<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                                 AMENDMENT NO. 2

[X]     Annual report under Section 13 or 15 (d) of the Securities Exchange Act
        of 1934 for the fiscal year ended September 30, 2002.

OR

[ ]     Transition report under Section 13 or 15 (d) of the Securities Exchange
        Act of 1934 for the transition period from              to
                                                   -------------  --------------

Commission File Number 001-15567
                       ---------

                                  PROBEX CORP.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                 DELAWARE                                33-0294243
      (State or Other Jurisdiction of                 (I.R.S. Employer
      Incorporation or Organization)                Identification No.)

15510 WRIGHT BROS. DRIVE
ADDISON, TX                                                           75001
(Address of Principal Executive Offices)                            (Zip code)

                                 (972) 788-4772
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

   Title of Each Class                 Name of Each Exchange on Which Registered
      COMMON STOCK                              AMERICAN STOCK EXCHANGE

Securities registered under Section 12(g) of the Exchange Act:        NONE
                                                                (Title of class)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]          No  [ ]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $12,686,471

The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of December 3, 2002 was $5,442,621. For
purposes of this computation, all executive officers, directors and 10%
stockholders were deemed affiliates. Such a determination should not be
construed as an admission that such executive officers, directors or 10%
stockholders are affiliates.

As of December 3, 2002, there were 39,048,795 shares of the common stock of the
Company issued and outstanding.

Transitional Small Business Disclosure Format:       Yes  [ ]          No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

NONE.


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                                  PROBEX CORP.
                                      INDEX

<Table>
<Caption>
                                                                                                            Page No.
<S>      <C>                                                                                                <C>

Special Note Regarding Forward Looking Statements.................................................................1

PART I
         Item 1.  Description of Business.........................................................................2

         Item 2.  Description of Properties......................................................................19

         Item 3.  Legal Proceedings..............................................................................19

         Item 4.  Submission of Matters to a Vote of Security Holders............................................20

PART II
         Item 5.  Market for the Common Stock and Related Stockholder Matters....................................21

         Item 6.  Management's Discussion and Analysis of Financial Condition and Results of Operations..........32

         Item 7.  Financial Statements...........................................................................45

         Item 8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........73

PART III
         Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance
                      with Section 16(a) of the Exchange Act.....................................................73

         Item 10. Executive Compensation.........................................................................77

         Item 11. Security Ownership of Certain Beneficial Owners and Management and Related
                      Stockholder Matters........................................................................85

         Item 12. Certain Relationships and Related Transactions.................................................88

         Item 13. Exhibits and Reports on Form 8-K...............................................................92

         Item 14. Controls and Procedures.......................................................................102

SIGNATURES......................................................................................................103

CERTIFICATIONS..................................................................................................104
</Table>


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                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

          Included in this Form 10-KSB are "forward looking" statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although we believe that the expectations
reflected in these forward looking statements are reasonable, we can give no
assurance that these expectations reflected in these forward looking statements
will prove to be correct. Our actual results could differ materially from those
anticipated in forward looking statements as a result of certain factors,
including matters described in the section titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Forward looking
statements include those that use forward looking terminology, such as the words
"anticipate," "believe," "estimate," "expect," "intend," "may," "project,"
"plan" and similar expressions, including when used in the negative. Although we
believe that the expectations reflected in these forward looking statements are
reasonable and achievable, these statements involve risks and uncertainties and
no assurance can be given that the actual results will be consistent with these
forward looking statements. Important factors that could cause our actual
results, performance or achievement to differ materially from our expectations
include the following:

          o    we have a history of operating losses, and we expect our losses
               to continue;

          o    our current revenue is derived from services that we do not
               expect to be sources of revenue in the future;

          o    in addition to our financing arrangement with Fusion Capital, we
               will require additional financing;

          o    the time and capital expenditures required for us to develop our
               technology and become profitable are uncertain;

          o    we may not be successful in securing project financing for our
               planned Wellsville reprocessing facility;

          o    we may have to relocate the site of our planned Wellsville
               reprocessing facility;

          o    our substantial debt obligations impair our liquidity and
               financial condition;

          o    a default under our debt instruments could result in the
               termination of our business;

          o    we may be dependent on a technology and market risk facility to
               finalize project financing for our planned reprocessing facility;

          o    we may not succeed in replicating our reprocessing technology in
               a full-scale production facility;

          o    we may not be able to secure a constant and consistent supply of
               used lubricating oil for our planned reprocessing facility;

          o    environmental issues could cause us to incur clean-up costs or
               other liabilities;

          o    environmental laws, regulations and other legal obligations may
               have a material adverse effect on our operations;

          o    adverse market conditions and volatility of lubricating oil
               prices may adversely effect our operations;

          o    we may not be able to respond to changes in motor oil standards;
               and

          o    competition in the lubricating base oil market is intense and
               many of our competitors have substantially greater resources than
               we do.

          All forward looking statements attributable to us are expressly
qualified in their entirety by these and other factors. We undertake no
obligation to update or revise these forward looking statements, whether to
reflect events or circumstances after the date initially filed or published, to
reflect the occurrence of unanticipated events or otherwise.


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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

         We are a technology-based, renewable resource company that is engaged
in the commercialization of our patented ProTerra(R) process. We have invested
the majority of our resources since inception on research, development and
commercialization of our patented ProTerra technology, which has the ability to
reprocess used lubricating oils, including used automotive engine oils,
transmission fluids, gear lubes, diesel engine oils and hydraulic fluids that
are no longer suitable for use, or will no longer perform at their intended
level, into at least three products that we intend to market to commercial and
industrial customers. We expect to begin construction of our first full-scale
reprocessing facility in the United States near Wellsville, Ohio once financing
for the project is obtained. When commercial operations for this facility begin,
our three primary products will be:

         o    ProLube(TM) lubricating base oil, which will be suitable for
              consumer automotive, heavy-duty diesel engine and industrial
              product formulation needs;

         o    ProPower(TM) fuel oil, useful as industrial burner fuel or
              refinery feed for the manufacture of gasoline; and

         o    ProBind(TM) asphalt, which currently competes with other asphalt
              products used for highway construction and roofing.

         We have constructed a process demonstration facility in Addison, Texas,
where we have produced trial amounts of our products utilizing the ProTerra
process and using a variety of used lubricating oil samples as feedstock.
Performance and quality tests performed on these products by several parties,
including two independent laboratories, have indicated that they are suitable
for their intended uses. We have also tested the functioning of our reprocessing
equipment at this facility, including physical disassembly and inspection of the
equipment after test runs, confirming its anticipated capabilities.

         Commencement of full-scale operations at our planned Wellsville
facility is targeted for approximately 17 months after project financing is
completed, with an anticipated startup and performance testing period of an
additional five months. In the longer term, we foresee additional domestic
facilities along the gulf coast and the west coast and in the northeast and
southeast. In addition, we recently formed a joint venture with SARP, S.A. and
SARP Industries, S.A., subsidiaries of Vivendi Environnement, a European
company, to build and operate a used oil reprocessing facility in France. This
joint venture may build other facilities in Europe and elsewhere around the
world outside the United States. We may also build one or more used
oil-reprocessing facilities either alone or in alliance with companies other
than our European co-venturers. See Footnote 12 in the notes to our consolidated
financial statements on Subsequent Events for discussion of recent developments
related to the joint venture with Vivendi Environnement.

         Our primary business upon completion of one or more of these proposed
facilities will be the production of high-quality lubricating base oils and
associated products from collected used lubricating oils. High-quality base oils
are base oils which when blended with the appropriate chemical additives will
meet criteria for the standards of motor oil performance required by automobile
manufacturers for 2002, 2003 and 2004 model year vehicles. However, at this time
we do not reprocess lubricating oil and our only revenues from operations are
derived from our used oil collection and sales operations in the United States,
primarily to industrial power and asphalt plants who purchase the used oil for
its heating value.

         We have incurred net losses since we began to focus our attention on
the research, development and commercialization of our ProTerra process in 1994.
We had net losses of $21.6 million for the year ended September 30, 2002 and
$16.5 million for the year ended September 30, 2001. In addition, we had
negative cash flows from operations of $4.2 million for the year ended September
30, 2002 and $9.4 million for the year ended


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September 30, 2001. At September 30, 2002, our current liabilities exceeded our
current assets by $37.2 million, our stockholders' deficit was $13.4 million,
and we had an accumulated deficit of $53.8 million.

         The independent auditors' reports to our financial statements for the
years ended September 30, 2002 and September 30, 2001 include an emphasis
paragraph, in addition to their audit opinion, stating that our recurring losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible effects on recoverability and
classification of assets or the amounts and classification of liabilities which
may result from our inability to continue as a going concern.

         We expect to continue to incur losses as we increase our expenditures
to commercialize our reprocessing technology. The time required for us to become
profitable is highly uncertain, and we cannot assure you that we will achieve or
sustain profitability or generate sufficient cash flow from operations to meet
our planned capital expenditures, working capital and debt service requirements.

OUR MARKET OPPORTUNITY

         Today, used lubricating oils are often burned or improperly disposed of
with serious damaging impact to soil, water and air. Our objective is to
reprocess a portion of the estimated 10 billion gallons of annually available
used lubricating oil worldwide to supply high-quality reprocessed lubricating
base oils to wholesale commercial and industrial customers while at the same
time benefiting our environment. These customers will purchase our reprocessed
lubricating base oil and blend it with an additive package to produce
lubricating oil that will be sold into the retail market. We anticipate that the
products made with these base oils will be able to comply with automotive,
heavy-duty diesel engine and industrial lubricating oil standards currently in
effect in the United States and several other countries. These standards are
intended to reduce environmental emissions, improve fuel economy, improve
lubrication under widely divergent temperature conditions and meet design
specifications of new types of engines. It is our objective for products made
from our reprocessed lubricating base oil to meet a number of the evolving
standards for other lubricating oils, including vehicular transmission fluids,
hydraulic fluids and industrial and agricultural engine oils. As a result, we
hope to take advantage of market opportunities that may be available for
high-quality lubricating base oil producers that can provide oil to make
products that meet these more stringent requirements.

OUR TECHNOLOGY

         We believe that our patented ProTerra process will make it more
economical to reprocess used lubricating oil into high-quality lubricating base
oils by eliminating the need for hydrogen, thereby reducing capital and
operating costs. We have produced base oils in our process demonstration
facilities that were tested by two independent laboratories in 2002. The
independent laboratories ran performance tests on our products and confirmed in
writing that the products would meet the current quality requirements for use in
automobiles.

         Historically, sophisticated separation units which separate liquids
based on gravity or boiling temperature that are used by the refining or
petrochemical-processing industries have not often been employed to extract
lubricating base oil from certain types of used oils because employing this type
of equipment to reprocess used lubricating oil often resulted in fouling within
the reprocessing equipment, requiring the equipment to be shut down for
cleaning. To address this fouling problem, existing commercial reprocessors have
used relatively ineffective and maintenance-intensive separation equipment,
which is designed to reduce fouling rather than provide effective separation.
This, in turn, has necessitated additional reprocessing equipment and additional
costs to rectify the shortcomings of the separation process.

         Our ProTerra process employs a technique in the initial reprocessing
stage that, under the prescribed processing conditions, virtually eliminates
used lubricating oil's propensity to foul. This allows us to apply proprietary
adaptations of distillation and separation technologies to more effectively
reprocess used lubricating oils and produce high-quality lubricating base oil
products. While these results have been achieved in our process demonstration
facility, we cannot assure you that the same results will be achieved on a full
commercial production scale.

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         The technology for our ProTerra process has been fully described in a
comprehensive set of engineering documents containing the information needed to
construct the detailed design of the facility. The construction and testing of
the facility is estimated to take approximately 22 months from the time we
obtain project financing. The research and development required to commence
commercial operation of the facility is complete. After the estimated
construction and start-up period of 22 months is completed, our Wellsville
facility will be in full-scale production and selling products to our customers.

OUR PRODUCTS

         Our ProTerra technology reprocesses used lubricating oil into three
primary products that we intend to market under the tradenames ProLube, ProPower
and ProBind.

         ProLube Base Lubricating Oil. Our ProLube lubricating base oil is the
primary product produced by our ProTerra process. Suitable as a component for a
variety of commercial automotive, heavy-duty diesel engine and industrial
applications, it is expected to account for approximately 68% of the yield from
our planned reprocessing facilities and we anticipate that it will be the source
of a substantial portion of our future revenue.

         ProPower Light Distillate Fuel Oil. Our ProTerra process also produces
a light distillate, which is equivalent to diesel fuel or home heating oil and
is useful as an industrial fuel or refinery feed for the manufacture of
gasoline. The light distillate and other light fuel products are expected to
account for approximately 19% of the yield of our planned reprocessing
facilities.

         ProBind Asphalt Flux. The final product produced by our ProTerra
process is ProBind asphalt, which will compete with other asphalt products, used
in highway construction and roofing. It is expected to account for approximately
13% of the yield of our planned reprocessing facilities.

PLANNED REPROCESSING FACILITIES

         Wellsville, Ohio. We have entered into an option agreement that allows
us to purchase a 22-acre site located near Wellsville, Ohio on the Ohio River in
the center of large supply and product markets. This option expires on February
28, 2003. The site includes a barge dock, significant above-ground tankage and
rail access. Under the terms of the option agreement, which was signed in June
1999, the Columbiana Port Authority granted us the exclusive right to purchase
this site for $1.35 million. In consideration for the grant of this option, we
paid the Columbiana Port Authority $5,000 and agreed to incur approximately
$100,000 in expenses relating to the option agreement, the site and the facility
during the option period. The original option period expired on June 30, 2000,
but it has been renewed through a series of successive extensions since that
time. We can exercise the option to purchase the site at any time within the
option period by giving written notice to the Port Authority. To initiate
construction of a full-scale reprocessing facility with the ability to reprocess
up to approximately 54 million gallons of used lubricating oil annually on this
site, we will require funding of approximately $130.0 million. To obtain this
funding, we are actively pursuing two primary financing structures, a leveraged
lease transaction and a traditional asset-based loan transaction. We are also
working with the Swiss Re Group to evaluate its willingness to issue a new
commitment to provide a "technology and market risk facility" in connection with
various financing alternatives, as described below, which are currently under
consideration for the planned Wellsville facility. We expect that a technology
and market risk facility will under most foreseeable circumstances be required
to protect our senior project lenders from certain risks associated with funding
the construction process. Our previous technology and market risk facility
commitment from Swiss Re Financial Products Corporation expired October 18,
2002, as expected, in accordance with its terms. Although we believe a
commitment to provide a technology and market risk facility will ultimately be
necessary to complete the financing activities, we do not anticipate finalizing
the issuance of such a commitment until terms of the financing are fully
structured. While we will use our best efforts to obtain project financing and a
new commitment from Swiss Re, we cannot assure you that our efforts will be
successful. Alternative options which may be available to us if we are
unsuccessful in obtaining project financing include filing for protection under
Chapter 7 or Chapter 11 of the U.S. Bankruptcy code, selling the company,
selling rights to our technology or attempting to find a strategic sponsor
enabling us to construct a smaller plant. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of


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recent developments related to the Swiss Re technology and market risk facility
and the Wellsville site purchase option.

         In a leveraged lease transaction, financing would occur in two phases.
In the initial phase, a special purpose subsidiary would obtain a loan on a
non-recourse basis from a construction lender to fund the construction of the
facility through the start-up phase until the facility was ready to begin
commercial operation. The assets of the project would secure the loan, and the
construction lender might require us to make an equity investment in the
project. In that case, the amount of the construction loan would be reduced by
the amount of our equity investment. When the project is built and ready for
commercial operation, the subsidiary would sell the project to a third party who
would then lease the facility back to the subsidiary. The subsidiary would use
the sale proceeds to repay the construction loan and some or all of any equity
investment we made. The lease would have a term ranging from 12 to 15 years
during which the subsidiary would make periodic lease payments to the lessor. At
the end of the lease term, and perhaps earlier, the subsidiary would have the
option to repurchase the facility. The leveraged lease structure has certain tax
attributes that may make it more valuable to some potential lenders than a
traditional asset-based loan.

         In a traditional asset-based loan, the project would borrow the funds
needed to finance the facility's construction from a third party construction
lender. As in the leveraged lease structure, the lender might require us to
invest equity in the facility. The resulting loan would have a term ranging from
8 to 15 years during which the project would make periodic principal and
interest payments following completion and startup of the facility. All of the
assets of the facility would secure the loan. With both a leveraged lease
structure and a traditional asset based loan, the project would use operating
revenues to make lease and loan payments, as the case may be. In either case,
too, if the project defaulted on its obligations, the lender would have recourse
solely against the assets of the facility.

         In anticipation of obtaining our project financing, we have executed a
fixed-price, fixed-schedule agreement with the international engineering and
construction firm, Petrofac LLC, to provide engineering, procurement and
construction services for the planned Wellsville facility. We are currently
evaluating the most cost effective method of operating this initial facility,
either with our personnel or with third party contractors. We plan to use an
outside contractor for repair and maintenance. We envision that this contractor
will be responsible for maintenance of the entire facility. The construction
period for the planned Wellsville facility is expected to be approximately 17
months, with an anticipated startup and performance testing period of an
additional five months. Additionally, we currently intend to engage
Environmental Resources Management to provide permitting and environmental
consulting services for us during the construction process. Nicholas
Hollingshad, one of our directors, serves as operations director of
Environmental Resources Management. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to Mr. Hollingshad.

         French Facility. On December 6, 2002, we entered into a joint venture
arrangement with SARP, S.A. and SARP Industries, S.A., two subsidiaries of
Vivendi Environnement, a European company, to build and operate used oil
reprocessing facilities using our patented ProTerra technology. We currently
expect that the joint venture entity will build its first facility in France. We
acquired a 15% ownership interest in the joint venture, and two subsidiaries of
Vivendi Environnement hold the remaining 85% ownership interest. The planned
French facility will be designed to reprocess up to 120,000 metric tons
(approximately 36 million gallons) of used oil each year. The first phase of the
project involves the satisfaction of several commencement conditions, which must
be fulfilled in order for the project to proceed to construction. The joint
venture agreements require the planned French facility and any future facilities
built by the joint venture to use our ProTerra process.

         The planned French facility is expected to cost the joint venture about
$50.0 million to develop, build and startup. As part of the agreements creating
the joint venture, we agreed to make an initial contribution of $159,300
reflecting 15% of the development expenses incurred as of October 31, 2002. Of
the remaining capital requirement, the joint venture expects to finance at least
$37.2 million from unaffiliated financial institutions, with the remainder
coming from equity investments by us and our European co-venturers. We
anticipate approximately $1.9 million will be required to meet our equity share
of the project through start-up and construction. We expect to fund our share of
the equity through cash on hand and loans from third parties. The assets of the
planned French facility would secure these loans and, if requested by the joint
venture's lenders, we would be required to guaranty up to 15% of the joint
venture's borrowings unless we elect to withdraw from the joint venture. Based
on an estimated


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borrowing of $37.2 million, we would therefore be required to guaranty
approximately $5.6 million of the amount borrowed. The joint venture agreements
are denominated in Euros and have been translated into U.S. Dollars at a
conversion rate of 1 to 1.

         We have granted the joint venture an exclusive license to use our
patented ProTerra technology in Europe. Accordingly, we cannot build or operate
any used oil reprocessing facilities there or invest in or assist any other
companies that do, except through the joint venture. Outside of Europe, we have
granted the joint venture a nonexclusive license to build facilities using our
ProTerra technology everywhere in the world except the United States and, at
least until December 31, 2005, Japan. The joint venture's exclusive license to
use our ProTerra process in Europe will become nonexclusive in any European
country where the joint venture has not begun construction of a facility within
five years after commissioning of the second line of the French facility. In
return for granting the joint venture these licenses, we will receive a license
fee upon construction of the French facility and each subsequent facility. In
addition to our 15% interest in the joint venture, we have the right to purchase
a direct 20% equity interest in any facility built outside of France. The
purchase terms we are offered in these cases must be at least as favorable as
those granted to the joint venture. Further, if we cease to own an interest in
the joint venture, we, in some cases, would be entitled to receive royalty
payments based on a percentage of the net sales of base lubricating oils sold by
most or all of the facilities and our right to purchase a 20% equity interest in
facilities outside of France will terminate. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to the proposed joint venture with Vivendi.

OUR SUPPLY OF USED LUBRICATING OIL

         We believe Safety-Kleen Corporation and U.S. Filter collect
approximately 27% of all available used lubricating oil appropriate for
recycling in a used oil reprocessing facility. The remainder of the used
lubricating oil collection industry in the U.S. is highly fragmented. There are
a number of mid-size regional companies and hundreds of small local collection
companies that collect used lubricating oils. In May 2000, we acquired
substantially all of the assets of Petroleum Products, Inc. and Intercoastal
Trading Company, Inc. through our wholly-owned subsidiary, Probex Fluids
Recovery, Inc ("PFR"). Petroleum Products and Intercoastal Trading are in the
business of collecting, purchasing, selling, delivering or marketing used
lubricating oil in Ohio and Kentucky. In September 2000, Probex Fluids Recovery
acquired substantially all of the assets of Specialty Environmental Services, a
division of Pennzoil-Quaker State Company. Specialty Environmental Services is
in the business of collecting, purchasing, selling and delivering used
lubricating oil and related products in certain portions of a select number of
states in the southern and southeastern United States. All three of these
acquisitions are accounted for through our direct wholly-owned subsidiary,
Probex Fluids Recovery, Inc. Additionally, on April 26, 2001, we purchased a 50%
ownership interest in SES of Texas, which is in the business of collecting,
purchasing, selling and delivering used lubricating oil and related products in
Texas. We do not exercise control over the operations of the business and have
accounted for our ownership interest under the equity method of accounting,
stated at cost and adjusted for equity in undistributed earnings since the
investment date. To date, we do not have binding commitments to supply the
entire amount of used lubricating oil required as feedstock for our planned
Wellsville facility. The facility will require 57 million gallons of used
lubricating oil feedstock per year to operate at full capacity. Our used
lubricating oil collection subsidiary, Probex Fluids Recovery, currently
collects approximately 28 million gallons of used lubricating oil annually and
we expect Probex Fluids Recovery to collect and supply approximately 40 to 45%
of the Wellsville Facility's feedstock at market prices. The remaining feedstock
will be structured under long-term market based agreements. See Footnote 12 in
the notes to our consolidated financial statements on Subsequent Events for
discussion of recent developments related to PFR.

OUR COMPETITION

         Safety-Kleen is the largest domestic reprocessor of used lubricating
oil into lubricating base oil and, therefore, is a prospective competitor.
Safety-Kleen has recently completed an upgrade to its East Chicago, Indiana
refinery, which resulted in a shift in the base oils it produces and a change in
the volume of base oils suitable to manufacture the most popular grades of motor
oil. We believe this change in the product volumes reduces Safety-Kleen's
capability to provide the balance of base oils to meet the needs of their
customers. Safety-Kleen also uses a non-proprietary thin or wiped film process
at its East Chicago facility that currently reprocesses a substantial amount of
used oil each year into lubricating base oil, fuel and asphalt byproducts.
Evergreen Oil Inc. and Mohawk Oil


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employ a similar technology at relatively smaller reprocessing facilities in
Northern California and Canada, respectively. Other known competing technologies
include:

         o    IFP/Viscolube's thermal deasphalting process;

         o    Universal Oil Products' HyLube direct contact hydrogenation;

         o    Interline Resources Corporation's propane extraction system;

         o    Sotolub's used oil recycling process;

         o    Acid/clay reprocessing employed by numerous small reprocessors;
              and

         o    Avista/Emprotec's proprietary process.

Many of these competitors also offer their services in Europe and could compete
with any operations we or our joint venture may commence in the future in
Europe.

         The reprocessing method employed by several of our competitors involves
injecting hydrogen at high operating pressures to assist in purifying the oil.
The use of hydrogen increases both the capital and operating costs of
reprocessing. Our ProTerra process eliminates the need for hydrogen making it
more economical to reprocess used lubricating oil into high-quality lubricating
base oils. However, we will be a competitor in the reprocessed lubricating oil
market only upon commencement of operations at our planned Wellsville facility.

OUR COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL

         On August 29, 2002, we entered into a common stock purchase agreement
with Fusion Capital pursuant to which Fusion Capital agreed to purchase, on each
trading day during the term of the agreement, up to $25,000 of our common stock
up to an aggregate of $20.0 million. Fusion Capital is not obligated to purchase
our stock in the event that the purchase price falls below $0.20 per share or if
we are otherwise in default under the Fusion agreement. Additionally, Fusion
Capital is not required under the common stock purchase agreement to begin
purchasing shares until the Securities and Exchange Commission has declared
effective a registration statement relating to at least 15,000,000 shares of our
common stock. Accordingly, we filed a registration statement on Form SB-2 with
the Securities and Exchange Commission to register the resale by Fusion Capital
of 16,923,077 shares of our common stock on November 25, 2002, and intend to
file an amendment to this registration statement on the date of this Form
10-KSB. The amount and timing of proceeds that we will receive under the Fusion
agreement, if any, is uncertain. We have not received any proceeds from sales to
Fusion Capital as of the date of this Form 10-KSB. See Footnote 12 in the notes
to our consolidated financial statements on Subsequent Events for discussion of
recent developments related to the Fusion transaction.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         Our intellectual property protection strategy is twofold. The first
element of the strategy is patent protection. We have filed for and hope to
secure the broadest possible patent protection for the core elements of our
technology in as many major world markets as possible where patents are
recognized and enforced. We have received from the United States Patent Office
two patents covering 102 claims and also have received patent protection in
Australia and New Zealand. U.S. patents numbers 6,106,699 and 6,117,309, cover
our de-fouling pretreatment and distillation processes until 2017. Australian
patent number 747562 and New Zealand patent number 503187 extend until 2018. We
have filed patent applications in other countries that cover the intellectual
property included in existing patents where we deem patent protection desirable.
See Footnote 12 in the notes to our consolidated financial statements on
Subsequent Events for discussion of recent developments related to developments
concerning our intellectual property rights.

         The second element of our intellectual property strategy is the
protection of our trade secrets. Our patent applications were filed in 1997 and
early 1998 before the major portion of our initial product demonstration program


                                       7
<PAGE>


was completed. Accordingly, essentially all of the process condition
optimizations developed through initial product demonstration have not been
disclosed under our patent filings. We presently intend to maintain this
information as a closely protected trade secret, thereby providing a significant
measure of intellectual property protection even in markets where patents are
effectively unenforceable.

         We also have applied for or received trademark protection for our brand
and trade names in the United States and several other countries and intend to
vigorously defend our marks.

         We have non-disclosure and non-compete agreements in place with all of
our current and former employees, including Messrs. Rampacek, McNiel and Murray.
We have also entered into assignment of inventions agreements with significant
employees.

ENVIRONMENTAL LAWS AND LIABILITIES

         Our activities are subject to substantial regulation by foreign,
federal, state and local government agencies under laws that regulate the
environment, health, safety, zoning, land-use and permitting. In September 1992,
the Environmental Protection Agency, or EPA, enacted regulations that
specifically govern the management of used oils. Although used oil meeting
specified requirements and directed for reprocessing is not classified as a
hazardous waste under federal law, certain states do regulate used oil as
hazardous wastes, which may adversely affect us. Permits, registrations and
other governmental authorizations are generally required for our business
operations and facilities, including our planned facility near Wellsville, Ohio.
The permits, registrations and other authorizations required to start
construction of our planned facility are largely in place, with the exception of
a Permit-to-Install required prior to constructing a wastewater holding tank. An
application for this Permit-to-Install was submitted to the EPA in August 2001,
and the EPA responded with a request for additional information. The deadline
for submitting the application is 180 days prior to commencing construction of
the tank, therefore, we plan to delay responding to the EPA until after the
construction of the planned facility is in process, when more reliable data will
be available. Our existing authorizations are subject to revocation,
modification and renewal. We cannot assure you that regulatory authorizations
yet to be obtained for the planned facility near Wellsville and other planned
facilities in the United States and abroad will be issued by regulatory
authorities. Furthermore, if we are unsuccessful in our efforts to renew our
option to purchase the Wellsville, Ohio site and are forced to seek another
location for the planned facility, we will be required to restart the process of
obtaining appropriate permits for construction and use of the surrounding land.
See Footnote 12 in the notes to our consolidated financial statements on
Subsequent Events for discussion of recent developments related to the
Wellsville site purchase option.

         Some of the principal laws and regulations affecting our business are
as follows:

         The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, also known as CERCLA or Superfund, establishes a program for
federally directed response or remedial actions with respect to the discharge of
hazardous substances, pollutants or contaminants, including waste oil, into the
environment. The law authorizes the federal government either to seek a binding
order directing responsible parties to undertake these actions or authorizes the
federal government to undertake these actions and then to seek compensation for
the cost of clean-up and other damages from potentially responsible parties.
Private parties are also allowed to seek compensation for the cost of clean-up
and other damages from potentially responsible parties. The Superfund Amendments
and Re-Authorization Act of 1986 adopted more detailed and stringent standards
for remedial action at Superfund sites, and clarified provisions requiring
damage assessments to determine the extent and monetary value of injury to
natural resources. CERCLA defines several classes of parties who may be
considered jointly and severally liable under CERCLA, including current and
previous owners and operators of contaminated property. Persons who generate or
arrange for the disposal or treatment of hazardous or toxic substances or other
wastes may also be liable for the costs of removal or remediation of
contamination at a disposal or treatment facility, whether or not the facility
is or ever was owned or operated by these persons.

         The Resources Conservation and Recovery Act of 1976, or RCRA,
established a comprehensive regulatory framework for the management of hazardous
waste at facilities and regulation of underground storage tanks. This
legislation establishes a "cradle-to-grave" system for the management of
hazardous waste, imposing upon all parties who generate, transport, treat, store
or dispose of waste, above certain minimum quantities, requirements for


                                       8
<PAGE>

performance, testing and record keeping. RCRA also requires permits for
construction, operation and closure of facilities and requires post-closure care
and monitoring. The legislation was amended in 1984 to:

         o    increase the scope of the regulation of small quantity waste
              generators and waste oil handlers and reprocessors;

         o    require corrective action at hazardous waste facilities;

         o    phase in restrictions on disposal of hazardous waste; and

         o    require the identification and regulation of underground storage
              tanks containing petroleum and other chemicals.

         The Clean Air Act of 1970, as amended in 1977, establishes National
Ambient Air Quality Standards for certain air pollutants, which are to be
achieved by the individual states through State Implementation Plans. The
legislation regulates the quantity and quality of emissions from specific
industrial sources. For toxic emissions, the Clean Air Act authorizes the
Environmental Protection Agency, or EPA, to regulate emissions from industrial
facilities directly. The EPA under the Clean Air Act has also established
emission limits for new sources of pollution, and is responsible for ensuring
compliance with air quality standards. The Clean Air Act requires regulated
emission sources to obtain operating permits, which commonly impose emission
limitations and standards.

         The Clean Water Act of 1972, as amended in 1987, establishes water
pollutant discharge standards. The legislation requires states to set water
quality standards for significant bodies of water within their boundaries and to
ensure attainment or maintenance of those standards. Most industrial and
government facilities must apply for and obtain discharge permits, monitor
pollutant discharges and under certain conditions reduce certain discharges. The
National Pollutant Discharge Elimination System authorizes the federal and state
governments to issue permits for the discharge of pollutants into the waters of
the United States. State programs must be consistent with minimum federal
requirements, although they are commonly more stringent. Permits are also
required under this legislation for, among other things, certain industrial
discharges of storm water.

         The Safe Drinking Water Act, as amended in 1986, regulates public water
supplies by requiring the EPA to establish primary drinking water standards.
These standards also guide the EPA in seeking clean-up of groundwater resources.

         The Oil Pollution Act of 1990 imposes liability for oil discharges, or
threats of discharge, into the navigable waters of the United States on the
owner or operator of the responsible vessel or facility. Oil is defined to
include oil refuse and oil mixed with wastes other than dredged spoil, but does
not include oil designated as a hazardous substance under CERCLA. This
legislation requires the responsible party to pay all removal costs, including
the costs to prevent, minimize or mitigate oil pollution in any case in which
there is a discharge or a substantial threat of an actual discharge of oil. In
addition, the responsible party may be held liable for damages for injury to
natural resources, loss of use of natural resources and loss of revenues from
the use of these resources.

         The EPA has authorized many states to enforce regulations promulgated
under federal programs. In addition, there are numerous state and local
authorities that regulate the environment, health and safety, some of which
impose stricter standards than federal laws and regulations. Some states have
enacted legislation which generally provides for registration, recordkeeping,
permitting, inspection and reporting requirements for transporters, collectors
and processors of hazardous waste and used oil. The penalties for violations of
environmental laws include injunctive relief, recovery of damages for injury to
air, water or property and fines for noncompliance. In addition, state and
federal common law causes of action also impose liability upon a party for
environmental conditions and operations affecting the environment and third
parties may use these laws to seek recovery for personal injury or property
damage associated with environmental contamination.

         Many foreign governments impose laws and regulations relating to the
protection of the environment and the discharge of pollutants in the
environment. These laws and regulations could impose significant liability on us
for damages, clean-up costs and penalties for discharges of pollutants in the
environment, as well as injunctive


                                       9
<PAGE>


relief. In addition, some foreign governmental agencies have established
pollution control programs, which include environmental permitting, monitoring
and surveillance, data collection and environmental impact assessments.

         Environmental laws, including those discussed above, generally impose
significant penalties for noncompliance. Environmental laws applicable to our
business also impose liability for the remediation and other response to adverse
environmental conditions, commonly regardless of fault. As the lessee and owner
of real property, many with long histories of industrial use, we may be held
responsible for environmental liabilities.

         It is possible that future developments, such as stricter environmental
laws, regulations or enforcement policies, could affect the handling,
manufacture, use, emission or disposal of substances or pollutants associated
with our business. Moreover, some risk of environmental costs and liabilities is
inherent in our particular operations and products, as it is with other
companies engaged in similar businesses. We cannot assure you that we will not
incur significant costs in complying with these laws. Due to increasingly
stringent environmental regulations arising from current and future requirements
of proposed laws, we may have significant capital requirements for environmental
projects in the future.

EMPLOYEES

         As of December 13, 2002, we had a total of 101 full-time employees, of
which 72 were in operations, eight were in sales and marketing, four were in
research and development, and 17 were in finance and administration. We also
have seven part-time employees. None of our employees are represented by a labor
union. We have not experienced any work stoppage and consider relations with our
employees to be good. See Footnote 12 in the notes to our consolidated financial
statements on Subsequent Events for discussion of recent developments related to
our employees.


                                       10
<PAGE>


                                  RISK FACTORS

         The value of an investment in Probex Corp. will be subject to the
significant risks inherent in our business. You should carefully consider the
risks and uncertainties described below and other information included in this
Form 10-KSB before purchasing our common stock. If any of the events described
below occur, our business and financial results could be adversely affected in a
material way. This could cause the trading price of our common stock to decline,
perhaps significantly. Additional risks and uncertainties, including those that
are not yet identified or that we currently believe are immaterial, may also
adversely affect our business, financial condition or results of operations.

                          RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF OPERATING LOSSES, AND WE EXPECT OUR LOSSES TO CONTINUE.

         We have incurred net losses since we began to focus our attention on
the research, development and commercialization of our ProTerra process in 1994.
We had net losses of $21.6 million for the year ended September 30, 2002 and
$16.5 million for the year ended September 30, 2001. In addition, we had
negative cash flows from operations of $4.2 million for the year ended September
30, 2002 and $9.4 million for the year ended September 30, 2001. At September
30, 2002, our current liabilities exceeded our current assets by $37.2 million,
our stockholders' deficit was $13.4 million, and we had an accumulated deficit
of $53.8 million.

         The independent auditors' reports to our financial statements for the
years ended September 30, 2002 and September 30, 2001 include an emphasis
paragraph, in addition to their audit opinion, stating that our recurring losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible effects on recoverability and
classification of assets or the amounts and classification of liabilities which
may result from our inability to continue as a going concern.

         We expect to continue to incur losses as we increase our expenditures
to commercialize our reprocessing technology. The time required for us to become
profitable is highly uncertain, and we cannot assure you that we will achieve or
sustain profitability or generate sufficient cash flow from operations to meet
our planned capital expenditures, working capital and debt service requirements.

OUR CURRENT REVENUE IS PRIMARILY DERIVED FROM SERVICES THAT WE DO NOT EXPECT TO
BE MAJOR SOURCES OF REVENUE IN THE FUTURE.

         We have not commercially offered for sale any of our reprocessed
lubricating base oil products and will not do so until after we secure project
financing and our planned Wellsville reprocessing facility is completed. The
construction period for the planned Wellsville facility is expected to be
approximately 17 months, with an anticipated startup and performance-testing
period of an additional five months. We currently derive all of our revenue from
the services provided by our used oil subsidiary, Probex Fluids Recovery, Inc.
Through this entity, we buy and sell used lubricating oil primarily in Kentucky,
Ohio and certain portions of a select number of states in the southern and
southeastern United States. We do not believe our revenue from the collection
and sale of used lubricating oil will reflect the allocation of revenue we
expect from our future lines of business. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to PFR.

WE WILL REQUIRE ADDITIONAL FINANCING TO CONDUCT OUR OPERATIONS AND FUND
CONSTRUCTION OF OUR PLANNED FACILITIES.

         We do not currently have sufficient financial resources to fund our
operations. We will require substantial additional capital to fund our future
operations and construction of our planned reprocessing facilities. We can give
you no assurances that this additional capital will be available in sufficient
amounts or at all when needed. We will require funding of up to approximately
$130 million to finance construction of our planned Wellsville facility and
provide for our working capital needs during the construction and start-up
period. Of this amount, approximately $120 million is for project costs,
including insurance, development, construction and financing costs. The
remaining


                                       11
<PAGE>


$10 million will be utilized for working capital during the estimated 22-month
construction and start-up period. To obtain this funding, we are actively
pursuing two primary financing structures, a leveraged lease transaction and a
traditional asset-based loan. Until we obtain project financing, we estimate
that we will require approximately $250,000 per month in interim working
capital. In addition, approximately $1.9 million will be required to meet our
equity share of our European joint venture through start-up and construction of
the French facility. We currently have no commitments for project financing or
to fund our interim capital during the start-up period. We are working with
several groups to provide such funding but we cannot assure you that such
proceeds, if any, can be secured or will be sufficient to meet our projected
cash flow needs. If the company is unsuccessful in these efforts, it will
consider any other options available to it, including filing for protection from
creditors under the bankruptcy code. In the event that we are unable to obtain
funding of our planned Wellsville facility, our deferred design facility costs
of approximately $11.2 million and deferred offering costs of approximately $1.3
million, as of September 30, 2002, will be impaired and may be required to be
expensed.

         The extent to which we rely on Fusion Capital as a source of funding
will depend on a number of factors, including the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources. We cannot assure you that funding will be available under our
common stock purchase agreement with Fusion Capital in sufficient amounts or at
all when needed due to a number of factors. For example, our continued access to
financing under our common stock purchase agreement with Fusion Capital requires
that a registration statement be declared effective and remain effective. We can
give you no assurance that the registration statement we filed with the
Securities and Exchange Commission to register the resale of shares sold to
Fusion Capital under the common stock purchase agreement will be declared
effective or remain effective. See Footnote 12 in the notes to our consolidated
financial statements on Subsequent Events for discussion of recent developments
related to the Fusion transaction.

         Our ability to obtain additional financing from other sources also
depends on many factors beyond our control, including the state of the capital
markets, the market price of our common stock and the prospects for our
business. The necessary additional financing may not be available to us or may
be available only on terms that would result in further dilution to the current
owners of our common stock. Further, we must amend our certificate of
incorporation to increase the number of shares of common stock we are authorized
to issue before we can raise any material amount of money from the issuance of
our common stock. Such an amendment will require the approval of our
stockholders. We can give you no assurance that our stockholders will approve
such an amendment. If the financing we require to sustain our working capital
needs is unavailable or insufficient or we do not receive the necessary
financing for the planned Wellsville facility, we may be unable to continue as a
going concern.

WE MAY NOT BE ABLE TO OBTAIN THE FULL $20.0 MILLION GROSS PROCEEDS UNDER OUR
COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL.

         We only have the right to receive up to $25,000 per trading day under
the agreement with Fusion Capital. Furthermore, Fusion Capital does not have the
right or the obligation to purchase any shares of our common stock on any
trading days that the market price of our common stock is less than $0.20 per
share. Since we are registering 15,000,000 shares for sale by Fusion Capital
pursuant to a registration statement, excluding the 1,923,077 shares issued to
Fusion Capital as a commitment fee, the selling price of our common stock to
Fusion Capital will have to average at least $1.33 per share for us to receive
the maximum proceeds of $20.0 million without registering additional shares of
common stock. Assuming a purchase price of $0.69 per share, the average of the
high and low prices of our common stock on December 3, 2002, and the purchase by
Fusion Capital of the full 15,000,000 shares under the common stock purchase
agreement, gross proceeds to us would only be $10,350,000, unless we choose to
register additional shares, which we have the right, but not the obligation, to
do.

         To be in compliance with American Stock Exchange rules, we cannot sell
to Fusion Capital more than 7,253,598 shares of our common stock (19.99% of
36,286,133 of our outstanding shares as of the date of the common stock purchase
agreement) unless we first obtain stockholder approval. Assuming a purchase
price of $0.69 per share, the average of the high and low prices of our common
stock on December 3, 2002, the gross proceeds to us for these 7,253,598 shares
would only be $5,004,982. If we wanted to sell more shares to Fusion Capital, we
first would be required to obtain stockholder approval to be in compliance with
the American Stock Exchange rules. We can make no assurance that we will seek or
obtain stockholder approval to issue more than 7,253,598 shares to Fusion
Capital. See Footnote 12 in the notes to our consolidated financial statements
on


                                       12
<PAGE>

Subsequent Events for discussion of recent developments related to shareholder
approval of an increase in our authorized capital stock.

OUR SUBSTANTIAL DEBT OBLIGATIONS IMPAIR OUR LIQUIDITY AND FINANCIAL CONDITION.

