DENVER, Sept. 26, 2001 — KFx Inc. announced that its majority-owned subsidiary, Pegasus Technologies, Inc., has signed an exclusive agreement with Alstom Power China for a proprietary software product, the Power Perfecter(TM).

Belgium-based Alstom is the largest power generation company in the world and has an extensive fleet of foreign-manufactured installed equipment in China, whose Grid of 300,000MW is one of the world’s most sizeable.

“We are delighted to be chosen as the neural network software provider for combustion optimization for Alstom Power China,” said Gary Nicholson, CEO, Pegasus Technologies, Inc. “This opens the door for future dealings in many countries with Alstom,” Nicholson added.

“After signing a memorandum of understanding with Pavilion earlier this year, we are now very happy to have signed the agreement with its new parent company, Pegasus,” said Bob Henderson, General Manager, Alstom Power China. “The Pegasus application knowledge, combined with the Power Perfecter(TM) product, will allow us to deliver a superior solution to our clients in China.”

The agreement should result in sales of two Power Perfecter(TM) units in 2001 and seven units in 2002. Installations are expected to increase the efficiency of the power plants, resulting in decreased coal consumption and a reduction of NOx, and CO2 emissions. The pricing of the product is dependent upon specific applications, but will be a meaningful contributor to revenues in 2001 and 2002 for Pegasus, noted Theodore Venners, KFx Chairman, President & CEO.

About Pegasus / KFX

Pegasus Technologies, Inc., is the industry leader in neural network based IT applications for the power generation market. The NeuSIGHT(TM) and Power Perfecter(TM) suite of combustion optimization applications from Pegasus reduces emissions and increases efficiency of fossil fueled electric generating units. The Pegasus Technologies web site address is: www.pegasustec.com. Pegasus Technologies is majority-owned by KFx Inc. (Amex: KFX – news). KFx provides total fuel solutions for the power industry. Its patented K-Fuel(r) process converts low heating value coal into clean, high energy fuel. The KFx web site address is: www.kfx.com .