being fueled by people who read Fortune's article but are mostly unaware of this company's fundamentals. But when EEE reports the full year 2007 results and shows a ($80 M) or so loss, then there's going to be a reality check and the stock will certainly sell-off, probably to new lows below $1.

The convertible notes holders are probably using the current rally to sell the stock short and hedge part of their exposure.

I don't know how high speculation can take EEE, but I wouldn't consider it a long term investment.

Anyway, I can be wrong, good luck if you own the stock

[Lucas Scott]

I wish I could short it. Interactive Brokers lets me short a lot of stocks under $5 but looks like EEE isn't one of them. Chart says pullback to $1.50 is imminent and those fundamentals won't allow it to hold its recent gains.

[David Randolph]

I wish I could short it. Interactive Brokers lets me short a lot of stocks under $5 but looks like EEE isn't one of them. Chart says pullback to $1.50 is imminent and those fundamentals won't allow it to hold its recent gains.

Hi Lucas, it took about 1 1/2 months for EEE to descend to the $1.5 level. But I wonder if you would have the strong hands to hold your short position (opened at $2.3), when the stock rose to $2.75 a couple of weeks later.

It's not easy to sell stocks short and make a profit at it, as timing is crucial.

There were important news out on March 20:

Evergreen Energy to idle plant in Wyoming, take $109 mln charge
at  Reuters (Thu, Mar 20)

Evergreen Closing Clean-Coal Test Plant
AP (Thu, Mar 20)

Another $109 M loss? This way I guess this small company will lose about $190 M in 2007 (it still didn't report full year earnings).

The closing of this plant tells me one thing: they're running out of capital. I think they'll be in the OTCBB and probably file for bankruptcy over the next 12 months.

[setravis]

Give this one a try again...
Very OverSold and taking a nice bounce north.

Day's Range: 2.7801 - 3.15
52wk Range: 0.52 - 4.98
Volume: 3,206,318
Avg Vol (3m): 2,037,370
Market Cap: N/A
P/E (ttm): N/A
EPS (ttm): -3.44
Div & Yield: N/A (N/A)

Technicals
Last Price Quote is:
5.83%above 13-day EMA
5.13%above 50-day EMA
RS Rating: 98