         We have substantial short-term and long-term debt obligations. For the
year ended September 30, 2002, our net interest expense was approximately $6.7
million and for the fiscal year ended September 30, 2001, it was $7.6 million.
As of September 30, 2002, we had approximately $26.0 million of gross debt
outstanding and as of September 30, 2001, we had $22.1 million gross debt
outstanding. As of September 30, 2002, we had approximately $13.1 million of
gross short-term debt which matures on the earlier of February 28, 2003 or the
closing of any project financing we are able to secure for our planned
Wellsville facility. Additionally, as a result of waivers of defaults under our
7% senior secured convertible notes extending the time in which we are required
to secure commitments for project financing until February 28, 2003, we have
reclassified the $12.2 outstanding balance of the notes from long-term debt to
short-term debt. Our substantial debt obligations pose risks to our business and
stockholders by:

         o    making it more difficult for us to satisfy our obligations;

         o    requiring us to dedicate a substantial portion of our cash flow
              to principal and interest payments on our debt obligations,
              thereby reducing the availability of our cash flow to fund
              working capital, capital expenditures and other corporate
              requirements;

         o    impeding us from obtaining additional financing in the future for
              working capital, capital expenditures and general corporate
              purposes; and

         o    making us more vulnerable to a downturn in our business and limit
              our flexibility to plan for, or react to, changes in our
              business.

A DEFAULT UNDER OUR DEBT INSTRUMENTS COULD RESULT IN THE TERMINATION OF OUR
BUSINESS.

         We cannot assure you that we will generate sufficient cash flow from
operations or obtain additional financing to meet scheduled debt payments and
financial covenants. If we fail to make any required payment under the
agreements and related documents governing our indebtedness or fail to comply
with the financial and operating covenants contained in them, we would be in
default. JPW Opportunity Fund, L.P., a noteholder who holds a note in the
aggregate principal amount of $1,000,000, did not at that time waive the default
resulting from our not securing commitments for project financing by September
30, 2001. Subsequently, however, he executed an amendment and waiver and
consent, which, among other things, waived this default. As a result, we
currently believe that such noteholder's claims are without merit and intend to
vigorously defend any action sought by such noteholder. A default under this
note or any of our other borrowings could have a material adverse effect on the
market value and marketability of our common stock since our lenders would have
the ability to require that we immediately pay all outstanding indebtedness. If
the lenders require immediate payment, we will not have sufficient assets to
satisfy our obligations. An event of default under our indebtedness or related
documents may also trigger an event of default under our common stock purchase
agreement with Fusion Capital, which could give Fusion Capital the right to stop
purchasing our common stock. In addition, we have pledged all of our assets,
including our intellectual property, to secure some of our borrowings. As a
result, a foreclosure upon or a sale of these assets would result in the
termination of our business. We can make no assurance that we will not default
under any of our indebtedness in the future. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to the Fusion transaction.

WE MAY BE DEPENDENT ON A TECHNOLOGY AND MARKET RISK FACILITY TO FINALIZE PROJECT
FINANCING FOR OUR PLANNED WELLSVILLE FACILITY.

         We are negotiating with the Swiss Re Group to evaluate its willingness
to provide a new technology and market risk facility in connection with various
financing alternatives currently under consideration for the planned Wellsville
facility. A previous technology and market risk facility commitment from Swiss
Re Financial Products


                                       13
<PAGE>


Corporation expired October 18, 2002, as expected, according to its terms.
However, while we believe a new technology and market risk facility commitment
will ultimately be necessary to complete the financing activities for this
facility, we do not anticipate finalizing a new technology and market risk
facility until terms of the financing are fully structured. While we believe
that we will be successful in obtaining a new commitment from Swiss Re, there is
no guarantee that we will be able to do so. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to the Swiss Re technology and market risk facility.

OUR SUCCESS DEPENDS ON OUR TECHNOLOGY BEING SCALABLE TO FULL FACILITY
SPECIFICATIONS.

         The commercialization of our technology is dependent on our ability to
replicate our reprocessing technology in a full-scale production facility. While
our reprocessing technology has been demonstrated on a small scale in our
process demonstration plant capable of reprocessing two barrels of oil a day, we
cannot assure you that we will be capable of successfully implementing it in a
full-scale production facility.

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS MAY HARM OUR COMPETITIVE
POSITION AND LITIGATION TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR DEFEND
AGAINST THIRD-PARTY ALLEGATIONS OF INFRINGEMENT MAY BE COSTLY.

         Third parties may infringe or misappropriate our patents or other
intellectual property rights, which could have a material adverse effect on our
business, financial condition or operating results. The actions we take to
protect our patents and other proprietary rights may not be adequate. Litigation
may be necessary to enforce our intellectual property rights, protect our trade
secrets or determine the validity and scope of the proprietary rights of others.
We cannot assure you that we will be able to prevent infringement of our
intellectual property rights or misappropriation of our proprietary information.
Any infringement or misappropriation could harm any competitive advantage we
currently derive or may derive from our proprietary rights.

         Third parties may assert infringement claims against us. Any claims and
any resulting litigation could subject us to significant liability for damages.
An adverse determination in any litigation of this type could require us to
design around a third party's patent or to license alternative technology from
another party. In addition, litigation is time-consuming and expensive to defend
and could result in the diversion of our time and resources. Any claims from
third parties may also result in limitations on our ability to use the
intellectual property subject to these claims.

OUR PLANNED JOINT VENTURE IN EUROPE MAY NOT SUCCEED FOR A NUMBER OF REASONS,
LEADING TO THE CANCELLATION OF CONSTRUCTION OF THE PLANNED REPROCESSING FACILITY
IN FRANCE.

         A number of factors beyond our control could impede the successful
launch of our joint venture or the construction of the planned French
reprocessing facility. For example, we will only hold a minority interest in the
joint venture and if our European co-venturers or their affiliates experience
financial, regulatory or other difficulties, their ability to participate in the
joint venture could be adversely impacted, ultimately leading to delays in, or
the cancellation of, construction of the planned French reprocessing facility.
Furthermore, we cannot guarantee that we and our European co-venturers will be
able to raise the funds necessary to satisfy our respective future funding
obligations under the joint venture's governing agreements.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO ACQUIRE USED LUBRICATING OIL AND MARKET
OUR REPROCESSED LUBRICATING BASE OIL PRODUCTS.

         The success of our business model depends in large part on our ability
to maintain a constant and consistent supply of used lubricating oil, to sell
our reprocessed lubricating base oil products and to adapt and modify our
reprocessed lubricating base oil products to meet the evolving regulatory
standards and needs of our customers. Our planned Wellsville facility has been
designed to reprocess approximately 54 million gallons of used lubricating oil
per year. To date, however, we do not have the resources to supply all of the
amount of used lubricating oil required as feedstock for our planned Wellsville
facility. As a result, we will have to enter into one or more agreements with
third parties to supply our short fall. Further, competition and the future
effects of product enhancements, including developments in the refining and
reprocessing industries in which we operate, make the life cycle of our products


                                       14
<PAGE>


difficult to estimate. Our failure to secure an adequate supply of used oil for
our planned Wellsville facility or the failure of our products to gain
widespread acceptance, whether as a result of competition, technological change
or otherwise, would have a material adverse effect on our business, financial
condition and results of operations.

OUR SUCCESS DEPENDS ON RETAINING OUR CURRENT KEY PERSONNEL AND ATTRACTING
ADDITIONAL QUALIFIED EMPLOYEES.

         Our future success is dependent in large part on a number of key senior
managers, as well as research and development and sales and marketing employees,
in particular: Charles M. Rampacek, Chairman of the Board, President and Chief
Executive Officer; Bruce A. Hall, Senior Vice President and Chief Financial
Officer; David J. McNiel, Senior Vice President of Operations; Roger D. Arnold,
Senior Vice President and General Counsel; and Martin R. MacDonald, Senior Vice
President of Technology and Business Development. The loss of one or more key
employees could have a material adverse effect on our business, financial
condition and results of operations. The principal economic incentive offered to
our senior managers to encourage their retention is the omnibus stock option and
incentive plan administered by the compensation committee of our board of
directors, which provides for the granting of options, restricted stock awards
and performance awards. We also currently have employment agreements with
Messrs. Rampacek and McNiel. For a description of our omnibus stock option and
incentive plan and the employment agreements with Messrs. Rampacek and McNiel
see the subheadings entitled "1999 Omnibus Stock Option and Incentive Plan" and
"Employment Agreements," respectively, in Item 10-Executive Compensation.

         Our future success will also depend to a significant extent on our
ability to attract, train, motivate and retain highly-qualified employees. These
employees include managerial and sales personnel, as well as highly-skilled
professionals and other senior technical personnel. We believe that there is a
shortage of, and significant competition for, individuals with the advanced
technological skills necessary to develop, manufacture and market our products.
We expect that it will become increasingly difficult to hire additional
personnel with this expertise and experience. Our inability to hire and retain
qualified personnel or the loss of the services of key personnel could have a
material adverse effect on our business, financial condition and results of
operations.

                          RISKS RELATED TO OUR INDUSTRY

ENVIRONMENTAL ISSUES COULD CAUSE US TO INCUR CLEAN-UP COSTS OR OTHER
LIABILITIES.

         Various foreign, federal, state and local environmental laws,
regulations and other legal obligations impose liability upon current or
previous owners or operators of real property for the costs of removal or
remediation of contamination. These laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the contamination.
Persons who generate or arrange for the disposal or treatment of hazardous or
toxic substances or other wastes may also be liable for the costs of removal or
remediation of contamination at a disposal or treatment facility, whether or not
such facility is or ever was owned or operated by them. Environmental laws and
common law causes of action also impose liability upon a party for the release
of and exposure to environmental contamination and third parties may also use
these laws to seek recovery for personal injury or property damage associated
with environmental contamination. As the lessee and owner of real property, many
with long histories of industrial use, we may be liable in part or in full for
the previously-discussed environmental costs.


                                       15
<PAGE>

         We believe that Probex Corp. and our subsidiaries are in compliance
with all applicable environmental laws, with one exception: Probex Fluids
Recovery Inc., is the owner of property in Zanesville, Ohio, containing three
petroleum underground storage tanks. These tanks do not meet current regulatory
requirements for petroleum underground storage tanks The tanks have not been
used for storage of petroleum products since our acquisition of the facility in
2000 and were reportedly not used for a number of years prior to the
acquisition, however, to be in compliance with Ohio's Petroleum Underground
Storage Tank Release Compensation Fund regulations, these tanks must be
upgraded, removed, or closed in place and formally listed as closed with the
State of Ohio. Probex Fluids Recovery has been working with the appropriate Ohio
regulatory authorities to resolve this issue, which will most likely result in
removal of the tanks. We estimate that the cost of removing the tanks will be
approximately $30,000.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD CREATE LIABILITIES AND ALSO
INCREASE OUR COST OF DOING BUSINESS.

         Foreign, federal, state and local laws, regulations and other
obligations applicable to petroleum-based products and the processing and
transportation of such products are prevalent. We cannot guarantee that
violations of these laws, regulations and other government obligations have not
occurred in the past or will not occur in the future or that governmental
authorities will not allege violations of these laws, regulations or other
obligations. In addition, the applicability and future of environmental laws,
regulations and obligations, including issues such as motor oil standards and
hazardous waste, are uncertain. We may have difficulty complying with existing
or new laws, regulations or other obligations and, as a result, our business,
financial condition and results of operations may be adversely affected. These
laws, regulations and other obligations could also inhibit the growth in the use
of our products and decrease the acceptance of our products, which could have a
material adverse effect on our business, financial condition and results of
operations. See Item 1. Description of Business -- Environmental Laws and
Liabilities.

WE CANNOT ACCURATELY PREDICT THE SIZE OF OUR PRODUCT MARKET, AND IF THIS MARKET
IS NOT AS LARGE AS WE EXPECT, OUR BUSINESS PROSPECTS WILL SUFFER.

         Our growth will depend in part on the development and acceptance of
reprocessed lubricating base oils as an alternative for conventional lubricating
base oils. Use of reprocessed lubricating base oils currently is not widespread,
and market acceptance of our reprocessed lubricating base oils as an alternative
to conventional lubricating base oils is subject to a high level of uncertainty.
The growth of reprocessed lubricating base oil products could be limited by:

         o    the supply of used lubricating oil;

         o    the price of used lubricating oil; and

         o    alternative lubricating base oil products.

Accordingly, we may fail to accurately estimate the size of our market or the
potential demand for our products. This failure could have a material adverse
effect on our business, financial condition and results of operations.

ADVERSE MARKET CONDITIONS AND VOLATILITY OF LUBRICATING BASE OILS PRICES AND
VOLUMES MAY ADVERSELY AFFECT US.

         The revenue generated by our operations will be highly dependent on the
prices of, and demand for, lubricating base oil. Historically, the prices of
lubricating base oil have been related to crude oil prices, which have been
volatile and are likely to be volatile in the future. Our margins have been, and
are expected to remain, volatile.

IF WE ARE UNABLE TO RESPOND TO CHANGES IN MOTOR OIL STANDARDS, OUR PRODUCTS OR
REPROCESSING TECHNOLOGY COULD BECOME OBSOLETE AND WE COULD LOSE REVENUE.

         Motor oil standards are subject to change. The introduction of new
motor oil standards or products or enhancements by our competitors could render
our planned products obsolete or unmarketable. To remain competitive, we must be
ready to change and improve our products in response to industry changes,
including


                                       16
<PAGE>

changes in motor oil standards. Accordingly, our future success will depend on
our ability to enhance our products or expand the applications of our products
in a manner that will respond to market needs and satisfy the demand for
increasingly sophisticated requirements.

COMPETITION IN THE LUBRICATING BASE OIL MARKET IS INTENSE AND MANY OF OUR
COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES THAN WE DO.

         We are smaller and have a more limited operating history than most of
our competitors. We will compete with major lubricating base oil producers. Many
of our current and potential competitors have significantly greater financial,
technical, marketing and other resources than us. As a result, our competitors
may respond more quickly than us to new or emerging technologies and evolving
industry standards, or may devote greater resources than us to the development,
promotion, sale and support of their products. Current and potential competitors
have established or may establish in the future cooperative relations among
themselves or with third parties to increase the ability of their products to
address the needs of our potential customers. As a result, new competitors or
alliances among existing competitors may emerge and rapidly decrease our market
share. We cannot assure you that competitors will not develop products and
services that are superior to or that achieve greater market acceptance than our
products and services. We expect that competition will intensify as the market
for our products develop. We cannot assure you that we can maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other competitive resources than us, or that competitive pressures faced by us
would not have a material adverse effect on our business, financial condition
and results of operations.

                        RISKS RELATED TO OUR COMMON STOCK

FUTURE SALES OF OUR COMMON STOCK, INCLUDING SALES OF OUR COMMON STOCK ACQUIRED
BY FUSION CAPITAL, OR THE PERCEPTION THAT FUTURE SALES COULD OCCUR, MAY
ADVERSELY AFFECT OUR COMMON STOCK PRICE.

         After the completion of the proposed offering of our common stock in
connection with our common stock purchase agreement with Fusion Capital, and
assuming no other issuance of our common stock, we will have 54,048,795 shares
of our common stock outstanding. Of those shares, 16,923,077 shares will have
been registered under the Securities Act of 1933 in connection with the Fusion
Capital transaction and will be freely transferable, subject to certain
exceptions. Additionally, we intend to file a second registration statement
registering the resale of approximately 68,000,000 shares of our common stock by
stockholders who possess registration rights. Of these shares, 370,874 are
currently outstanding and the rest are issuable upon the exercise of outstanding
options or the conversion of convertible debt. Upon their sale under this second
registration statement, these shares of our common stock will also be freely
transferable, subject to certain exceptions. Historically, the trading volume of
our common stock has been relatively low. Accordingly, if a large number of
shares of our common stock are sold in the open market, or if there is a
perception that such sales could occur, the trading price of our common stock
could decline materially. In addition, the sale of these shares, or the
possibility of such sale, could impair our ability to raise capital through the
further sale of additional shares of common stock.

         The purchase price for our common stock to be issued to Fusion Capital
under the common stock purchase agreement will fluctuate based on the price of
our common stock. Fusion Capital may sell none, some or all of the shares of
common stock purchased from us at any time. We expect that the shares offered
under our agreement with Fusion will be sold over a period of up to 40 months
from the date our registration statement regarding those shares is declared
effective. Depending upon market liquidity at the time, a sale of shares by
Fusion Capital or our stockholders at any given time could cause the trading
price of our common stock to decline. The sale of a substantial number of shares
of our common stock, or anticipation of such sales, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales.

         We have reserved 15,000,000 shares of common stock for issuance to
Fusion Capital pursuant to the common stock purchase agreement. We have reserved
8,750,000 shares of our authorized but unissued shares of common stock for
issuance under our omnibus stock and incentive plan. Of these shares, 6,163,848
shares are issuable upon exercise of options granted as of September 30, 2002,
including options to purchase 3,299,341 shares exercisable as of September 30,
2002, or that will become exercisable within 60 days thereafter, and 1,846,750


                                       17
<PAGE>


shares of performance-based restricted stock, including 155,000 shares of
restricted stock that are fully vested. We have also reserved 14,642,767 shares
of common stock issuable upon exercise of outstanding warrants, 15,943,200
shares of common stock issuable upon conversion of our outstanding convertible
notes and 3,184,000 shares of common stock issuable upon conversion of our
Series A preferred stock. The sale of shares issued upon the exercise of
currently outstanding options and warrants could further dilute your investment
in our common stock and adversely affect our stock price. See Footnote 12 in the
notes to our consolidated financial statements on Subsequent Events for
discussion of recent developments related to the Fusion transaction.

OUR COMMON STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME
FLUCTUATIONS.

         The market price of our common stock has been volatile and could
fluctuate widely in response to several factors, some of which are beyond our
control, including:

         o    our quarterly operating results;

         o    changes in our earnings estimates by securities analysts;

         o    additions or departures of key personnel;

         o    changes in the business, earnings estimates or market perceptions
              of our competitors;

         o    the introduction of new products by us or our competitors;

         o    future sales of our common stock, including sales by Fusion
              Capital or other selling stockholders;

         o    changes in general market or economic conditions; and

         o    announcements of legislative or regulatory change.

         The stock market has experienced extreme price and volume fluctuations
in recent years that have significantly affected the quoted prices of the
securities of many companies, including companies in our industry. The changes
often appear to occur without regard to specific operating performance. In
addition, there has been a limited public market for our common stock. We cannot
predict the extent to which investor interest in our company will be maintained.
Such interest is necessary for an active, liquid trading market for our common
stock. Active trading markets generally result in lower price volatility and
more efficient execution of buy and sell orders for investors. The price and
trading volumes of our common stock may fluctuate widely due to the limited
public market for our stock.

         Our common stock is currently listed on the American Stock Exchange. We
cannot assure you, however, that we will continue to be listed on the American
Stock Exchange or that there will be any sustained, active market for our common
stock. If we fail to maintain our listing, holders would find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of, our
common stock and the market value of our common stock likely would decline. In
addition, we would be in default of some of our debt and equity financing
agreements. A default under any of our debt or equity financing agreements could
have a material adverse effect on our business.

WE HAVE NOT, AND CURRENTLY DO NOT ANTICIPATE, PAYING DIVIDENDS ON OUR COMMON
STOCK.

         We have never paid any dividends on our common stock and do not plan to
pay dividends on our common stock for the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations, capital
expenditures and the expansion of our business. In addition, our ability to pay
dividends is effectively limited by the terms of our outstanding notes and the
terms of our outstanding Series A preferred stock. Furthermore, we currently
have a deficit in retained earnings which prevents us from declaring and paying
dividends under Delaware law. The payment of future cash dividends, if any, will
be reviewed periodically by the board of directors and will depend upon, among
other things, our financial condition, funds from operations, the level of our
capital and development expenditures and any restrictions imposed by present or
future debt instruments.


                                       18
<PAGE>

PROVISIONS IN OUR CORPORATE DOCUMENTS AND CERTAIN AGREEMENTS, AS WELL AS
DELAWARE LAW, MAY HINDER A CHANGE OF CONTROL.

         Provisions of our certificate of incorporation and bylaws, as well as
provisions of Delaware law, could discourage unsolicited proposals to acquire
us, even though such proposals may be beneficial to you. These provisions
include:

         o    our board's authorization to issue shares of preferred stock
              without stockholder approval;

         o    prohibition on stockholders from acting by written consent;

         o    a board of directors classified into three classes of directors
              with the directors of each class having staggered, three-year
              terms; and

         o    provisions of Delaware law that restrict many business
              combinations and provide that directors serving on staggered
              boards of directors, such as ours, may be removed only for cause.

These provisions of our certificate of incorporation, bylaws and Delaware law
could discourage tender offers or other transactions that might otherwise result
in our stockholders receiving a premium over the market price of our common
stock.

ITEM 2. DESCRIPTION OF PROPERTIES

         Our principal business address is 15510 Wright Brothers Drive, Addison,
Texas 75001. At this location, we lease approximately 21,300 square feet of
space. The term of this lease extends through May 31, 2007 and the monthly rent
is $8,900. Our executive and administrative staff is at this location. The
facility also houses our research and development facilities, including a new
process demonstration facility that is currently under construction. In
addition, we have office and warehouse space at 2760 Valley View Drive,
Shreveport, LA 71108, which we occupy under the terms of a services agreement
with Pennzoil-Quaker State Company. At this location, we occupy approximately
8,850 square feet of space. The term of the services agreement is through
December 31, 2010 and the monthly sum payable for use of the space is $8,100. As
described above, we have entered into an option agreement that allows us to
purchase a 22-acre site near Wellsville, Ohio. To date, we have paid
approximately $530,000 for this option to purchase the Wellsville site. This
option expires on February 28, 2003. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to the Wellsville site option agreement.

ITEM 3. LEGAL PROCEEDINGS

         From time to time we may become subject to proceedings, lawsuits and
other claims in the ordinary course of business including proceedings related to
environmental and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance.

         McClain Group Leasing, Inc. sued us and our subsidiary, Probex Fluids
Recovery, Inc., on August 14, 2002, in the 162nd state district court in Dallas
County, Texas. The plaintiff's original petition seeks an unspecified amount of
damages on behalf of McClain and alleges that we breached the terms of certain
lease agreements concerning the rental of industrial equipment. On January 28,
2003, we entered into a settlement agreement with McClain in resolution of this
matter. As part of the settlement, the parties released all claims it had
against the other party, contingent upon fulfillment of the terms of the
settlement agreement, including, but not limited to the payment by Probex to
McClain of $28,074 in three equal installments due January 28, 2003, February
20, 2003 and March 20, 2003. The first and second installment payments due under
the settlement have been delivered to McClain. On January 31, 2003, the district
court signed an order based on a joint motion of the parties, dismissing each
party's claims against the others and removing the case from the docket.

         Our subsidiary, Specialty Environmental Services ("SES"), is currently
involved in a dispute with Mocar Oil in connection with Mocar Oil's alleged
breach of the Transportation Services Agreement, dated October 1, 1997,


                                       19
<PAGE>


by and between Mocar Oil and SES. At the current time, no litigation or
arbitration has been filed regarding this dispute and we are working with Mocar
Oil to reach an agreement without resorting to litigation.

         Global Emerging Markets, a placement agent, has asserted a claim
against us for fees due in the amount of $1.4 million in cash and warrants to
purchase 20,000,000 shares of common stock, for providing alleged brokerage
services in connection with a transaction with Fusion Capital Fund II, LLC. We
believe these claims are without merit. At the current time, no litigation or
arbitration has been filed regarding the claim. We cannot predict whether any
proceedings will be filed or the outcome of any such proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of security holders during
the three months ended September 30, 2002.



                                       20
<PAGE>


                                     PART II

ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET AND STOCKHOLDER INFORMATION

         Since February 3, 2000, our common stock has been listed and is trading
on the American Stock Exchange under the symbol "PRB." The volume of trading in
our common stock has historically been relatively low, and none of our shares of
common stock issued to date have been registered under the Securities Act of
1933 or any of the securities laws or regulations of any state or foreign
country.

         The following table sets forth the high and low sales prices for our
common stock for the periods indicated as reported by the American Stock
Exchange:

<Table>
<Caption>
                                                              HIGH       LOW
                                                            --------   --------
<S>                                                         <C>        <C>
FISCAL YEAR ENDED SEPTEMBER 30, 2001
         First Quarter                                      $   2.44   $   1.38
         Second Quarter                                     $   1.93   $   1.38
         Third Quarter                                      $   1.82   $   1.45
         Fourth Quarter                                     $   1.58   $   1.05

FISCAL YEAR ENDED SEPTEMBER 30, 2002
         First Quarter                                      $   1.14   $   0.68
         Second Quarter                                     $   0.95   $   0.46
         Third Quarter                                      $   0.95   $   0.38
         Fourth Quarter                                     $   0.77   $   0.24

FISCAL YEAR ENDED SEPTEMBER 30, 2003
         First Quarter (October 1 to December 3, 2002)      $   0.80   $   0.46
</Table>


         As of December 3, 2002, there were approximately 686 holders of record
of our common stock.

DIVIDENDS

         We have never paid any dividends on our common stock and do not plan to
pay dividends on our common stock for the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations, capital
expenditures and the expansion of our business. In addition, our ability to pay
dividends is effectively limited by the terms of our outstanding notes and the
terms of our outstanding Series A preferred stock. Furthermore, we currently
have a deficit in retained earnings which prevents us from declaring and paying
dividends under Delaware law. The payment of future cash dividends, if any, will
be reviewed periodically by our board of directors and will depend upon, among
other things, our financial condition, funds from operations, the level of our
capital and development expenditures and any restrictions imposed by present or
future debt instruments.



                                       21
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES

         The following chart sets forth unregistered sales of securities by us
during the proceeding fiscal year, as follows:

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
10,669 shares of        October 2001           Lenders           Issued as consideration      $12,301                   (1)
common stock                                                     for the extension of the
                                                                 maturity date of a
                                                                 short-term loan made to
                                                                 the Company. Shares were
                                                                 issued at a value per
                                                                 share equal to $1.153.

68,456 shares of        October 2001           Lenders           Issued as consideration      $57,298                   (1)
common stock                                                     for the extension of the
                                                                 maturity dates of
                                                                 short-term loans made to
                                                                 the Company. Shares were
                                                                 issued at a value of
                                                                 $0.837 per share.

360,053 shares of       October 2001           Lenders           Issued as consideration      $305,325                  (1)
common stock                                                     for the extension of the
                                                                 maturity dates of
                                                                 short-term loans made to
                                                                 the Company. Shares were
                                                                 issued at a value of
                                                                 $0.848 per share.

178,962 shares of       November 2001          Holders of        Declared and paid a          Dividend                  (3)
common stock                                   Series A 10%      dividend on Series A         payment was
                                               Cumulative        preferred shares in the      approximately
                                               Convertible       form of common stock.        $268,443.
                                               Preferred Stock   Pursuant to the terms of
                                                                 the Series A preferred
                                                                 stock, dividends are
                                                                 payable, at our option,
                                                                 in shares of common
                                                                 stock at a deemed value
                                                                 of $1.50 per share.

62,419 shares of        November 2001          Lenders           Issued as consideration      $57,301                   (1)
common stock                                                     for the extension of
                                                                 maturity dates of
                                                                 certain short-term
                                                                 loans. Shares were
                                                                 issued at a value of
                                                                 $0.918 per share.

323,480 shares of       November 2001          Lenders           Issued as consideration      $308,276                  (1)
common stock                                                     for the extension of
                                                                 maturity dates of
                                                                 certain short-term
                                                                 loans. Shares were
                                                                 issued at a value of
                                                                 $0.953 per share.
</Table>


                                       22
<PAGE>


<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
86,977 shares of        December 2001          Lenders           Issued as consideration      $50,999                   (1)
common stock                                                     for the extension of the
                                                                 maturity dates of
                                                                 certain short-term
                                                                 loans. Shares were
                                                                 issued at a value of
                                                                 $0.745 per share.

61,041 shares of        December 2001          Lenders           Issued as consideration      $46,696                   (1)
common stock                                                     for the extension of the
                                                                 maturity dates of
                                                                 certain short-term
                                                                 loans. Shares were
                                                                 issued at a value of
                                                                 $0.765 per share.

178,569 shares of       December 2001          Holders of 7%     Issued shares pursuant       $141,070                  (1)
common stock                                   Senior Secured    to the first amendment
                                               Convertible       to the note purchase
                                               Notes             agreement. Amendment
                                                                 provides for the
                                                                 issuance of common stock
                                                                 as consideration for the
                                                                 extension of certain
                                                                 registration rights
                                                                 granted under the note
                                                                 purchase agreement,
                                                                 dated as of November 29,
                                                                 2000. Shares were issued
                                                                 at $0.79 per share.

1,842,282 shares        December 2001          Investor          Issued 500,000 shares of     $1,000,359                (2)
of common stock                                                  common stock as a result
                                                                 of the investor's
                                                                 election to accelerate
                                                                 the closing of the
                                                                 purchase pursuant to the
                                                                 terms of the stock
                                                                 purchase agreement,
                                                                 described above. Shares
                                                                 were issued at $0.543
                                                                 per share.

288,000 shares of       January 2002           Investors         Issued shares to             $175,964                  (2)
common stock                                                     investors pursuant to
                                                                 the stock purchase
                                                                 agreement dated January
                                                                 15, 2002 by and between
                                                                 the Company and the
                                                                 investors therein.
                                                                 Issued at $0.611 per
                                                                 share.
</Table>


                                       23
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
125,390 shares of       January 2002           Investors         Issued investors an          $76,612                   (2)
common stock                                                     aggregate of 125,390
                                                                 shares as a result of
                                                                 the investors' election
                                                                 to accelerate the
                                                                 closing of the purchase
                                                                 pursuant to the terms of
                                                                 the stock purchase
                                                                 agreement described
                                                                 above. The shares were
                                                                 issued at $0.611 per
                                                                 share.

354,151 shares of       January 2002           Holders of 7%     Pursuant to the terms of     $288,987                  (1)
common stock                                   Senior Secured    the notes, interest is
                                               Convertible       payable in shares of
                                               Notes             common stock to holders
                                                                 of the notes who made a
                                                                 one-time election to
                                                                 receive interest
                                                                 payments in the form of
                                                                 common stock. Interest
                                                                 in the amount of
                                                                 $288,987 was paid in
                                                                 354,151 shares of common
                                                                 stock. The shares were
                                                                 issued at $0.816 per
                                                                 share.

37,879 shares of        January 2002           Placement Agent   Issued as consideration      $30,000                   (5)
common stock                                                     for services rendered in
                                                                 connection with the
                                                                 placement of common
                                                                 stock. Shares were
                                                                 valued at $0.792 per
                                                                 share.

Warrant to              January 2002           Placement Agent   Issued as consideration      $118,800                  (5)
purchase 150,000                                                 for services rendered.
shares of common                                                 Exercise price per share
stock                                                            equal to $0.792.

8,053 shares of         January 2002           Lenders           Issued as consideration      $5,999                    (1)
common stock                                                     for the extension of the
                                                                 maturity date of a
                                                                 short-term loan, issued
                                                                 at a value per share
                                                                 equal to $0.745.

90,362 shares of        January 2002           Placement Agent   Issued as consideration      $75,000                   (5)
common stock                                                     for services rendered in
                                                                 connection with the
                                                                 placement of a
                                                                 short-term convertible
                                                                 and shares of common
                                                                 stock, respectively.
                                                                 Shares were issued at
                                                                 $0.830 per share.
</Table>


                                       24
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
14,400 shares of        January 2002           Placement Agent   Issued as consideration      $11,952                   (5)
common stock                                                     for services rendered in
                                                                 connection with the
                                                                 placement of a
                                                                 short-term convertible
                                                                 and shares of common
                                                                 stock, respectively.
                                                                 Shares were issued at
                                                                 $0.830 per share.

Warrants to             January 2002           Placement Agent   Consideration for            $186,000 and              (5)
purchase 150,000                                                 services rendered.           $22,250
and 25,000 shares                                                Exercisable at a per         respectively
of common stock                                                  share exercise price
                                                                 equal to $1.24 and $0.89
                                                                 respectively.

50,000 shares of        February 2002          Consultant        Issued as consideration      $37,800                   (6)
common stock                                                     for services rendered at
                                                                 a value per share equal
                                                                 to $0.756.

178,569 shares of       March 2002             Holders of 7%     Issued pursuant to first     $149,998                  (2)
common stock                                   Senior Secured    amendment to note
                                               Convertible       purchase agreement.
                                               Notes             Amendment provides of
                                                                 the issuance of common
                                                                 stock as consideration
                                                                 for the extension of
                                                                 certain registration
                                                                 rights granted under
                                                                 that certain note
                                                                 purchase agreement,
                                                                 dated as of November 20,
                                                                 2000. The shares were
                                                                 issued at $0.84 per
                                                                 share.

13,896 shares of        March 2002             Consultant        Issued as consideration      $7,282                    (6)
common stock                                                     for services rendered.
                                                                 Shares were issued at a
                                                                 value per share equal to
                                                                 $0.524.

Warrants to             March 2002             Lender            Issued in connection         $3,000,000                (1)
purchase                                                         with short-term loan in
3,000,000 shares                                                 the aggregate principal
of common stock                                                  amount of $3,000,000
                                                                 made by the lenders.

4,136 shares of         April 2002             Consultant        Issued as consideration      $3,805                    (6)
common stock                                                     for services rendered.
                                                                 Issued at a value per
                                                                 share of $0.92.
</Table>


                                       25
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
3,788 shares of         April 2002             Placement Agents  Issued pursuant to the       $2,727                    (5)
common stock                                                     anti-dilution provisions
                                                                 contained in the
                                                                 placement agents'
                                                                 respective placement
                                                                 agreements with a value
                                                                 of $0.72 per share.

Warrants to             April 2002             Lenders           Issued to lenders as         $2,361,575                (1)
purchase an                                                      consideration for the
aggregate of                                                     extension of the
3,148,767 shares                                                 maturity date of
of common stock                                                  short-term loans made to
                                                                 the Company. Warrants
                                                                 have an exercise price
                                                                 per share equal to
                                                                 $0.75.

Warrants to             April 2002             Lenders           Issued at an exercise        $150,000                  (1)
purchase an                                                      price of $0.75 in
aggregate of                                                     connection with a
200,000 shares of                                                short-term loan.
common stock

176,042 shares of       May 2002               Holders of        Paid as dividends on         $264,063                  (3)
common stock                                   Series A 10%      Series A preferred
                                               Cumulative        stock. The dividend
                                               Convertible       payment on the Series A
                                               Preferred Stock   preferred stock was
                                                                 $264,063, resulting in
                                                                 the issuance of an
                                                                 aggregate of 176,042
                                                                 shares of common stock,
                                                                 at a price of $1.50 per
                                                                 share.

333,333 shares of       June 2002              Holders of 7%     Issued pursuant to first     $133,333                  (1)
common stock                                   Senior Secured    amendment to note
                                               Convertible       purchase agreement. The
                                               Notes             amendment provides for
                                                                 the issuance of common
                                                                 stock as consideration
                                                                 for the extension of
                                                                 certain registration
                                                                 rights granted under the
                                                                 note purchase agreement,
                                                                 dated as of November 29,
                                                                 2000. The shares were
                                                                 issued at $0.40 per
                                                                 share.
</Table>


                                       26
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
399,466 shares of       June 2002              Holders of 7%     Issued shares upon           $299,599                  (1)
common stock                                   Senior Secured    conversion of two 7%
                                               Convertible       senior secured
                                               Notes             convertible notes at
                                                                 conversion price of
                                                                 $0.75 per share. Holders
                                                                 tendered notes
                                                                 aggregating
                                                                 approximately $300,000
                                                                 in principal amount.

1,923,077 shares        August 2002            Fusion Capital    Issued as payment of a       $800,000                  (6)
of common stock                                Fund II, LLC      commitment fee for
                                                                 entering into a common
                                                                 stock purchase
                                                                 agreement. The shares
                                                                 were issued at $0.416
                                                                 per share.

212,176 shares of       September 2002         Holders of 7%     Issued pursuant to first     $163,376                  (6)
common stock                                   Senior Secured    amendment to note
                                               Convertible       purchase agreement. The
                                               Notes             amendment provides for
                                                                 the issuance of common
                                                                 stock as consideration
                                                                 for the extension of
                                                                 certain registration
                                                                 rights granted under the
                                                                 note purchase agreement,
                                                                 dated as of November 29,
                                                                 2000. The extension
                                                                 payment of approximately
                                                                 $163,000 was paid in
                                                                 212,176 shares of common
                                                                 stock. The shares were
                                                                 issued at $0.77 per
                                                                 share.

22,727 shares of        October 2002           Placement Agent   Issued as consideration      $12,499                   (1)
common stock                                                     for services rendered in
                                                                 connection with the
                                                                 placement of convertible
                                                                 notes. Shares were
                                                                 valued at $0.55 per
                                                                 share.

57,333 shares of        November 2002          Holders of 7%     Issued shares upon           $43,000                   (1)
common stock                                   Senior Secured    conversion of a 7%
                                               Convertible       senior secured
                                               Notes             convertible note at
                                                                 conversion price of
                                                                 $0.75 per share. Holder
                                                                 tendered a note in the
                                                                 principal amount of
                                                                 $43,000.
</Table>


                                       27
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
266,667 shares of       November 2002          Holders of 7%     Issued shares upon           $200,000                  (3)
common stock                                   Senior Secured    conversion of a 7%
                                               Convertible       senior secured
                                               Notes             convertible note at
                                                                 conversion price of
                                                                 $0.75 per share. Holder
                                                                 tendered a note in the
                                                                 principal amount of
                                                                 $200,000.

178,959 shares of       November 2002          Holders of        Paid as dividends on         $268,000                  (4)
common stock                                   Series A 10%      Series A preferred
                                               Cumulative        stock. The dividend
                                               Convertible       payment on the Series A
                                               Preferred Stock   preferred stock was
                                                                 approximately $268,000,
                                                                 resulting in the
                                                                 issuance of an aggregate
                                                                 of 178,959 shares of
                                                                 common stock, at a price
                                                                 of $1.50 per share.

Options to              October 8, 2001        Employee          Options issued pursuant      $5,150                    (4)
purchase 5,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $1.03
                                                                 per share.

Options to              October 15, 2001       Employee          Options issued pursuant      $840                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.84
                                                                 per share.

Options to              October 23, 2001       Employee          Options issued pursuant      $4,250                    (4)
purchase 5,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.85
                                                                 per share.

Options to              October 29, 2001       Employee          Options issued pursuant      $20,000                   (4)
purchase 25,000                                                  to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.80
                                                                 per share.

Options to              November 26, 2001      Employee          Options issued pursuant      $4,700                    (4)
purchase 5,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.94
                                                                 per share.

Options to              December 3, 2001       Employee          Options issued pursuant      $850                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.85
                                                                 per share.
</Table>


                                       28
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
Options to              December 10, 2001      Employee          Options issued pursuant      $780                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.78
                                                                 per share.

Options to              December, 2001         Employees         Options issued pursuant      $1,580                    (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
2,000 shares of                                                  exercise price of $0.79
common stock                                                     per share.

Options to              January 21, 2002       Employee          Options issued pursuant      $4,250                    (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
5,000 shares of                                                  exercise price of $0.85
common stock                                                     per share.

Options to              February 4, 2002       Employee          Options issued pursuant      $710                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.71
                                                                 per share.

Options to              February 25, 2002       Employee         Options issued pursuant      $550                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.55
                                                                 per share.


Options to              March 18, 2002         Employees         Options issued pursuant      $1,100                    (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
2,000 shares of                                                  exercise price of $0.55
common stock                                                     per share.

Options to              March 24, 2002         Employee          Options issued pursuant      $720                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.72
                                                                 per share.

Options to              April 29, 2002         Employees         Options issued pursuant      $8,500                    (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
10,000 shares of                                                 exercise price of $0.85
common stock                                                     per share.

Options to              May 28, 2002           Employee          Options issued pursuant      $640                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.64
                                                                 per share.

Options to              July 8, 2002           Employee          Options issued pursuant      $410                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.41
                                                                 per share.
</Table>


                                       29
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
Options to              August 26, 2002        Employee          Options issued pursuant      $320                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.32
                                                                 per share.

Options to              September 2, 2002      Employee          Options issued pursuant      $300                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.30
                                                                 per share.

Options to              September 9, 2002      Officers and      Options issued pursuant      $91,280                   (4)
purchase an                                    Employees         to our stock option and
aggregate of                                                     incentive plan at an
326,000 shares of                                                exercise price of $0.28
common stock                                                     per share.

Options to              September 16, 2002     Employee          Options issued pursuant      $400                      (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.40
                                                                 per share.

Options to              November 13, 2002      Employee          Options issued pursuant      $4,800                    (4)
purchase 1,000                                                   to our stock option and
shares of common                                                 incentive plan at an
stock                                                            exercise price of $0.48
                                                                 per share.

Options to              January 30, 2002       Directors         Options issued pursuant      $22,500                   (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
30,000 shares of                                                 exercise price of $0.75
common stock                                                     per share.

Options to              March 11, 2002         Director          Options issued pursuant      $4,800                    (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
10,000 shares of                                                 exercise price of $0.48
common stock                                                     per share.

Options to              October 29, 2002       Directors         Options issued pursuant      $105,000                  (4)
purchase an                                                      to our stock option and
aggregate of                                                     incentive plan at an
175,000 shares of                                                exercise price of $0.60
common stock                                                     per share.

326,666 shares of       June 4, 2001           Director,         Option holders exercised     $163,333                  (4)
common stock                                   holder of stock   options at an exercise
                                               options           price of $.50 per share.

7,560 shares of         November 6, 2001       Holder of stock   Option holder exercised      $3,780                    (4)
common stock                                   options           options at an exercise
                                                                 price of $.50 per share.

12,500 shares of        November 12, 2001      Holder of stock   Option holder exercised      $6,250                    (4)
common stock                                   options           options at an exercise
                                                                 price of $.50 per share.
</Table>


                                       30
<PAGE>

<Table>
<Caption>
                                                                                                                   SUPPORT FOR
SECURITY ISSUED          DATE ISSUED           ISSUED TO              CONSIDERATION        AGGREGATE VALUE          EXEMPTION
---------------          -----------           ---------              -------------        ---------------         -----------
<S>                     <C>                    <C>               <C>                       <C>                     <C>
163,334 shares of       February 11, 2002      Director,         Option holder exercised      $81,667                   (4)
common stock                                   holder of stock   options at an exercise
                                               options           price of $.50 per share.
</Table>

(1)      The issuance of the shares is exempt pursuant to Section 4(2) of the
         '33 Act because the recipient of the shares is a single creditor or
         lender, or the recipients are a finite group of creditors or lenders
         who provided representations of sophistication in financial matters or
         accredited investor status , was/were not the subject of a public
         solicitation and had access to all public information of the Company.

