X0202 4 2004-10-01 0000912365 KFX INC KFX 0001235465 SPENCER RICHARD S III 200 SEVENTH AVENUE, SUITE 105 SANTA CRUZ CA 95062 1 0 1 0 0001057396 WESTCLIFF CAPITAL MANAGEMENT LLC/CA 200 SEVENTH AVENUE, SUITE 105 SANTA CRUZ CA 95062 0 0 1 0 Common Stock 2950500 I By managed account Warrants to Purchase Common Stock 2.75 2002-06-21 2010-06-21 Common Stock 7288750 7288750 I By managed account The reporting persons ("Reporting Persons") are Westcliff Capital Management, LLC, an investment adviser ("WCM") and Richard S. Spencer III ("Spencer"), a manager and the majority member of WCM. Each Reporting Person disclaims membership in a group with any non-reporting person within the meaning of Rule 13d-5(b)(i) and Rule 16a-1(a)(1) under the Exchange Act. This amount includes securities owned directly in various accounts managed by WCM. These include investment limited partnerships of which WCM is the general partner and investment adviser and separately managed accounts in which neither WCM nor Spencer has any ownership or other economic interest other than entitlement to investment advisory compensation. Spencer and WCM disclaim beneficial ownership of any securities except to the extent of their respective pecuniary interests. This is a voluntary filing. As of October 1, 2004, certain securities were transferred from one account managed by WCM to other accounts managed by WCM. This event did not result in any change in WCM's or Spencer's pecuniary interest in any securities reflected in the Tables. Some accounts pay WCM performance-based compensation; others pay only asset-based compensation. WCM may, in the future, become entitled to performance-based compensation from one or more of the accounts that currently pay only asset-based compensation. WCM and Spencer specifically disclaim any beneficial interest in securities held by accounts that do not pay performance-based compensation and in securities held by accounts that do pay performance-based compensation except to the extent WCM receives such compensation under circumstances in which that receipt does not qualify for the exclusion in Rule 16a-1(a)(2)(ii)(C)(1) and (2). WCM has the right to designate two persons ("WCM Nominees") for appointment to the Issuer's board of directors in certain circumstances. Spencer has been so appointed. WCM Nominees so appointed will serve until the next stockholders meeting at which their terms expire. Thereafter, the Issuer will nominate WCM Nominees for election and recommend voting for those nominees. WCM Nominees that are elected to the board are to be appointed to the board's executive committee. These rights terminate immediately when WCM and its affiliates hold less than 400,000 shares of the Issuer's common stock. These rights could cause WCM and Spencer to be deemed insiders of the Issuer without regard to their ownership of Issuer's common stock. Westcliff Capital Management, LLC, by Richard S. Spencer III, Manager and Majority Member 2004-10-04 Richard S. Spencer III 2004-10-04