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KFx reports growth in first quarter 2002

DENVER, May 24, 2002 — KFx Inc. recently reported its results for the first quarter of 2002.

Consolidated revenues in the first quarter of 2002 were $1,250,961, an increase of $1,003,011, or 405%, as compared to the first quarter of 2001 due entirely to an increase in revenues at Pegasus Technologies, Inc., a majority-owned subsidiary of KFx.

The increase in Pegasus revenues resulted from a significant increase in revenue-generating projects caused by the receipt of the Cinergy fleet wide order in May 2001, the acquisition of the Pavilion power optimization division in July 2001, which contributed approximately $271,000 in revenue during the first quarter of 2002 and increased utilization of the software installation engineers.

KFx also reported revenue growth for the fourth consecutive quarter as consolidated revenues for the first quarter of 2002 exceeded the fourth quarter of 2001 by 12%. Total current order backlog is approximately $8,382,000.

Consolidated operating loss in the first quarter of 2002 was $1,407,102, a decrease of $636,971, or 31%, compared to the first quarter of 2001. This decrease was due primarily to the net effect of the significant increase in revenues and a decrease in depreciation and amortization expense of $389,299 offset by an increase in Pegasus engineering and sales staff and the additional costs of international market expansion.

Consolidated net loss of $3,620,878 ($0.12 per share) in the first quarter of 2002 compares to a consolidated net loss of $2,816,721 ($0.11 per share) in the first quarter of 2001. The first quarter 2002 net loss included non-cash charges of approximately $1,681,000 for interest expense relating principally to the various financing transactions entered into by KFx. These non-cash charges totaled approximately $419,000 for the first quarter of 2001.

KFx provides total fuel solutions for the power industry. Its patented K-Fuel® process converts low heating value coal into clean, high-energy fuel. The KFx web site address is www.kfx.com .

Pegasus Technologies, Inc., a majority-owned subsidiary of KFx, is a provider of neural network based IT applications for the power generation market. The Pegasus OS 2001 suite of combustion optimization applications enables utilities to reduce emissions and increase the efficiency of fossil-fueled electric generating units. The Pegasus web site address is www.pegasustec.com .