(2)      The issuance of the shares is exempt pursuant to Section 4(2) of the
         '33 Act because the recipient was a single investor, or the recipients
         were a finite group of investors, who provided representations of
         sophistication in financial matters or accredited investor status,
         was/were not the subject of a public solicitation and had access to all
         public information of the Company.

(3)      The issuance of shares did not constitute a "sale" as defined in
         Section 2(3) of the '33 Act.

(4)      The issuance of the shares is exempt pursuant to Section 4(2) of the
         '33 Act because the recipient of the shares was a director or employee
         of the Company, not the subject of a public solicitation, who had
         access to all public information of the Company.

(5)      The issuance of the shares is exempt pursuant to Section 4(2) of the
         '33 Act because the recipient of the shares was/is sophisticated in,
         and knowledgeable about, the securities industry and securities
         offerings, was not the subject of a public solicitation, and had access
         to all public information of the Company.

(6)      The issuance of the shares is exempt pursuant to Section 4(2) of the
         '33 Act because the recipient of the shares was not the subject of a
         public solicitation, sufficiently knowledgeable in investments and/or
         fully aware of all of the risks attendant to taking shares in lieu of
         cash for services rendered to the Company and had access to all public
         information of the Company.


                                       31
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

         You should read the following discussion of our financial condition and
results of operations together with the consolidated financial statements and
notes to the financial statements included elsewhere in this Form 10-KSB. This
discussion contains forward looking statements that involve risks and
uncertainties. The forward looking statements are not historical facts, but
rather are based on current expectations, estimates, assumptions and projections
about our industry, business and future financial results. Our actual results
could differ materially from the results contemplated by these forward looking
statements due to a number of factors, including those discussed in the sections
of this Form 10-KSB entitled "Risk Factors" and "Special Note Regarding Forward
Looking Statements."

OVERVIEW

         We are a technology-based, renewable resource company that is engaged
in the commercialization of our patented ProTerra process. We have invested the
majority of our resources since inception on research, development and
commercialization of our patented ProTerra technology, which has the ability to
reprocess used lubricating oil into at least three products that we intend to
market to individual consumers as well as commercial and industrial customers.
The three primary products are:

         o    ProLube lubricating base oil, which will be suitable for consumer
              automotive, heavy-duty diesel engine and industrial product
              formulation needs;

         o    ProPower fuel oil, which will be useful as a low-ash industrial
              fuel or refinery feed for the manufacture of gasoline; and

         o    ProBind asphalt flux, which will compete with other asphalt flux
              products.

         For the past year, we have been engaged in the process of refining our
technology, actively pursuing several alternative financing structures for the
construction of the planned Wellsville facility, obtaining an independent
engineers report, supply contracts, feedstock contracts and site purchase
contract extensions and an engineering, procurement and construction contract.
We have performed test runs at our pilot plant, producing trial amounts of our
products to provide technical engineering data and samples for testing in
support of third party due diligence. We also moved our pilot plant from its
former location in Carrollton, Texas to its present location in Addison, Texas.

         To date, we have produced trial amounts of our products using the
ProTerra process in our process demonstration facility, currently located in
Addison, Texas. We expect to begin construction of our first facility in the
United States near Wellsville, Ohio once financing for the project is obtained.
Commencement of operations at this facility is targeted for approximately 17
months after project financing is completed, with an anticipated start-up and
performance testing period of an additional five months. In the longer term, we
foresee additional domestic facilities along the gulf coast and the west coast
and in the northeast and southeast. In addition, we recently formed a joint
venture with SARP, S.A. and SARP Industries, S.A., subsidiaries of Vivendi
Environnement, a European company to build and operate a used oil reprocessing
facility in France. This joint venture may build other facilities in Europe and
elsewhere around the world outside the United States. We may also build one or
more used oil-reprocessing facilities either alone or in alliance with companies
other than our European co-venturers. While our primary business upon completion
of one or more of these proposed facilities will be the production of
high-quality lubricating base oils and associated products from collected used
lubricating oils, our current revenues are solely derived from our used oil
collection and sales operations in the United States.

         Potential customers who have expressed interest in our reprocessed base
oil products include independent manufacturers and several national lubricant
manufacturer/marketers. The reprocessed base oil we produce will be a raw
material used to formulate automotive and diesel engine oils, transmission
fluids, gear lubricants, hydraulic fluids, heat transfer fluids and process
oils. We intend to market our products through sales calls, discussions


                                       32
<PAGE>


at trade association meetings and presentations at industry technical meetings.
The primary geographic market area will be within 300 miles of the site of the
Wellsville facility. However, due to excellent rail and river transportation
available from the site of the facility, the marketing area could be extended.

HISTORY OF OPERATING LOSSES

         We incurred a net loss of $21.6 million and $16.5 million and used cash
in operations of $4.2 million and $9.4 million for the year ended September 30,
2002 and the year ended September 30, 2001, respectively. In addition, we are
highly leveraged. At September 30, 2002, our current liabilities exceeded
current assets by $37.2 million and our stockholders' deficit was $13.4 million.
Our existence and plans for commercializing our ProTerra technology are
dependent upon our ability to obtain the necessary capital, primarily through
the issuance of additional debt and equity.

         The independent auditors' reports to our financial statements for the
year ended September 30, 2002 and September 30, 2001, include an emphasis
paragraph, in addition to their audit opinion, stating that our recurring losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible effects on recoverability and
classification of assets or the amounts and classification of liabilities which
may result from our inability to continue as a going concern.

         We have funded our operations and research and development projects
during fiscal year 2002 and in fiscal year 2001 in part by selling equity and
incurring indebtedness. For the fiscal year ended September 30, 2002 our
research and development costs were approximately $1.4 million compared with
approximately $3 million for fiscal year 2001. During the fiscal year ended
September 30, 2002, we raised $1.3 million from the sale of common stock, net of
offering costs, and exercise of stock options and $4.8 million of proceeds from
short-term debt. During the fiscal year ended September 30, 2001, we raised $2.0
million from the sale of common stock, net of offering costs, and exercise of
stock options, $12.5 million from the issuance of 7% senior secured convertible
notes and $9.9 million of proceeds from short-term debt. In addition, we made
principal payments of approximately $119,000 and $7.5 million on existing debt
during the fiscal year ended September 30, 2002 and the fiscal year ended
September 30, 2001, respectively.

RECENT DEVELOPMENTS

         See Footnote 12 in the notes to our consolidated financial statements
on Subsequent Events for discussion of recent developments.

CRITICAL ACCOUNTING POLICIES

         The methods, estimates and judgment we use in applying our most
critical accounting policies have a significant impact on the results we report
in our financial statements. The Securities and Exchange Commission has defined
the most critical accounting policies as the ones that are most important to the
portrayal of our financial condition and results, and require us to make our
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based upon this definition,
our most critical policies include going concern, impairment of long-lived
assets, deferred offering costs and goodwill. We also have other key accounting
policies, but we believe that these other policies either do not generally
require us to make estimates and judgments that are as difficult or as
subjective, or it is less likely that they would have a material impact on our
reported results of operations for a given period. For additional information
see Note 1 "Summary of Significant Accounting Policies" in the notes to our
audited consolidated financial statements contained in our annual report on Form
10-KSB for the fiscal year ended September 30, 2002. Although we believe that
our estimates and assumptions are reasonable, they are based upon information
presently available. Actual results may differ significantly from these
estimates.


                                       33
<PAGE>


GOING CONCERN

         The independent auditors' reports to our financial statements for the
year ended September 30, 2002 and September 30, 2001, include an emphasis
paragraph in addition to their audit opinion stating that our recurring losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. Our financial statements do not include
any adjustments to reflect the possible effects on recoverability and
classification of assets or the amounts and classification of liabilities that
may result from our inability to continue as a going concern.

IMPAIRMENT OF LONG-TERM ASSETS

         In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," we record
assets held for sale at the lower of the carrying amount or fair value less cost
to sell. With respect to assets classified as held and used, we periodically
review these assets to determine whether our carrying amount will be recovered.
We had approximately $11.2 million of capitalized deferred facility design costs
at September 30, 2002. During the fourth quarter for the year ended September
30, 2002, we wrote off approximately $1.5 million of deferred facility costs in
relation to a project contract we are no longer pursuing. This project contract
related to the termination of an EPC alliance agreement with Bechtel
Corporation. Although we have dissolved that EPC alliance agreement, we expect
that a business relationship will continue to exist in selected areas with
Bechtel. The remaining costs will be expensed if we are unable to obtain project
financing for our first reprocessing facility.

DEFERRED OFFERING COSTS

         Deferred offering costs represent valid costs incurred for the ongoing
effort to obtain project financing. We continually evaluate the capitalized
costs and write off all costs associated with financing plans that are not
considered viable alternatives. During the fourth quarter for the year ended
September 30, 2002, we wrote off approximately $5.1 million of deferred offering
costs in relation to financing plans that we no longer consider viable
alternatives. This consists of $4 million in legal fees, $0.7 million of
placement agent fees and expenses, $0.1 million of technology facility provider
retainer fees and $0.3 million of other expenses in connection with financing
plans that we are no longer pursuing. As of September 30, 2002, we had deferred
offering costs of $1.3 million in connection with obtaining project financing
for the construction of our planned Wellsville facility. The capitalized costs
associated with the debt financing plans will begin to be amortized into
interest expense using the effective interest method upon obtaining debt
financing. The capitalized costs associated with equity financing will be
written against the amount of equity received as a cost of obtaining equity.
These costs will be expensed if we are unable to successfully obtain project
financing for our first reprocessing facility.

GOODWILL

         Goodwill represents the excess purchase price over the fair market
value of the net assets acquired. We adopted Statement of Financial Accounting
Standards, or SFAS, No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets, effective October 1, 2001. Under these new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests. There has been no
amortization of goodwill since this accounting change, thus accumulated
amortization of goodwill still remains at $529,000. We have performed an
evaluation of the carrying value of goodwill at September 30, 2002 and we
believe there was no impairment to goodwill based on an unsolicited offer we
have received for our used lubricating oil business.


                                       34
<PAGE>


RESULTS OF OPERATIONS

FISCAL YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 2001

<Table>
<Caption>
                                                YEAR ENDED SEPTEMBER 30,
                                             ----------------------------
                                                 2002            2001
                                             ------------    ------------
<S>                                          <C>             <C>

Revenue ..................................   $ 12,686,471    $ 15,528,606
Cost of sales ............................      7,976,452       8,339,289
                                             ------------    ------------
Gross Profit .............................   $  4,710,019    $  7,189,317

Expenses:
Operating expense ........................      6,221,714       5,776,419

Research and development .................      1,351,166       2,970,225
Selling, general and administrative ......      3,712,637       4,739,633
Other corporate expenses .................      7,413,361       1,342,765

Depreciation and amortization ............        988,426       1,220,759
                                             ------------    ------------

Operating Loss ...........................   $(14,977,285)   $ (8,860,484)


Interest - net ...........................     (6,665,350)     (7,637,351)
Other and equity in net income of
  affiliate - net ........................          8,752          22,544
                                             ------------    ------------

Net Loss .................................   $(21,663,883)   $(16,475,291)
                                             ============    ============


Net Loss Per Share .......................   $      (0.64)   $      (0.61)
                                             ============    ============
</Table>

         Revenue:

         Operating revenue decreased $2.8 million, or 18.1%, to $12.7 million
for 2002 from $15.5 million for 2001. The decrease of 18.1% was primarily due to
a 13.4% decline in sales prices and a 4.7% decrease in sales volumes. Sales
prices were down primarily due to a decrease of approximately $0.12 per gallon
in the 6-oil burner fuel market, which was driven by lower crude prices of
approximately $0.11 per gallon. Used oil is sold into the 6-oil burner fuel
market at a discount leading to a decrease of approximately $0.08 per gallon in
pricing. Sales volumes decreased because we had one less subcontractor who
collected used lubricating oil on our behalf. Of the $12.7 million of operating
revenue for 2002 derived through our direct wholly-owned used oil subsidiary
Probex Fluids Recovery, Inc., its subsidiaries, Specialty Environmental Services
accounted for $8.8 million, Petroleum Products, Inc. $3.9 million and
Intercoastal Trading Company, Inc. $0. Of the $15.5 million of operating revenue
for 2001, Specialty Environmental Services accounted for $10.6 million,
Petroleum Products, Inc. $3.3 million and Intercoastal Trading Company, Inc.
$1.6 million.

         Cost of Sales:

         Cost of sales decreased $0.4 million, or 0.5%, to $8.0 million for 2002
from $8.4 million for 2001. The decrease was primarily the result of a decrease
in sales volume because we had one less subcontractor who collected used
lubricating oil on our behalf. A corresponding decrease in the pricing of cost
of goods relative to decreased sales pricing was not realized due to intense
industry competition.


                                       35
<PAGE>


         Gross Profit:

         The gross profit declined due to a decrease in sales revenues at a
relatively constant cost of sales. The cost of sales consists primarily of fixed
costs such as driver wages and truck leasing. These costs do not change
significantly with changes in the oil sales market. Therefore, as oil prices
increase, gross margins increase, and when oil prices drop, gross margins drop.
Therefore, the trends in the future for gross margin will tend to follow the
changes in the price of oil.

         Expenses:

         Operating Expense. Operating expense increased $0.4 million, or 6.9%,
to $6.2 million for 2002 from $5.8 million for 2001. Approximately $0.1 million
of bad debt expense was incurred for 2002 to increase our provision for doubtful
accounts. The balance of the increase in operating expenses is the result of the
replacement and expansion of used lubricating oil collection infrastructure that
was put into place after the purchase of Specialty Environmental Services from
the Pennzoil-Quaker State Company.

         Research and Development. Research and development expense decreased
$1.6 million, or 53.3%, to $1.4 million for 2002 from $3.0 million for 2001. The
decrease is due to our completion of much of the work associated with the
commercialization of our proprietary ProTerra technology.

         Other Corporate Expenses. Other corporate expenses increased $6.1
million, or 469.2%, to $7.4 million for 2002 from $1.3 million for 2001. The
increase was primarily from the write-off of deferred offering costs in the
amount of $5.1 million related to financing plans that we no longer consider
viable alternatives and the write off of approximately $1.5 million of deferred
facility design costs in relation to a project contract we are no longer
pursuing. The increase was offset by a reduction in deferred stock compensation
expense resulting from the amortization of employee stock options.

         Selling, General and Administration. Selling, general and
administration expense decreased $1.0 million, or 21.3%, to $3.7 million for
2002 from $4.7 million for 2001. The decrease is primarily due to reductions in
personnel and other costs associated with our Dallas area administrative office.
In addition, placement agency fees related to raising funds decreased by $0.3
million.

         Depreciation and Amortization. Depreciation and amortization expense
decreased $0.2 million, or 16.7%, to $1.0 million for 2002 from $1.2 million for
2001. The decrease in depreciation and amortization expense was the result of
our adopting SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets. We had no goodwill amortization for 2002 as compared to
$0.4 million of goodwill amortization for 2001. This goodwill related reduction
in depreciation and amortization is offset by approximately $0.2 million more
depreciation due to our increase in fixed assets.

         Non-Operating:

         Interest - Net. Interest expense, net of interest income, decreased
$0.9 million, or 11.8%, to $6.7 million for 2002 from $7.6 million for 2001. The
decrease was primarily due to a smaller amount of stock being issued during 2002
to obtain financing. In accordance with Emerging Issues Task Force Issue Number
98-5, Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios, we recorded non-cash interest
charges of $4.1 million related to corporate financing activities for 2002
compared to $6.8 million related to corporate financing activities for 2001.

         Other and Equity in Net Income of Affiliate - Net. Other and equity in
net income of affiliate - net, decreased an aggregate of $13,792, or 61%, to
$8,752 for 2002 from $22,544 for 2001. The decrease was primarily from a
reduction for equity in undistributed earnings for our 50% investment in our
affiliate, Specialty Environment Services.


                                       36
<PAGE>


         Provision for Federal Income Tax:

         Income Taxes. There was no federal income tax expense for 2002 and 2001
due to a net loss in each period.

LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents were $0.2 million at September 30, 2002 as
compared to $0.6 million at September 30, 2001, and working capital deficit was
$37.2 million at September 30, 2002 as compared to $13.5 million at September
30, 2001. The decrease in cash and cash equivalents is due to the fact that cash
provided by financing activities during the fiscal year ended September 30, 2002
were not sufficient to cover our cash used in operating and investing
activities. On a long-term basis, we will require funding of up to approximately
$130 million to finance construction of our planned Wellsville facility. The
$130 million includes approximately $10 million of working capital to fund our
operations during the construction and start-up period estimated to be 22
months. The remaining $120 million is for project costs, including insurance,
development, construction and financing costs. To obtain this funding, we are
actively pursuing several alternative financing structures, including the
issuance of additional debt and equity securities and a leveraged lease
transaction. Until we obtain project financing, we estimate that we will require
approximately $250,000 per month in interim working capital. In addition,
approximately $1.9 million will be required to meet our equity share of our
European joint venture through start-up and construction of the French facility.
We currently have no commitments for project financing or to fund our interim
capital during the start-up period. We are working with several groups to
provide such funding but we cannot assure you that such proceeds, if any, can be
secured or will be sufficient to meet our projected cash flow needs. If the
company is unsuccessful in these efforts, it will consider any other options
available to it, including filing for protection from creditors under the
bankruptcy code. See Footnote 12 in the notes to our consolidated financial
statements on Subsequent Events for discussion of recent developments affecting
our liquidity and capital resources.

         Operating Activities. Cash used in operating activities was $4.2
million for fiscal year ended September 30, 2002 and $9.4 million for the fiscal
year ended September 30, 2001. The decrease resulted primarily from a $1.5
million increase in collections on accounts receivable, $1.0 million from a
reduction of inventories, and a $3.2 million increase in accounts payable and
accrued expenses.

         Investing Activities. Cash used in investing activities was $0.8
million for the fiscal year ended September 30, 2002 and $4.7 million for the
fiscal year ended September 30, 2001. The decrease resulted primarily from a
decrease of $3.7 million in costs related to the development and
pre-construction design of our planned Wellsville facility.

         Financing Activities. Cash from financing activities was $4.5 million
for the fiscal year ended September 30, 2002 and $14.2 million for the fiscal
year ended September 30, 2001. The decrease resulted primarily from a $12.5
million decrease in proceeds from our 7% senior secured convertible notes which
we issued in November 2000, a $5.1 million decrease in proceeds from short-term
borrowings related to and offset by a $7.2 million decrease from principal
payments on our short-term borrowings.

         Our principal uses of cash to date have been for operating activities,
including research and development and interest payments on debt. We have funded
our operations and research and development projects during fiscal years 2002
and 2001 primarily by selling equity and incurring indebtedness. During the
fiscal year ended September 30, 2002, we raised $1.3 million from the sale of
common stock, net of offering costs, and exercise of stock options and $4.8
million of proceeds from short-term debt. During the fiscal year ended September
30, 2001, we raised $2.0 million from the sale of common stock, net of offering
costs, and exercise of stock options, $12.5 million from the issuance of 7%
senior secured convertible notes and $9.9 million of proceeds from short-term
debt. In addition, we made principal payments of approximately $119,000 and $7.5
million on existing debt during the fiscal year ended September 30, 2002 and the
fiscal year ended September 30, 2001, respectively.


                                       37
<PAGE>


SHORT-TERM AND LONG-TERM DEBT

         We are highly leveraged. At September 30, 2002, our current liabilities
exceeded current assets by $37.2 million, and our stockholders' deficit was
$13.4 million. The following table is a summary of our short-term and long-term
debt as of September 30, 2002:

<Table>
<Caption>
                                                                           BALANCE AT
                                                                          SEPTEMBER 30,
                                                                              2002
                                                                          -------------
<S>                                                                     <C>
Short-Term Debt:
  Convertible Notes due 2003:
   $3,000,000 notes, dated February 20, 2001, bearing interest
     at 12% per annum ...............................................   $     3,000,000
   $1,830,000 notes, dated April to July 2001, bearing interest
     at 12% per annum ...............................................         1,830,000
   $3,000,000 convertible notes, dated September 7, 2001,
    bearing interest at 12% per annum ...............................         3,000,000
   $500,000 notes, dated September 13, 2001, bearing interest at
     12% per annum ..................................................           500,000
   $3,000,000 note, dated March 29, 2002, bearing interest at
     12% per annum, net of unamortized discount of $177,978 .........         2,555,049
   $200,000 notes, dated April 3, 2002, bearing interest at 12%
     per annum, net of unamortized discount of $4,069 ...............           189,828
   $1,523,491 convertible notes, dated July to September 2002,
     bearing interest at 12% per annum, net of unamortized
     discount of $213,148 ...........................................           990,622
   $50,000 convertible notes, dated September 16, 2002, bearing
     interest at 8% per annum .......................................            50,000
   7% senior secured convertible notes ..............................        12,200,400
   $75,000 line of credit ...........................................            32,436
                                                                        ---------------
        Total Short-Term Debt .......................................   $    24,348,335

Long-Term Debt:
  8% acquisition note ...............................................   $     1,148,250
  Less current portion ..............................................          (467,626)
                                                                        ---------------

   Total Long-Term Debt .............................................   $       680,624
                                                                        ---------------

        Total Debt ..................................................   $    25,028,959
                                                                        ===============
</Table>

         Convertible Notes due 2003. In February, April, May, June, July and
September 2001 and March and April 2002, we issued to lenders promissory notes
in the aggregate principal amount of $8.52 million. As of September 30, 2002,
the outstanding principal balance under these notes was approximately $7.4
million. The notes, as amended to date, bear interest at 12% per annum and
mature on the earlier to occur of February 28, 2003 or the closing of project
financing in an amount of at least $30.0 million for the construction of our
planned Wellsville facility. These notes are secured by substantially all of our
assets including our intellectual property. These notes, as amended, are
convertible into our common stock, in whole or in part based on the original
principal balance of the notes plus accrued interest, at the option of the
holder at a conversion price equal to the following:

        (a)  the price at which our common stock is issued and sold in
             connection with the project financing;


                                       38
<PAGE>


         (b)  if securities other than our common stock are issued and sold in
              connection with the project financing, the price at which the
              securities issued and sold in connection with the project
              financing may be converted into our common stock; or

         (c)  if no securities issued and sold in connection with the project
              financing, 94% of the average closing price of our common stock
              as reported by the American Stock Exchange for the 20 trading
              days prior to the consummation of the qualified financing.

         The conversion price of the notes at September 30, 2002 was $0.75 per
share.

         Convertible Notes, dated September 7, 2001, due 2003. In September
2001, we issued to lenders convertible promissory notes in the aggregate
principal amount of $3.0 million. As of September 30, 2002, the outstanding
principal balance under these notes was approximately $2.6 million. The notes
bear interest at 12% per annum and mature on the earlier to occur of February
28, 2003 or the closing of project financing in an amount of at least $30.0
million for the construction of our planned Wellsville facility. If we
consummate an equity financing aggregating at least $35.0 million for
construction of our planned Wellsville facility prior to maturity of these
notes, $1.5 million of the notes will automatically convert into the securities
issued in connection with the Wellsville project financing at a conversion rate
equal to the purchase price paid by the investors for such securities. The
remaining $1.5 million of the promissory notes will become due and payable upon
closing of the project financing. These notes are secured by a third priority
security interest in substantially all of our assets.

         Convertible Note, dated September 16, 2002, due 2003. On September 16,
2002, we issued to one lender a promissory note in the principal amount of
$50,000 at an interest rate equal to 8% per annum. The proceeds of this loan
were used for working capital purposes. This note matures on the earlier of
September 16, 2003 or our receipt of project financing aggregating at least $30
million to be used to construct our initial reprocessing facility. This note is
secured by a first priority security interest in all of Probex's intellectual
property. Further, this note is convertible into Probex common stock at the
option of the holder as described in the paragraph describing the notes issued
on February 20, 2001.

         Unsecured Line of Credit. We assumed an unsecured bank line of credit
in connection with our acquisition of Petroleum Products, which provides for
unsecured borrowings for working capital of up to $75,000. At September 30,
2002, we had $33,000 outstanding under the line of credit. Borrowings under this
line of credit bear interest at a fixed rate of 6.25% per annum.

         Loan Agreement. In July 2002, we entered into a loan agreement
providing for commitments of up to $3.0 million, payable by the lenders to us in
six equal monthly installments. Of the $3.0 million total commitment, $1.5
million was a firm commitment not subject to funding conditions. As of September
30, 2002, we had received the full $1.5 million of the firm commitment portion
under this loan agreement. The lenders' obligation to fund the remaining $1.5
million of the commitment was conditioned upon our securing project financing by
October 1, 2002. Because we did not obtain the project financing, the lenders
are not obligated to fund any of the $1.5 million conditional commitment. As of
September 30, 2002, no lenders other than David McNiel funded any portion of the
$1.5 million conditional commitment. Nevertheless, since September 30, 2002, we
have received approximately $1.3 million of the $1.5 million conditional
commitment from the lenders. We are negotiating with the lenders to arrange for
further funding under this loan agreement. The outstanding notes, having a total
aggregate principal balance of $2.8 million, bear interest at 12% per annum and
mature on February 28, 2003. The notes are convertible into our common stock, in
whole or in part, based upon the outstanding principal balance of the notes plus
accrued interest, at the option of the holder when we secure the Wellsville
financing. The notes are convertible at a conversion price equal to the price
per share of any shares delivered to lenders in connection with the planned
Wellsville facility or, if no shares are delivered, 94% of the average closing
price of our common stock as reported by the American Stock Exchange for the 20
trading days immediately prior to the closing of the planned Wellsville
facility.

         8% Acquisition Note. On May 1, 2000, in connection with the acquisition
of substantially all of the assets of Petroleum Products, we issued a promissory
note to the seller in the aggregate principal amount of $1.5 million. The note
bears interest at 8% per annum. The principal amount of this note is due and
payable in equal semi-annual installments of $150,000 plus interest of
approximately $37,500. In May 2002, the note holder agreed to defer


                                       39
<PAGE>


$125,000 due and payable under this note until receipt of proceeds from interim
financing, which was secured from the issuance of convertible notes in July
2002. Additionally, the $187,500 installment due under this note in July 2002
was deferred until completion of project financing for the construction of our
planned Wellsville facility.

         7% Senior Secured Convertible Notes due 2004. On November 29, 2000, we
completed a private placement of 7% senior secured convertible notes in an
aggregate principal amount of $12.5 million. These notes bear interest payable
in cash or our common stock semi-annually, with the principal amount due on
November 28, 2004. Probex Fluids Recovery is the issuer of the notes which are
secured by the assets of Probex Fluids Recovery and are guaranteed by us. The
notes are convertible into our common stock. Initially, the conversion price of
these notes was $1.40 per share. However, as consideration for the waiver of the
event of default discussed below, we agreed to reduce the conversion price to
the lowest price per share that we issue shares of our common stock after
February 15, 2002 or at which any other securities issued after that date are
then convertible into common stock. Upon consummation of project financing for
our planned Wellsville facility, no further reductions in the conversion price
pursuant to the preceding sentence will occur. As of June 30, 2002, the
conversion price of these notes was $0.75 per share. As of September 30, 2002,
7% senior secured convertible notes with an aggregate principal balance of
approximately $300,000 had been converted into our common stock.

         In October 2001, as a result of not securing commitments for project
financing by September 30, 2001, an event of default occurred under the note
purchase agreement governing these notes. In accordance with the note purchase
agreement, we believe that we cured this event of default by obtaining from the
required note holders approval of our plan for obtaining project financing for
our planned Wellsville facility. In addition, we entered into a first amendment
and waiver and consent to the notes to amend the conversion price of the notes
as discussed above and waive any defaults caused by our inability to secure
commitments for project financing, provided that we secure commitments for
project financing on or prior to June 30, 2002. We have received a subsequent
waiver of this event of default until February 28, 2003 from the required note
holders. We are seeking to obtain project financing for our planned Wellsville
facility by no later than February 28, 2003. We can give no assurance that we
will be successful in securing project financing for this facility. As a result
of the short-term nature of these waivers and the uncertainty of our ability to
secure project financing, we reclassified the $12.2 million outstanding balance
of the 7% senior secured convertible notes from long-term debt to short-term
debt.

         JPW Opportunity Fund, L.P., a noteholder who holds a note in the
aggregate principal amount of $1,000,000, did not at that time waive the default
resulting from our not securing commitments for project financing by September
30, 2001. Subsequently, however, he executed an amendment and waiver and
consent, which, among other things, waived this default. As a result, we
currently believe that such noteholder's claims are without merit and intend to
vigorously defend any action sought by such noteholder. See Footnote 12 in the
notes to our consolidated financial statements on Subsequent Events for
discussion of recent developments related to defaults on our senior securities.

EQUITY FINANCING

         On December 21, 2001, we issued 1,842,282 shares of our common stock to
General Conference of Seventh-day Adventists for the aggregate purchase price of
$1.0 million. On January 15, 2002, we issued an aggregate of 413,290 shares of
our common stock to affiliates of Zesiger Capital Group resulting in gross
proceeds of $253,000. Each of the two purchase agreements under which we sold
these shares contains an adjustment mechanism that provides if we issue more
than $500,000 of our common stock in the future at a price per share of less
than $0.54 and $0.61, respectively, then General Conference of Seventh-day
Adventists and affiliates of Zesiger Capital Group will receive an additional
number of shares of our common stock as if the original price per share were the
future price that is less than $0.54 and $0.61, respectively. Since the date of
the agreement, we have not offered shares below the trigger prices for the
adjustment mechanism.

         On August 29, 2002, we entered into a common stock purchase agreement
with Fusion Capital pursuant to which Fusion Capital agreed to purchase, on each
trading day during the term of the agreement, up to $25,000 of our common stock
up to an aggregate of $20.0 million. Fusion Capital is not obligated to purchase
our stock in the event that the purchase price falls below $0.20 per share or if
we are otherwise in default under the Fusion agreement. Additionally, Fusion
Capital is not required under the common stock purchase agreement to begin
purchasing shares until the Securities and Exchange Commission has declared
effective a registration statement


                                       40
<PAGE>


relating to at least 15,000,000 shares of our common stock. Accordingly, we
filed a registration statement on Form SB-2 with the Securities and Exchange
Commission to register the resale by Fusion Capital of 16,923,077 shares of our
common stock on November 25, 2002, and intend to file an amendment to this
registration statement on the date of this Form 10-KSB The amount and timing of
proceeds that we will receive under the Fusion agreement, if any, is uncertain.
We have not received any proceeds from sales to Fusion Capital as of the date of
this Form 10-KSB. See Footnote 12 in the notes to our consolidated financial
statements on Subsequent Events for discussion of recent developments related to
the Fusion transaction.

LIQUIDITY

         Project Financing of Planned Wellsville Facility. We will require
funding of approximately $130 million to finance construction of our planned
Wellsville facility. Of this amount, approximately $120 million is for project
costs, including insurance, development, construction and financing costs. The
remaining $10 million covers corporate overhead and contingency costs. To obtain
this funding, we are actively pursuing several alternative financing structures,
including the issuance of additional debt and equity securities and a leveraged
lease transaction.

         In the event that we are unable to obtain funding of the $130 million
required to finance construction of our planned Wellsville facility, our
deferred design facility costs of approximately $11.2 million and deferred
offering costs of approximately $1.3 million will be impaired and may be
required to be expensed. We are also working with the Swiss Re Financial
Products Corporation, an affiliate of Swiss Reinsurance Corporation, to evaluate
its willingness to issue a new commitment to provide a "technology and market
risk facility" in connection with various financing alternatives currently under
consideration for the planned Wellsville facility. Our previous technology and
market risk facility commitment from Swiss Re Financial expired October 18,
2002, as expected, in accordance with its terms. Although we believe a
commitment to provide a technology and market risk facility will ultimately be
necessary to complete the financing activities, we do not anticipate finalizing
the issuance of such a commitment until terms of the financing are fully
structured. While we will use our best efforts to obtain project financing and a
new commitment from Swiss Re Financial, we cannot assure you that our efforts
will be successful.

         Under the terms of the commitment that expired on October 18, 2002,
Swiss Re Financial committed to provide a facility with two types of contingent
subordinated loans to the special purpose subsidiary established to own the
Wellsville project. Up to $6 million would be available to the senior project
lender in the event of a default by the subsidiary in its scheduled loan
payments to the senior project lender resulting from the spread between the cost
of the used oil used as feedstock and the revenue received from product sales.
In addition, the facility would provide up to $85 million in the event of
deficiencies in our technology which would cause the project to under perform to
the extent that it could not cover scheduled debt service payments. It also
would provide up to $8 million for remedial work due to deficiencies in our
technology in order to achieve design specifications. Any amount drawn under the
facility would be subordinate to the senior project lender. See Footnote 12 in
the notes to our consolidated financial statements on Subsequent Events for
discussion of recent developments related to the Swiss Re technology and market
risk cover.

         Joint Venture. The planned French facility is expected to cost the
joint venture about $50.0 million to develop, build and startup. As part of the
agreements creating the joint venture, we agreed to make an initial contribution
of $159,300 reflecting 15% of the development expenses incurred as of October
31, 2002. Of the remaining capital requirement, the joint venture expects to
finance at least $37.2 million from unaffiliated financial institutions, with
the remainder coming from equity investments by us and our European
co-venturers. We anticipate approximately $1.9 million will be required to meet
our equity share of the project through start-up and construction. We expect to
fund our share of the equity through cash on hand and loans from third parties.
The assets of the planned French facility would secure these loans and, if
requested by the joint venture's lenders, we would be required to guaranty up to
15% of the joint venture's borrowings unless we elect to withdraw from the joint
venture. Based on an estimated borrowing of $37.2 million, we would therefore be
required to guaranty approximately $5.6 million of the amount borrowed. The
joint venture agreements are denominated in Euros and have been translated into
U.S. Dollars at a conversion rate of 1 to 1. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to the proposed joint venture with Vivendi. Based upon our
15% non-control ownership position in the joint venture, upon making the
investment, we will account for it under the equity method of accounting, stated
at cost and adjusted for undistributed earnings since the date of investment.


                                       41
<PAGE>


         To continue with our business plan of commercializing our ProTerra
technology, we will require additional short-term working capital. Until we
obtain project financing, we estimate that we will require approximately
$250,000 per month in interim working capital. We have not been generating
sufficient cash from operations to fund our operating activities. Presently, our
only source of revenues is from the operations of Probex Fluids Recovery. We
intend to use the proceeds, if any, that we receive from Fusion Capital under
the common stock purchase agreement and any interim financing for our short-term
general corporate and working capital requirements. We cannot assure you that
such proceeds, if any, and borrowings under any interim financing we are able to
secure will be sufficient to meet our projected cash flow needs.

         The extent to which we rely on Fusion Capital as a source of funding
will depend on a number of factors, including the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources. If we are unable to obtain sufficient financing from Fusion
Capital due to prevailing market prices, we will need to secure another source
of funding to satisfy our working capital needs. Even if we are able to access
the full $20 million under the common stock purchase agreement with Fusion
Capital, we will still need additional capital to fully implement our business,
operating and development plans, including construction of our planned
Wellsville facility and satisfaction of any capital contribution requirements we
are required to make in connection with our European joint venture. See Footnote
12 in the notes to our consolidated financial statements on Subsequent Events
for discussion of recent developments related to the Fusion transaction.

         Our ability to obtain additional financing depends on many factors
beyond our control, including the state of the capital markets, the market price
of our common stock, the prospects for our business and the approval by our
stockholders of an amendment to our certificate of incorporation increasing the
number of shares of common stock we are authorized to issue. The necessary
additional financing may not be available to us or may be available only on
terms that would result in further dilution to the current owners of our common
stock. Failure to obtain commitments for interim financing and subsequent
project financing, would have a material adverse effect on our business, results
of operations and financial condition. If the financing we require to sustain
our working capital needs is unavailable or insufficient or we do not receive
the necessary financing for the planned Wellsville facility, we may be unable to
continue as a going concern.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         The following table highlights, as of September 30, 2002, our
contractual obligations and commitments by type and period:

<Table>
<Caption>
                                                               PAYMENTS DUE BY PERIOD
                                        -------------------------------------------------------------------------
                                                        LESS THAN 1
CONTRACTUAL OBLIGATIONS                     TOTAL           YEAR        1-3 YEARS      4-5 YEARS    AFTER 5 YEARS
-----------------------                 ------------   ------------   ------------   ------------   -------------
<S>                                     <C>            <C>            <C>            <C>            <C>

Short-Term Debt(1) ..................   $ 25,336,327   $ 25,336,327   $         --             --             --
Long-Term Debt ......................      1,148,250        467,626        680,624             --             --
Capital Lease Obligations ...........        199,292        115,774         83,518             --             --
Deferred Facility Design Costs(2) ...      8,796,207      8,796,207             --             --             --
                                        ------------   ------------   ------------   ------------   ------------
Total(3) ............................   $ 35,480,076   $ 34,715,934   $    764,142             --             --
                                        ============   ============   ============
</Table>

(1)  Includes $13,103,000 of bridge loans that mature on the earlier of February
     28, 2003 or consummation of project financing aggregating at least
     $30,000,000 for the construction of our planned Wellsville facility.
     Includes $32,436 outstanding under our line of credit. This number excludes
     interest accruing on this short-term debt. Includes $12,200,400 aggregate
     principal outstanding under the 7% senior secured convertible notes issued
     by Probex Fluids Recovery.

(2)  We have agreed to pay these costs upon completion of project financing for
     the construction of our planned Wellsville facility.

(3)  Excludes unamortized discount of notes payable.

     As of September 30, 2002, our other commercial commitments are as follows:


                                       42
<PAGE>


<Table>
<Caption>
                                                    AMOUNT OF COMMITMENT EXPIRATION PERIOD
                                TOTAL      ---------------------------------------------------------
OTHER COMMERCIAL               AMOUNTS       LESS THAN
  COMMITMENTS                 COMMITTED       1 YEAR        1-3 YEARS      4-5 YEARS   AFTER 5 YEARS
----------------            ------------   ------------   ------------   ------------  -------------
<S>                         <C>            <C>            <C>            <C>           <C>

Guaranties(1) ...........   $ 12,200,400   $ 12,200,400             --             --             --
Addison, Texas lease ....   $    532,260   $    106,452   $    212,904   $    150,804             --
Shreveport, Louisiana
    warehouse ...........   $    972,000   $     97,200   $    194,400   $    194,400   $    291,600
</Table>

(1)      Represents our guaranties in connection with the 7% senior secured
         convertible notes issued by Probex Fluids Recovery that have been
         reclassified from long-term debt to short-term debt.

         We will require funding of up to approximately $130 million to finance
construction of our planned Wellsville facility and provide for our working
capital needs during the construction and start-up period. Of this amount,
approximately $120 million is for project costs, including insurance,
development, construction and financing costs. The remaining $10 million will be
utilized for working capital during the estimated 22-month construction and
start-up period. To obtain this funding, we are actively pursuing two primary
financing structures, a leveraged lease transaction and a traditional
asset-based loan. Until we obtain project financing, we estimate that we will
require approximately $250,000 per month in interim working capital. In
addition, approximately $1.9 million will be required to meet our equity share
of our European joint venture through start-up and construction of the French
facility. We currently have no commitments for project financing or to fund our
interim capital during the start-up period. We are working with several groups
to provide such funding but we cannot assure you that such proceeds, if any, can
be secured or will be sufficient to meet our projected cash flow needs. If the
company is unsuccessful in these efforts, it will consider any other options
available to it, including filing for protection from creditors under the
bankruptcy code. In the event that we are unable to obtain funding of our
planned Wellsville facility, our deferred design facility costs of approximately
$11.2 million and deferred offering costs of approximately $1.3 million, as of
September 30, 2002, will be impaired and may be required to be expensed.


RECENT ACCOUNTING DEVELOPMENTS

         In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized, but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.

         We adopted SFAS No. 141, Business Combinations, and No. 142, Goodwill
and Other Intangible Assets, effective October 1, 2001. Application of the
non-amortization provisions of these Statements resulted in an increase in net
income of $422,550 ($0.01 per share) per year. We have performed an evaluation
of the carrying value of goodwill as of September 30, 2002, and we believe there
was no impairment to goodwill.

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which is effective for years beginning after June 15,
2002, which will be our fiscal year 2003. SFAS No. 143 addresses legal
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development or normal operation of a
long-lived asset. The standard requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. Any associated
asset retirement costs are to be capitalized as part of the carrying amount of
the long-lived asset and expensed over the life of the asset. The adoption of
SFAS 143 as of October 1, 2002 did not have a significant impact on our
financial position and results of operations.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations, for a
disposal of a segment of a business. SFAS No. 144 is effective for fiscal years
beginning after


                                       43
<PAGE>


December 15, 2001, with earlier application encouraged. The adoption of SFAS No.
144 as of October 1, 2001 did not have a significant impact on our financial
position and results of operations.

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, related to accounting for debt extinguishments, leases and
intangible assets of motor carriers. The provisions of SFAS No. 145 are
effective for fiscal years beginning after May 15, 2002 with earlier adoption
encouraged. We do not expect that the adoption of this Statement will have a
significant impact on our financial position and results of operations.




                                       44
<PAGE>


ITEM 7. FINANCIAL STATEMENTS

         Filed herewith are our following audited financial statements:

<Table>
<Caption>
                                                                                                           Page No.
<S>                                                                                                        <C>

Report of Ernst & Young LLP, Independent Auditors................................................................46

Consolidated Balance Sheet as of September 30, 2002..............................................................47

Consolidated Statements of Operations for the years ended September 30, 2002 and 2001............................48

Consolidated Statements of Stockholders' Equity for the years ended September 30, 2002 and 2001..................49

Consolidated Statements of Cash Flows for the years ended September 30, 2002 and 2001............................50

Notes to Consolidated Financial Statements.......................................................................51
</Table>



                                       45
<PAGE>


Report of Ernst & Young LLP, Auditors

To the Board of Directors and Shareholders
Probex Corp.

         We have audited the accompanying consolidated balance sheet of Probex
Corp. as of September 30, 2002, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended September
30, 2002 and 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Probex Corp. at September 30, 2002, and the consolidated results of its
operations and its cash flows for the years ended September 30, 2002 and 2001 in
conformity with accounting principles generally accepted in the United States.

         As discussed in Note 1 to the financial statements, the Company's
recurring losses from operations, capital deficiency and working capital
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans as to these matters are also described in Note 1.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.

/s/ Ernst & Young LLP
Dallas, Texas
December 17, 2002


                                       46

<PAGE>


                                  PROBEX CORP.
                      CONSOLIDATED CONDENSED BALANCE SHEETS

<Table>
<Caption>
                                                                               SEPTEMBER 30, 2002
<S>                                                                            <C>
ASSETS
Cash and cash equivalents                                                         $    161,398
Accounts receivable                                                                  1,962,515
Inventories                                                                            164,023
Prepaid and other current assets                                                       490,495
                                                                                  ------------
TOTAL CURRENT ASSETS                                                                 2,778,431

Property, plant and equipment - net                                                 13,784,006
Goodwill - net                                                                       5,808,841
Patents - net                                                                          616,697
Investments in affiliate - at equity                                                   727,226
Deferred financing costs  - net                                                      1,149,489
Deferred offering costs                                                              1,348,708
Other assets                                                                         1,174,750
                                                                                  ------------
TOTAL ASSETS                                                                      $ 27,388,148
                                                                                  ============

LIABILITIES
Accounts payable                                                                  $  2,397,746
Accrued expenses                                                                     3,857,462
Deferred facility design costs                                                       8,796,207
Current maturities of capital lease obligations                                        115,774
Short-term debt - net of note discount                                              24,348,335
Current maturities of long-term debt                                                   467,626
Deferred revenue                                                                        10,496
                                                                                  ------------
TOTAL CURRENT LIABILITIES                                                           39,993,646

Capital lease obligations, long-term                                                    83,518
Long-term debt                                                                         680,624
                                                                                  ------------
TOTAL LIABILITIES                                                                   40,757,788

COMMITMENTS AND CONTINGENCIES                                                               --

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 authorized:
Series A 10% cumulative convertible preferred stock, 550,000 shares authorized:
Issued - 532,500 at Sep.  30, 2002                                                         533

Common stock, $0.001 par value, 100,000,000 shares authorized:
Issued-38,901,657 at Sep.  30, 2002                                                     38,902
Additional paid in capital                                                          40,813,008
Deferred stock compensation expense                                                   (143,981)
Accumulated deficit                                                                (53,813,695)
Less:  treasury stock  (common:  265,381 shares at Sep.  30, 2002 at cost             (264,407)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                               (13,369,640)
                                                                                  ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                              $ 27,388,148
                                                                                  ============
</Table>

         The accompanying notes are an integral part of the consolidated
                              financial statements.


                                       47
<PAGE>


                                  PROBEX CORP.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                  YEAR ENDED SEPTEMBER 30,
                                                ----------------------------
                                                    2002            2001
                                                ------------    ------------
<S>                                             <C>             <C>

REVENUES                                        $ 12,686,471    $ 15,528,606
COST OF SALES                                      7,976,452       8,339,289
                                                ------------    ------------
GROSS PROFIT                                       4,710,019       7,189,317

EXPENSES:
Operating                                          6,221,714       5,776,419
Research and development                           1,351,166       2,970,225
Selling, general and administrative                3,712,637       4,739,633
Other corporate expenses                           7,413,361       1,342,765
Depreciation and amortization                        988,426       1,220,759
                                                ------------    ------------
TOTAL EXPENSES                                    19,687,304      16,049,801
                                                ------------    ------------

OPERATING LOSS                                   (14,977,285)     (8,860,484)

Interest - net                                    (6,665,350)     (7,637,351)
Other non operating - net                              1,230          (2,713)
Equity in net income of affiliate                      7,522          25,257
                                                ------------    ------------
NET LOSS                                        $(16,475,291)   $(21,633,883)
                                                ============    ============

NET LOSS PER SHARE                              $      (0.64)   $      (0.61)
                                                ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING               34,715,595      27,832,334
                                                ============    ============
</Table>

         The accompanying notes are an integral part of the consolidated
                              financial statements.


                                       48

<PAGE>

                                  PROBEX CORP.
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<Table>
<Caption>
                                                                   Preferred Stock              Common Stock
                                                            -------------------------    ---------------------------
                                                                                                                        Additional
                                                               Shares                       Shares                        Paid In
                                                               Issued        Amount         Issued         Amount         Capital
                                                            -----------    ----------    ------------   ------------   ------------
<S>                                                         <C>            <C>           <C>            <C>            <C>

BALANCE AT SEPTEMBER 30, 2000                                   535,000    $      535      25,531,137   $     25,530   $ 20,203,826

     Issued for consulting services                                                            43,373             43         83,051

     Issued for conversion of debt                                                          1,099,107          1,099      1,537,234

     Issued from private stock sale                                                         1,528,572          1,529      1,830,563

     Issued from exercise of Warrants                                                         283,773            284        223,487

     Issued from exercise of Stock Options                                                    326,666            327        163,006

     Issued from conversion of Preferred Stock                   (2,500)           (2)         13,333             13            (11)

     Preferred Stock dividend paid out in Common Stock                                        356,671            357        534,650

     Debenture note interest paid out in Common Stock                                         741,534            742        875,345

     Bridge note interest paid out in Common Stock                                            756,519            757        147,180

     Preferred Stock dividend accrual

     Warrants granted to directors and advisory directors                                                                    17,403

     Warrants granted to non employees                                                                                    1,347,357

     Amortization related to employee stock options

     Additional paid in capital related to interest
      expense on 7% convertible debentures                                                                                3,125,000

     Discounts related to warrants attached to bridge
      loans                                                                                                               2,634,049

   Net loss
                                                            -----------    ----------    ------------   ------------   ------------
BALANCE AT SEPTEMBER 30, 2001                                   532,500    $      533      30,680,685   $     30,681   $ 32,722,140


     Issued from private stock sale                                                         2,255,672          2,256      1,250,321

     Issued from exercise of Stock Options                                                    183,394            183         91,514

     Issued for consulting services                                                         2,239,472          2,241        929,340

     Issued for conversion of debt                                                            399,466            400        299,200

     Preferred Stock dividend accrual

     Preferred Stock dividend paid out in Common Stock                                        355,004            354        532,146

     Debenture note interest paid out in Common Stock                                       1,894,432          1,894      1,250,990

     Bridge note interest paid out in Common Stock                                            893,532            893        598,358

     Re-pricing warrants and preferred stock conversion
       price                                                                                                                147,447

     Amortization related to employee stock options

     Deferred Stock Expense adjustment from terminated
       employees                                                                                                            (64,845)

     Discounts related to warrants attached to bridge
       loans                                                                                                              3,056,397

     Net loss
                                                            -----------    ----------    ------------   ------------   ------------
BALANCE AT SEPTEMBER 30, 2002                                   532,500    $      533      38,901,657   $     38,902   $ 40,813,008
                                                            ===========    ==========    ============   ============   ============

<Caption>

                                                             Deferred                         Treasury Stock              Total
                                                               Stock       Accumulated    -----------------------      Stockholders'
                                                              Expense        Deficit       Shares        Amount     Equity (Deficit)
                                                           ------------   ------------    ---------    ----------   ----------------
<S>                                                        <C>            <C>             <C>          <C>          <C>

BALANCE AT SEPTEMBER 30, 2000                              $ (1,233,153)   (14,638,046)     (62,690)         (627)    $  4,358,065

     Issued for consulting services                                                                                         83,094

     Issued for conversion of debt                                                                                       1,538,333

     Issued from private stock sale                                                                                      1,832,092

     Issued from exercise of Warrants                                                        (8,242)      (15,000)         208,771

     Issued from exercise of Stock Options                                                  (96,079)     (163,333)              --

     Issued from conversion of Preferred Stock                                                                                  --

     Preferred Stock dividend paid out in Common Stock                                                                     535,007

     Debenture note interest paid out in Common Stock                                                                      876,087

     Bridge note interest paid out in Common Stock                                                                         147,937

     Preferred Stock dividend accrual                                         (535,021)                                   (535,021)

     Warrants granted to directors and advisory directors                                                                   17,403

     Warrants granted to non employees                                                                                   1,347,357

     Amortization related to employee stock options             685,637                                                    685,637

     Additional paid in capital related to interest
      expense on 7% convertible debentures                                                                               3,125,000

     Discounts related to warrants attached to bridge
      loans                                                                                                              2,634,049

   Net loss                                                                (16,475,291)                                (16,475,291)
                                                           ------------   ------------    ---------    ----------     ------------
BALANCE AT SEPTEMBER 30, 2001                              $   (547,516)   (31,648,358)    (167,011)     (178,960)    $    378,520


     Issued from private stock sale                                                                                      1,252,577

     Issued from exercise of Stock Options                                                  (98,370)      (85,447)           6,250

     Issued for consulting services                                                                                        931,581

     Issued for conversion of debt                                                                                         299,600

     Preferred Stock dividend accrual                                         (531,454)                                   (531,454)

     Preferred Stock dividend paid out in Common Stock                                                                     532,500

     Debenture note interest paid out in Common Stock                                                                    1,252,884

     Bridge note interest paid out in Common Stock                                                                         599,251

     Re-pricing warrants and preferred stock conversion
       price                                                                                                               147,447

     Amortization related to employee stock options             338,690                                                    338,690

     Deferred Stock Expense adjustment from terminated
       employees                                                 64,845                                                         --

     Discounts related to warrants attached to bridge
       loans                                                                                                             3,056,397

     Net loss                                                              (21,633,883)                                (21,633,883)
                                                           ------------   ------------    ---------    ----------     ------------
BALANCE AT SEPTEMBER 30, 2002                              $   (143,981)   (53,813,695)    (265,381)     (264,407)     (13,369,640)
                                                           ============   ============    =========    ==========     ============
</Table>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       49
<PAGE>


                                  PROBEX CORP.
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                           YEAR ENDED SEPTEMBER 30,
                                                                             2002            2001
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
CASH FLOW USED BY OPERATING ACTIVITIES
Net loss                                                                 $(21,633,883)   $(16,475,291)
Adjustments:
  Depreciation and amortization                                               988,426       1,220,759
  Provision for doubtful accounts                                              85,806          50,000
  Equity in net income of affiliate                                            (7,522)        (25,257)
  Amortization of deferred stock expense                                      338,690         684,595
  Loss on disposition of assets                                                 2,090              --
  Stock issued for consulting services                                        131,581          83,094
  Warrants issued to advisory board members                                        --          17,403
  Stock issued for employee compensation                                           --           1,042
  Stock issued for interest expense                                         1,430,784       1,024,024
  Interest expense related to 7% convertible notes                                 --       3,125,000
  Amortization of discount on notes                                         3,065,331       2,058,718
  Amortization of deferred financing costs                                    539,610         441,342
  Write-off of deferred offering costs                                      5,099,542              --
  Write-off of deferred facility design costs                               1,530,044              --
  Changes in operating assets and liabilities:
     (Increase) decrease in accounts and notes receivable                     666,184      (1,027,332)
     (Increase) decrease in inventories                                       450,351        (516,213)
     (Increase) decrease in prepaid and other current assets                 (120,246)       (254,401)
     (Increase) decrease in other assets                                      (16,820)         59,753
     Increase (decrease) in accounts payable                                1,349,722        (110,914)
     Increase (decrease) in accrued expenses                                1,869,203         267,376
     Increase (decrease) in deferred revenue                                   10,496              --
                                                                         ------------    ------------
NET CASH USED BY OPERATING ACTIVITIES                                      (4,220,611)     (9,376,302)

CASH FLOW USED BY INVESTING ACTIVITIES
Purchase of property, plant and equipment                                    (685,569)     (4,426,666)
Cost of patents                                                               (60,000)       (289,267)
                                                                         ------------    ------------
NET CASH USED BY INVESTING ACTIVITIES                                        (745,569)     (4,715,933)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Principal payment on capital lease obligation                                (184,616)       (150,487)
Proceeds from short-term borrowings                                         4,773,491       9,880,000
Principal payment on short-term borrowings                                     (4,754)     (7,227,091)
Proceeds from long-term borrowings                                                 --      12,500,000
Principal payment on long-term borrowings                                    (114,173)       (237,577)
Deferred financing costs                                                   (1,334,817)     (2,562,112)
Proceeds from re-pricing preferred stock conversion price and warrants        147,447              --
Proceeds from sale of common stock and exercise of options                  1,258,827       2,040,863
                                                                         ------------    ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                   4,541,405      14,243,596
NET INCREASE (DECREASE) IN CASH                                              (424,775)        151,361
CASH AT BEGINNING OF PERIOD                                                   586,173         434,812
                                                                         ------------    ------------
CASH AT END OF PERIOD                                                    $    161,398    $    586,173
                                                                         ============    ============

CASH PAID FOR INTEREST                                                   $    265,087    $    493,933
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Deferred facility design costs                                              721,773       4,816,308
  Deferred financing costs                                                  1,743,807       1,424,496
  Capital lease obligations incurred for purchase of equipment                 38,650         426,522
  Conversion of debt and accrued interest to equity                           299,600       1,538,333
  Warrants issued to underwriters                                                  --       1,347,357
  Discounts on bridge notes payable                                         3,056,397       3,055,400
  Purchase price adjustment to goodwill                                            --         694,446
  Payment of preferred stock dividends                                        532,500         535,007
  Accrued preferred stock dividends                                           531,454         535,021
                                                                         ============    ============
</Table>

         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                       50
<PAGE>


                          PROBEX CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002

1.       HISTORY AND NATURE OF BUSINESS

         We are a technology-based renewable resource company that has developed
a patented process that enables us to produce high-quality lubricating base oils
from collected used lubricating oils in an environmentally beneficial and
economical manner. While our primary business will be the production of
high-quality lubricating base oils and associated products from collected used
lubricating oils, we currently operate in a single industry segment, the
collection and sales of used lubricants in the United States.

         Our predecessor, Conquest Ventures, Inc., was incorporated in Colorado
in August 1988. Conquest Ventures engaged in an unrelated line of business that
had been discontinued by 1994 when it acquired certain technology rights from
Probex Technologies, L.P. In connection with the 1994 acquisition, Conquest
Ventures changed its name to Probex Corp. and focused its later activities on
research and development of the ProTerra process. On August 31, 2000, we
reincorporated as a Delaware corporation.

         We have incurred net losses since we began to focus our attention on
the research, development and commercialization of our ProTerra process in 1994.
We had net losses of $21.6 million for the year ended September 30, 2002 and
$16.5 million for the year ended September 30, 2001. In addition, we had
negative cash flows from operations of $4.2 million for the year ended September
30, 2002 and $9.4 million for the year ended September 30, 2001. At September
30, 2002, our current liabilities exceeded our current assets by $37.2 million,
our stockholders' deficit was $13.4 million, and we had an accumulated deficit
of $53.8 million.

         We expect to continue to incur losses as we increase our expenditures
to commercialize our reprocessing technology. The time required for us to become
profitable is highly uncertain, and we cannot assure you that we will achieve or
sustain profitability or generate sufficient cash flow from operations to meet
our planned capital expenditures, working capital and debt service requirements.

         We have not commercially offered for sale any of our reprocessed
lubricating base oil products and will not do so until after we secure project
financing and our planned Wellsville reprocessing facility is completed. The
construction period for the planned Wellsville facility is expected to be
approximately 17 months, with an anticipated startup and performance testing
period of an additional five months. We currently derive all of our revenue from
the services provided by our used oil collection subsidiary, Probex Fluids
Recovery, Inc. Through this subsidiary, we buy and resell used lubricating oil
primarily in Kentucky, Ohio and certain portions of a select number of states in
the southern and southeastern United States. Our resale of used lubricating oil
is primarily to utility power plants, industrial plants, and asphalt plants
where the oil is burned to generate heat and electricity. We do not believe our
revenue from the collection and sale of used lubricating oil will reflect the
allocation of revenue we expect from our future lines of business. See Footnote
12 in the notes to our consolidated financial statements on Subsequent Events
for discussion of recent developments related to PFR.

         We do not currently have sufficient financial resources to fund our
operations. We will require substantial additional capital to fund our future
operations and construction of our planned reprocessing facilities. We can give
you no assurances that this additional capital will be available in sufficient
amounts or at all when needed.

         We will require funding of up to approximately $130 million to finance
construction of our planned Wellsville facility and provide for our working
capital needs during the construction and start-up period. Of this amount,
approximately $120 million is for project costs, including insurance,
development, construction and financing costs. The remaining $10 million will be
utilized for working capital during the estimated 22-month construction and
start-up period. To obtain this funding, we are actively pursuing two primary
financing structures, a leveraged lease transaction and a traditional
asset-based loan. Until we obtain project financing, we estimate that we will
require approximately $250,000 per month in interim working capital. In
addition, approximately $1.9 million will be required to meet our equity share
of our European joint venture through start-up and construction of the French
facility. We currently have no commitments for project financing or to fund our
interim capital during


                                       51
<PAGE>

the start-up period (see Note 12). We are seeking funding for the construction
of our planned Wellsville facility. We can give no assurance that we will be
successful in securing project financing for this facility. In the event that we
are unable to obtain funding of the $130.0 million required to finance
construction of our planned Wellsville facility, our deferred design facility
costs of approximately $11.2 million and deferred offering costs of
approximately $1.3 million, as of September 30, 2002, will be impaired and may
be required to be expensed. Moreover, our option agreement to purchase the 22
acre site near Wellsville, where we plan to locate our planned facility,
currently expires on February 28, 2003. If we have not exercised our option by
that date and are unable to renew our option to purchase the Wellsville, Ohio
site beyond February 28, 2003 and are forced to seek another location for the
planned facility, we may be required to restart the process of obtaining
appropriate permits for construction and use of the surrounding land. If we must
locate another site for the planned facility, then our timeline for completing
construction would also be lengthened and our costs may increase, which would
have a material adverse effect on our future prospects. Our initial capital
contribution for our European joint venture will be funded from cash on hand and
third party loans. See Footnote 12 in the notes to our consolidated financial
statements on Subsequent Events for discussion of recent developments related to
the Wellsville site purchase option.

         The extent to which we rely on Fusion Capital (See Note 8) as a source
of funding will depend on a number of factors, including the prevailing market
price of our common stock and the extent to which we are able to secure working
capital from other sources. We cannot assure you that funding will be available
under our common stock purchase agreement with Fusion Capital in sufficient
amounts or at all when needed due to a number of factors. For example, our
continued access to financing under our common stock purchase agreement with
Fusion Capital requires that a registration statement be declared effective and
remain effective. We can give you no assurance that the registration statement
we filed with the Securities and Exchange Commission to register the resale of
shares sold to Fusion Capital under the common stock purchase agreement will be
declared effective or remain effective. See Footnote 12 in the notes to our
consolidated financial statements on Subsequent Events for discussion of recent
developments related to the Fusion transaction.

         Our ability to obtain additional financing from other sources also
depends on many factors beyond our control, including the state of the capital
markets, the market price of our common stock and the prospects for our
business. The necessary additional financing may not be available to us or may
be available only on terms that would result in further dilution to the current
owners of our common stock.

         We have substantial short-term and long-term debt obligations. For the
year ended September 30, 2002, our net interest expense was approximately $6.7
million and for the fiscal year ended September 30, 2001, it was $7.6 million.
As of September 30, 2002, we had approximately $26.0 million of gross debt
outstanding and as of September 30, 2001, we had $22.1 million gross debt
outstanding. As of September 30, 2002, we had approximately $13.1 million of
gross short-term debt which matures on the earlier of February 28, 2003 or the
closing of any project financing we are able to secure for our planned
Wellsville facility. Additionally, as a result of waivers of defaults under our
7% senior secured convertible notes extending the time in which we are required
to secure commitments for project financing until February 28, 2003, we have
reclassified the $12.2 outstanding balance of the notes from long-term debt to
short-term debt. Our substantial debt obligations pose risks to our business and
stockholders by:

          o    making it more difficult for us to satisfy our obligations;

          o    requiring us to dedicate a substantial portion of our cash flow
               to principal and interest payments on our debt obligations,
               thereby reducing the availability of our cash flow to fund
               working capital, capital expenditures and other corporate
               requirements;

          o    impeding us from obtaining additional financing in the future for
               working capital, capital expenditures and general corporate
               purposes; and

          o    making us more vulnerable to a downturn in our business and limit
               our flexibility to plan for, or react to, changes in our
               business.


                                       52
<PAGE>


         We cannot assure you that we will generate sufficient cash flow from
operations or obtain additional financing to meet scheduled debt payments and
financial covenants. If we fail to make any required payment under the
agreements and related documents governing our indebtedness or fail to comply
with the financial and operating covenants contained in them, we would be in
default. One of the holders of our 7% senior secured convertible notes has
claimed that an event of default has occurred and is continuing under those
notes. We believe that this note holder's claims are without merit and intend to
vigorously defend any action that such note holder might in the future bring
against us. A default under this note or any of our other borrowings could have
a material adverse effect on the market value and marketability of our common
stock since our lenders would have the ability to require that we immediately
pay all outstanding indebtedness. If the lenders require immediate payment, we
will not have sufficient assets to satisfy our obligations. An event of default
under our indebtedness or related documents may also trigger an event of default
under our common stock purchase agreement with Fusion Capital, which could give
Fusion Capital the right to stop purchasing our common stock. In addition, we
have pledged all of our assets, including our intellectual property, to secure
some of our borrowings. As a result, a foreclosure upon or a sale of these
assets would result in the termination of our business. We can make no assurance
that we will not default under any of our indebtedness in the future. See
Footnote 12 in the notes to our consolidated financial statements on Subsequent
Events for discussion of recent developments related to the Fusion transaction.

         The financial statements do not include any adjustments to reflect the
possible effects on recoverability and classification of assets or the amounts
and classification of liabilities which may result from the inability of the
Company to continue as a going concern.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of Probex Corp. and its wholly owned subsidiaries: Probex Fluids Recovery, Inc.,
Probex Operating Services, Inc., Probex Holdings I, Inc., and Probex Holdings
II, Inc. We have dissolved the dormant Quadrex Corporation and Apollo Oil
Company subsidiaries in October 2001. Significant intercompany transactions and
balances have been eliminated in consolidation.

INVESTMENT IN AFFILIATE

         Our 50% investment in our affiliate, SES of Texas, is stated at cost,
adjusted for equity in undistributed earnings since the acquisition.

ACCOUNTING ESTIMATES

         When preparing financial statements in conformity with generally
accepted accounting principles, our management must make estimates based on
future events which affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from these estimates.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents include all highly liquid investments with a
maturity date of three months or less when purchased.

INVENTORIES

         Inventories are stated at the lower of cost or market. Cost is computed
on a weighted average basis. There is a risk that we will forecast demand for
our products and market conditions incorrectly and accumulate excess
inventories. Therefore, there can be no assurance that we will not accumulate
excess inventory and incur inventory charges at the lower of cost or market in
the future.


                                       53
<PAGE>


PLANT, PROPERTY AND EQUIPMENT

         Fixed assets greater than $1,000 are recorded at cost and depreciated
over their estimated useful lives, which range from three to ten years, using
the straight-line method. Deferred facility design costs represent costs related
to the pre-construction design of our reprocessing facilities. During the fourth
quarter of the year ended September 30, 2002, we wrote off approximately $1.5
million of deferred facility design costs in relation to a project contract we
are no longer pursuing. Amortization of these costs will begin when the first
facility is placed in service. Equipment leased under capital leases is
amortized over the life of the respective lease.

GOODWILL

         Goodwill represents the excess purchase price over the fair market
value of the net assets acquired. The Company adopted Accounting Standards No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective October 1, 2001. Under these new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. We have evaluated
the carrying value of goodwill as of September 30, 2002 and have determined that
there is no impairment based on an unsolicited offer we have received for our
used lubricating oil business. There is no goodwill associated with equity
investments. There has been no amortization of goodwill since this accounting
change. The impact on operations is as follows:

<Table>
<Caption>
                                            YEAR ENDED SEPTEMBER 30,
                                        --------------------------------
                                             2002              2001
                                        --------------    --------------
<S>                                     <C>               <C>
Reported net loss .................     $  (21,633,883)   $  (16,475,291)

Goodwill Amortization .............                 --           422,550
                                        --------------    --------------

Adjusted net loss .................     $  (21,633,883)   $  (16,052,741)
                                        ==============    ==============

Reported net loss per share .......     $        (0.64)   $        (0.61)
Goodwill Amortization per share ...                 --              0.01
                                        --------------    --------------
Adjusted net loss per share .......     $        (0.64)   $        (0.60)
                                        ==============    ==============
</Table>

PATENTS

         Patents represent the direct costs associated with obtaining the
patents and are being amortized on a straight-line basis over 17 years.
Accumulated amortization of patents was $47,926 and $21,867 for 2002 and 2001,
respectively. Amortization expense was $26,059 and $17,512 for the years ended
September 30, 2002 and 2001, respectively.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

         We account for the impairment of long-lived assets in accordance with
Financial Accounting Standards, SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
book value of the asset may not be recoverable. At each year-end, we review our
long-lived assets for circumstances that may indicate impairment. Based on our
impairment analysis, we have not recorded any impairment charges. As previously
noted, during the fourth quarter of the year ended September 30, 2002, we wrote
off approximately $1.5 million of deferred facilities design costs relating to a
project contract we are no longer pursuing.

DEFERRED OFFERING COSTS

         Deferred offering costs represent capitalized costs incurred for the
ongoing effort to obtain project financing. We continually evaluate these costs
and write-off all costs associated with plans that are not considered viable
alternatives. During the fourth quarter of the year ended September 30, 2002, we
wrote off approximately $5.1 million of costs in relation to financing plans
that we are no longer pursuing.


                                       54
<PAGE>


REVENUE RECOGNITION

         Revenue is recognized when title passes to the customer, typically upon
delivery. Title to used oil generally transfers to a customer when the customer
accepts our delivery of the used oil shipment.

RESEARCH AND DEVELOPMENT

         Research and development costs are charged to expense when incurred.
Based on the completion of our process demonstration facility and the
engineering report that we received, management believes that technical
feasibility has been reached for our proprietary process.

ENVIRONMENTAL MATTERS

         Our operations are subject to extensive and evolving federal, state and
local environmental laws and regulations related to the discharge of materials
into the environment. Our process is not expected to produce harmful levels of
emissions or waste by-products, other than water, which can be treated for
conventional disposal. However, these laws and regulations would require us to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites should they occur. Compliance
with such laws and regulations can be costly. Additionally, governmental
authorities may enforce the laws and regulations with a variety of civil and
criminal enforcement measures, including monetary penalties and remediation
requirements.

         We will account for future environmental expenditures by expensing or
capitalizing them depending on their future economic benefit. Expenditures that
relate to an existing condition caused by past operations and that have no
future economic benefits are expensed. Liabilities for expenditures of a
non-capital nature are recorded when environmental assessment and/or remediation
is probable, and the costs can be reasonably estimated.

INCOME TAXES

         The provision for income taxes is based on pretax income as reported
for financial statement purposes. Deferred income taxes are provided in
accordance with the liability method of accounting for income taxes to recognize
the tax effects of temporary differences between financial statement and income
tax accounting. Valuation allowances are established when necessary to reduce
tax assets to the amount expected to be realized.

         A valuation allowance is provided for deferred tax assets if it is more
likely than not that these items will either expire before we are able to
realize their benefit, or future deductibility is uncertain. Deferred tax assets
and liabilities are recognized for the expected future tax consequences of
events that have been realized in the financial statements or tax returns.

         We have incurred net operating losses for federal income tax purposes
and we are uncertain as to whether we will generate future taxable income during
the carry forward period. Accordingly, we have made no provision for federal
income taxes in the statements of operations and our net current and non-current
deferred tax assets have been fully reserved at September 30, 2002.

STOCK COMPENSATION

         We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), in accounting for our
employee stock options. Under APB 25, if the exercise price of an employee's
stock options equals or exceeds the market price of the underlying stock on the
date of grant and certain other plan conditions are met, no compensation expense
is recognized. If the terms of stock options are modified, we account for these
options as variable options.

         We account for stock-based awards issued to non-employees in accordance
with the fair value method of SFAS 123 and Emerging Issues Task Force Issue No.
96-18. Accordingly, we measure the cost of such awards based on the fair market
value of the options using the Black-Scholes method option-pricing model.


                                       55
<PAGE>


         See Note 5 regarding the pro forma net loss per common share
information as required by the alternative fair value accounting provided for
under Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123).

FAIR VALUE OF FINANCIAL INSTRUMENTS

         We define the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties. The carrying value of accounts receivable, accounts payable and accrued
liabilities approximates fair value because of the short maturity of those
instruments. The estimated fair value of our long-term obligations is estimated
based on the current rates offered to us for similar maturities. Based on
prevailing interest rates and the short-term maturity of the majority of our
indebtedness, management believes that the fair value of notes payable
approximates book value at September 30, 2002.

ACCUMULATED OTHER COMPREHENSIVE INCOME

         As of the date of these Consolidated Financial Statements, we had no
components of other comprehensive income as defined by Statement of Financial
Accounting Standards No. 130.

LOSS PER COMMON SHARE

         Basic earnings per share is computed only on the weighted average
number of common shares outstanding during the respective periods, and the
dilutive effect of stock options and warrants is excluded. Diluted earnings per
share is computed using the additional dilutive effect, if any, of stock options
and warrants using the treasury stock method based on the average market price
of the stock during the respective periods.

         The effect of stock options, warrants and other convertible securities
that aggregated 48,672,840 and 28,526,158 shares as of September 30, 2002 and
2001, respectively, would be anti-dilutive due to our losses in 2002 and 2001
and, accordingly, are not included in the computation of diluted earnings per
share for the respective periods.

         The following table summarizes the numerator and denominator elements
of the basic EPS computations.

<Table>
<Caption>
                                   YEAR ENDED SEPTEMBER 30,
                                 ----------------------------
                                     2002            2001
                                 ------------    ------------
<S>                              <C>             <C>
Loss .........................   $ 21,633,883    $ 16,475,291
Preferred Dividends ..........        531,454         535,021
                                 ------------    ------------
Loss available to common .....     22,165,337      17,010,312
                                 ============    ============
Shares (Denominator) .........     34,715,595      27,832,334
                                 ------------    ------------
Loss Per Share ...............   $      (0.64)   $      (0.61)
                                 ============    ============
</Table>

NEW ACCOUNTING STANDARDS

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which is effective for years beginning after June 15,
2002, which will be our fiscal year 2003. SFAS No. 143 addresses legal
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development or normal operation of a
long-lived asset. The standard requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. Any associated
asset retirement costs are to be capitalized as part of the carrying amount of
the long-lived asset and expensed over the life of the asset. The adoption of
SFAS 143 as of October 1, 2002 did not have a significant impact on our
financial position and results of operations.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to


                                       56
<PAGE>


be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations, for a disposal of a segment of a
business. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001, with earlier application encouraged. The adoption of SFAS No. 144 as
of October 1, 2001 did not have a significant impact on our financial position
and results of operations.

         In April, 2002, the Financial Accounting Standards Board issued SFAS
No. 145 (SFAS 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections, related to accounting for
debt extinguishments, leases, and intangible assets of motor carriers. The
provisions of SFAS 145 are effective for fiscal years beginning after May 15,
2002 with earlier adoption encouraged. We do not expect that the adoption of
this Statement will have a significant impact on our financial position and
results of operations.

RECLASSIFICATIONS

         Certain accounts have been reclassified to conform to the current
period's presentation.

3.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment at September 30, 2002 consisted of the
following.

<Table>
<S>                                                  <C>
Land and land improvements .......................   $    161,190
Buildings and leasehold improvements .............        368,183
Machinery and equipment ..........................      4,449,873
Deferred facility design costs ...................     11,151,490
                                                     ------------
                                                       16,130,736
Accumulated depreciation .........................     (2,346,730)
                                                     ------------
                                                     $ 13,784,006
                                                     ============
</Table>

         At September 30, 2002, property, plant and equipment included
approximately $11.2 million of costs related to the pre-construction design of
our first reprocessing facility. During the fourth quarter of the year ended
September 30, 2002, we wrote off approximately $1.5 million of these costs in
relation to a project contract we are no longer pursuing. Certain vendors have
agreed to defer payment until financing for the construction of the Wellsville
facility is complete. At September 30, 2002, $5.6 million has been deferred and
is included on the balance sheet as a liability under the caption deferred
facility design costs. The facility is anticipated to be built in Wellsville,
Ohio, and is expected to be placed into service during Fiscal 2004. Accordingly,
these costs are not currently being depreciated. Though we believe our
construction timetable is reasonable, the timing of the completion of the
facility is dependent upon purchasing the land and our operations, cash flows,
alternative uses of capital and alternative sources of financing among other
market conditions.

         Depreciation expense was $962,367 and $780,697 for 2002 and 2001,
respectively.


                                       57
<PAGE>


4.       SHORT-TERM AND LONG-TERM DEBT

SHORT-TERM DEBT

Our short-term debt at September 30, 2002 consisted of the following:

<Table>
<S>                                                                                      <C>
$3,000,000 of notes payable, dated February 20, 2001, bearing interest at 12%
  per annum due February 28, 2003, net of unamortized discount of
  $0 .................................................................................   $  3,000,000
$1,830,000 of notes payable, dated April to July 2001, bearing interest
  at 12% per annum due February 28, 2003, net of unamortized discount of
  $0 .................................................................................   $  1,830,000
$3,000,000 of convertible notes payable, dated September 7, 2001,
  bearing interest at 12% per annum due February 28, 2003, net of
  unamortized discount of $0 .........................................................   $  3,000,000
$500,000 note payable, dated September 13, 2001, bearing interest at 12%
  per annum due February 28, 2003, net of unamortized discount of $0
                                                                                         $    500,000
$3,000,000 note payable, dated March 29, 2002, bearing interest at 12% per annum
  due February 28, 2003, net of unamortized discount of
  $444,951 ...........................................................................   $  2,555,049
$200,000 of notes payable, dated April 3, 2002, bearing interest at 12%
  per annum due February 28, 2003, net of unamortized discount of $10,172
                                                                                         $    189,828
$1,523,491 of notes payable, dated July to September 2002, bearing interest at
  12% per annum due February 28, 2003, net of unamortized
  discount of $532,869 ...............................................................   $    990,622
$50,000 of notes payable, dated September 16, 2002, bearing interest at
  8% per annum due September 16, 2003, net of unamortized discount of $0
                                                                                         $     50,000
7% Senior Secured Convertible Notes ..................................................   $ 12,200,400
$75,000 line of credit ...............................................................   $     32,436
                                                                                         ------------
                                                                                         $ 24,348,335
                                                                                         ============
</Table>

         On February 20, 2001, we issued to lenders promissory notes in the
aggregate principal amount of $3,000,000 at an interest rate equal to 10% per
annum; however, the interest rate was subsequently increased retroactive to the
date of origination to 12% per annum in connection with the extension of the
maturity date. The proceeds of this loan were used for working capital purposes.
These notes originally matured on June 30, 2001, but the maturity date has been
extended to the earlier of February 28, 2003 or project financing aggregating at
least $30 million to be used to construct our initial reprocessing facility. We
have incurred $1,544,653 of cumulative discount on note costs related to
warrants issued to the noteholders and placement agents. These costs have been
amortized and charged to interest expense. These notes are secured by a first
priority security interest in all of the assets of Probex, other than its
intellectual property and the capital stock of PFR. Additionally, as
consideration for the extension of the maturity date of these notes, Probex
granted the noteholders a first priority security interest in all of its
intellectual property with respect to one-third of the principal amount
outstanding and accrued but unpaid interest under these notes. This first
priority security interest in all of Probex's intellectual property, however, is
subordinated to the note issued on March 29, 2002 and any additional new notes
issued up to $8,000,000 aggregate principal amount. The remainder of the
principal amount outstanding and accrued but unpaid interest is secured by a
second priority security interest in all of Probex's intellectual property.
Further, these notes have been amended to be convertible into Probex common
stock at the option of the holder at a conversion price equal to:

         o    if Probex's common stock is issued and sold in connection with
              the project financing, the purchase price paid to Probex by the
              purchasers for each share of Probex's common stock in the project
              financing;

         o    if securities other than Probex's common stock are issued and
              sold in connection with the project financing, the price at which
              the securities issued and sold in connection with the project
              financing may be converted into Probex's common stock; or

         o    if none of the securities of Probex issued and sold in connection
              with the project financing are Probex's common stock or
              securities convertible into Probex's common stock, the product of

         o    the average closing price of Probex's common stock as reported by
              the American Stock Exchange for the twenty (20) trading days
              prior to the consummation of the Qualified Financing and 0.94.

         The conversion price of the notes at September 30, 2002 was $0.75 per
share.

         In April, May, June, and July 2001, we issued to lenders promissory
notes in the aggregate principal amount of $1,830,000 at an interest rate equal
to 10% per annum; however, the interest rate was subsequently increased
retroactive to the date of origination to 12% per annum in connection with the
extension of the maturity date. The proceeds of this loan were used for working
capital purposes. These notes originally matured on


                                       58
<PAGE>


September 1, 2001, but the maturity date has been extended to the earlier of
February 28, 2003 or project financing aggregating at least $30 million to be
used to construct our initial reprocessing facility. We have incurred $665,459
of cumulative discount on note costs related to warrants issued to the
noteholders and placement agents. These costs have been amortized and charged to
interest expense. These notes are secured by a second priority security interest
in all of the assets of Probex, other than its intellectual property and the
capital stock of PFR. Additionally, as consideration for the extension of the
maturity date of these notes, Probex granted the noteholders a first priority
security interest in all of its intellectual property with respect to one-third
of the principal amount outstanding and accrued but unpaid interest under these
notes. This first priority security interest in all of Probex's intellectual
property, however, is subordinated to the note issued on March 29, 2002 and any
additional new notes issued up to $8,000,000 aggregate principal amount. The
remainder of the principal amount outstanding and accrued but unpaid interest is
secured by a second priority security interest in all of Probex's intellectual
property. Further, these notes have been amended to be convertible into Probex
common stock at the option of the holder as described in the preceding
paragraph.

         In September 2001, we issued to lenders convertible promissory notes in
the aggregate principal amount of $3,000,000 at an interest rate equal to 12%
per annum. The proceeds of this loan were used for working capital purposes. If
we consummate an equity financing aggregating at least $35,000,000 for our
facility to be built in Wellsville, Ohio prior to maturity of these notes,
$1,500,000 of the promissory notes will automatically convert into the
securities issued in connection with the Wellsville project financing at a
conversion rate equal to the purchase price paid by investors for such
securities. The remaining $1,500,000 of promissory notes will become due and
payable at project financing. We have incurred $940,197 of cumulative discount
on note costs related to common stock issued to noteholders. These costs have
been amortized and charged to interest expense. These notes originally matured
on December 31, 2001, but the maturity date has been extended to the earlier of
February 28, 2003 or project financing aggregating at least $30 million to be
used to construct our initial reprocessing facility. These notes are secured by
a third priority security interest in all of the assets of Probex, other than
its intellectual property and the capital stock of PFR. Additionally, as
consideration for the extension of the maturity date of these notes, Probex
granted the noteholders a first priority security interest in all of its
intellectual property with respect to one-third of the principal amount
outstanding and accrued but unpaid interest under these notes. This first
priority security interest in all of Probex's intellectual property, however, is
subordinated to the note issued on March 29, 2002 and any additional new notes
issued up to $8,000,000 aggregate principal amount. The remainder of the
principal amount outstanding and accrued but unpaid interest is secured by a
second priority security interest in all of Probex's intellectual property.

         In September 2001, we issued to a lender a promissory note in the
aggregate principal amount of $500,000 at an interest rate equal to 12% per
annum. The proceeds of this loan were used for working capital purposes. We have
incurred $160,296 of cumulative discount on note costs related to warrants
issued to the noteholder. These costs have been amortized and charged to
interest expense. This note originally matured on December 31, 2001, but the
maturity date has been extended to the earlier of February 28, 2003 or project
financing aggregating at least $30 million to be used to construct our initial
reprocessing facility. This note is secured by a fourth priority security
interest in all of the assets of Probex, other than its intellectual property
and the capital stock of PFR. Additionally, as consideration for the extension
of the maturity date of this note, Probex granted the noteholder a first
priority security interest in all of its intellectual property with respect to
one-third of the principal amount outstanding and accrued but unpaid interest
under this note. This first priority security interest in all of Probex's
intellectual property, however, is subordinated to the note issued on March 29,
2002 and any additional new notes issued up to $8,000,000 aggregate principal
amount. The remainder of the principal amount outstanding and accrued but unpaid
interest is secured by a second priority security interest in all of Probex's
intellectual property. Further, this note has been amended to be convertible
into Probex common stock at the option of the holder as described in the
paragraph describing the notes issued on February 20, 2001.

         In March 2002, we entered into a loan agreement with a lender for loan
of $3,000,000. Pursuant to this loan agreement, we received $1,500,000 in March
2002, $500,000 in May 2002 and $1,000,000 in June 2002. We issued to this lender
a promissory note in the principal amount of $3,000,000 at an interest rate
equal to 12% per annum. This loan matures on the earlier of February 28, 2003 or
project financing aggregating at least $30 million to be used to construct our
initial reprocessing facility. The proceeds of this loan were used for working
capital purposes. This loan is secured by a first priority security interest in
all of Probex's intellectual property. Further, this note is convertible into
Probex common stock at the option of the holder as described in the paragraph


                                       59
<PAGE>


describing the notes issued on February 20, 2001. In connection with this note,
we incurred $708,058 of cumulative discount on note costs related to warrants
issued to the noteholder. These costs are being amortized over the primary term
of the note and charged to interest expense.

         In April 2002, we issued to two lenders promissory notes in the
principal amount of $200,000 at an interest rate equal to 12% per annum. The
proceeds of these loans were used for working capital purposes. As of September
30, 2002, in connection with these notes, we have incurred $84,007 of cumulative
discount on note costs related to warrants issued to the noteholders. These
costs are being amortized over the primary term of the note and charged to
interest expense. These notes mature on the earlier of February 28, 2003 or
project financing aggregating at least $30 million to be used to construct our
initial reprocessing facility. These notes are secured by a first priority
security interest in all of Probex's intellectual property. Further, these notes
are convertible into Probex common stock at the option of the holder as
described in the paragraph describing the notes issued on February 20, 2001.

         In July through September 2002, we issued to lenders promissory notes
in the principal amount of $1,523,491 in conjunction with a $3,000,000
commitment at an interest rate equal to 12% per annum. The proceeds of these
loans were used for working capital purposes. As of September 30, 2002, in
connection with these notes, we have incurred $639,443 of cumulative discount on
note costs related to warrants issued to the noteholders. These costs are being
amortized over the primary term of the note and charged to interest expense.
These notes mature on the earlier of February 28, 2003 or project financing
aggregating at least $30 million to be used to construct our initial
reprocessing facility. These notes are secured by a first priority security
interest in all of Probex's intellectual property. Further, these notes are
convertible into Probex common stock at the option of the holder as described in
the paragraph describing the notes issued on February 20, 2001.

         On September 16, 2002, we issued to one lender a promissory note in the
principal amount of $50,000 at an interest rate equal to 8% per annum. The
proceeds of these loans were used for working capital purposes. This note
matures on the earlier of September 16, 2003 or project financing aggregating at
least $30 million to be used to construct our initial reprocessing facility.
This note is secured by a first priority security interest in all of Probex's
intellectual property. Further, this note is convertible into Probex common
stock at the option of the holder as described in the paragraph describing the
notes issued on February 20, 2001.

         At September 30, 2002, we had an uncommitted bank line of credit, which
provides for unsecured borrowings for working capital of up to $75,000, of which
$32,436 was outstanding. The interest rate at the close of business on September
30, 2002 was 6.25%.

         On November 29, 2000, we completed a private placement of $12,500,000
aggregate principal amount of 7% senior secured convertible notes. These notes
bear interest payable semiannually, commencing on January 1, 2001, with the
principal amount due on November 28, 2004. The notes were issued by our
collection subsidiary, PFR, are secured by the assets of PFR, guaranteed by
Probex and convertible into Probex common stock. The conversion price of these
notes into common stock was initially $1.40 per share, however, as consideration
for the waiver of the event of default discussed in the second following
paragraph, we agreed to reduce the conversion price to the lowest price per
share that Probex issues shares of its common stock after February 15, 2002 or
at which any other securities issued after that date are then convertible into
common stock. Additionally, the purchase agreement governing the loan required
us to file a registration statement under the Securities Act of 1933 covering
the resale of the shares of our common stock issuable upon conversion of the
notes evidencing the $12.5 million loan. As of March 31, 2001, we had not filed
the registration statement. As consideration for extending our obligation to
file the registration statement, we agreed to issue to the holders of these
notes that number of shares of our common stock equal to 2% of the shares of our
common stock issuable upon conversion of their note at the close of each
calendar quarter that the registration statement had not been filed. Upon
consummation of project financing for our first reprocessing facility, no
further reductions in the conversion price pursuant to the preceding sentence
will occur. As of September 30, 2002, the conversion price of these notes was
$0.75 per share. In accordance with Emerging Issues Task Force No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios, we recorded additional interest
expense of approximately $3,125,000 in the first quarter of fiscal year 2001.


                                       60
<PAGE>


         In connection with the placement of the 7% senior secured convertible
notes, we incurred $2,130,441 of deferred debt offering costs, including
$1,218,357 related to warrants issued to placement agents. These costs are being
amortized over the primary term of the notes.

         In October 2001, as a result of not securing commitments for project
financing by September 30, 2001, an event of default occurred under the Note
Purchase Agreement governing these notes. In accordance with the Note Purchase
Agreement, we believe that we fully cured such event of default by obtaining
approval of the required holders of management's plan to obtain project
financing. In addition to obtaining approval of management's plan to obtain
project financing, we entered into a first amendment and waiver and consent to
the notes. This first amendment and waiver and consent to the notes amends the
conversion price of the notes as discussed above and waives any defaults caused
by our inability to secure commitments for project financing under the Note
Purchase Agreement, provided that we secure commitments for project financing on
or prior to June 30, 2002. We obtained a waiver of this event of default until
February 28, 2003.

         JPW Opportunity Fund, L.P., a noteholder who holds a note in the
aggregate principal amount of $1,000,000, did not at that time waive the default
resulting from our not securing commitments for project financing by September
30, 2001. Subsequently, however, he executed an amendment and waiver and
consent, which, among other things, waived this default. As a result, we
currently believe that such noteholder's claims are without merit and intend to
vigorously defend any action sought by such noteholder. See Footnote 12 in the
notes to our consolidated financial statements on Subsequent Events for
discussion of recent developments related to defaults on our senior debt
securities.

         On June 30, 2002, two of the 7% senior secured convertible notes
totaling $299,600 aggregate principal amount were converted into the company's
common stock.

LONG-TERM DEBT

Our long-term debt at September 30, 2002 consists of the following:

<Table>
<S>                                                               <C>
8% Acquisition note............................................   $1,148,250
Less current portion...........................................     (467,626)
                                                                 -----------
                                                                  $  680,624
                                                                 ===========
</Table>

         On May 1, 2000, in conjunction with the acquisition of substantially
all of the assets of Petroleum Products Inc. (PPI), we issued a promissory note
to the seller. We have agreed to pay the seller the principal sum of $1,500,000
together, with interest in arrears on the unpaid principal balance at an annual
rate equal to 8%. The principal amount of this note is due and payable in
semi-annual installments of $150,000, plus interest amortized, from 2001 to
2005. On January 2, 2001, we paid the first semi-annual installment, and we paid
the second installment on September 10, 2001. In March 2002, the noteholder
agreed to defer $125,000 currently due and payable under this note until receipt
of proceeds from interim financing, and subsequently was paid these monies by
November 2002. Additionally, the installment due under this note in July 2002
was deferred until completion of project financing for the construction of our
first reprocessing facility.

5.       STOCKHOLDERS' EQUITY

CAPITAL STRUCTURE

         We are authorized to issue up to 100,000,000 shares of our common
stock, $0.001 par value per share, of which 38,901,657 shares were issued and
outstanding at September 30, 2002.

         On February 1, 2000, we filed a Form 10-SB/A, pursuant to Section 12(b)
of the Securities Exchange Act of 1934, which was subsequently declared
effective by the Securities and Exchange Commission on February 2, 2000. On
February 3, 2000, our common stock began trading on the American Stock Exchange
under the symbol "PRB."


                                       61
<PAGE>


         We are also authorized to issue up to 10,000,000 shares of preferred
stock, $0.001 par value per share, of which 550,000 shares are designated as
Series A 10% Cumulative Convertible Preferred Stock, or Series A Preferred
Stock. As of June 30, 2002, 532,500 shares of Series A Preferred Stock were
issued and outstanding.

ISSUANCES OF PREFERRED STOCK

Series A 10% Cumulative Convertible Preferred Stock:

         In July 1999, we initiated a private placement to investors for up to
$5.0 million of Series A preferred stock at $10.00 per share. Each share of
Series A preferred stock is convertible at any time at the option of the holder
into 5.33333 shares of common stock of the Company, or a $1.875 conversion price
per share of common stock, and shall be automatically converted, without further
action on the part of the Company or the holder, into 5.33333 shares of common
stock on the date following any thirty-day trading period in which the average
daily closing price of our common stock exceeds $5.625 per share. The holders of
Series A preferred stock are not entitled to vote, except on certain limited
matters and to the extent required by law. The Series A preferred stock, with
respect to rights on liquidation, winding up and dissolution, ranks senior to
all classes and series of common stock and may rank senior to other classes of
preferred stock. The Series A preferred stock has a liquidation preference of
$10.00 per share plus accrued and unpaid dividends, that is prior to the
liquidation preference of the common stock. Each share of Series A preferred
stock is entitled to receive semi-annual dividends at the rate of $1.00 per
annum payable either in cash or in common stock at $1.50 per share, at our
option. We accrue the liability for this dividend on a monthly basis and pay it
semi-annually in May and November.

         The offering was completed in December 1999 with a total of $5,350,000
of gross proceeds.

         As a result of the above Series A preferred stock private placement, we
incurred $715,588 of expenses ($615,600 of placement fees and $99,988 of legal
fees) and these have been recorded as offering costs and offset against the
Series A preferred stock proceeds in the Consolidated Financial Statements.

         On August 8, 2001, 2,500 shares of Series A preferred stock were
converted into the 13,333 shares of our common stock.

         During fiscal 2001, we issued 356,671 shares of our common stock at
$1.50 per share to holders of Series A preferred stock in lieu of cash dividends
for November 2000 and May 2001.

         During fiscal 2002, we issued 355,004 shares of our common stock at
$1.50 per share to holders of Series A preferred stock in lieu of cash dividends
for November 2001 and May 2002.

ISSUANCES OF COMMON STOCK

Private Placements:

         On October 12, 2000, we entered into a stock purchase agreement for the
issuance of 500,000 shares of common stock at $2.00 per share resulting in
$1,000,000 of cash proceeds. On March 31, 2001, pursuant to the ratchet price
provisions contained in the stock purchase agreement, we issued an additional
214,286 shares of our common stock to the purchaser in order to bring the
effective common stock purchase price to $1.40 per share.

         On December 29, 2000, we issued 100,000 shares of our common stock at
$1.40 per share resulting in $140,000 of cash proceeds.

         As result of these stock issuances, we incurred $307,908 of stock
issuance costs and these have been recorded as offering costs and offset against
the common stock proceeds in the Consolidated Financial Statements.

         On February 5, 2001, we entered into a stock purchase agreement for the
issuance of 714,286 shares of our common stock at $1.40 per share resulting in
$1,000,000 of cash proceeds.


                                       62
<PAGE>


         On December 21, 2001, we issued 1,342,282 shares of our common stock to
an investor for the aggregate purchase of $1,000,000. The purchased shares are
subject to anti-dilution provisions that require us to issue additional shares
to the purchaser to adjust the purchase price per share paid by the purchaser to
equal any sales of common stock or securities convertible into common stock,
pursuant to a public offering or private placement in an aggregate amount of
$500,000 or more, at a lower price per share during a 24-month period following
closing. The closing was contingent upon obtaining project financing and certain
other conditions; however, the investor exercised its option to accelerate its
purchase of the common stock in December 2001. As consideration for the exercise
of this option to accelerate the closing, we issued an additional 500,000 shares
of common stock to the investor, which are not subject to the adjustment
provision described above in this paragraph.

         On January 15, 2002, we issued an aggregate of 288,000 shares of our
common stock at $0.877 per share resulting in $252,577 of cash proceeds. The
purchased shares are subject to anti-dilution provisions that require us to
issue additional shares to the purchaser to adjust the purchase price per share
paid by the purchaser to equal any sales of common stock or securities
convertible into common stock, pursuant to a public offering or private
placement in an aggregate amount of $500,000 or more, at a lower price per share
during a 24-month period following closing. The closing was contingent upon
obtaining project financing and certain other conditions; however, the investor
exercised its option to accelerate its purchase of the common stock in January
2002. As consideration for the exercise of this option to accelerate the
closing, we issued an aggregate of 125,390 additional shares of common stock to
the investor, which are not subject to the adjustment provision described above
in this paragraph.

Issued to Non-Employees for Services Rendered:

         On November 9, 2000, we agreed to issue 16,666 shares of our common
stock to one consultant as compensation for services rendered.

         On February 13, 2001, we agreed to issue 13,664 shares of our common
stock to a consultant as compensation for services rendered. Certificates
representing these shares were subsequently issued in May 2001.

         On May 17, 2001, the Company issued an additional 12,075 shares of our
common stock to this consultant as compensation for services rendered.

         On June 21, 2001, we issued 968 shares of our common stock to one
consultant as compensation for services rendered.

         In January 2002, we agreed to issue 52,279 shares of our common stock
to two consultants as compensation for services rendered related to their
assistance in financing activities. The fair market values of these shares have
been recorded as offering costs and offset against the common stock proceeds in
the accompanying consolidated financial statements.

         In January, February and March 2002, we agreed to issue 154,258 shares
of our common stock to three consultants as compensation for services rendered.
This was recorded as a selling, general and administrative expense for the
quarter ended March 31, 2002.

         On April 19, 2002, we agreed to issue 4,348 shares of our common stock
to a consultant as compensation for services rendered. This was recorded as a
selling, general and administrative expense for the quarter ended June 30, 2002.

         On April 19, 2002, we issued 3,788 shares of our common stock to
placement agents pursuant to anti-dilution provisions contained in their
respective placement agreements.

         On August 29, 2002, we issue 1,923,077 shares of our common stock to
one consultant as compensation for services rendered related to their assistance
in obtaining an equity line of credit. The fair market value of these shares
have been recorded as other assets in the accompanying consolidated financial
statements and will be charged to offering costs and offset against the common
stock proceeds as the Company draws on this equity line of credit.


                                       63
<PAGE>


         On September 26, 2002, we issue 101,722 shares of our common stock to a
consultant as compensation for services rendered. This was recorded as other
corporate expenses for the quarter ended September 30, 2002 in the accompanying
consolidated financial statements.

Common stock issued to lenders for interest in lieu of cash:

         On February 6, 2001, we issued 29,609 shares of our common stock to
holders of PFR's 7% Senior Secured Convertible Notes due November 2004 as
interest for the one-month period ended December 31, 2000.

         In July and September, 2001, we issued an aggregate of 711,925 shares
of our common stock to holders of PFR's 7% Senior Secured Convertible Notes due
November 2004 as interest for the six-month period ended June 30, 2001 and for
extensions of registration rights obligations of the Company to the end of the
following calendar quarter.

         In July, August, and September 2001, we issued 756,519 shares of our
common stock to holders of our bridge notes as consideration for the extension
of the maturity date of such notes.

         On December 31, 2001, we issued an aggregate of 178,569 shares of our
common stock to holders of PFR's 7% Senior Secured Convertible Notes due
November 2004 for extensions of registration rights obligations of the Company
to the end of the following calendar quarter.

         In January and March 2002, we issued an aggregate of 532,720 shares of
our common stock to holders of PFR's 7% Senior Secured Convertible Notes due
November 2004 as interest for the six-month period ended December 31, 2001 and
for extensions of registration rights obligations of the Company to the end of
the following calendar quarter.

         Since October 1, 2001, we have issued 893,532 shares of our common
stock to holders of our bridge notes as consideration for the extension of the
maturity date of such notes.

         On June 30, 2002, we issued an aggregate of 333,333 shares of our
common stock to holders of PFR's 7% Senior Secured Convertible Notes due
November 2004 for extensions of registration rights obligations of the Company
to the end of the following calendar quarter.

         In July and September 2002, we issued an aggregate of 849,810 shares of
our common stock to holders of PFR's 7% Senior Secured Convertible Notes due
November 2004 as interest for the six-month period ended June 30, 2002 and for
extensions of registration rights obligations of the Company to the end of the
following calendar quarter.

Common stock issued upon exercise of warrants and stock options:

         During April 2001, warrants to purchase our common stock, expiring
April 26, 2001, were exercised at a price of $1.00 per share resulting in the
issuance of an aggregate of 208,773 shares of our common stock and cash proceeds
of $208,771. Also in April 2001, warrants to purchase our common stock, expiring
April 26, 2001, were exercised in a cashless transaction, at a price of $0.20
per share, resulting in the issuance of an aggregate of 75,000 shares.

         On June 21, 2001, stock options to purchase our common stock, expiring
June 30, 2009, were exercised at a price of $0.50 per share in a cashless
exercise transaction resulting in the issuance of an aggregate of 326,666 shares
of our common stock. The purchase price was paid for by the sale of stock that
the employee had held for over six months.

         On November 11, 2001, stock options to purchase our common stock,
expiring June 30, 2009, were exercised at a price of $0.50 per share resulting
in the issuance of an aggregate of 12,500 shares of our common stock.


                                       64
<PAGE>


         On November 30, 2001, stock options to purchase our common stock,
expiring June 30, 2009, were exercised at a price of $0.50 per share in a
cashless exercise transaction resulting in the issuance of an aggregate of 7,560
shares of our common stock. The purchase price was paid for by the sale of stock
that the employee had held for over six months.

         On January 17, 2002, stock options to purchase our common stock,
expiring June 30, 2002, were exercised at a price of $0.50 per share in a
cashless exercise transaction resulting in the issuance of an aggregate of
163,334 shares of our common stock. The purchase price was paid for by the sale
of stock that the employee had held for over six months.

Common stock issued upon conversion of convertible instruments:

         On November 30, 2000, a third party lender converted a loan in the
principal amount of $1,500,000 and accrued interest of $38,333 into 1,099,107
shares of our common stock.

         On June 30, 2002, two holders of PFR's 7% Senior Secured Convertible
Notes due November 2004 converted their notes into 399,466 shares of the
Company's common stock.

Re-pricing of warrants and preferred stock:

         In September 2002, we received $147,447 from the re-pricing of warrants
and our Series A preferred stock. Of this amount, $39,947 was from the
re-pricing of 351,370 warrants and $107,500 was from the re-pricing of 43,000
shares of our Series A preferred stock.

TREASURY STOCK

         In April 2001, we received 8,242 shares of our common stock at market
price, totaling $15,000, in a cashless exercise of a warrant to purchase our
common stock.

         In June 2001, we received 96,079 shares of our common stock at market
price, totaling $163,333, in a cashless exercise of a stock option to purchase
our common stock.

         On November 30, 2001, we received 4,500 shares of our common stock at
market price, totaling $3,780, in a cashless exercise of a stock option to
purchase 7,560 shares of our common stock.

         On January 17, 2002, we received 93,870 shares of our common stock at
market price, totaling $81,667, in a cashless exercise of a stock option to
purchase 163,334 shares of our common stock.

WARRANTS TO PURCHASE OUR COMMON STOCK

         The following table summarizes activity related to warrants and
contingent warrants as of September 30, 2002:


<Table>
<Caption>
                                    NUMBER OF SHARES   AVERAGE PRICE    AVERAGE LIFE
                                    ----------------   -------------    ------------
<S>                                 <C>                <C>              <C>
Balance at September 30, 2000 .....      4,847,604              1.38             .72
Granted ...........................      5,970,905              1.50            3.42
Exercised .........................        283,773               .79             .00
Expired/Canceled ..................         35,483              1.00             .00
                                      ------------      ------------    ------------
Balance at September 30, 2001 .....     10,499,253              1.47            2.31
Granted ...........................     18,843,099               .76            4.28
Exercised .........................              0               .00             .00
Expired / Canceled ................      6,284,560              1.41            3.04
                                      ------------      ------------    ------------
Balance at September 30, 2002 .....     23,057,792               .90            3.72
                                      ============      ============    ============
</Table>


                                       65
<PAGE>


         The above warrants to purchase our common stock are exercisable at
September 30, 2002, except for 560,000 shares acquirable pursuant to the
exercise of warrants that are contingent upon the occurrence of certain future
events, none of which have occurred.

         On April 1, 2002, a ratchet price provision contained in warrants to
purchase an aggregate of 5,483,190 shares of our common stock was triggered.
These warrants had exercise prices ranging from $1.24 to $1.58. As of a result
of such provision, the exercise price of these warrants was reduced to $0.75.
All other terms of these warrants remained the same.

OPTIONS

         In July 1999, we adopted the 1999 Omnibus Stock and Incentive Plan (the
"1999 Plan") in order to grant stock options to purchase an aggregate of
2,750,000 shares thereunder. The plan is administered by the compensation
committee of our board of directors. In July 2000, our shareholders adopted the
1999 Omnibus Stock and Incentive Plan, as amended and restated, primarily to
increase the number of shares available under such plan from 2,750,000 to
5,750,000. In February 2001, our shareholders adopted an amendment to the 1999
Omnibus Stock and Incentive Plan, to increase the number of shares available
under such plan from 5,750,000 to 8,750,000.


         The following table summarizes activity related to options:

<Table>
<Caption>
                                     NUMBER OF SHARES   WEIGHTED AVERAGE
                                     ----------------   ----------------
<S>                                   <C>                <C>

Balance at September 30, 2000 .....        5,338,000     $       1.3493
  Granted .........................        1,294,000             2.0045
  Exercised .......................          326,666             0.5000
  Forfeited .......................           45,000             1.3216
                                      --------------     --------------
Balance at September 30, 2001 .....        6,260,334     $       1.5483
  Granted .........................        1,009,848             0.8412
  Exercised .......................          183,394             0.5000
  Forfeited .......................          922,940             1.2356
                                      --------------     --------------
Balance at September 30, 2002 .....        6,163,848     $       1.5105
                                      ==============     ==============
</Table>

         All options to purchase our common stock issued to employees during the
year ended September 30, 2002 were issued with exercise prices equal to or
greater than fair market value on the date of issuance.

         The terms of options to purchase our common stock are summarized below:

<Table>
<Caption>
                                                      WEIGHTED       WEIGHTED
                                                       AVERAGE        AVERAGE
   RANGE OF EXERCISE PRICES      NUMBER GRANTED   CONTRACTUAL LIFE  OPTION PRICE      TOTAL
------------------------------   --------------   ----------------  ------------  -------------
<S>                              <C>              <C>               <C>           <C>

Granted at Market Value
  less than $1.00 ............       2,462,500            7.4           0.479         1,178,780
  at $1.01 to $1.99 ..........         840,765            8.3           1.671         1,404,755
  at $2.00 to $2.99 ..........         805,000            8.0           2.365         1,903,651
  at $3.00 to $3.99 ..........         113,500            7.6           3.735           423,938
  at $4.00 to $4.99 ..........           3,333            7.3           4.813            16,040

Granted below Market Value
  $1.00 to $1.99 .............         613,750            7.7           1.875         1,150,781
  $2.00 to $2.99 .............       1,165,000            7.9           2.348         2,735,039
  $3.00 to $3.99 .............         160,000            8.4           3.023           483,750
                                 -------------                                    -------------
                                     6,163,848                                    $   9,296,734
                                 =============                                   =============
</Table>


                                       66
<PAGE>


         At September 30, 2002, exercisable options are as follows:

<Table>
<Caption>
RANGE OF EXERCISE PRICES                     NUMBER EXERCISABLE
------------------------                     ------------------
<S>                                          <C>

Granted at Market Value
  at less than $1.00 per share .........            564,333
  at $1.00 to $1.99 per share ..........            458,655
  at $2.00 to $2.99 per share ..........            365,315
  at $3.00 to $3.99 per share ..........            107,329
  at $4.00 to $4.99 per share ..........              3,333
                                               ------------
                                                  1,498,965

Granted below Market Value
  at $1.875 to $1.999 ..................            271,666
  at $2.00 to $2.99 ....................            710,060
  at $3.00 to $3.99 ....................             40,000
                                               ------------
                                                  1,021,726
                                               ============
</Table>

COMPENSATION EXPENSE FOR OPTIONS GRANTED TO EMPLOYEES, OFFICERS AND DIRECTORS

         Substantially all options issued to employees prior to fiscal year 2000
were issued with exercise prices equal to fair value. Fair value for all options
issued is generally the trading price at the date of issuance. Had compensation
cost for our stock options been determined consistent with SFAS 123, the
Company's net loss per share would have been adjusted to the pro forma amounts
indicated below:

<Table>
<Caption>
                                            YEAR ENDED SEPTEMBER 30,
                                        --------------------------------
                                              2002              2001
                                        --------------    --------------
<S>                                     <C>               <C>

Net loss as reported ................   $  (21,633,833)   $  (16,475,291)
                                        ==============    ==============
  Pro forma .........................   $  (23,460,717)   $  (17,490,995)
                                        ==============    ==============

Loss per common share (basic and
diluted) as reported ................   $        (0.64)   $        (0.61)
                                        ==============    ==============
  Pro forma .........................   $        (0.68)   $        (0.65)
                                        ==============    ==============
</Table>

         The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and we anticipate making awards in the future under our stock-based compensation
plan.

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes method option-pricing model. The following assumptions
were used for grants in 2002: dividend yield of 0%, volatility of .76, risk free
interest rate estimated as 5.23% with an expected life of 10 years. The
following assumptions were used for grants in 2001: dividend yield of 0%,
volatility .76, risk free interest rate estimated as 5% with an expected life of
10 years.

         The weighted-average grant date fair value of options granted during
the year with an exercise price that equals or exceeds the market price of the
stock on the grant date was $.62 for fiscal year 2002. The weighted-average
grant date fair value of options granted during the year with an exercise price
that equals or exceeds the market price of the stock on the grant date was
$1.21, and $0.92, respectively for fiscal year 2001.

         The model is based on historical stock prices and volatility, which,
due to the low volume of transactions, may not be representative of future price
variances.


                                       67
<PAGE>

6.       INCOME TAXES

         The components of deferred tax assets and liabilities at September 30
are as follows:

<Table>
<Caption>
                                               2002            2001
                                           ------------    ------------
<S>                                        <C>             <C>
Deferred tax assets
  Issuance of options ..................   $    582,875    $    467,720
  Issuance of warrants .................        255,521         255,521
  Reserve for doubtful accounts ........        131,027              --
  Depreciation and amortization ........         19,766              --
  Net operating loss ...................     17,073,122       9,769,990
                                           ------------    ------------
Total deferred tax assets ..............    (18,062,311)     10,493,231
Valuation allowance ....................    (18,062,311)    (10,490,057)
                                           ------------    ------------
Net deferred tax asset .................             --           3,174
  Deferred tax liability ...............             --              --
  Depreciation and amortization ........             --          (3,174)
                                                           ------------
Net deferred tax asset .................   $         --    $         --
                                           ============    ============
</Table>

         In assessing the recoverability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The valuation allowance has been increased
by $7,572,254 during fiscal year 2002 as a result of incurring net operating
losses. Net Operating loss carryforwards aggregate approximately $50,215,000 and
expire in the years 2005 through 2022.

         Our income tax expense (benefit) for the years ended September 30
differed from the statutory federal tax rate as follows:

<Table>
<Caption>
                                                              2002            2001
                                                          ------------    ------------
<S>                                                       <C>             <C>

Statutory rate applied to loss before income taxes ....   $ (7,355,520)   $ (5,594,119)
State income tax expense ..............................             --          22,000
Warrant issuance costs ................................             --              --
Other .................................................       (216,734)          3,414
Increase in valuation allowance .......................      7,572,254       5,590,705
                                                          ------------    ------------
Income tax expense ....................................   $         --    $     22,000
                                                          ============    ============
</Table>

7.       LEASE COMMITMENTS

         We have various lease agreements for offices, branches, trucks, lab
equipment and personal property. Most leases contain renewal options and some
contain purchase options. No leases contain restrictions on our activities
concerning dividends, additional debt or further leasing. Rental expense charged
to continuing operations under operating leases for the years ended September
30, 2002 and 2001 was $1,899,350 and $1,489,837, respectively.

         Future minimum fixed lease obligations, excluding taxes, insurance and
other costs payable directly by us as of September 30, 2002, were:

<Table>
<Caption>
                                              MINIMAL LEASE COMMITMENTS
                                            ----------------------------
                                              CAPITAL        OPERATING
                                            ------------    ------------
<S>                                         <C>             <C>
Fiscal
2003 ....................................   $    132,915    $    983,415
2004 ....................................         38,729         697,903
2005 ....................................         25,344         578,928
2006 ....................................         25,344         306,694
2007 ....................................          6,787         141,554
After 2007 ..............................             --         291,600
                                            ------------    ------------
Total minimum lease payments ............        229,119    $  3,000,095
                                                            ============
Less amounts representing interest ......        (29,827)
                                            ------------
Present value of net minimum capital
  lease payments ........................   $    199,292
                                            ============
</Table>


                                       68
<PAGE>


8.       COMMITMENTS AND CONTINGENCIES

         In June 1999, we secured and currently hold an option from The Port
Authority of Columbiana County (the "Port Authority") in Wellsville, Ohio, to
purchase a 22-acre site for our first domestic facility. Additionally, the site
and other surrounding property will be improved by the construction of an
adjacent highway interchange primarily using Federal Funds. The Federal Highway
administration has determined that no transfers of title to such land to private
industry may take place prior to completion of the highway interchange that is
projected to occur in 2003 (see Properties Section, Item 2). Should we exercise
the option to purchase the land, an interim lease agreement would be in effect
until the seller certifies in writing that the highway interchange is complete.
Rental payments under the interim lease will be $20,000 per month and payments
in total will be credited against the purchase price. To date, we have paid
$530,000 for this option to purchase and such payments will be credited towards
the purchase price.

         On August 29, 2002, we entered into a common stock purchase agreement
with Fusion Capital pursuant to which Fusion Capital agreed to purchase, on each
trading day during the term of the agreement, up to $25,000 of our common stock
up to an aggregate of $20.0 million. Fusion Capital is not obligated to purchase
our stock in the event that the purchase price falls below $0.20 per share or if
we are otherwise in default under the Fusion agreement. Additionally, Fusion
Capital is not required under the common stock purchase agreement to begin
purchasing shares until the Securities and Exchange Commission has declared
effective a registration statement relating to at least 15,000,000 shares of our
common stock. Accordingly, we filed a registration statement on Form SB-2 with
the Securities and Exchange Commission to register the resale by Fusion Capital
of 16,923,077 shares of our common stock on November 25, 2002, and intend to
file an amendment to this registration statement on the date of this Form
10-KSB. The amount and timing of proceeds that we will receive under the Fusion
agreement, if any, is uncertain. We have not received any proceeds from sales to
Fusion Capital as of the date of this Form 10-KSB. See Footnote 12 in the notes
to our consolidated financial statements on Subsequent Events for discussion of
recent developments related to the Fusion transaction.

         From time to time we may become subject to proceedings, lawsuits and
other claims in the ordinary course of business including proceedings related to
environmental and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance.

         McClain Group Leasing, Inc. sued us and our subsidiary, Probex Fluids
Recovery, Inc., on August 14, 2002, in the 162nd state district court in Dallas
County, Texas. The plaintiff's original petition seeks an unspecified amount of
damages on behalf of McClain and alleges that we breached the terms of certain
lease agreements concerning the rental of industrial equipment. We believe the
case is without merit and intend to defend it vigorously, but we cannot predict
the outcome of these proceedings.

         Global Emerging Markets, a placement agent, has asserted a claim for
fees due in the amount of $1.4 million in cash and warrants to purchase
20,000,000 shares of common stock for providing alleged brokerage services in
connection with our transaction with Fusion Capital. We believe these claims are
without merit. At the current time, no litigation or arbitration has been filed
regarding the claim. We cannot predict whether any proceedings will be filed and
the outcome of any such proceedings.

         See Footnote 12 in the notes to our consolidated financial statements
on Subsequent Events for discussion of recent developments related to material
litigation.

9.       BENEFIT PLANS

         We adopted a voluntary 401(k) investment plan in May 2000 that covers
all eligible employees. We, at our discretion, may match a percentage of
employee contributions. We did not make any contributions in 2002.


                                       69
<PAGE>


10.      CONCENTRATION OF CREDIT RISK

         The Company sells its products to customers in the United States. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral. The Company maintains reserves
for potential credit losses and such losses, in the aggregate, have not exceeded
management expectations.

         Our financial instruments that are potentially exposed to credit risk
consist primarily of cash and cash equivalents, accounts receivable, and
accounts payable, for which the carrying amounts approximate fair value. We
invest available cash in money market securities of high credit quality
financial institutions. At certain times during the year, our demand deposits
held in banks exceeded the federally insured limit of $100,000.

Customers representing over 10% of revenue were as follows:

<Table>
<Caption>
                                                            2002      2001
<S>                                                         <C>       <C>
Wal-Mart ................................................     17%       14%
</Table>

We had $186,405 in trade accounts receivable from this customer at September 30,
2002

Suppliers representing over 10% of purchases of used oil were as follows:

<Table>
<Caption>
                                                            2002      2001
<S>                                                         <C>       <C>
Akron Canton Waste Oil ..................................     25%       17%
Oil Recovery Services ...................................      3%       12%
Central Ohio Oil ........................................      8%       10%
Thompson Oil ............................................     11%        9%
</Table>

11.      RELATED PARTY TRANSACTIONS

         During the years ended September 30, 2002 and 2001, we paid $120,000
and $161,000, respectively, in placement agent fees and commissions for
investments in our company by clients of a company that is controlled by one of
our directors.

         During the years ended September 30, 2002 and 2001, we paid $304,738
and $37,938, respectively, for environmental due diligence, permitting and other
environmental consulting services to an environmental consulting firm whose
operations director is one of our directors.

         Over the past several years, officers and directors of our company have
made loans to the company. These loans have been made under customary terms and
they have been repaid.

         One officer received a $100,000 loan from us in December 2000, and we
hold as collateral for the loan all of our options and warrants held by the
officer. The loan bears interest at the prime rate of the Bank of America per
annum and is payable in full on December 31, 2002. See Footnote 12 in the notes
to our consolidated financial statements on Subsequent Events for discussion of
recent developments related to Mr. Hall's loan.

         Some of our directors and officers have participated in the loans that
are described in footnote 4. The directors and officers participated in these
notes under the same terms as other outside parties. As such they have received
options, warrants and stock in proportion to the other participants in the
loans. The participation of the officers and directors is summarized below:

o    Three officers loaned us $200,000, $200,000 and $252,000, respectively,
     under the $12.5 million loan.

o    A director and an investment company controlled by another director loaned
     us $165,000 and $660,000, respectively, under our $3.0 million bridge loan
     dated February 20, 2001.

o    A director and two officers loaned us $50,000, $75,000, and $75,000,
     respectively, under our $1.3 million bridge loan in April 2001.


                                       70
<PAGE>


o    A director, a company controlled by a director and two officers loaned us
     $36,000, $100,000, $10,000, and $5,000, respectively, under the $3.0
     million loan to us dated July 26, 2002.

12.      SUBSEQUENT EVENTS

                  On February 28, 2003, we had $26.4 million of secured debt
come due. Because we were unable to repay the debt when due, it is now in
default, which means that our secured creditors can, among other things, seek to
foreclose on the assets securing the debt. All of our assets, including our
ownership of the patented ProTerra process and the stock and assets of our used
oil collection subsidiary serve as collateral for the debt. Accordingly, we have
asked our secured creditors to extend the due date of the debt until March 31,
2003, to give us additional time to secure the interim financing necessary to
fund our operations as we continue to pursue project financing for our proposed
Wellsville reprocessing facility. In addition, we have met with several of our
largest secured and unsecured creditors and equity holders to explore the
possibility of restructuring our current debt and equity structure. Thus far we
have received extensions or forbearances from creditors representing only
approximately $11.5 million or 43.6% of the $26.4 million of debt that is now in
default. If we are unsuccessful in our efforts to extend or restructure the debt
and do not receive significant additional funding from third parties in the near
future, we will not be able to continue operating for much longer. As a result,
we are currently considering all of the options available to us, including
filing for protection from creditors under the bankruptcy code.

         As disclosed in our recent press releases and public filings, the
company has been working with the Swiss Re Group to evaluate its willingness to
issue a new commitment to provide a technology and market risk facility as part
of the project financing. The purpose of the technology and market risk facility
is to protect potential project lenders from certain risks associated with
funding the construction and start-up process. Swiss Re has now informed us that
it will not provide a technology and market risk facility. Without this or
another comparable commitment, we believe that the probability of obtaining
financing for our Wellsville, Ohio facility is reduced.

         The American Stock Exchange has informed us that a review of our most
recent Annual Report of Form 10-KSB indicates that we do not meet certain of the
exchange's continued listing standards. On March 14, 2003 we submitted a plan to
the American Stock Exchange, in an effort to demonstrate to the exchange that we
will return to compliance with the exchange's listing standards within an
18-month period. We have not received feedback from the American Stock Exchange
regarding the compliance plan we submitted, and there can be no assurance that
we will be able to retain our listing on the American Stock Exchange.

         On December 6, 2002, we entered into a joint venture arrangement with
two subsidiaries of a European company to build and operate used
oil-reprocessing facilities using our patented ProTerra process in Europe. Our
joint venture partners, SARP, S.A. and SARP Industries, S.A., are subsidiaries
of Vivendi Environnement. The first phase of the project would require the
satisfaction of several commencement conditions, which must be fulfilled in
order for the project to proceed to construction. The planned French facility is
expected to cost the joint venture about $50 million to develop, build and
startup. As part of the agreements creating the joint venture, we agreed to make
an initial contribution of $159,300 reflecting 15% of the development expenses
incurred as of October 31, 2002. In addition, we anticipate that approximately
$1.9 million would be required to fund our equity share of the project through
start-up and construction. As a result of several recent events affecting our
financial condition, we do not have enough funds to meet our obligations under
the joint venture agreements and currently do not anticipate that we will be
able to meet our obligations under these agreements in the near future. On March
7, 2003, Vivendi notified us that we are in default under the joint venture
agreements in a manner that justifies the termination of the agreement governing
our investment in the joint venture entity. Specifically Vivendi alleges that we
defaulted on our obligation to make the capital contributions required by the
agreement. In addition, Vivendi alleges that we have defaulted on our
obligations under the technology license agreement and that Vivendi intends to
hold us responsible for any losses arising from the default.

         In addition, as previously reported, we had two registration statements
under review at the Securities and Exchange Commission. On November 26, 2002 we
filed the first registration statement with the Securities and Exchange
Commission for a proposed public offering by Fusion Capital Fund II, LLC, of up
to 16,923,077 shares of Probex common stock which were to be sold to Fusion
Capital Fund II, LLC, under the terms of a previously announced common stock
purchase agreement. In light of several recent developments affecting our
financial condition, we believed it highly unlikely that we would be able to
satisfy the conditions required for Fusion


                                       71
<PAGE>


Capital's funding obligation to commence. A second registration statement was
filed with the SEC on January 3, 2003 to register for resale 51,077,885 shares
of common stock held by investors with registration rights that were triggered
by the filing of the Fusion Capital registration statement. On February 6, 2003,
we received a letter from Fusion Capital formally terminating its common stock
purchase agreement with us. On February 7, 2003, we filed Forms RW with the SEC
requesting that both of the registration statements be withdrawn.

         On February 7, 2003, Nicholas Hollingshad submitted his resignation as
a director. Mr. Hollingshad's letter of resignation did not state that he was
resigning as a result of a disagreement with us on any matter relating to our
operations, policies, or practices. The vacancy created by Mr. Hollingshad's
resignation has not been filled and no decision has been made about when the
vacancy will be filled.

         On February 4, 2003, Wilmington Trust notified us that it was resigning
as collateral agent under the Intercreditor and Collateral Agency Agreement as a
result of our failure to pay its fees on a timely basis. The resignation is
effective sixty days after the notice of resignation is given upon the
appointment of a successor trustee.

         Bruce Hall, our Senior Vice President, Chief Financial Officer and
Secretary, has a promissory note in the amount of $100,000 payable to us that
became due on December 31, 2002. The note bears interest at 4% per annum and is
secured by all of Mr. Hall's options and warrants to purchase our common stock.
The Black-Scholes value of the collateral at December 31, 2002 was approximately
$29,000, which is substantially less than the amount owing. In addition, because
the options and warrants, though collateral for the loan, cannot be sold by us
to obtain their Black-Scholes value and because, our stock has dropped
significantly in price since December 31, 2002, we are uncertain how to value
the collateral. We have made demand on Mr. Hall for repayment of the note. He
has indicated that his current financial circumstances do not permit him to pay
the debt in full at this time, and, in support of this statement, he has
presented our Audit Committee with a personal financial statement. The Audit
Committee will make a recommendation to the Board of Directors based on the
committee's review of this information.

         On February 26, 2003, the Columbiana County Port Authority informed us
that it had approved an extension of the lease purchase agreement covering the
22-acre site of the proposed Wellsville facility until May 31, 2003. The
extension agreement has been executed by both parties.

         We were granted Russian patent number 2000129675 on January 5, 2003.

         On January 28, 2003, Les Van Dyke, our Vice President of Investor
Relations left the company as part of a downsizing and streamlining of our
operations. As a result of this streamlining, as of March 14, 2003, we had a
total of 71 full time employees, of which 53 were in operations, 7 were in sales
and marketing, and 11 were in finance and administration.

         On January 28, 2003, we entered into a settlement agreement with
McClain Group Leasing, Inc. As part of the settlement, each party released all
claims it had against the other party, contingent upon fulfillment of the terms
of the settlement agreement, including, but not limited to the payment by Probex
to McClain of $28,074 in three equal installments due January 28, 2003, February
20, 2003 and March 20, 2003. The first two installment payments were delivered
to McClain on January 28 and February 20, 2003. On January 31, 2003, the
district court signed an order based on a joint motion of the parties,
dismissing each party's claims against the others and removing the case from the
docket.

         A subsidiary of Probex Fluids Recovery, Inc., our used lubricating oil
subsidiary is currently involved in a dispute with Mocar Oil in connection with
Mocar Oil's alleged breach of the Transportation Services Agreement, dated
October 1, 1997, by and between Mocar Oil and our subsidiary. At the current
time, no litigation or arbitration has been filed regarding this dispute and we
are working with Mocar Oil to reach an agreement without resorting to
litigation.

         On March 21, 2003, our wholly-owned subsidiary, Probex Fluids Recovery,
Inc., ("PFR") sold substantially all of the assets of its used oil collection
business to Atlantic Oil Collection Services, Inc. for approximately $1,000,000,
including a $50,000 contingent payment. The sales price was a negotiated amount
between buyer and seller and took into account the location and condition of the
assets. The assets sold were


                                       72
<PAGE>


primarily accounts receivable (net of accounts payable), inventory, vehicles,
office equipment and used oil storage tanks. The sale proceeds will reduce the
approximate $12 million outstanding balance on the senior secured debt of PFR by
approximately $1,000,000. The PFR senior notes are part of approximately $25.4
million in secured indebtedness on which the Company is currently in default.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         Not Applicable.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

         The following table sets forth the names of our directors and executive
officers, their ages and their positions, as of the date of this Form 10-KSB.

<Table>
<Caption>
NAME                             AGE                  POSITION
----                             ---                  --------
<S>                             <C>     <C>

Charles M. Rampacek.........     59     Chairman of the Board, President,
                                           Chief Executive Officer and Director
Dr. Bob G. Gower............     65     Director
Ron W. Haddock..............     61     Director
Nicholas W. Hollingshad.....     47     Director
Thomas G. Murray............     44     Director
William A. Searles..........     59     Director
Ronald J. Tiso..............     55     Director
Roger D. Arnold.............     47     Senior Vice President and General Counsel
Bruce A. Hall...............     46     Senior Vice President, Chief Financial
                                           Officer and Secretary
Martin R. MacDonald.........     40     Senior Vice President of Technology and
                                           Business Development
David J. McNiel.............     49     Senior Vice President of Operations
</Table>


DIRECTORS

         Charles M. Rampacek, our Chairman, Chief Executive Officer and
President, joined our board of directors in April 2000 and is chairman of our
corporate governance committee. He was named President and CEO in August 2000
and assumed the additional responsibility of Chairman in December 2000. Mr.
Rampacek was the president and chief executive officer of Lyondell-Citgo
Refining, LP, a joint venture of Citgo Petroleum Corporation and Lyondell
Chemical Company from 1996 to August 2000. From 1982 to 1996, he held various
executive positions for Tenneco, Inc., and its energy-related subsidiaries,
including president of gas pipeline transportation, executive vice president of
gas pipeline operations and senior vice president of refining & supply. Prior to
that, Mr. Rampacek held various positions with Exxon Company USA for 16 years.
Additionally, Mr. Rampacek serves as a director of Flowserve Corporation and
Orion Refining Corporation and as president, chief executive officer and
director of Probex Fluid Recovery, Inc., our wholly-owned subsidiary.

         Dr. Bob G. Gower joined our board of directors in February 2001 and is
chairman of our audit committee and a member of our compensation and finance
committees. From 1997 until 2000, Dr. Gower was the principal owner and chief
executive officer of Specified Fuels and Chemicals and is currently serving as
president and chief executive officer of Carbon Nanotechnologies, Inc. Dr. Gower
is the retired president and chief executive officer of


                                       73
<PAGE>


Lyondell Petrochemical Company. He became the president of Lyondell
Petrochemical Company when it was formed in April 1985 and was elected chief
executive officer in October 1988 and chairman of the board in August 1994, in
which capacity he served until 1997. From 1984 to 1985 he served as senior vice
president for Atlantic Richfield Company, responsible for planning and advanced
technology for the company. From 1979 to 1984 he was senior vice president of
ARCO Chemical Company and prior to that had various executive, sales, research
and engineering assignments with Sinclair and with ARCO after the merger of the
two companies. He is a member of the board of directors of Kirby Corporation.

         Ron W. Haddock has been a director of our company since January 2002
and is a member of our audit and corporate governance committees. He is the
retired president and chief executive officer of FINA. He joined FINA in August
1986 as vice president and chief operating officer, and was elected to FINA's
board of directors in 1987. Mr. Haddock was named president and chief executive
officer on January 1, 1989, a post he held until his retirement on July 31,
2000. From 1981 until 1982 he served as executive assistant to the chairman of
Exxon Corporation and from 1982 until 1986 as director of Esso Eastern
Incorporated. Prior to that, Mr. Haddock held various management positions of
increasing responsibility in operations and technical areas within the Exxon
organization. Mr. Haddock is currently chairman of the board of Trinity
Industries S-Ventures Group and Triads, a logistics management company 85% owned
by Trinity; chairman of the board of SepraDyne, a Dallas based environmental
technology company; member of the board of Alon Energy USA, a petroleum refining
and marketing company; chairman of Alon Real Estate USA; a member of the board
of Townsend-Tarnell, a Houston based consulting firm; a member of the board of
Adea Solutions, a high-tech personnel and consulting firm in Dallas; and a
member of the restructured board of Enron Corp.

         Nicholas W. Hollingshad was an advisory director of our company from
April 1999 until January 2002, when he became one of our directors. He is the
operations director of Environmental Resources Management, an international
environmental engineering and consulting firm, and has over 20 years of
industrial environmental engineering experience. Mr. Hollingshad has been
employed by Environmental Resources Management since June 1986, having served as
manager of the Dallas office from May 1991 to March 2001, operations director
since March 2001 and as office manager of an affiliated company from January
1997 to March 2001. Over an eight-year period prior to joining Environmental
Resources Management, he held a variety of process engineering and management
positions at two major U.S. petroleum refineries. See Footnote 12 in the notes
to our consolidated financial statements on Subsequent Events for discussion of
recent developments related to Mr. Hollingshad.

         Thomas G. Murray formed our predecessor company in July 1993, was our
President and Chief Executive Officer from March 1994 through September 1997 and
was our Chief Executive Officer from October 1997 through October 1999. After
September 1999, he served as our Senior Vice President until June 2000. He has
been a member of our board of directors since 1994 and is currently a private
investor. Mr. Murray is a member of our compensation committee.

         William A. Searles was an advisory director of our company from
November 1999 to January 2002. He became one of our directors in January 2002
and is chairman of our finance committee and a member of our corporate
governance committee. He has been associated with American Physicians Services
Group, Inc. since 1989 as a director, and since 1995 as chairman of its
affiliate, APS Investment Services, Inc. He has served as chairman of the board
of a private company, Uncommon Care, Inc. since 1998 and as a director of a
public company, Prime Medical Services, Inc. since 1989. He has also been a
director of APS Asset Management, Inc., a registered investment company since
1998. Prior to 1990, he spent 24 years in various positions with investment
banking firms, including his last ten years as a limited partner/associate
director with Bear Sterns. Mr. Searles owned a small travel agency for 27 years
that filed for federal bankruptcy protection in late 1997 and liquidated under
Chapter 7 in January 1999.

         Ronald J. Tiso became one of our directors in March 2002 and is a
member of our finance committee. He is currently the managing director of
Cambridge Strategies Group, LLC, which has directly or in participation with
other direct investors provided in excess of $5.0 million in financing to us. At
Cambridge, Mr. Tiso has been active in mergers and acquisitions, including the
representation of several highway service companies in their sale to United
Rentals Inc. for approximately $58.0 million. Prior to joining Cambridge, Mr.
Tiso spent 25 years in both chief operating officer and chief financial officer
positions, including the chief financial officer of First Dallas


                                       74
<PAGE>


Investors. His background also includes expertise in financial advisory
activities for many small and medium-sized companies.

EXECUTIVE OFFICERS

         Roger D. Arnold, Senior Vice President and General Counsel, joined us
in September 2002. Mr. Arnold most recently served as a partner in the corporate
and securities practice of the law firm Akin Gump Strauss Hauer & Feld LLP in
Dallas where he was involved in a broad-based corporate practice covering a wide
range of business transactions and concerns. These activities included mergers
and acquisitions, contract negotiations and analysis, debt and equity issuance,
commercial credit arrangements, complex financial transactions, shareholder
meetings and other corporate governance matters. Mr. Arnold joined Akin Gump as
an associate in 1984 and became a partner in 1991. He left Akin Gump in 1992 to
join the Dallas law firm of Kuntz and Bonesio as a partner, returning to Akin
Gump in 1995. Mr. Arnold has been a member of the State Bar of Texas since 1984.

         Bruce A. Hall, Senior Vice President, Chief Financial Officer and
Secretary and senior vice president of Probex Fluid Recovery, Inc., our
wholly-owned subsidiary, joined us in May 1999. He has served in numerous
financial and operating positions with companies in the hi-tech, manufacturing
and real estate industries. Mr. Hall has been chief financial officer of two
companies, including Aslan Real Estate, Ltd. from 1996 to May 1999 and Harris
Adacom Systems, Inc. from 1993 to 1994. He has been the controller of
international operations for Recognition Equipment, Inc. and Harris Adacom, Inc.
from 1986 to 1991 and 1991 to 1994, respectively. Additionally, Mr. Hall was a
principal of the Capital Funding and Consulting Group, L.C. and a senior auditor
with Arthur Young & Co, a predecessor of Ernst & Young LLP.

         Martin R. MacDonald, Senior Vice President of Technology and Business
Development, joined us in 1995. Prior to joining us, Mr. MacDonald served as
manager of projects at Ferguson Industries from 1994 to 1995, where he oversaw
various aspects of new technology design and implementation. At Thermix Inc.,
Mr. MacDonald was responsible for managing the development and implementation of
customized energy efficient technologies for the molten metal and chemical
industries from 1992 to 1994. He has successfully developed and commercialized
several new technologies, including a high velocity galvanizing system, an
ammonium injection system and a reduced emission ammonium polyphosphate plant,
all of which are currently in commercial use.

         David J. McNiel, Senior Vice President of Operations and senior vice
president and director of Probex Fluid Recovery, Inc., joined us in September
2000. Mr. McNiel was vice president of refining for Lyondell-Citgo Refining, LP,
a joint venture of Citgo Petroleum Corporation and Lyondell Chemical Company
from 1996 to September 2000. From 1990 to 1996, McNiel held various operations
and technical executive positions with Tenneco Inc.'s natural gas pipeline
subsidiary. He also held operations positions at Mobil Oil Company for two
years, and spent 11 years at Tenneco Inc.'s refining and marketing subsidiary in
a variety of management and engineering assignments.

OTHER SIGNIFICANT EMPLOYEES

         John N. Brobjorg, Vice President and Corporate Controller, joined us in
October 1999. He has served in numerous financial positions with companies in
the hi-tech, manufacturing and clinical laboratory industries. Mr. Brobjorg has
been a finance and/or accounting manager of several companies, including Praxair
Inc. from May 1996 to October 1999, Corning Clinical Laboratories from February
1992 to April 1996, Convex Computer Corporation from March 1985 to November 1990
and Amsoil, Inc. from November 1982 to March 1985. Additionally, Mr. Brobjorg
was the controller for Logic Process Corporation from February 1991 to February
1992.

         John E. Fahey, Vice President of Sales and Marketing, joined us in
March 1999. He was the former regional sales manager - base oil sales, and sales
and marketing manager for U.S. government sales for Safety Kleen-Oil Recovery.
Mr. Fahey marketed base oils for Safety-Kleen for eight years. Mr. Fahey is a
former president of the Independent Lubricant Manufacturers Association. Mr.
Fahey has served or currently serves on various industry and trade association
committees for technical and business activities. Prior to joining Safety-Kleen,
Mr. Fahey worked 23 years for an oil and grease manufacturer, formulating and
producing products for the private-label and contract lubricants market.


                                       75
<PAGE>


         Lester F. Van Dyke, Vice President of Investor Relations, joined us in
October 2000. For the previous 15 years, Mr. Van Dyke served as director,
investor relations and corporate communications for Battle Mountain Gold Company
where he was responsible for the development and implementation of its worldwide
investor communications programs. From 1973 to 1985, Mr. Van Dyke held various
communications positions of increasing responsibility with the Pennzoil Company.
He also held communications positions at Texaco Inc. and the Oil & Gas Journal.
See Footnote 12 in the notes to our consolidated financial statements on
Subsequent Events for a discussion of recent developments related to Mr. Van
Dyke.

         There are no family relationships among our directors and officers. Our
officers are elected annually by the board of directors at a meeting held
following each annual meeting of stockholders, or as necessary and convenient in
order to fill vacancies or newly-created offices. Each officer serves at the
discretion of our board of directors.

         Under an investor rights agreement dated June 2000, as amended, HSB
Engineering Finance Corporation, a 7.1 % stockholder, has the right to designate
a representative to attend and participate in meetings of our board of directors
as a non-voting observer. As of December 13, 2002, HSB Engineering had not
exercised its observer right. HSB Engineering loses the right to appoint an
observer on the earlier of:

         o    such time as HSB Engineering and its affiliates own less than 5%
              of our outstanding common stock; and

         o    the shares of common stock held by HSB Engineering and its
              affiliates are registered for resale under the Securities Act of
              1933.

         Additionally, under a placement agent agreement dated July 21, 1999,
APS Financial Corporation has the right to designate an observer to our board of
directors. William A. Searles is the chairman of the board of APS Investment
Services, Inc., which wholly owns APS Financial. Since Mr. Searles is one of our
directors, APS Financial has not currently chosen to designate a board advisor.
Under a stock purchase agreement with Probex Southwest Partnership, L.P., Probex
Southwest is also entitled to appoint an advisory director. Since Nicholas W.
Hollingshad, a limited partner of Probex Southwest, is one of our directors,
Probex Southwest has not currently chosen to designate a board advisor. The
holders of our 7% senior secured convertible notes also have the right to
nominate a board observer, which right they had not exercised as of December 13,
2002. In addition, under loans made to us for interim financing, certain of our
lenders are entitled to appoint a member to our board of directors until such
loans have been repaid or converted into our common stock. Ronald Tiso is the
current board designee of these lenders.

BOARD OF DIRECTORS

         Our board of directors consists of seven voting members. All voting
members of our board of directors serve in this capacity until their terms
expire or until their successors have been duly elected and qualified. Our board
is divided into three classes that serve staggered three-year terms, as follows:

<Table>
<Caption>
CLASS            EXPIRATION OF TERM                 MEMBERS
-----            ------------------                 -------
<S>              <C>                   <C>

Class I.......          2005           Ron W. Haddock, Thomas G. Murray
Class II......          2003           Nicholas W. Hollingshad, William A. Searles,
                                         Ronald J. Tiso
Class III.....          2004           Charles M. Rampacek and Dr. Bob G. Gower
</Table>

Newly-elected directors and any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
directors.

         Board Committees. Our board of directors has established four
committees: the audit committee, the finance committee, the compensation
committee and the corporate governance committee.


                                       76
<PAGE>


         Audit Committee. Our audit committee makes recommendations to our board
of directors regarding the selection of independent auditors, reviews our
filings with the Securities and Exchange Commission, reviews the results and
scope of audit and other services provided by our independent auditors and
reviews and evaluates our audit and control functions. The directors currently
serving on the audit committee, both of which are independent, are Messrs. Gower
(Chairman) and Haddock.

         Corporate Governance Committee. The corporate governance committee
makes recommendations to the board of directors regarding candidates for
election to the board of directors and concerning the size, structure,
composition and functioning of the board of directors as well as other corporate
governance issues. Our bylaws require that stockholders give advance notice and
furnish certain information to us in order to nominate a person for election as
a director. The directors serving on the corporate governance committee are
Messrs. Rampacek (Chairman), Searles and Haddock.

         Compensation Committee. Our compensation committee makes
recommendations to our board of directors concerning salaries and incentive
compensation for our employees. The compensation committee also reviews and
administers our 1999 Omnibus Stock and Incentive Plan, as amended and restated.
The directors serving on the compensation committee are Messrs. Gower and
Murray.

         Finance Committee. Our finance committee was formed in March 2002 and
makes recommendations to our board of directors concerning management of our
financial resources. The directors currently serving on the finance committee
are Messrs. Searles (Chairman), Gower and Tiso.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires directors and certain
officers, and persons who beneficially own more than 10% of our stock, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission. Directors, certain officers and greater than
10% beneficial owners are required by the Securities and Exchange Commission
regulations to furnish us with copies of all Section 16(a) forms they file.

         Based solely on a review of the copies furnished to us and
representations from the directors and certain officers, we believe that all
Section 16(a) filing requirements for the fiscal year ending September 30, 2002,
applicable to its directors, certain officers and greater than 10% beneficial
owners were satisfied, other than the following transactions, which were
reported late in the filing of a separate Form 4 for each transaction: (i) the
purchase of a convertible promissory note in the amount of $75,000 by Mr.
McNiel, (ii) the purchase of a $75,000 convertible promissory note by Mr.
Rampacek, (iii) the acquisition of warrants to purchase 33,750 and 7,500 shares
of the Company's common stock by Mr. Rampacek, (iv) the acquisition of warrants
to purchase 22,500, 5,000, and 19,500 shares of the Company's common stock by
Mr. Hollingshad, and (v) the purchase of a $50,000 convertible promissory note
and a $30,000 convertible promissory note by Mr. Hollingshad.

         Based on representations from the directors and certain officers, we
believe that no other Forms 5 for directors, certain officers and greater than
10% beneficial owners were required to be filed with the Securities and Exchange
Commission for the period ended September 30, 2002.

ITEM 10. EXECUTIVE COMPENSATION

         Compensation of Directors. We do not pay employee members of our board
of directors fees for attendance or other remuneration. We do, however,
reimburse all directors for any out-of-pocket expenses incurred by them while
serving on the board of directors and any committee of the board of directors.

         In March 2000, the board of directors approved a compensation program
for our outside directors, which was modified in December 2000. Under this
program, any new outside director will receive options to purchase 10,000 shares
(5,000 shares in the case of any new advisory director) of common stock on the
date the director is elected to the board of directors, at the fair market value
(generally the closing price of our common stock as reported on the American
Stock Exchange) on the date of this grant. In addition, all outside directors
will be entitled


                                       77
<PAGE>


to receive, on an annual basis, options to purchase 25,000 shares (12,500 shares
in the case of advisory directors) of common stock as of the date of the annual
meeting of stockholders for services rendered during the calendar year in which
the annual stockholders' meeting is held. The grant will be made on the date of
the annual meeting for each year.

EXECUTIVE COMPENSATION

         The following table contains summary information about compensation
paid to or earned for each of the three fiscal years ended September 30, 2002 by
our chief executive officer and by our three other most highly-compensated
executive officers (our "named executive officers") serving in this capacity as
of September 30, 2002 whose total annual salary and bonus exceeded $100,000 for
that fiscal year. In connection with the employment of Roger D. Arnold, our
Senior Vice President and General Counsel, in September 2002, we agreed to pay
him $125,000 per year. Compensation does not include minor business related and
other expenses paid by us and such amounts in the aggregate do not exceed
$10,000.

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                            ANNUAL COMPENSATION            LONG-TERM COMPENSATION
                                                            -------------------            ----------------------
                                       FISCAL YEAR
                                          ENDED                                             SECURITIES UNDERLYING
                                         SEPT. 30                SALARY ($)                    OPTIONS/SAR (#)
                                       -----------               ----------                ----------------------
<S>                                    <C>                       <C>                       <C>

Charles M.  Rampacek                       2002                    185,804(1)                            --
  Chairman of the Board, President         2001                    181,284                               --
  and CEO........................          2000                     30,462(2)                     1,010,000(3)(4)
Bruce A.  Hall
  Sr.  Vice President, CFO and
   Secretary.....................          2002                    123,131(5)                            --
                                           2001                    115,820                           55,000(6)
                                           2000                     81,796                          200,000(7)
Martin R.  MacDonald
  Sr.  Vice President of
   Technology & Business
   Development...................          2002                    116,496(8)                            --
                                           2001                    115,820                               --
                                           2000                     93,911                          100,000(9)
David J.  McNiel
  Sr.  Vice President of Operations
                                           2002                    116,621(10)                           --
                                           2001                    115,820                          400,000(11)
                                           2000                         --                               --
Roger D.  Arnold
   Sr. Vice President and
   General Counsel...............          2002                      7,211(12)                      325,000(13)
                                           2001                         --                               --
                                           2000                         --                               --
</Table>

----------

(1)  Excludes $13,846 of deferred salary that is contingent upon us securing
     financing of our planned Wellsville facility. Additionally, $32,967 of this
     amount was deferred and subsequently paid on October 3, 2002.

(2)  Represents Mr. Rampacek's salary from August 1, 2000, the date he joined us
     as President and Chief Executive Officer, until September 30, 2000.

(3)  Represents options to purchase 1,000,000 shares of common stock granted on
     August 1, 2000, subject to the execution of an employment agreement with
     us, which occurred in February 2001. The exercise price for 829,930 of the
     options is $2.20 per share and for the remaining 170,070 options is $2.9375
     per share.


                                       78
<PAGE>

     Upon grant, 200,000 shares vested immediately and the remainder vest
     ratably over the next four years on the anniversary of the initial grant.

(4)  In April 2000, the board of directors granted Mr. Rampacek options to
     purchase an aggregate of 10,000 shares of our common stock upon his
     election to the board of directors. These options represent compensation
     for Mr. Rampacek's services as a director and do not relate to services
     provided as our current President and Chief Executive Officer. The options
     are exercisable at $3.437 per share and expire in April 2010.

(5)  Excludes $8,846 of deferred salary that is contingent upon us securing
     financing of our planned Wellsville facility. Additionally, $21,062 of this
     amount was deferred and subsequently paid on October 3, 2002.

(6)  Represents options to purchase 55,000 shares of our common stock granted on
     October 31, 2000, of which 18,333 shares vested on October 31, 2001, 18,333
     shares vested on October 31, 2002 and 18,333 shares will vest on October
     31, 2003. The exercise price for the shares subject to these options is
     $1.875 per share.

(7)  Represents options to purchase 200,000 shares of our common stock granted
     on April 1, 2000, of which 50,000 shares vested immediately, 37,500 shares
     vested on each of April 1, 2001 and April 1, 2002 and 37,500 shares will
     vest on each of April 1, 2003 and April 1, 2004. The exercise price for the
     shares subject to these options is $1.875 per share.

(8)  Excludes $8,846 of deferred salary that is contingent upon us securing
     financing of our planned Wellsville facility. Additionally, $21,062 of this
     amount was deferred and subsequently paid on October 3, 2002.

(9)  Represents options to purchase 100,000 shares of our common stock granted
     on September 1, 2000, of which 50,000 shares vested immediately, 12,500
     shares vested on each of April 1, 2001 and April 1, 2002 and 12,500 shares
     will vest on each of April 1, 2003 and April 1, 2004. The exercise price
     for the shares subject to these options is $1.875 per share.

(10) Excludes $8,846 of deferred salary that is contingent upon us securing
     financing of our planned Wellsville facility. Additionally, $21,062 of this
     amount was deferred and subsequently paid on October 3, 2002.

(11) Represents options to purchase 400,000 shares of our common stock granted
     on September 1, 2000, of which 100,000 shares vested on each of September
     1, 2001 and September 1, 2002 and 100,000 shares will vest on each of
     September 1, 2003 and September 1, 2004. The exercise price for the shares
     subject to these options is $2.4375 per share.

(12) Represents Mr. Arnold's salary from September 9, 2002, the date he joined
     us as Senior Vice President and General Counsel, until September 30, 2002.

(13) Represents options to purchase 325,000 shares of our common stock granted
     on September 9, 2002, of which 108,333 shares vest on September 9, 2003,
     108,333 shares vest on September 9, 2004 and the remaining 108,334 shares
     vest on September 9, 2005.

OPTION GRANTS IN LAST FISCAL YEAR

         We did not issue any stock options to our executive officers during
fiscal year 2002.

FISCAL YEAR END OPTION EXERCISES AND VALUES

         The following table sets forth information concerning unexercised
options held by the named executive officers as of September 30, 2002. No
options were exercised by the named executive officers during fiscal 2002.

<Table>
<Caption>
                                             NUMBER OF SECURITIES
                                   UNDERLYING UNEXERCISED OPTIONS AT FISCAL   VALUE OF UNEXERCISED IN-THE-MONEY OPTION
                                                 YEAR END (#)                           AT FISCAL YEAR END(3)
                                   ----------------------------------------   ----------------------------------------
NAME                                   EXERCISABLE         UNEXERCISABLE          EXERCISABLE          UNEXERCISABLE
----                               ------------------   -------------------   ------------------   -------------------
<S>                                <C>                  <C>                   <C>                  <C>
Charles M. Rampacek(1)(2)........         610,000            400,000                   $0                       $0
Bruce A. Hall(4)(5)(6)...........         143,333            256,667                   $0                  $39,150
Martin R. MacDonald(7)(8)........          75,000            395,000                   $0                  $99,900
David J. McNiel(9)...............         200,000            200,000                   $0                       $0
</Table>

----------


                                       79
<PAGE>


(1)  Includes options to purchase 10,000 shares of common stock at an exercise
     price of $3.437 per share, granted upon his election to the board of
     directors under the director compensation plan adopted by the board of
     directors on March 30, 2000. These shares represent compensation for Mr.
     Rampacek's services as a director and do not relate to his services
     provided as our current President and Chief Executive Officer.

(2)  Includes options to purchase 1,000,000 shares of common stock granted on
     August 1, 2000, subject to the execution of an employment agreement with
     us, which occurred in February 2001. Upon grant, 200,000 shares vested
     immediately and the remainder vest ratably over four years on the
     anniversary of the date of initial employment. The exercise price for
     829,530 of the shares subject to these options is $2.20 per share and the
     exercise price for the remaining 170,070 shares are issuable under an
     option that has an exercise price of $2.9375.

(3)  Value based upon $0.77, the closing price of our common stock on September
     30, 2002.

(4)  Includes options to purchase 55,000 shares of common stock granted on
     October 31, 2000, of which 18,333 shares vested on October 31, 2001, 18,333
     shares vested on October 31, 2002 and 18,333 shares will vest on October
     31, 2003. The exercise price for the shares subject to these options is
     $1.875 per share.

(5)  Includes options to purchase 200,000 shares of common stock granted on
     April 1, 2000, of which 50,000 shares vested immediately, 37,500 shares
     vested on each of April 1, 2001 and April 1, 2002 and 37,500 shares will
     vest on each of April 1, 2003 and April 1, 2004. The exercise price for the
     shares subject to these options is $1.875 per share.

(6)  Includes options to purchase 145,000 shares of common stock granted on June
     30, 1999. Of the shares subject to these options, 20% vest 30 days after
     financing is secured for our planned Wellsville facility. An additional 20%
     vest 30 days after the Wellsville facility becomes operational. An
     additional 20% vest 30 days after the planned Wellsville facility has shown
     a full three months of net income. An additional 20% will vest 30 days
     after the three-month average fair market value of our common stock has
     exceeded $5.00 per share. The remaining 20% will vest on June 30, 2008. In
     addition, within 60 days following any of the vesting dates, the CEO shall
     accelerate the vesting of between 0-5% of the aggregate number of option
     shares. The CEO shall determine the percentage of shares that vest at that
     time based upon his evaluation of Mr. Hall's contribution to the Company
     during the period from the date of grant to the relevant vesting date. The
     exercise price for the shares subject to these options is $.50 per share.

(7)  Represents options to purchase 100,000 shares of common stock granted on
     April 1, 2000, of which 50,000 shares vested immediately, 12,500 shares
     vested on each of April 1, 2001 and April 1, 2002 and 12,500 shares will
     vest on each of April 1, 2003 and April 1, 2004. The exercise price for the
     shares subject to these options is $1.875 per share.

(8)  Includes options to purchase 370,000 shares of common stock granted on June
     30, 1999. Of the shares subject to these options, 20% vest 30 days after
     financing is secured for our planned Wellsville facility. An additional 20%
     vest 30 days after the Wellsville facility becomes operational. An
     additional 20% vest 30 days after the planned Wellsville facility has shown
     a full three months of net income. An additional 20% will vest 30 days
     after the three-month average fair market value of our common stock has
     exceeded $5.00 per share. The remaining 20% will vest on June 30, 2008. In
     addition, within 60 days following any of the vesting dates, the CEO shall
     accelerate the vesting of between 0-5% of the aggregate number of option
     shares. The CEO shall determine the percentage of shares that vest at that
     time based upon his evaluation of Mr. MacDonald's contribution to the
     Company during the period from the date of grant to the relevant vesting
     date. The exercise price for the shares subject to these options is $.50
     per share.

(9)  Includes options to purchase 400,000 shares of common stock granted on
     September 1, 2000, of which 100,000 shares vested on each of September 1,
     2001 and September 1, 2002 and 100,000 shares will vest on each of
     September 1, 2003 and September 1, 2004. The exercise price for the shares
     subject to these options is $2.4375 per share.

1999 OMNIBUS STOCK AND INCENTIVE PLAN

         The following summary details a number of provisions of our 1999
Omnibus Stock and Incentive Plan, as amended.


                                       80
<PAGE>


GENERAL INFORMATION

         The 1999 plan is administered by the compensation committee of our
board of directors. The 1999 plan provides for the granting of options,
restricted stock awards and performance awards. Under the 1999 plan, the
compensation committee may:

          o    select our officers, directors, key employees and consultants to
               whom awards may from time to time be granted;

          o    determine whether awards are to be granted to one or more
               eligible persons;

          o    determine the number of shares to be covered by each award
               granted; and

          o    determine the terms and conditions of any award granted.

The maximum number of shares that may be granted under the 1999 plan to any
person whose compensation is subject to the limitation on deductibility under
Section 162(m) of the Code, is 1,100,000 shares.

         Under the 1999 plan, the maximum number of shares of common stock that
we may issue is currently 8,750,000, plus shares which are reacquired under our
special share repurchase plan. Under our share repurchase plan, shares may be
(1) repurchased by us in the open market, or (2) deemed to be repurchased from
unissued or treasury shares at the closing price of the shares on the date of
the deemed reacquisition. The aggregate number of repurchased shares available
under the 1999 plan may not exceed 75% of the shares authorized for grant.

AWARDS UNDER THE 1999 PLAN

         Stock Options

         Both non-qualified and incentive stock options may be granted under the
1999 plan. The option price is determined by the compensation committee;
however, in the case of an incentive stock option, the option price per share
may not be less than the fair market value of a share on the date of grant. The
aggregate fair market value (determined as of the date of grant) of the shares
in an incentive stock option may not exceed $100,000 per year for each grantee.
The compensation committee may condition the exercise of any option upon the
attainment of specified performance goals or other factors as the compensation
committee may determine. Incentive stock options may not be granted to any
person who owns more than 10% of the total combined voting power of all classes
of our stock at the date of grant, unless the option price is at least 110% of
the fair market value on the date of grant and the exercise period may not
exceed five years from the date of grant. Non-qualified stock options may be
granted under the 1999 plan and may contain any terms and provisions the
compensation committee determines. As of September 30, 2002, there were
6,163,848 shares of common stock subject to outstanding options at a weighted
average price of $1.5105 per share. The number of shares of our common stock
issuable upon the exercise of options issued to each director for his or her
services during fiscal year 2002 are set forth below:

<Table>
<Caption>
         NAME                                       NUMBER OF SHARES
         ----                                       ----------------
<S>                                                 <C>

         Bob G. Gower........................             25,000
         Thomas G. Plaskett (former director)             25,000
         Thomas G. Murray....................             25,000
         Nicholas W. Hollingshad.............             35,000(1)
         William A. Searles..................             35,000(1)
         Ron W. Haddock......................             35,000(1)
         Ronald D. Tiso......................             35,000(1)
</Table>

----------

(1)      Each of these directors received an option to purchase 10,000 shares of
         our common stock upon their appointment to our board of directors, in
         accordance with our board of directors compensation program.


                                       81
<PAGE>


         Restricted Shares Award

         A restricted shares award is an award of common stock, which is subject
to a substantial risk of forfeiture during its period of restriction, as
determined by the compensation committee. The restrictions on restricted shares
will lapse in whole, or in installments, over the periods selected by the
compensation committee, but a complete lapse always will occur on or before the
ninth anniversary of the date of grant and the compensation committee may
accelerate the date on which restrictions lapse regarding any restricted shares.

         Each eligible person receiving a restricted shares award will have all
of the rights of a stockholder regarding the restricted shares, such as voting
rights and the right to receive any dividends. These restricted shares will be
registered in the holder's name and bear a restrictive legend disclosing the
restrictions. During the restricted period, any distributions in the form of
shares, cash or other property (other than regular cash dividends) will be
subject to the same restrictions as the corresponding shares, and these
restrictions will lapse at the same time the restrictions on the corresponding
shares(s) lapse. All restricted share distributions will remain in our custody
until that lapse date. Restricted shares constitute issued and outstanding
common stock for all corporate purposes. Once the restrictions have lapsed, the
stock certificates and any related distributions are delivered to the holder.
There were no restricted shares awards made in fiscal year 2002.

         Performance Awards

         The compensation committee may grant performance awards, which may
represent a share of common stock or be related to the increase in the value of
a common share, or be contingent on our achievement of specified performance
measures during the performance period. These awards may be in the form of
performance shares, convertible preferred stock, convertible debentures,
exchangeable securities and restricted share awards or options, valued by
reference to earnings per share or subsidiary performance. These performance
awards may be granted alone, in addition to, or in tandem with other awards.

         The compensation committee establishes the performance measures for
each performance period, and these performance measures may differ as to each
eligible person who receives a performance award. Generally, the eligible person
must remain in our employment until the expiration of the performance period to
be entitled to the performance award. There were no performance awards made in
fiscal year 2002.

OTHER PROVISIONS

         In the event of either a change in control, or a potential change in
control, unless the compensation committee provides otherwise before this event,
(1) all awards, will become fully exercisable, nonforfeitable or the restricted
periods terminate, as the case may be, and (2) the value of all outstanding
non-qualified stock options will be cashed out on the basis of the change in
control price, effective as of the date of the change in control or on a
different date determined by the compensation committee.

         If at any time while the 1999 plan is in effect there is any increase
or decrease in the number of outstanding shares because of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of shares, then appropriate adjustments will be made to the number of
shares subject to the award and the consideration to be paid by the holder in
order to acquire the shares.

         Awards are not transferable except to the holder's beneficiary or
(except for an incentive stock option), with the consent of the compensation
committee, to the holder's immediate family or to a charity.

TERMINATION

         The 1999 plan will terminate on July 22, 2009.


                                       82
<PAGE>


401(k) PLAN

         Our employees are eligible to participate in our 401(k) plan which we
adopted in May 2000. Under our 401(k) plan, employees may elect to reduce their
current compensation by up to the lesser of 60% of eligible compensation or the
statutorily prescribed annual limit, $11,000 in 2002, and contribute this amount
to the 401(k) plan. The trustee under the 401(k) plan, at the direction of each
participant, invests the assets of the 401(k) plan in various investment funds.
The 401(k) plan is intended to qualify under Section 401(a) of the Internal
Revenue Code of 1986 so that contributions by employees to the 401(k) plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn, and so that the contributions by employees will be deductible by us
when made. We may make discretionary pre-tax matching contributions to our
employees' accounts. The amount contributed by us will be equal to a percentage
determined annually by our board of directors. We do not currently make matching
contributions under the 401(k) plan. Each employee is required to make a pre-tax
deferral contribution in order to be eligible for matching contributions. We
retained Fidelity Investments to act as recordkeeper and funding agent for our
401(k) plan.

EMPLOYMENT AGREEMENTS

         In 2000, we entered into employment agreements with two of our
executives, Charles M. Rampacek, our Chairman of the Board, President and Chief
Executive Officer, and David J. McNiel, our Senior Vice President of Operations.
Each agreement provides for a minimum initial base salary, subject to annual
review and increase by our compensation committee. In addition, each agreement
provides for an annual cash bonus upon accomplishment of certain corporate
objectives to be established by our compensation committee.

         The employment agreements with Messrs. Rampacek and McNiel provided for
initial annual base salaries of at least $180,000 and $115,000, respectively.
Each executive received a 10% deferred increase in salary in calendar year 2002,
but these deferred increases will not become payable until we secure project
financing for our planned Wellsville facility. The employment agreement with Mr.
McNiel provided for immediate option grants to acquire 400,000 shares of common
stock, of which 100,000 vest upon each anniversary of his date of hire. These
options are exercisable at the market price on Mr. McNiel's date of hire. Under
Mr. Rampacek's employment agreement, we granted options to purchase 1,000,000
shares of common stock, comprised of (1) 829,930 non-qualified stock options,
exercisable at $2.20 per share; and (2) 170,070 incentive stock options,
exercisable at $2.9375 per share.

         Both of these executive employment agreements provide for severance and
change in control payments. If the employment is terminated by us without cause,
by the executive for good reason or due to death or disability, the executive is
entitled to severance benefits equal to (1) earned but unpaid compensation, (2)
the pro rata amount of any annual cash bonus, (3) a lump sum payment equal to
base salary plus any annual bonus and (4) immediate vesting of all options.

         These executive employment agreements define a change in control as any
transaction resulting in the acquisition by any person of 50% of our voting
stock, the replacement of all of our directors within a 24-month period, or a
liquidation or sale of substantially all of our assets. The executive is
entitled to change in control benefits if, within one year following a change in
control, the executive's employment is terminated by us without cause or by the
executive due to (1) our failure to maintain the executive in his prior
position, (2) a significant, adverse change in the executive's nature of
authority or responsibilities, base salary or bonus opportunity or the right to
benefits, (3) a relocation which is greater than 45 miles from the prior
location or (4) any material breach of the employment agreement. Change in
control benefits include (1) two times base salary and two times annual bonus,
(2) earned but unpaid base compensation and pro rata amount of annual cash bonus
and (3) immediate vesting of all unvested equity. Furthermore, if within the 12
months preceding a change in control, the executive is terminated by us without
cause or by the executive for good reason, the executive may choose between the
greater of the severance benefits and the change in control benefits.

         Thomas G. Murray has been a director since 1994 and was also our chief
executive officer until October 1999 and a senior vice president until his
resignation on May 31, 2000. In connection with his resignation, we entered into
an employment agreement with Mr. Murray whereby Mr. Murray agreed to continue to
provide services to us as a non-executive employee until January 2002. In
exchange for these services, we agreed to pay Mr. Murray


                                       83
<PAGE>


cash compensation of $90,000 annually and to provide Mr. Murray with certain
other employee benefits through June 30, 2001. In addition, we modified the
terms of stock options previously issued to Mr. Murray to permit them to vest
over time, rather than upon the occurrence of certain specified events and as a
result, we have applied variable accounting treatment to these options.
One-third of Mr. Murray's options to purchase 490,000 shares of common stock at
$0.50 per share vested on May 31, 2000, and one-third of his options vested on
each of January 1, 2001 and 2002. Additionally, all of these options have been
exercised.


                                       84
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth certain information, as of September 30,
2002, with respect to all compensation plans previously approved by our security
holders, as well as compensation plans not previously approved by our security
holders.

<Table>
<Caption>
                                                                                                  NUMBER OF SECURITIES
                                                                                                   REMAINING AVAILABLE
                                                                                                   FOR FUTURE ISSUANCE
                                                     NUMBER OF SECURITIES                             UNDER EQUITY
                                                      TO BE ISSUED UPON      WEIGHTED AVERAGE      COMPENSATION PLANS
                                                         EXERCISE OF         EXERCISE PRICE OF         (EXCLUDING
                                                     OUTSTANDING OPTIONS,  OUTSTANDING OPTIONS,   SECURITIES REFLECTED
                                                     WARRANTS AND RIGHTS    WARRANTS AND RIGHTS    IN FAR LEFT COLUMN)
                                                     -------------------   --------------------   --------------------
<S>                                                  <C>                   <C>                    <C>

Equity compensation plans approved by security
  holders ........................................           8,750,000                1.5105               2,586,152
Equity compensation plans not approved by
  security holders ...............................                  --                    --                      --
                                                        --------------        --------------          --------------
     Total .......................................           8,750,000                1.5105               2,586,152
</Table>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information, as of December 3,
2002, with respect to the beneficial ownership of shares of our common stock:

         (1)  by any person or "group," as that term is used in Section
              13(d)(3) of the Securities Exchange Act of 1934, known to us to
              own beneficially more than 5% of the outstanding shares of our
              common stock;

         (2)  by each of our directors and each of our executive officers named
              in the Summary Compensation Table; and

         (3)  by all of our directors and executives officers as a group.

         Beneficial ownership is determined under the rules of the Securities
and Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of December 3, 2002 are deemed to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person. Percentage ownership is based on 39,048,795 shares of our
common stock outstanding on December 3, 2002.


                                       85
<PAGE>


<Table>
<Caption>
                  NAME AND ADDRESS                         AMOUNT AND NATURE
                OF BENEFICIAL OWNER                       OF BENEFICIAL OWNER      PERCENT OF CLASS
                -------------------                       -------------------      ----------------
<S>                                                       <C>                      <C>

Zesiger Capital Group LLC ...........................        13,338,343(1)               27.1%
320 Park Avenue, 30th Floor
New York, NY 10022
General Conference of ...............................        11,074,070(2)               23.9%
Seventh-day Adventists
12501 Old Columbia Pike
Silver Spring, MD 20904
HSB Engineering Finance Corp. .......................         2,796,114(3)                7.2%
One State Street
Hartford, CT ........................................                                   06102
Bechtel Group, Inc. .................................         3,264,192(4)                8.2%
P.O.  Box 193965
San Francisco, CA 94119
Charles M.  Rampacek ................................         1,038,341(5)                2.6%
Bob G.  Gower .......................................            92,000(6)                  *
Thomas G.  Murray ...................................         1,735,797(7)                4.4%
Nicholas W.  Hollingshad ............................           344,730(8)                  *
William A.  Searles .................................         1,072,195(9)                2.7%
Ron W.  Haddock .....................................            99,603(10)                 *
Ronald J.  Tiso .....................................           140,091(11)                 *
Bruce A.  Hall ......................................           467,414(12)               1.2%
Martin R.  MacDonald ................................           906,583(13)               2.4%
David J.  McNiel ....................................           595,849(14)               1.5%
All executive officers and directors as a group .....         6,492,601(15)             16.49%
</Table>

----------

*Represents beneficial ownership of less than 1% of our outstanding common
stock. None of the named executive officers or directors owns shares of our
Series A preferred stock.

(1)  Common stock ownership based upon Schedule 13G, Amendment No. 2, filed on
     August 9, 2002. Includes 9,600,267 shares of common stock issuable upon
     conversion of our 7% senior secured convertible notes due November 2004,
     assuming a conversion price of $0.75, which are convertible at any time at
     the option of the holders. Includes 525,000 shares of common stock issuable
     upon the exercise of warrants that have already vested or will vest within
     60 days of December 3, 2002. Zesiger Capital Group LLC disclaims beneficial
     ownership of all of these securities. Such securities are held in
     discretionary accounts which Zesiger Capital Group LLC manages. Excludes
     convertible promissory notes of $2,500,000 aggregate principal amount that
     are convertible upon the consummation of project financing for our initial
     facility at a conversion price based upon such financing.

(2)  Includes 967,999 shares of common stock issuable upon conversion of 181,500
     shares of Series A preferred stock, which are convertible into common stock
     at any time at the option of the holder. General Conference of Seventh-day
     Adventists is a corporation acting as trustee and manager to certain
     retirement, investment and income funds which are the record owner of a
     portion of these shares. Includes 6,300,000 shares of common stock issuable
     upon the exercise of warrants that have already vested held by General
     Conference Corporation of Seventh-day Adventist and its affiliates.
     Includes 19,196 shares of common stock and 53,333 shares of common stock
     issuable upon conversion of 10,000 shares of Series A preferred stock owned
     by General Conference Insurance Company of Vermont, a wholly-owned
     subsidiary of General Conference Corporation of Seventh-day Adventists.
     Excludes shares issuable upon conversion of convertible promissory notes in
     $4,300,000 aggregate principal amount that are convertible upon the
     consummation of project financing for our initial facility at a conversion
     price based upon such financing.

(3)  Based on Schedule 13G, filed on February 14, 2001.

(4)  Includes 2,289,192 shares of common stock held by United Infrastructure
     Company, LLC, a wholly-owned subsidiary of Bechtel Group, Inc. Includes
     775,000 shares of common stock issuable upon the exercise of warrants that
     have already vested or will vest within 60 days of December 3, 2002.
     Includes 200,000 shares of common stock and 200,000 shares of common stock
     issuable upon the exercise of warrants that have already vested or will
     vest within 60 days of December 3, 2002 held by Bechtel Corporation, a
     wholly-owned subsidiary of Bechtel Group, Inc. Excludes a convertible
     promissory note in the principal amount of $1,500,000 that is convertible
     upon the consummation of project financing for our initial facility at a
     conversion price based upon such financing.


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<PAGE>


(5)  Includes 610,000 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002, 82,500
     shares issuable upon the exercise of warrants that have already vested or
     will vest within 60 days of December 3, 2002 and 266,667 shares of common
     stock issuable upon conversion of $200,000 in principal amount of our 7%
     senior secured convertible notes due November 2004, which are convertible
     at the option of the holder at any time (assuming a conversion price of
     $0.75). Excludes 400,000 shares issuable under the exercise of stock
     options that have not vested. Excludes convertible promissory notes of
     $85,000 aggregate principal amount that are convertible upon the
     consummation of project financing for our planned Wellsville facility a
     conversion price based upon such financing.

(6)  Includes 60,000 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002 and
     22,500 shares issuable upon the exercise of warrants that have already
     vested or will vest within 60 days of December 3, 2002. Excludes a
     convertible promissory note of $15,000 aggregate principal amount that is
     convertible upon the consummation of project financing for our initial
     facility at a conversion price based upon such financing.

(7)  Includes 10,410 shares issuable upon the exercise of warrants that have
     already vested or will vest within 60 days of December 3, 2002 and 75,000
     shares issuable upon the exercise of stock options that have already vested
     or will vest within 60 days of December 3, 2002. Includes 100,000 shares
     pledged to General Conference Corporation of Seventh-day Adventists in
     connection with a forward sales transaction.

(8)  Includes 72,500 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002 and
     129,000 shares issuable upon the exercise of warrants that have already
     vested or will vest within 60 days of December 3, 2002. Excludes
     convertible promissory notes of $116,000 aggregate principal amount that
     are convertible upon the consummation of project financing for our initial
     facility at a conversion price based upon such financing.

(9)  Includes 72,500 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002, 53,333
     shares of common stock issuable upon conversion of 10,000 shares of Series
     A preferred stock, which are convertible into common stock at any time at
     the option of the holder and 766,872 shares of common stock issuable upon
     the exercise of warrants that have already vested or will vest within 60
     days of December 3, 2002. Includes 40,011 shares of common stock, 826,350
     shares issuable under the exercise of warrants that have already vested or
     will vest within 60 days of December 3, 2002 and 133,333 shares of common
     stock issuable upon conversion of 25,000 shares of Series A preferred
     stock, which are convertible at any time at the option of the holder held
     by American Physicians Service Group. Mr. Searles disclaims beneficial
     ownership of the shares and warrants held by American Physicians Service
     Group and APS Financial.

(10) Includes 35,000 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002 and
     15,000 shares issuable upon the exercise of warrants that have already
     vested or will vest within 60 days of December 3, 2002. Excludes a
     convertible promissory note of $10,000 aggregate principal amount that is
     convertible upon the consummation of project financing for our initial
     facility at a conversion price based upon such financing.

(11) Includes 35,000 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002.
     Includes 84,138 shares of common stock issuable upon the exercise of
     warrants that have already vested or will vest within 60 days of December
     3, 2002 held in the name of Cambridge Strategies, LLC, which Mr. Tiso has
     contractual rights to acquire.

(12) Includes 161,666 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002 and
     148,235 shares issuable upon the exercise of warrants that have already
     vested or will vest within 60 days of December 3, 2002. Excludes 238,334
     shares issuable upon exercise of stock options that have not vested.

(13) Includes 75,000 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002 and
     77,647 shares issuable upon the exercise of warrants that have already
     vested or will vest within 60 days of December 3, 2002. Excludes 395,000
     shares issuable upon exercise of stock options that have not vested.

(14) Includes 200,000 shares issuable upon the exercise of stock options that
     have already vested or will vest within 60 days of December 3, 2002 and
     75,000 shares issuable upon the exercise of warrants that have already
     vested or will vest within 60 days of December 3, 2002 and 266,667 shares
     of common stock issuable upon conversion of $200,000 in principal amount of
     our 7% senior secured convertible notes due November 2004, which are
     convertible at the option of the holder at any time. Excludes 200,000
     shares issuable under the exercise of stock options that have not vested.
     Excludes convertible promissory notes of


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<PAGE>


     $80,000 aggregate principal amount that are convertible upon the
     consummation of project financing for our planned Wellsville facility at a
     conversion price based upon such financing.

(15) Represents ten persons and includes 1,396,666 shares issuable upon the
     exercise of stock options that have already vested or will vest within 60
     days of December 3, 2002, 644,430 shares issuable upon the exercise of
     warrants that have already vested or will vest within 60 days of December
     3, 2002, 533,333 shares issuable upon conversion of $400,000 in principal
     amount of our 7% senior secured convertible notes due November 2004,
     assuming a conversion price of $0.75. Includes 40,011 shares of common
     stock and 826,350 shares issuable upon exercise of warrants and 133,333
     shares of common stock issuable upon conversion of 25,000 shares of Series
     A preferred stock for which the executive officer or director exercises
     voting rights but disclaims beneficial ownership. Excludes 1,283,334 shares
     issuable upon the exercise of stock options that have not vested and
     convertible promissory notes in $306,000 aggregate principal amount that
     are convertible upon the consummation of project financing for our initial
     facility at a conversion price based upon such financing.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On June 30, 1998, we entered into an agreement with HSB Engineering
Finance Corporation, whereby HSB Engineering agreed to loan us up to $1.5
million for working capital purposes. Under the terms of this loan, we granted
HSB Engineering a ten-year warrant to purchase shares of our common stock equal
to 10% of the number of shares of common stock outstanding at the time of
conversion on a fully-diluted basis at an exercise price of $0.01 per share. On
June 6, 2000, HSB Engineering converted the then outstanding loan balance of
$750,000 into 2,796,114 shares of common stock, and we paid accrued interest of
approximately $189,000 due under the convertible promissory note. Upon
conversion of the loan, we entered into an investor's rights agreement with HSB
Engineering granting HSB Engineering the right to designate a representative to
attend and participate in meetings of our board of directors as a non-voting
observer. HSB Engineering loses the right to appoint an observer when it and its
affiliates own less than 5% of our outstanding common stock or when the shares
of our common stock held by it and its affiliates are registered for resale
under the Securities Act of 1933. As of December 13, 2002, HSB Engineering
beneficially owned 7.1% of our outstanding common stock and had not designated
its observer.

         Bruce Hall, our Senior Vice President, Chief Financial Officer and
Secretary received a $100,000 loan from us in December 2000, and we hold as
collateral for the loan all of Mr. Hall's options and warrants to purchase our
common stock. The loan bears interest at the prime rate of the Bank of America
per annum and is payable on December 31, 2002. The outstanding principal balance
and accrued but unpaid interest on this note is payable in one lump sum on the
date of maturity. See Footnote 12 in the notes to our consolidated financial
statements on Subsequent Events for discussion of recent developments related to
Mr. Hall's loan.

         Mr. Hall and Charles M. Rampacek, a board member since April 2000 and
our Chief Executive Officer and President since August 2000, each loaned us
$100,000 on January 22, 2001 at an interest rate of 10% per annum. Interest
payments of $246.58 and $136.98 were made to Mr. Hall and Mr. Rampacek on
January 31, 2001 and February 5, 2001, respectively. The principal was repaid in
full on February 5, 2001.

         David J. McNiel, our Senior Vice President of Operations since
September 2000, also loaned us $100,000 on January 23, 2001 at an interest rate
of 10% per annum. Interest payments of $219.18 and $246.57 were made to Mr.
McNiel on January 31, 2001 and February 9, 2001, respectively. The principal was
repaid in full on February 9, 2001.

         William A. Searles, an advisory director from November 1999 until
January 2002 and a director since January 2002, is the chairman of APS
Investment Services, Inc. We engaged APS Financial Corporation, an affiliate of
APS Investment Services, Inc., to serve as the placement agent for our private
placement of Series A preferred stock in 1999. During this engagement, we paid
APS Financial Corporation a total of $588,000 in cash commissions and issued to
APS Financial Corporation warrants to purchase a total of 402,000 shares of our
common stock at an exercise price of $1.875 per share. Additionally, we paid APS
Financial Corporation $120,000 and $161,000 in placement agent fees and
commissions for subsequent investments by its clients during the fiscal years
ended September 30, 2002 and September 30, 2001, respectively.


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<PAGE>


         Mr. Rampacek, Mr. McNiel, our Senior Vice President of Operations since
September 2000, John N. Brobjorg, our Vice President and Controller, and certain
accounts of Zesiger Capital Group, LLC, a 26.3% stockholder, participated in a
$12.5 million loan to our wholly-owned subsidiary, Probex Fluids Recovery, Inc.,
in November 2000. Under the loan, Messrs. Rampacek, McNiel and Brobjorg and the
Zesiger accounts loaned us $200,000, $200,000, $252,000 and $7.5 million,
respectively. These notes bear interest payable in cash or our common stock
semi-annually, with the principal amount due on November 28, 2004. Probex Fluids
Recovery is the issuer of the notes which are secured by the assets of Probex
Fluids Recovery and are guaranteed by us. The notes are convertible into our
common stock. Initially, the conversion price of these notes was $1.40 per
share. The notes issued to the purchasers permitted them to elect at the outset
whether interest payable semi-annually would be paid in cash or our common
stock. Each of Messrs. Rampacek, McNiel and Brobjorg and the Zesiger accounts
elected for interest to be paid in our common stock. As a result, to date we
have issued 26,267, 26,268, 33,098 and 985,015 shares of our common stock in
lieu of cash to Messrs. Rampacek, McNiel and Brobjorg and the Zesiger accounts,
respectively, as interest on these notes. The purchase agreement governing the
loan required us to file a registration statement under the Securities Act of
1933 covering the resale of the shares of our common stock issuable upon
conversion of the notes evidencing the $12.5 million loan. As of March 31, 2001,
we had not filed the registration statement. As consideration for extending our
obligation to file the registration statement, we agreed to issue to the holders
of these notes that number of shares of our common stock equal to 2% of the
shares of our common stock issuable upon conversion of their note at the close
of each calendar quarter that the registration statement had not been filed. As
a result, to date we have issued 24,951, 24,958, 31,440 and 927,708 shares of
our common stock to Messrs. Rampacek, McNiel and Brobjorg and the Zesiger
accounts, respectively, for the delay in filing the registration statement.
Pursuant to the purchase agreement governing the loan, an event of default
occurred due to our failure to secure commitments to finance the construction of
a reprocessing facility on or prior to September 30, 2001. The note holders
agreed to waive this event of default until June 30, 2002. As consideration for
the waiver, we amended the notes to reduce the conversion price from $1.40 per
share to the lowest dollar amount at which we issued a share of our common stock
prior to the consummation of project financing for our first reprocessing
facility. As of June 30, 2002, the conversion price of these notes was $0.75 per
share. As of September 30, 2002, we still had not secured commitments for
financing to construct a facility. The note holders have waived this event of
default until February 28, 2003. As consideration for giving the waiver, we
granted the noteholders a security interest in all of our intellectual property,
including the patents for our proprietary ProTerra(R) technology. The
outstanding notes are convertible into 15.9 million shares of common stock at
the current conversion price of $0.75 per share.

         Nicholas W. Hollingshad, an advisory director since April 1999 and a
director since January 2002, is operations director of Environmental Resources
Management, an international environmental consulting firm. We have engaged
Environmental Resources Management to provide environmental due diligence,
permitting and other environmental consulting services. For the fiscal years
ended September 30, 2001 and 2002, Environmental Resources Management performed
services valued at $304,738 and $37,938, respectively, under this engagement. We
intend to engage Environmental Resources Management for similar services during
the construction process for our planned facility near Wellsville, Ohio. We have
paid Environmental Resources Management for a portion of these services,
however, the remainder of their outstanding fees are being deferred until we
receive financing for our planned Wellsville facility. See Footnote 12 in the
notes to our consolidated financial statements on Subsequent Events for
discussion of recent developments related to Mr. Hollingshad.

         Mr. Hollingshad was also a limited partner in Probex Southwest
Partnership, L.P., a lender of $165,000 under our $3.0 million bridge loan dated
February 20, 2001. We are not affiliated with Probex Southwest Partnership, L.P.
Ronald J. Tiso, a member of our board of directors since March 2002, is the
managing director of Cambridge Strategies Group, LLC, which is also one of the
lenders and is the collateral agent under the February 2001 loan. Cambridge
loaned us $660,000 under the February 2001 loan. The February 2001 loan is
secured by a security interest in all of our assets, excluding intellectual
property and ownership interests in Probex Fluids Recovery, Inc. As
consideration for extending this loan, Probex Southwest and Cambridge received
warrants to purchase 74,250 and 297,000 shares of our common stock,
respectively, at an exercise price of $1.719 per share. The February 2001 loan
originally matured on July 1, 2001, but was extended until October 1, 2001. As
consideration for this extension, Probex Southwest and Cambridge received
warrants to purchase 16,500 and 66,000 shares of our common stock, respectively,
at an exercise price of $1.56 per share. Additionally, in connection with the
extension of the maturity date, the interest rate on these notes was increased,
retroactively, from 10% per annum to 12% per annum. Further, we agreed to issue
to the lenders for each month that the note is not repaid that number


                                       89
<PAGE>


of shares of our common stock equal to 1% of the principal amount outstanding
under the note on the last day of the month divided by the average closing price
as reported by the American Stock Exchange for the ten trading days immediately
prior to such payment. As a result, we issued an aggregate of 2,566 and 10,268
shares of our common stock to Probex Southwest and Cambridge, respectively, for
the months of July and August 2001. In September 2001, the maturity date of the
February 2001 loan was further extended until December 31, 2001. As
consideration for this extension, Probex Southwest and Cambridge tendered the
warrants to purchase an aggregate of 90,750 and 363,000 shares of our common
stock, respectively, previously issued to them, and we issued a new warrant to
purchase 107,250 shares of our common stock to Probex Southwest and a new
warrant to purchase 429,000 shares of our common stock to Cambridge, at an
exercise price of $1.243. Additionally, as consideration for the extension of
the maturity date until December 31, 2001, we increased the 1% common stock
payment to 1.5% per month, retroactively. As a result, from September 15, 2001
until October 31, 2001, we issued an aggregate of 6,391 and 25,548 shares of our
common stock to Probex Southwest and Cambridge, respectively. In November 2001,
Probex Southwest transferred all of the obligations owed to it under the
February 2001 loan to its partners. In the distribution, Mr. Hollingshad
received a note in the amount of $30,000, a warrant to purchase 19,500 shares of
our common stock at an exercise price of $1.243 per share and 1,630 shares of
our common stock. In November 2001, pursuant to the common stock monthly
payment, we issued 490 and 10,784 shares of our common stock to Mr. Hollingshad
and Cambridge, respectively. The maturity date of the February 2001 loan was
then further extended until February 8, 2002. In February 2002, the lenders
agreed to extend the maturity date of the February 2001 loan until the earlier
of February 28, 2003 or the consummation of project financing for our first
reprocessing facility. As consideration for this extension of the maturity date,
Mr. Hollingshad and Cambridge were issued warrants to purchase 10,500 and
231,000 shares of our common stock, respectively, at an exercise price of $0.75
per share. The exercise price of the warrants previously issued to the lenders
who participated in the February 2001 loan was also adjusted pursuant to the
ratchet pricing provisions contained in those warrants to an exercise price of
$0.75 per share. As further consideration for this extension, the lenders
tendered their notes and we issued notes in like principal amounts that are
convertible at a conversion price equal to the price per share of any shares
delivered to lenders or purchasers in connection with the planned Wellsville
facility or, if no shares are delivered, 94% of the average closing price of our
common stock as reported by the American Stock Exchange for the 20 trading days
immediately prior to the closing of financing for the facility. Additionally, we
granted the lenders a security interest in our intellectual property. The
lenders of the February 2001 loan, together with all other lenders of
outstanding bridge loans, were also given the right to nominate a member to our
board of directors. The lenders nominated Mr. Tiso, and in March 2002 we
appointed him to our board of directors. The outstanding principal balance and
accrued but unpaid interest on these notes is payable in one lump sum on the
date of maturity.

         Messrs. Hollingshad, Rampacek and McNiel and General Conference
Corporation of Seventh-day Adventists, a 23.6% stockholder, were lenders under
our $1.3 million bridge loan in April 2001. Mr. Hollingshad is also affiliated
with Falcon Capital Management, LLC, the collateral agent for the April 2001
loan. Messrs. Hollingshad, Rampacek and McNiel and General Conference loaned us
$50,000, $75,000, $75,000 and $500,000, respectively, in the April 2001 loan. As
consideration for their participation in this loan, Messrs. Hollingshad,
Rampacek and McNiel and General Conference received warrants to purchase 22,500,
33,750, 33,750 and 225,000 shares of our common stock, respectively, at an
exercise price of $1.579 per share. The April 2001 loan is secured by a security
interest in all of our assets, excluding our intellectual property and ownership
interests in our subsidiary, Probex Fluids Recovery, Inc. The April 2001 loan
originally matured on September 1, 2001, but was extended until December 31,
2001. As consideration for the extension of the maturity date, Messrs.
Hollingshad, Rampacek and McNiel and General Conference received warrants to
purchase 5,000, 7,500, 7,500 and 50,000 shares of our common stock,
respectively, at an exercise price of $1.243 per share. Additionally, in
connection with the extension of the maturity date, the interest rate on these
notes was increased, retroactively, from 10% per annum to 12% per annum.
Further, we agreed to issue to the lenders that number of shares of our common
stock equal to 1% of the principal amount outstanding under the note on the last
day of the month divided by average closing price as reported by the American
Stock Exchange for the ten trading days immediately prior to such payment for
each month that the note is not repaid. As a result, we issued an aggregate of
1,971, 2,957, 2,957 and 19,713 shares of our common stock to Messrs.
Hollingshad, Rampacek, McNiel and General Conference, respectively, from
September to December 2001. The maturity date of the April 2001 loan was then
further extended until February 8, 2002. In February 2002, the lenders agreed to
extend the maturity date of the April 2001 loan until the earlier of February
28, 2003 or the consummation of project financing for our first reprocessing
facility. As consideration for this extension of the maturity date, Messrs.
Hollingshad, Rampacek and McNiel were issued warrants to purchase 17,500, 26,250
and 26,250 shares of our common stock, respectively, at an exercise price of
$0.75. The exercise


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<PAGE>


price of the warrants previously issued to the lenders who participated in the
April 2001 loan was also adjusted pursuant to the ratchet pricing provisions
contained in those warrants to an exercise price of $0.75 per share. As further
consideration for this extension, the lenders tendered their notes, and we
issued notes in like principal amounts that are convertible at a conversion
price equal to the price per share of any shares delivered to lenders or
purchasers in connection with the planned Wellsville facility or, if no shares
are delivered, 94% of the average closing price of our common stock as reported
by the American Stock Exchange for the 20 trading days immediately prior to the
closing of financing for the facility. Additionally, we granted the lenders a
security interest in our intellectual property. The outstanding principal
balance and accrued but unpaid interest on these notes is payable in one lump
sum on the date of maturity.

         In July 2001, General Conference loaned us an additional $500,000. This
is secured by a security interest in all of our assets, excluding our
intellectual property and ownership interests in our subsidiary, Probex Fluids
Recovery, Inc. As consideration for this loan, we issued General Conference a
warrant to purchase 275,000 shares of our common stock at an exercise price of
$1.579 per share. The maturity date of this loan was extended until February 8,
2002. In February 2002, General Conference agreed to extend the maturity date of
the loan until the earlier of February 28, 2003 or the consummation of project
financing for our first reprocessing facility. As consideration for this
extension of the maturity date, we issued to General Conference a warrant to
purchase 175,000 shares of our common stock at an exercise price of $0.75 per
share. The exercise price of the warrant previously issued to General Conference
was also adjusted pursuant to the ratchet pricing provisions contained in that
warrant to an exercise price of $0.75 per share. As further consideration for
this extension, General Conference tendered its note and we issued a note of
like principal amount to General Conference that is convertible at a conversion
price equal to the price per share of any shares delivered to lenders or
purchasers in connection with the planned Wellsville facility or, if no shares
are delivered, 94% of the average closing price of our common stock as reported
by the American Stock Exchange for the 20 trading days immediately prior to the
closing of financing for the facility. The outstanding principal balance and
accrued but unpaid interest on this note is payable in one lump sum on the date
of maturity.

         United Infrastructure Company, LLC and certain accounts of Zesiger
participated in a $3.0 million loan to us dated September 7, 2001. The notes
issued in the September 2001 loan are convertible into our common stock or other
securities issued in connection with the financing for our first reprocessing
facility and are secured by a security interest in all of our assets, excluding
our intellectual property and ownership interests in Probex Fluids Recovery,
Inc. United Infrastructure serves as the collateral agent under this loan. This
loan originally matured on September 30, 2001, but could be extended by its
terms on a month-to-month basis upon the issuance of a certain amount of our
common stock. As a result, we issued an aggregate of 66,620 and 66,603 shares of
our common stock to United Infrastructure and the Zesiger accounts,
respectively, from September 2001 to February 2002. In February 2002, the
lenders agreed to amend the notes to provide for a maturity date of the earlier
of February 28, 2003 or the consummation of project financing for our first
reprocessing facility without the issuance of common stock for such monthly
extensions. As consideration for this amendment to the notes, United
Infrastructure and the Zesiger accounts were each issued warrants to purchase
525,000 shares of our common stock at an exercise price of $0.75 per share.
Additionally, we granted the lenders a security interest in our intellectual
property. The outstanding principal balance and accrued but unpaid interest on
these notes is payable in one lump sum on the date of maturity.

         Beginning in March 2002, General Conference lent us an aggregate of
$3.0 million over a three-month period. The promissory note issued to General
Conference is convertible at a conversion price equal to the price per share of
any shares delivered to lenders or purchasers in connection with the planned
Wellsville facility or, if no shares are delivered, 94% of the average closing
price of our common stock as reported by the American Stock Exchange for the 20
trading days immediately prior to the closing of financing for the facility. The
March 2002 loan is secured by a security interest in our intellectual property.
General Conference also serves as the collateral agent for this loan. As
consideration for extending the March 2002 loan, we granted to General
Conference a security interest in our intellectual property with respect to $1.0
million previously loaned to us. As further consideration for extending the
March 2002 loan, we issued to General Conference a warrant to purchase 3,000,000
shares of our common stock at an exercise price of $0.75 per share. The
outstanding principal amount of this loan and accrued but unpaid interest is due
in one lump sum at the earlier of February 28, 2003 or the consummation of
project financing for our first reprocessing facility.


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<PAGE>


         Messrs. Hollingshad, Rampacek and McNiel, General Conference, Cambridge
and certain accounts of Zesiger each participated in a $3.0 million loan to us
dated July 26, 2002. Messrs. Hollingshad, Rampacek and McNiel, General
Conference, Cambridge and the Zesiger accounts committed to lend us $36,000,
$10,000, $5,000, $600,000, $100,000 and $1,500,000, respectively. The
commitments were payable by the lenders to us in six equal monthly installments.
Of the $3.0 million total commitment, $1.5 million was a firm commitment not
subject to funding conditions. As of October 1, 2002, we received $18,000,
$5,000, $2,500, $300,000, $50,000 and $750,000 from Messrs. Hollingshad,
Rampacek and McNiel, General Conference, Cambridge and the Zesiger accounts,
respectively, with respect to the firm commitment portion under this loan. The
lenders obligation to fund the remainder of their commitment was conditioned
upon our receiving a term sheet from a lead investor for project financing by
October 1, 2002. Because we did not receive this term sheet, the lenders are not
obligated to fund any of the remaining commitment. Nevertheless, as of December
3, 2002, we have received $12,000, $3,333, $1,667, $53,333 and $497,497 of the
remaining commitment from Messrs. Hollingshad, Rampacek and McNiel, Cambridge
and the Zesiger accounts, respectively. The outstanding notes, having a total
aggregate principal balance of $2.8 million, bear interest at 12% per annum and
mature on February 28, 2003. The notes are convertible into our common stock, in
whole or in part, based upon the outstanding principal balance of the notes plus
accrued interest, at the option of the holder, when we secure the Wellsville
financing. The notes are convertible at a conversion price equal to the price
per share of any shares delivered to lenders or purchasers in connection with
the planned Wellsville facility or, if no shares are delivered, 94% of the
average closing price of our common stock as reported by the American Stock
Exchange for the 20 trading days immediately prior to the closing of financing
for the facility. The amount actually funded to us by lenders under their
commitments is secured by a security interest in our intellectual property.
General Conference serves as the collateral agent for this loan. As
consideration for extending this loan, we issued warrants to purchase 54,000,
15,000, 7,500, 900,000, 150,000 and 2,250,000 shares of our common stock to
Messrs. Hollingshad, Rampacek and McNiel, General Conference, Cambridge and the
Zesiger accounts, respectively, at an exercise price of $0.75 per share. The
outstanding principal balance and accrued but unpaid interest on these notes is
due on the date of maturity.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>

 3.1           Certificate of Incorporation (filed as Exhibit 3.1 to the
               Registrant's Form 10-SB/A dated February 1, 2000 (the "Form
               10-SB/A") and incorporated herein by reference).

 3.2           Certificate of Amendment to the Certificate of Incorporation of
               the Registrant filed April 20, 2001 (filed as Exhibit 3.2 to the
               Registrant's Registration Statement on Form SB-2, File No.
               333-101453, filed on November 25, 2002 (the "November 25, 2002
               Form SB-2") and incorporated herein by reference).

 3.3           Certificate of Amendment to the Certificate of Incorporation of
               the Registrant filed April 20, 2001 (filed as Exhibit 3.3 to the
               November 25, 2002 Form SB-2 and incorporated herein by
               reference).

 3.4           Bylaws of the Registrant (filed as Exhibit 3.2 to the
               Registrant's Form 10-SB dated December 21, 1999 (the "Form
               10-SB") and incorporated herein be reference).

 4.1           Form of Common Stock Certificate (filed as Exhibit 4.1 to the
               Form 10-SB and incorporated herein by reference.)

 4.2           Form of Series A 10% Cumulative Convertible Preferred Stock
               Certificate (filed as Exhibit 4.2 to the 2000 Form 10-KSB for the
               fiscal year ended September 30, 2000 (the "2000 Form 10-KSB") and
               incorporated herein by reference).
</Table>


                                       92
<PAGE>


<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
 4.3.1         Form of Class "F" Warrants, at $1.00 per share, post-split,
               expiring April 26, 2001 (filed as Exhibit 4.3.1 to the Form 10-SB
               and incorporated herein by reference).

 4.3.2         Form of Class "H" Warrants, at $1.00 per share, post-split,
               expiring April 26, 2001 (filed as Exhibit 4.3.2 to the Form 10-SB
               and incorporated herein by reference).

 4.3.3         Form of Class "K" Warrants, at $0.20 per share, post-split,
               expiring April 26, 2001 (filed as Exhibit 4.3.3 to the Form 10-SB
               and incorporated herein by reference).

 4.3.4        Form of Class "N" Warrants, at $1.00 per share, expiring from
              August 15, 2002 to June 8, 2003 (filed as Exhibit 4.3.4 to the
              Form 10-SB and incorporated herein by reference).

 4.3.5        Form of Class "P" Warrants, at $0.20 per share, expiring
              September 2, 2003 (filed as Exhibit 4.3.6 to the Form 10-SB and
              incorporated herein by reference).

 4.3.6        Form of Class "Q-a" Warrants, at $0.55 per share, expiring
              April 16, 2004 (filed as Exhibit 4.3.8 to the Form 10-SB and
              incorporated herein by reference).

 4.3.7        Form of Class "R" Warrants, at $1.00 per share, expiring June
              4, 2001 (filed as Exhibit 4.3.9 to the Form 10-SB and
              incorporated herein by reference).

 4.3.8        Form of Class "R-a" Warrants, at $0.55 per share, expiring June
              4, 2004 (filed as Exhibit 4.3.10 to the Form 10-SB and
              incorporated herein by reference).

 4.3.9        Form of Class "S" Warrants, at $0.50 to $1.00 per share,
              expiring from August 28, 2002 to October 28, 2004 (filed as
              Exhibit 4.3.11 to the Form 10-SB and incorporated herein by
              reference).

 4.3.10       Form of Class "T" Warrants, at $0.50 per share, expiring
              December 1, 2003 (filed as Exhibit 4.3.12 to the Form 10-SB/A
              and incorporated herein by reference).

 4.3.11       Form of Class "U" Warrants, at $0.50 per share, expiring
              January 31, 2004 (filed as Exhibit 4.3.13 to the Form 10-SB/A
              and incorporated herein by reference).

 4.3.12       Form of Class "V" Warrants, at $1.875 per share, expiring
              December 15, 2004 (filed as Exhibit 4.3.14 to the Registrant's
              Form 10-QSB for the quarter ended December 31, 1999 (the
              "December 1999 10-QSB" ) and incorporated herein by reference).

 4.3.13       Form of Class "W" Warrants, at $1.00 per share, expiring
              October 5, 2001 (filed as Exhibit 4.3.15 to the Registrant's
              Form 10-QSB for the quarter ended March 31, 2000 (the "March
              2000 10-QSB") and incorporated herein by reference).

 4.3.14       Warrant to purchase 200,000 shares of the Registrant's common
              stock granted to Bechtel Corporation, at $3.00 per share,
              expiring on February 28, 2002 (filed as Exhibit 4.3.16 to the
              March 2000 10-QSB and incorporated herein by reference).

 4.3.15       Warrant to purchase 200,000 shares of the Registrant's common
              stock granted to Bechtel Corporation, at an exercise price of
              $3.00 per share and expiring on June 27, 2002 (filed as Exhibit
              4.3.14.2 to the 2000 Form 10-KSB and incorporated herein by
              reference).

 4.3.16       Form of Class "Y" Warrants, at $2.70 per share, expiring
              December 15, 2004 (filed as Exhibit 4.3.17 to the March 2000
              10-QSB and incorporated herein by reference).
</Table>


                                       93
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>

 4.3.17       Form of Class "Z" Warrants, at $3.00 per share, expiring June
              21, 2005 (filed as Exhibit 4.3.16 to the 2000 Form 10-KSB and
              incorporated herein by reference).

 4.3.18       Form of Class "AA" Warrants, at $3.12 per share, expiring May
              23, 2005 (filed as Exhibit 4.3.17 to the 2000 Form 10-KSB and
              incorporated herein by reference).

 4.3.19       Form of Class "AC" Warrants, at $1.9625 per share, expiring on
              November 2, 2005 (filed as Exhibit 4.3.18 to the 2000 Form
              10-KSB and incorporated herein by reference).

 4.3.20       Form of Class "AD" Warrants, exercisable at $1.9625 per share,
              expiring November 2, 2005 (filed as Exhibit 4.3.19 to the
              Registrant's Form 10-QSB for the quarter ended December 31,
              2000 (the "December 2000 10-QSB") and incorporated herein by
              reference).

 4.3.21       Form of Class "AE" Warrants, exercisable at $1.40 per share,
              expiring November 28,2003 (filed as Exhibit 4.3.20 to the
              December 2000 10-QSB and incorporated herein by reference).

 4.3.22       Form of Class "AG" Warrants, exercisable at $1.40 per share,
              expiring November 29,2005 (filed as Exhibit 4.3.21 to the
              December 2000 10-QSB and incorporated herein by reference).

 4.3.23       Form of Class "AH" Warrants, exercisable at $1.40 per share,
              expiring December 26,2005 (filed as Exhibit 4.3.22 to the
              December 2000 10-QSB and incorporated herein by reference).

 4.3.24       Form of Class "AI" Warrants, exercisable at $1.243 per share,
              expiring February 12, 2006 (filed as Exhibit 4.3.24 to the
              Registrant's Form 10-QSB for the quarter ended March 31,
              2001(the "March 2001 10-QSB") and incorporated herein by
              reference).

 4.3.25       Warrant to purchase 250,000 shares of the Registrant's common
              stock issued to United Infrastructure Company, L.L.C.,
              exercisable at $1.40 per share and expires on January 31, 2006
              (filed as Exhibit 4.3.25 to the Registrant's Form 10-KSB dated
              January 14, 2002 (the "2001 10-KSB") and incorporated herein by
              reference).

 4.3.26       Form of Class "AK" Warrants, exercisable at $1.579 per share,
              expiring April 30, 2006 (filed as Exhibit 4.3.25 to the March
              2001 10-QSB and incorporated herein by reference).

 4.3.27       Form of Class "AK-A" Warrants, exercisable at $1.243 per share
              (subject to adjustment) and expiring on September 1, 2006
              (filed as Exhibit 4.3.27 to the 2001 10-KSB and incorporated
              herein by reference).

 4.3.28       Form of Class "AL" Warrant, which expire ten years from the
              date of issuance (subject to certain conditions which may cause
              the warrant to expire earlier) and have an exercise price
              ranging from $1.47 to $1.75 (filed as Exhibit 4.3.26 to the
              Registrant's Form 10-QSB for the quarter ended June 30, 2001
              (the "June 2001 10-QSB") and incorporated herein by reference).

 4.3.29       Warrant to purchase 275,000 shares of the Registrant's common
              stock issued to Single Spur Investments, L.L.C., which expires
              September 13, 2006 and has an exercise price of $1.243 (subject
              to adjustment) (filed as Exhibit 4.3.29 to the 2001 10-KSB and
              incorporated herein by reference).

 4.3.30       Form of Class "AO" Warrant, which expires five years from the
              date of issuance and an exercise price per share equal to
              $0.75, subject to adjustment under ratchet provisions (filed as
              Exhibit 4.3.27 to the Registrant's Form 10-QSB for the period
              ended March 31, 2002 (the "March 2002 10-QSB") and incorporated
              herein by reference).
</Table>


                                       94
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER        DESCRIPTION
-------       -----------
<S>            <C>
 4.3.31       Form of Class "AM" Warrants, exercisable at $1.243 per share
              (subject to adjustment), and expiring on September 13, 2006
              (filed as Exhibit 4.3.31 to the November 25, 2002 Form SB-2 and
              incorporated herein by reference).

 4.3.32       Form of Class "AR" Warrants, exercisable at $0.75 per share
              (subject to adjustment), and expiring on April 1, 2007 (filed
              as Exhibit 4.3.32 to the November 25, 2002 Form SB-2 and
              incorporated herein by reference).

 4.3.33       Form of Class "AS" Warrants, exercisable at $0.75 per share
              (subject to adjustment), and expiring on July 29, 2007 (filed as
              Exhibit  4.3.33 to the December 26, 2002 Form 10-KSB and
              incorporated herein by reference).

 4.3.34       Form of Class "AS-a" Warrants, exercisable at $0.75 per share
              (subject to adjustment), and expiring on July 29, 2007 (filed as
              Exhibit 4.3.34 to the December 26, 2002 Form 10-KSB and
              incorporated herein by reference).

 4.3.35       Form of Class "AT" Warrants, exercisable at $0.75 per share, and
              expiring on September 27, 2007 (filed as Exhibit 4.3.35 to the
              December 26, 2002 Form 10-KSB and incorporated herein by
              reference).

 10.1.1       1999 Omnibus Stock and Incentive Plan, as amended and restated, of
              the Registrant (filed as Exhibit 10.1 to the 2000 Form 10-KSB and
              incorporated herein by reference).

 10.1.2       First Amendment to 1999 Omnibus Stock and Incentive Plan as
              amended and restated dated January 5, 2001 (filed as Exhibit
              10.1.2 to the 2001 10-KSB and incorporated herein by reference).

 10.2         Amended and Restated Investor Rights Agreement between HSB
              Engineering Finance Corporation, Inc., a Delaware corporation,
              and the Registrant, effective as of June 2, 2000 (filed as
              Exhibit 10.2 to the 2000 Form 10-KSB and incorporated herein by
              reference).

 10.3         Financial Advisory Fee Agreement between Silver Lake Industries,
              Inc., a Texas corporation, Brycap Investments, Inc., a Texas
              corporation, and the Registrant, dated as of March 29, 2000
              (filed as Exhibit 10.9 to the Form 10-SB and incorporated herein
              by reference).

 10.4         Financial Consulting Services Agreement between Travis Morgan
              Securities, Inc. and the Registrant, dated as of April 16, 1999
              (filed as Exhibit 10.10 to the Form 10-SB and incorporated herein
              by reference).

 10.5         Option to Purchase or Lease Agreement between Columbiana County
              Port Authority, a body of corporate and politic, and the
              Registrant, dated as of June 1999 (filed as Exhibit 10.11 to the
              Form 10-SB and incorporated herein by reference).

 10.6         Financial Consulting Services Agreement between National Capital
              Merchant Group, Ltd., a Bahamian company, and the Registrant,
              dated as of June 7, 1999 (filed as Exhibit 10.12 to the Form
              10-SB and incorporated herein by reference).

 10.7         Financial Advisory Fee Agreement between William M. Noble, Jr.,
              an individual resident of the State of Texas, and the Registrant,
              dated as of June 28, 1999 (filed as Exhibit 10.13 to the Form
              10-SB and incorporated herein by reference).

 10.8         Placement Agent Agreement between APS Financial Corporation, a
              Colorado corporation, and the Registrant, dated as of July 21,
              1999 (filed as Exhibit 10.14 to the Form 10-SB and incorporated
              herein by reference).

 10.9         Financial Advisory Fee Agreement between APS Financial
              Corporation, a Colorado corporation, and the Registrant, dated as
              of August 6, 1999 (filed as Exhibit 10.15 to the Form 10-SB and
              incorporated herein by reference).
</Table>


                                       95
<PAGE>


<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
   10.10       Financial Advisory Fee Agreement between Michael D. Billings, an
               individual resident of the State of Texas, and the Registrant,
               dated as of May 7, 1999 (filed as Exhibit 10.17 to the Form 10-SB
               and incorporated herein by reference).

   10.11       Fee Agreement between Enventures Capital, LLC, a Massachusetts
               limited liability company, and the Registrant, dated as of
               January 17, 2000 (filed as Exhibit 10.17 to the Form 10-SB/A and
               incorporated herein by reference).

   10.12       Memorandum of Understanding between Bechtel Corporation and the
               Registrant, effective January 1, 2000. (Confidential Treatment
               granted by the Securities and Exchange Commission. Confidential
               parts of this document have been redacted and have been
               separately filed with the Securities and Exchange Commission.)
               (filed as Exhibit 10.18 to the March 2000 10-QSB and incorporated
               herein by reference).

   10.13.1     Asset Purchase Agreement dated as of May 1, 2000, by and among
               Probex Fluids Recovery, Inc., the Registrant, Petroleum Products,
               Inc. and William and Phyllis L. Snedegar (filed as Exhibit 99.1
               to the Registrant's Form 8-K dated May 1, 2000 and filed May 16,
               2000 (the "May 2000 8-K") and incorporated herein by reference).

   10.13.2     Promissory Note dated as of May 1, 2000, made by the Registrant
               in favor of Petroleum Products, Inc. in the aggregate principal
               amount of $1.5 million (filed as Exhibit 99.3 to the May 2000 8-K
               and incorporated herein by reference).

   10.14       Asset Purchase Agreement dated as of May 1, 2000, by and among
               Probex Fluids Recovery, Inc., the Registrant, Intercoastal
               Trading Company, Inc., William Snedegar, and William Keith Mills
               (filed as Exhibit 99.2 to the May 2000 8-K and incorporated
               herein by reference).

   10.15       Financial Advisory Agreement between Stonegate Securities, Inc.
               and the Registrant, dated as of May 23, 2000 (filed as Exhibit
               10.21 to the Registrant's Form 10-QSB for the quarter ended June
               30, 2000 (the "June 2000 10-QSB") and incorporated herein by
               reference).

   10.16       Convertible Promissory Note dated August 30, 2000, as amended,
               made by the Registrant in favor of General Conference of
               Seventh-day Adventists in the aggregate principal amount of $1.5
               million (filed as Exhibit 10.18 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.17.1     Asset Purchase Agreement dated as of September 6, 2000, by and
               between the Registrant and Pennzoil-Quaker State Company (filed
               as Exhibit 10.22 to the Registrant's Form 8-K dated October 16,
               2000 (the "October 2000 8-K") and incorporated herein by
               reference).

   10.17.2     First Amendment to the Asset Purchase Agreement, dated as of
               September 29, 2000, by and among the Registrant, Probex Fluids
               Recovery, Inc. and Pennzoil-Quaker State Company (filed as
               Exhibit 10.22.1 to the October 2000 8-K and incorporated herein
               by reference).

   10.17.3     Security Agreement dated as of September 29, 2000, executed by
               Probex Fluids Recovery, Inc., which secures all of the assets of
               Probex Fluids Recovery, Inc. under the Promissory Note of even
               date (filed as Exhibit 10.25 to the October 2000 8-K and
               incorporated herein by reference).

   10.17.4     Used Product Collection Agreement dated as of September 29, 2000,
               by and between Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company (filed as Exhibit 10.26 to the October 2000 8-K and
               incorporated herein by reference).
</Table>


                                       96
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
   10.17.5     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Tampa, Florida (filed as
               Exhibit 10.27 to the October 2000 8-K and incorporated herein by
               reference).

   10.17.6     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Atlanta, Georgia (filed as
               Exhibit 10.28 to the October 2000 8-K and incorporated herein by
               reference).

   10.17.7     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Baton Rouge, Louisiana (filed
               as Exhibit 10.29 to the October 2000 8-K and incorporated herein
               by reference).

   10.17.8     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Shreveport, Louisiana (filed
               as Exhibit 10.30 to the October 2000 8-K and incorporated herein
               by reference).

   10.17.9     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Houston, Texas (filed as
               Exhibit 10.31 to the October 2000 8-K and incorporated herein by
               reference).

   10.17.10    Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at San Antonio, Texas (filed as
               Exhibit 10.32 to the October 2000 8-K and incorporated herein by
               reference).

   10.18.1     Stock Purchase Agreement dated as of October 12, 2000, by and
               between the Registrant and United Infrastructure Company LLC
               (filed as Exhibit 10.20.1 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.18.2     Registration Rights Agreement dated as of October 12, 2000, by
               and between the Registrant and United Infrastructure Company LLC
               (filed as Exhibit 10.20.2 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.19.1     Note Purchase Agreement dated as of November 29, 2000, by and
               among the Registrant, Probex Fluids Recovery, Inc., Wilmington
               Trust Company, as collateral agent, and the purchasers named
               therein (filed as Exhibit 10.22.1 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.19.2     First Amendment to Note Purchase Agreement, effective as of July
               5, 2001, by and among the Registrant, Probex Fluids Recovery,
               Inc. and the holders of the 7% Senior Secured Convertible Notes
               Due 2004 (filed as Exhibit 10.22.2 to the 2001 10-KSB and
               incorporated herein by reference).

   10.19.3     Form of 7% Senior Secured Convertible Notes Due 2004 issued by
               Probex Fluids Recovery, Inc., which are secured by the assets of
               Probex Fluids Recovery, Inc., guaranteed by the Registrant and
               convertible into the Registrant's common stock (filed as Exhibit
               10.22.2 to the 2000 Form 10-KSB and incorporated herein by
               reference).

   10.19.3.1   Form of Waiver and Consent and First Amendment to 7% Senior
               Secured Convertible Notes due November 29, 2004 (filed as Exhibit
               10.22.3.1 to the Registrant's Form 10-QSB for the period ended
               June 30, 2002 (the "June 2002 10-QSB") and incorporated herein by
               reference).
</Table>


                                       97
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>
   10.19.4       Guaranty dated as of November 29, 2000, from the Registrant to
                 and for the benefit of the holders of the 7% Senior Secured
                 Convertible Notes and acknowledged by Wilmington Trust Company,
                 as collateral agent (filed as Exhibit 10.22.3 to the 2000 Form
                 10-KSB and incorporated herein by reference).

   10.19.5       Security Agreement dated as of November 29, 2000, by and
                 between Probex Fluids Recovery, Inc., Wilmington Trust Company,
                 as collateral agent, which secures all the obligations of
                 Probex Fluids Recovery, Inc. under the 7% Senior Secured
                 Convertible Notes (filed as Exhibit 10.22.4 to the 2000 Form
                 10-KSB and incorporated herein by reference).

   10.19.6       Pledge Agreement dated as of November 29, 2000, by and between
                 the Registrant and Wilmington Trust Company, as collateral
                 agent, under which the Registrant pledges its ownership in all
                 of the outstanding shares of Probex Fluids Recovery, Inc. as
                 security for the obligations under those certain 7% Senior
                 Secured Convertible Notes (filed as Exhibit 10.22.5 to the 2000
                 Form 10-KSB and incorporated herein by reference).

   10.19.7       Intercreditor and Collateral Agency Agreement dated as of
                 November 29, 2000, by and among the Registrant, Probex Fluids
                 Recovery, Inc., Wilmington Trust Company, as collateral agent,
                 and the purchasers named therein (filed as Exhibit 10.22.6 to
                 the 2000 Form 10-KSB and incorporated herein by reference).

   10.19.8       Escrow Agreement dated as of November 29, 2000, by and between
                 Probex Fluids Recovery, Inc. and Wilmington Trust Company for
                 the benefit of the holders of the 7% Senior Secured Convertible
                 Notes (filed as Exhibit 10.22.7 to the 2000 Form 10-KSB and
                 incorporated herein by reference).

   10.20         Financial Advisory Fee Agreement, dated as of October 11, 2000,
                 by and between the registrant and Credit Suisse First Boston
                 Corporation (filed as Exhibit 10.23 to the December 2000 10-QSB
                 and incorporated herein by reference).

   10.21         Strategic Alliance Agreement, dated as of February 2, 2001, by
                 and between Bechtel Corporation and the Registrant
                 (Confidential treatment granted by the Securities and Exchange
                 Commission. Confidential portions of this document have been
                 redacted and have been separately filed with the Securities and
                 Exchange Commission) (filed as Exhibit 10.24 to the March 2001
                 10-QSB and incorporated herein by reference).

   10.22         Stock Purchase Agreement, dated as of February 2, 2001, by and
                 between United Infrastructure Company, LLC and the Registrant
                 (filed as Exhibit 10.25 to the March 2001 10-QSB and
                 incorporated herein by reference).

   10.23         Registration Rights Agreement, dated as of February 2, 2001, by
                 and between United Infrastructure Company, LLC and the
                 Registrant (filed as Exhibit 10.26 to the March 2001 10-QSB and
                 incorporated herein by reference).

   10.24.1       Form of Promissory Notes, dated as of February 20, 2001, in the
                 aggregate principal amount of $3 million made by the Registrant
                 in favor of lenders as amended by those certain Allonges to the
                 Notes (filed as Exhibit 10.27.1 to the 2001 10-KSB and
                 incorporated herein by reference).

   10.24.2       Security Agreement dated as of February 20, 2001, by and among
                 the Registrant, Cambridge Strategies Group, LLC, as collateral
                 agent, and the secured parties named therein, which secures the
                 obligations of the Registrant under those certain promissory
                 notes of even date (filed as Exhibit 10.27.2 to the 2001 10-KSB
                 and incorporated herein by reference).
</Table>


                                       98
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER          DESCRIPTION
-------         -----------
<S>             <C>

   10.25.1       Form of Promissory Notes, dated from April 30, 2001 to July 13,
                 2001, in aggregate principal amount of $1.83 million made by
                 the Registrant in favor of lenders as amended by those certain
                 Allonges to the Notes (filed as Exhibit 10.28.1 to the 2001
                 10-KSB and incorporated herein by reference).

   10.25.2       Security Agreement dated as of July 13, 2001, by and among the
                 Registrant, Falcon Capital Management, as collateral agent, and
                 the secured parties named therein, which secures the
                 obligations of the Registrant under those certain promissory
                 notes described in Exhibit 10.28.1 above (filed as Exhibit
                 10.28.2 to the 2001 10-KSB and incorporated herein by
                 reference).

   10.26.1       Loan Agreement dated as of September 7, 2001, by and among the
                 Registrant and the lenders named therein (filed as Exhibit
                 10.29.1 to the 2001 10-KSB and incorporated herein by
                 reference).

   10.26.2       Form of Promissory Notes, dated as of September 7, 2001, in the
                 aggregate principal amount of $3 million made by the Registrant
                 in favor of the lenders named in the Loan Agreement set forth
                 in Exhibit 10.29.1 above (filed as Exhibit 10.29.2 to the 2001
                 10-KSB and incorporated herein by reference).

   10.26.3       Intercreditor and Security Agreement, dated as of September 7,
                 2001, by and among the Registrant and United Infrastructure
                 Company, LLC, as collateral agent, and the secured parties
                 named therein, which secures the obligations of the Registrant
                 under those certain promissory notes described in Exhibit
                 10.29.2 above (filed as Exhibit 10.29.3 to the 2001 10-KSB and
                 incorporated herein by reference).

   10.26.4       Registration Rights Agreement, dated as of September 7, 2001,
                 by and among the Registrant and the investors named therein
                 (filed as Exhibit 10.29.4 to the 2001 10-KSB and incorporated
                 herein by reference).

   10.27.1       Promissory Note, dated as of September 13, 2001, in the
                 aggregate principal amount of $500,000 made by the Registrant
                 in favor of Single Spur Investments, LLC as amended by that
                 certain Allonge to the Note (filed as Exhibit 10.30.1 to the
                 2001 10-KSB and incorporated herein by reference).

   10.27.2       Security Agreement dated as of September 13, 2001, by and
                 between the Registrant Single Spur Investments, LLC, as secured
                 party, which secures the obligations of the Registrant under
                 that certain promissory note described in Exhibit 10.30.1 above
                 (filed as Exhibit 10.30.2 to the 2001 10-KSB and incorporated
                 herein by reference).

   10.28         Stock Purchase Agreement dated as of December 21, 2001, by and
                 between the Registrant and General Conference Corporation of
                 Seventh-day Adventists under which General Conference
                 Corporation of Seventh-day Adventists purchased 1,342,282
                 shares, subject to upward adjustments, of the Registrant's
                 common stock at $0.745 per share (filed as Exhibit 10.31 to the
                 December 2001 10-QSB and incorporated herein by reference).

   10.29         Stock Purchase Agreement dated as of January 15, 2002, by and
                 among the Registrant and accounts of Zesiger Capital Group, LLC
                 (filed as Exhibit 10.32 to the December 2001 10-QSB and
                 incorporated herein by reference).

   10.30.1       Form of Loan Agreement by and among the Registrant and the
                 lenders named therein (filed as Exhibit 10.33.1 to the March
                 2002 10-QSB and incorporated herein by reference).

   10.30.2       Form of Convertible Promissory Note made by the Registrant in
                 favor of the lenders named in the Loan Agreement (filed as
                 Exhibit 10.33.2 to the March 2002 10-QSB and incorporated
                 herein by reference).
</Table>


                                       99
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>

   10.30.3       Intercreditor and Security Agreement, dated as of March 29,
                 2002, by and among the Registrant, the collateral agent and the
                 secured parties named therein, which secures the obligations of
                 the Registrant under those certain promissory notes described
                 in Exhibit 10.33.2 above and short-term notes previously issued
                 by the Registrant (filed as Exhibit 10.33.3.2 to the March 2002
                 10-QSB and incorporated herein by reference).

   10.30.3.1     First Amendment to Intercreditor and Security Agreement, dated
                 as of July 26, 2002, by and among the Registrant, the
                 collateral agent and the secured parties named therein (filed
                 as Exhibit 10.33.3.1 to the June 2002 10-QSB and incorporated
                 herein by reference).

   10.31.1       Loan Extension and Modification Agreement, dated as of March
                 29, 2002, by and among the Registrant and the lenders named
                 therein (filed as Exhibit 10.34.1 to the March 2002 10-QSB and
                 incorporated herein by reference).

   10.31.2       Form of Amended and Restated Convertible Promissory Note made
                 by the Registrant in favor of the lenders named in the Loan
                 Extension and Modification Agreement filed as Exhibit 10.34.1.
                 These notes replace the forms of notes previously filed as
                 Exhibits 10.27.1, 10.28.1 and 10.30.1 to the Registrant's Form
                 10-KSB for the fiscal year ended September 30, 2001.

   10.32         Agreement for Engineering, Procurement and Construction
                 Services, by and between Probex Wellsville, L.P., as owner,
                 and Petrofac LLC, as contractor, dated as of April 11, 2002
                 (filed separately with the Securities and Exchange Commission
                 in connection with the June 2002 10-QSB pursuant to a request
                 for confidential treatment).

   10.33.1       Loan Agreement, dated as of July 26, 2002, by and among the
                 Registrant and the lenders named therein (filed as Exhibit
                 10.36.1 to the June 2002 10-QSB and incorporated herein by
                 reference).

   10.33.2       Form of Convertible Promissory Note made by the Registrant in
                 favor of the lenders named in the Loan Agreement set forth as
                 Exhibit 10.36.1 above (filed as Exhibit 10.36.2 to the June
                 2002 10-QSB and incorporated herein by reference).

   10.34         Retirement, Profit Sharing/401(k) Plan for the Registrant dated
                 December 5, 2001 (filed as Exhibit 10.34 to the November 25,
                 2002 Form SB-2 and incorporated herein by reference).

   10.35         Second Amendment to Investor Rights Agreement between HSB
                 Engineering Finance Corporation, Inc. and the Registrant,
                 effective as of April 26, 2002 (filed as Exhibit 10.35 to the
                 November 25, 2002 Form SB-2 and incorporated herein by
                 reference).

   10.36         Option to Purchase Agreement and Extension, between Columbiana
                 County Port Authority and the Registrant, dated as of June 19,
                 2002 (filed as Exhibit 10.36 to the November 25, 2002 Form SB-2
                 and incorporated herein by reference).

   10.37         Employment Agreement, dated as of June 12, 2000, by and between
                 David J. McNiel and the Registrant (filed as Exhibit 10.37 to
                 the November 25, 2002 Form SB-2 and incorporated herein by
                 reference).

   10.38         Employment Agreement, dated as of August 1, 2000, by and
                 between Charles M. Rampacek and the Registrant (filed as
                 Exhibit 10.38 to the November 25, 2002 Form SB-2 and
                 incorporated herein by reference).
</Table>


                                      100
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>

   10.39         Form of Registration Rights Agreement among the Registrant and
                 Fusion Capital Fund II, LLC (filed as Exhibit 10.39 to the
                 November 25, 2002 Form SB-2 and incorporated herein by
                 reference).

   10.40         Lease Agreement, effective as of June 1, 2002, among Tom
                 Taylor, Arch Jacobson and Estate of James Moran and the
                 Registrant (filed as Exhibit 10.40 to the November 25, 2002
                 Form SB-2 and incorporated herein by reference).

   10.41         Form of Loan Extension and Modification Agreement among the
                 Registrant and the lenders named therein (filed as Exhibit
                 10.41 to the November 25, 2002 Form SB-2 and incorporated
                 herein by reference).

   10.42         Common Stock Purchase Agreement, dated as of August 29, 2002,
                 among the Registrant and Fusion Capital Fund II, LLC (filed as
                 Exhibit 10.37 to the Registrant's Form 8-K dated September 11,
                 2002 and incorporated herein by reference).

   10.43         Form of Registration Rights Agreement among the Registrant and
                 certain holders of Series A Preferred Stock (filed as Exhibit
                 10.43 to the November 25, 2002 Form SB-2 and incorporated
                 herein by reference).

   10.44         Technology License Agreement dated December 6, 2002 (filed
                 separately with the Securities and Exchange Commission pursuant
                 to a request for confidential treatment).

   10.45         Shareholders Agreement dated December 6, 2002 (filed separately
                 with the Securities and Exchange Commission pursuant to a
                 request for confidential treatment).

   10.46         Extension to Option Agreement between Columbiana County Port
                 Authority and the Registrant, dated as of November 18, 2002
                 (filed as Exhibit 10.46 to the December 26, 2002 Form 10-KSB
                 and incorporated herein by reference).

   10.46.1       Form of Letter Agreement extending the Option to Purchase
                 Agreement between Columbiana County Port Authority and the
                 Registrant, dated as of February 26, 2003 (filed as Exhibit
                 10.46.1 to the March 19, 2003 Form 10-KSB/A and incorporated
                 herein by reference).

   10.47         Secured Promissory Note, dated as of December 31, 2000, among
                 the Registrant and Bruce A. Hall (filed as Exhibit 10.47 to the
                 December 26, 2002 Form 10-KSB and incorporated herein by
                 reference).

   10.48         Pledge Agreement, dated as of December 31, 2000, among the
                 Registrant and Bruce A. Hall (filed as Exhibit 10.48 to the
                 December 26, 2002 Form 10-KSB and incorporated herein by
                 reference).

   10.49         Alliance Termination and Amendment Agreement, dated July 19,
                 2002, among the Registrant and Bechtel Corporation (filed as
                 Exhibit 10.49 to the December 26, 2002 Form 10-KSB and
                 incorporated herein by reference).

   21.1          List of Subsidiaries of Registrant (filed as Exhibit 21.1 to
                 the December 26, 2002 Form 10-KSB and incorporated herein by
                 reference).

   24.1          Power of Attorney (included on the signature page attached
                 hereto).

   99.1 *        Certification pursuant to Section 906 of the Sarbanes-Oxley
                 Act of 2002.

   99.2 *        Certification pursuant to Section 906 of the Sarbanes-Oxley
                 Act of 2002.
</Table>

----------

* Filed herewith.


                                      101
<PAGE>


(b)      REPORTS ON FORM 8-K

         On September 11, 2002, we filed a Form 8-K announcing that we had
entered into our common stock purchase agreement with Fusion Capital. No
financial statements were reported as part of this Form 8-K.

         On August 14, 2002, we filed a Form 8-K including two certifications
from our principal executive officer and principal financial officer with
respect to our Form 10-QSB for the period ended June 30, 2002, which
certifications are required by Section 906 of the Sarbanes-Oxley Act of 2002. No
financial statements were reported as part of this Form 8-K.

ITEM 14.  CONTROLS AND PROCEDURES

         Within the 90 days prior to the filing date of this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Securities Exchange Act Rule 15d-15. Our management,
including the Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures will prevent all error and
all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected. Our Chief Executive Officer and Chief Financial Officer have
concluded, based on our evaluation of our disclosure controls and procedures,
that our disclosure controls and procedures under Rule 13a-14(c) and Rule
15d-14(c) of the Securities Exchange Act of 1934 are effective.

         Subsequent to our evaluation, there were no significant changes in
internal controls or other factors that could significantly affect these
internal controls.


                                      102
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                    PROBEX CORP.



April 17, 2003                      By: /s/ Charles M. Rampacek
                                        ---------------------------------------
                                        Charles M.  Rampacek
                                        Chairman of the Board, President,
                                        Chief Executive Officer and Director


                                      103
<PAGE>

                                 CERTIFICATIONS

         I, Charles M. Rampacek, certify that:

         1. I have reviewed this second amendment to annual report on Form
10-KSB of Probex Corp;

         2. Based on my knowledge, this amended annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this amended annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this amended annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this amended annual
report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;

                  a. Designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this amended annual
         report is being prepared;

                  b. Evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this amended annual report (the "Evaluation Date"); and

                  c. Presented in this amended annual report our conclusions
         about the effectiveness of this disclosure controls and procedures
         based on our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  a. All significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  b. Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this amended annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  April 17, 2003

By:    /s/ Charles M. Rampacek
       -----------------------
       Charles M.  Rampacek
       Chairman of the Board, Chief Executive Officer, President, and Director


                                      104
<PAGE>


         I, Bruce A.  Hall, certify that:

         1. I have reviewed this second amendment to annual report on Form
10-KSB of Probex Corp;

         2. Based on my knowledge, this amended annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this amended annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this amended annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this amended annual
report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;

                  a. Designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this amended annual
         report is being prepared;

                  b. Evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this amended annual report (the "Evaluation Date"); and

                  c. Presented in this amended annual report our conclusions
         about the effectiveness of this disclosure controls and procedures
         based on our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  a. All significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  b. Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this amended annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    April 17, 2003


By:      /s/ Bruce A. Hall
         -----------------
         Bruce A.  Hall
         Senior Vice President and Chief Financial Officer


                                      105
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>

 3.1           Certificate of Incorporation (filed as Exhibit 3.1 to the
               Registrant's Form 10-SB/A dated February 1, 2000 (the "Form
               10-SB/A") and incorporated herein by reference).

 3.2           Certificate of Amendment to the Certificate of Incorporation of
               the Registrant filed April 20, 2001 (filed as Exhibit 3.2 to the
               Registrant's Registration Statement on Form SB-2, File No.
               333-101453, filed on November 25, 2002 (the "November 25, 2002
               Form SB-2") and incorporated herein by reference).

 3.3           Certificate of Amendment to the Certificate of Incorporation of
               the Registrant filed April 20, 2001 (filed as Exhibit 3.3 to the
               November 25, 2002 Form SB-2 and incorporated herein by
               reference).

 3.4           Bylaws of the Registrant (filed as Exhibit 3.2 to the
               Registrant's Form 10-SB dated December 21, 1999 (the "Form
               10-SB") and incorporated herein be reference).

 4.1           Form of Common Stock Certificate (filed as Exhibit 4.1 to the
               Form 10-SB and incorporated herein by reference.)

 4.2           Form of Series A 10% Cumulative Convertible Preferred Stock
               Certificate (filed as Exhibit 4.2 to the 2000 Form 10-KSB for the
               fiscal year ended September 30, 2000 (the "2000 Form 10-KSB") and
               incorporated herein by reference).
</Table>


<PAGE>


<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
 4.3.1         Form of Class "F" Warrants, at $1.00 per share, post-split,
               expiring April 26, 2001 (filed as Exhibit 4.3.1 to the Form 10-SB
               and incorporated herein by reference).

 4.3.2         Form of Class "H" Warrants, at $1.00 per share, post-split,
               expiring April 26, 2001 (filed as Exhibit 4.3.2 to the Form 10-SB
               and incorporated herein by reference).

 4.3.3         Form of Class "K" Warrants, at $0.20 per share, post-split,
               expiring April 26, 2001 (filed as Exhibit 4.3.3 to the Form 10-SB
               and incorporated herein by reference).

 4.3.4        Form of Class "N" Warrants, at $1.00 per share, expiring from
              August 15, 2002 to June 8, 2003 (filed as Exhibit 4.3.4 to the
              Form 10-SB and incorporated herein by reference).

 4.3.5        Form of Class "P" Warrants, at $0.20 per share, expiring
              September 2, 2003 (filed as Exhibit 4.3.6 to the Form 10-SB and
              incorporated herein by reference).

 4.3.6        Form of Class "Q-a" Warrants, at $0.55 per share, expiring
              April 16, 2004 (filed as Exhibit 4.3.8 to the Form 10-SB and
              incorporated herein by reference).

 4.3.7        Form of Class "R" Warrants, at $1.00 per share, expiring June
              4, 2001 (filed as Exhibit 4.3.9 to the Form 10-SB and
              incorporated herein by reference).

 4.3.8        Form of Class "R-a" Warrants, at $0.55 per share, expiring June
              4, 2004 (filed as Exhibit 4.3.10 to the Form 10-SB and
              incorporated herein by reference).

 4.3.9        Form of Class "S" Warrants, at $0.50 to $1.00 per share,
              expiring from August 28, 2002 to October 28, 2004 (filed as
              Exhibit 4.3.11 to the Form 10-SB and incorporated herein by
              reference).

 4.3.10       Form of Class "T" Warrants, at $0.50 per share, expiring
              December 1, 2003 (filed as Exhibit 4.3.12 to the Form 10-SB/A
              and incorporated herein by reference).

 4.3.11       Form of Class "U" Warrants, at $0.50 per share, expiring
              January 31, 2004 (filed as Exhibit 4.3.13 to the Form 10-SB/A
              and incorporated herein by reference).

 4.3.12       Form of Class "V" Warrants, at $1.875 per share, expiring
              December 15, 2004 (filed as Exhibit 4.3.14 to the Registrant's
              Form 10-QSB for the quarter ended December 31, 1999 (the
              "December 1999 10-QSB" ) and incorporated herein by reference).

 4.3.13       Form of Class "W" Warrants, at $1.00 per share, expiring
              October 5, 2001 (filed as Exhibit 4.3.15 to the Registrant's
              Form 10-QSB for the quarter ended March 31, 2000 (the "March
              2000 10-QSB") and incorporated herein by reference).

 4.3.14       Warrant to purchase 200,000 shares of the Registrant's common
              stock granted to Bechtel Corporation, at $3.00 per share,
              expiring on February 28, 2002 (filed as Exhibit 4.3.16 to the
              March 2000 10-QSB and incorporated herein by reference).

 4.3.15       Warrant to purchase 200,000 shares of the Registrant's common
              stock granted to Bechtel Corporation, at an exercise price of
              $3.00 per share and expiring on June 27, 2002 (filed as Exhibit
              4.3.14.2 to the 2000 Form 10-KSB and incorporated herein by
              reference).

 4.3.16       Form of Class "Y" Warrants, at $2.70 per share, expiring
              December 15, 2004 (filed as Exhibit 4.3.17 to the March 2000
              10-QSB and incorporated herein by reference).
</Table>


<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>

 4.3.17       Form of Class "Z" Warrants, at $3.00 per share, expiring June
              21, 2005 (filed as Exhibit 4.3.16 to the 2000 Form 10-KSB and
              incorporated herein by reference).

 4.3.18       Form of Class "AA" Warrants, at $3.12 per share, expiring May
              23, 2005 (filed as Exhibit 4.3.17 to the 2000 Form 10-KSB and
              incorporated herein by reference).

 4.3.19       Form of Class "AC" Warrants, at $1.9625 per share, expiring on
              November 2, 2005 (filed as Exhibit 4.3.18 to the 2000 Form
              10-KSB and incorporated herein by reference).

 4.3.20       Form of Class "AD" Warrants, exercisable at $1.9625 per share,
              expiring November 2, 2005 (filed as Exhibit 4.3.19 to the
              Registrant's Form 10-QSB for the quarter ended December 31,
              2000 (the "December 2000 10-QSB") and incorporated herein by
              reference).

 4.3.21       Form of Class "AE" Warrants, exercisable at $1.40 per share,
              expiring November 28,2003 (filed as Exhibit 4.3.20 to the
              December 2000 10-QSB and incorporated herein by reference).

 4.3.22       Form of Class "AG" Warrants, exercisable at $1.40 per share,
              expiring November 29,2005 (filed as Exhibit 4.3.21 to the
              December 2000 10-QSB and incorporated herein by reference).

 4.3.23       Form of Class "AH" Warrants, exercisable at $1.40 per share,
              expiring December 26,2005 (filed as Exhibit 4.3.22 to the
              December 2000 10-QSB and incorporated herein by reference).

 4.3.24       Form of Class "AI" Warrants, exercisable at $1.243 per share,
              expiring February 12, 2006 (filed as Exhibit 4.3.24 to the
              Registrant's Form 10-QSB for the quarter ended March 31,
              2001(the "March 2001 10-QSB") and incorporated herein by
              reference).

 4.3.25       Warrant to purchase 250,000 shares of the Registrant's common
              stock issued to United Infrastructure Company, L.L.C.,
              exercisable at $1.40 per share and expires on January 31, 2006
              (filed as Exhibit 4.3.25 to the Registrant's Form 10-KSB dated
              January 14, 2002 (the "2001 10-KSB") and incorporated herein by
              reference).

 4.3.26       Form of Class "AK" Warrants, exercisable at $1.579 per share,
              expiring April 30, 2006 (filed as Exhibit 4.3.25 to the March
              2001 10-QSB and incorporated herein by reference).

 4.3.27       Form of Class "AK-A" Warrants, exercisable at $1.243 per share
              (subject to adjustment) and expiring on September 1, 2006
              (filed as Exhibit 4.3.27 to the 2001 10-KSB and incorporated
              herein by reference).

 4.3.28       Form of Class "AL" Warrant, which expire ten years from the
              date of issuance (subject to certain conditions which may cause
              the warrant to expire earlier) and have an exercise price
              ranging from $1.47 to $1.75 (filed as Exhibit 4.3.26 to the
              Registrant's Form 10-QSB for the quarter ended June 30, 2001
              (the "June 2001 10-QSB") and incorporated herein by reference).

 4.3.29       Warrant to purchase 275,000 shares of the Registrant's common
              stock issued to Single Spur Investments, L.L.C., which expires
              September 13, 2006 and has an exercise price of $1.243 (subject
              to adjustment) (filed as Exhibit 4.3.29 to the 2001 10-KSB and
              incorporated herein by reference).

 4.3.30       Form of Class "AO" Warrant, which expires five years from the
              date of issuance and an exercise price per share equal to
              $0.75, subject to adjustment under ratchet provisions (filed as
              Exhibit 4.3.27 to the Registrant's Form 10-QSB for the period
              ended March 31, 2002 (the "March 2002 10-QSB") and incorporated
              herein by reference).
</Table>


<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
 4.3.31       Form of Class "AM" Warrants, exercisable at $1.243 per share
              (subject to adjustment), and expiring on September 13, 2006
              (filed as Exhibit 4.3.31 to the November 25, 2002 Form SB-2 and
              incorporated herein by reference).

 4.3.32       Form of Class "AR" Warrants, exercisable at $0.75 per share
              (subject to adjustment), and expiring on April 1, 2007 (filed
              as Exhibit 4.3.32 to the November 25, 2002 Form SB-2 and
              incorporated herein by reference).

 4.3.33       Form of Class "AS" Warrants, exercisable at $0.75 per share
              (subject to adjustment), and expiring on July 29, 2007(filed as
              Exhibit 4.3.33 to the December 26, 2002 Form 10-KSB and
              incorporated herein by reference).

 4.3.34       Form of Class "AS-a" Warrants, exercisable at $0.75 per share
              (subject to adjustment), and expiring on July 29, 2007(filed as
              Exhibit 4.3.34 to the December 26, 2002 Form 10-KSB and
              incorporated herein by reference).

4.3.35        Form of Class "AT" Warrants, exercisable at $0.75 per share, and
              expiring on September 27, 2007(filed as Exhibit 4.3.35 to the
              December 26, 2002 Form 10-KSB and incorporated herein by
              reference).

 10.1.1        1999 Omnibus Stock and Incentive Plan, as amended and restated,
               of the Registrant (filed as Exhibit 10.1 to the 2000 Form 10-KSB
               and incorporated herein by reference).

 10.1.2        First Amendment to 1999 Omnibus Stock and Incentive Plan as
               amended and restated dated January 5, 2001 (filed as Exhibit
               10.1.2 to the 2001 10-KSB and incorporated herein by reference).

 10.2          Amended and Restated Investor Rights Agreement between HSB
               Engineering Finance Corporation, Inc., a Delaware corporation,
               and the Registrant, effective as of June 2, 2000 (filed as
               Exhibit 10.2 to the 2000 Form 10-KSB and incorporated herein by
               reference).

 10.3          Financial Advisory Fee Agreement between Silver Lake Industries,
               Inc., a Texas corporation, Brycap Investments, Inc., a Texas
               corporation, and the Registrant, dated as of March 29, 2000
               (filed as Exhibit 10.9 to the Form 10-SB and incorporated herein
               by reference).

 10.4          Financial Consulting Services Agreement between Travis Morgan
               Securities, Inc. and the Registrant, dated as of April 16, 1999
               (filed as Exhibit 10.10 to the Form 10-SB and incorporated herein
               by reference).

 10.5          Option to Purchase or Lease Agreement between Columbiana County
               Port Authority, a body of corporate and politic, and the
               Registrant, dated as of June 1999 (filed as Exhibit 10.11 to the
               Form 10-SB and incorporated herein by reference).

 10.6          Financial Consulting Services Agreement between National Capital
               Merchant Group, Ltd., a Bahamian company, and the Registrant,
               dated as of June 7, 1999 (filed as Exhibit 10.12 to the Form
               10-SB and incorporated herein by reference).

 10.7          Financial Advisory Fee Agreement between William M. Noble, Jr.,
               an individual resident of the State of Texas, and the Registrant,
               dated as of June 28, 1999 (filed as Exhibit 10.13 to the Form
               10-SB and incorporated herein by reference).

 10.8          Placement Agent Agreement between APS Financial Corporation, a
               Colorado corporation, and the Registrant, dated as of July 21,
               1999 (filed as Exhibit 10.14 to the Form 10-SB and incorporated
               herein by reference).

 10.9          Financial Advisory Fee Agreement between APS Financial
               Corporation, a Colorado corporation, and the Registrant, dated as
               of August 6, 1999 (filed as Exhibit 10.15 to the Form 10-SB and
               incorporated herein by reference).
</Table>


<PAGE>


<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
   10.10       Financial Advisory Fee Agreement between Michael D. Billings, an
               individual resident of the State of Texas, and the Registrant,
               dated as of May 7, 1999 (filed as Exhibit 10.17 to the Form 10-SB
               and incorporated herein by reference).

   10.11       Fee Agreement between Enventures Capital, LLC, a Massachusetts
               limited liability company, and the Registrant, dated as of
               January 17, 2000 (filed as Exhibit 10.17 to the Form 10-SB/A and
               incorporated herein by reference).

   10.12       Memorandum of Understanding between Bechtel Corporation and the
               Registrant, effective January 1, 2000. (Confidential Treatment
               granted by the Securities and Exchange Commission. Confidential
               parts of this document have been redacted and have been
               separately filed with the Securities and Exchange Commission.)
               (filed as Exhibit 10.18 to the March 2000 10-QSB and incorporated
               herein by reference).

   10.13.1     Asset Purchase Agreement dated as of May 1, 2000, by and among
               Probex Fluids Recovery, Inc., the Registrant, Petroleum Products,
               Inc. and William and Phyllis L. Snedegar (filed as Exhibit 99.1
               to the Registrant's Form 8-K dated May 1, 2000 and filed May 16,
               2000 (the "May 2000 8-K") and incorporated herein by reference).

   10.13.2     Promissory Note dated as of May 1, 2000, made by the Registrant
               in favor of Petroleum Products, Inc. in the aggregate principal
               amount of $1.5 million (filed as Exhibit 99.3 to the May 2000 8-K
               and incorporated herein by reference).

   10.14       Asset Purchase Agreement dated as of May 1, 2000, by and among
               Probex Fluids Recovery, Inc., the Registrant, Intercoastal
               Trading Company, Inc., William Snedegar, and William Keith Mills
               (filed as Exhibit 99.2 to the May 2000 8-K and incorporated
               herein by reference).

   10.15       Financial Advisory Agreement between Stonegate Securities, Inc.
               and the Registrant, dated as of May 23, 2000 (filed as Exhibit
               10.21 to the Registrant's Form 10-QSB for the quarter ended June
               30, 2000 (the "June 2000 10-QSB") and incorporated herein by
               reference).

   10.16       Convertible Promissory Note dated August 30, 2000, as amended,
               made by the Registrant in favor of General Conference of
               Seventh-day Adventists in the aggregate principal amount of $1.5
               million (filed as Exhibit 10.18 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.17.1     Asset Purchase Agreement dated as of September 6, 2000, by and
               between the Registrant and Pennzoil-Quaker State Company (filed
               as Exhibit 10.22 to the Registrant's Form 8-K dated October 16,
               2000 (the "October 2000 8-K") and incorporated herein by
               reference).

   10.17.2     First Amendment to the Asset Purchase Agreement, dated as of
               September 29, 2000, by and among the Registrant, Probex Fluids
               Recovery, Inc. and Pennzoil-Quaker State Company (filed as
               Exhibit 10.22.1 to the October 2000 8-K and incorporated herein
               by reference).

   10.17.3     Security Agreement dated as of September 29, 2000, executed by
               Probex Fluids Recovery, Inc., which secures all of the assets of
               Probex Fluids Recovery, Inc. under the Promissory Note of even
               date (filed as Exhibit 10.25 to the October 2000 8-K and
               incorporated herein by reference).

   10.17.4     Used Product Collection Agreement dated as of September 29, 2000,
               by and between Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company (filed as Exhibit 10.26 to the October 2000 8-K and
               incorporated herein by reference).
</Table>


<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
   10.17.5     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Tampa, Florida (filed as
               Exhibit 10.27 to the October 2000 8-K and incorporated herein by
               reference).

   10.17.6     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Atlanta, Georgia (filed as
               Exhibit 10.28 to the October 2000 8-K and incorporated herein by
               reference).

   10.17.7     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Baton Rouge, Louisiana (filed
               as Exhibit 10.29 to the October 2000 8-K and incorporated herein
               by reference).

   10.17.8     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Shreveport, Louisiana (filed
               as Exhibit 10.30 to the October 2000 8-K and incorporated herein
               by reference).

   10.17.9     Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at Houston, Texas (filed as
               Exhibit 10.31 to the October 2000 8-K and incorporated herein by
               reference).

   10.17.10    Services Agreement dated as of September 29, 2000, by and among
               the Registrant, Probex Fluids Recovery, Inc. and Pennzoil-Quaker
               State Company for the operations at San Antonio, Texas (filed as
               Exhibit 10.32 to the October 2000 8-K and incorporated herein by
               reference).

   10.18.1     Stock Purchase Agreement dated as of October 12, 2000, by and
               between the Registrant and United Infrastructure Company LLC
               (filed as Exhibit 10.20.1 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.18.2     Registration Rights Agreement dated as of October 12, 2000, by
               and between the Registrant and United Infrastructure Company LLC
               (filed as Exhibit 10.20.2 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.19.1     Note Purchase Agreement dated as of November 29, 2000, by and
               among the Registrant, Probex Fluids Recovery, Inc., Wilmington
               Trust Company, as collateral agent, and the purchasers named
               therein (filed as Exhibit 10.22.1 to the 2000 Form 10-KSB and
               incorporated herein by reference).

   10.19.2     First Amendment to Note Purchase Agreement, effective as of July
               5, 2001, by and among the Registrant, Probex Fluids Recovery,
               Inc. and the holders of the 7% Senior Secured Convertible Notes
               Due 2004 (filed as Exhibit 10.22.2 to the 2001 10-KSB and
               incorporated herein by reference).

   10.19.3     Form of 7% Senior Secured Convertible Notes Due 2004 issued by
               Probex Fluids Recovery, Inc., which are secured by the assets of
               Probex Fluids Recovery, Inc., guaranteed by the Registrant and
               convertible into the Registrant's common stock (filed as Exhibit
               10.22.2 to the 2000 Form 10-KSB and incorporated herein by
               reference).

   10.19.3.1   Form of Waiver and Consent and First Amendment to 7% Senior
               Secured Convertible Notes due November 29, 2004 (filed as Exhibit
               10.22.3.1 to the Registrant's Form 10-QSB for the period ended
               June 30, 2002 (the "June 2002 10-QSB") and incorporated herein by
               reference).
</Table>


<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>
   10.19.4       Guaranty dated as of November 29, 2000, from the Registrant to
                 and for the benefit of the holders of the 7% Senior Secured
                 Convertible Notes and acknowledged by Wilmington Trust Company,
                 as collateral agent (filed as Exhibit 10.22.3 to the 2000 Form
                 10-KSB and incorporated herein by reference).

   10.19.5       Security Agreement dated as of November 29, 2000, by and
                 between Probex Fluids Recovery, Inc., Wilmington Trust Company,
                 as collateral agent, which secures all the obligations of
                 Probex Fluids Recovery, Inc. under the 7% Senior Secured
                 Convertible Notes (filed as Exhibit 10.22.4 to the 2000 Form
                 10-KSB and incorporated herein by reference).

   10.19.6       Pledge Agreement dated as of November 29, 2000, by and between
                 the Registrant and Wilmington Trust Company, as collateral
                 agent, under which the Registrant pledges its ownership in all
                 of the outstanding shares of Probex Fluids Recovery, Inc. as
                 security for the obligations under those certain 7% Senior
                 Secured Convertible Notes (filed as Exhibit 10.22.5 to the 2000
                 Form 10-KSB and incorporated herein by reference).

   10.19.7       Intercreditor and Collateral Agency Agreement dated as of
                 November 29, 2000, by and among the Registrant, Probex Fluids
                 Recovery, Inc., Wilmington Trust Company, as collateral agent,
                 and the purchasers named therein (filed as Exhibit 10.22.6 to
                 the 2000 Form 10-KSB and incorporated herein by reference).

   10.19.8       Escrow Agreement dated as of November 29, 2000, by and between
                 Probex Fluids Recovery, Inc. and Wilmington Trust Company for
                 the benefit of the holders of the 7% Senior Secured Convertible
                 Notes (filed as Exhibit 10.22.7 to the 2000 Form 10-KSB and
                 incorporated herein by reference).

   10.20         Financial Advisory Fee Agreement, dated as of October 11, 2000,
                 by and between the registrant and Credit Suisse First Boston
                 Corporation (filed as Exhibit 10.23 to the December 2000 10-QSB
                 and incorporated herein by reference).

   10.21         Strategic Alliance Agreement, dated as of February 2, 2001, by
                 and between Bechtel Corporation and the Registrant
                 (Confidential treatment granted by the Securities and Exchange
                 Commission. Confidential portions of this document have been
                 redacted and have been separately filed with the Securities and
                 Exchange Commission) (filed as Exhibit 10.24 to the March 2001
                 10-QSB and incorporated herein by reference).

   10.22         Stock Purchase Agreement, dated as of February 2, 2001, by and
                 between United Infrastructure Company, LLC and the Registrant
                 (filed as Exhibit 10.25 to the March 2001 10-QSB and
                 incorporated herein by reference).

   10.23         Registration Rights Agreement, dated as of February 2, 2001, by
                 and between United Infrastructure Company, LLC and the
                 Registrant (filed as Exhibit 10.26 to the March 2001 10-QSB and
                 incorporated herein by reference).

   10.24.1       Form of Promissory Notes, dated as of February 20, 2001, in the
                 aggregate principal amount of $3 million made by the Registrant
                 in favor of lenders as amended by those certain Allonges to the
                 Notes (filed as Exhibit 10.27.1 to the 2001 10-KSB and
                 incorporated herein by reference).

   10.24.2       Security Agreement dated as of February 20, 2001, by and among
                 the Registrant, Cambridge Strategies Group, LLC, as collateral
                 agent, and the secured parties named therein, which secures the
                 obligations of the Registrant under those certain promissory
                 notes of even date (filed as Exhibit 10.27.2 to the 2001 10-KSB
                 and incorporated herein by reference).
</Table>


<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER          DESCRIPTION
-------         -----------
<S>             <C>

   10.25.1       Form of Promissory Notes, dated from April 30, 2001 to July 13,
                 2001, in aggregate principal amount of $1.83 million made by
                 the Registrant in favor of lenders as amended by those certain
                 Allonges to the Notes (filed as Exhibit 10.28.1 to the 2001
                 10-KSB and incorporated herein by reference).

   10.25.2       Security Agreement dated as of July 13, 2001, by and among the
                 Registrant, Falcon Capital Management, as collateral agent, and
                 the secured parties named therein, which secures the
                 obligations of the Registrant under those certain promissory
                 notes described in Exhibit 10.28.1 above (filed as Exhibit
                 10.28.2 to the 2001 10-KSB and incorporated herein by
                 reference).

   10.26.1       Loan Agreement dated as of September 7, 2001, by and among the
                 Registrant and the lenders named therein (filed as Exhibit
                 10.29.1 to the 2001 10-KSB and incorporated herein by
                 reference).

   10.26.2       Form of Promissory Notes, dated as of September 7, 2001, in the
                 aggregate principal amount of $3 million made by the Registrant
                 in favor of the lenders named in the Loan Agreement set forth
                 in Exhibit 10.29.1 above (filed as Exhibit 10.29.2 to the 2001
                 10-KSB and incorporated herein by reference).

   10.26.3       Intercreditor and Security Agreement, dated as of September 7,
                 2001, by and among the Registrant and United Infrastructure
                 Company, LLC, as collateral agent, and the secured parties
                 named therein, which secures the obligations of the Registrant
                 under those certain promissory notes described in Exhibit
                 10.29.2 above (filed as Exhibit 10.29.3 to the 2001 10-KSB and
                 incorporated herein by reference).

   10.26.4       Registration Rights Agreement, dated as of September 7, 2001,
                 by and among the Registrant and the investors named therein
                 (filed as Exhibit 10.29.4 to the 2001 10-KSB and incorporated
                 herein by reference).

   10.27.1       Promissory Note, dated as of September 13, 2001, in the
                 aggregate principal amount of $500,000 made by the Registrant
                 in favor of Single Spur Investments, LLC as amended by that
                 certain Allonge to the Note (filed as Exhibit 10.30.1 to the
                 2001 10-KSB and incorporated herein by reference).

   10.27.2       Security Agreement dated as of September 13, 2001, by and
                 between the Registrant Single Spur Investments, LLC, as secured
                 party, which secures the obligations of the Registrant under
                 that certain promissory note described in Exhibit 10.30.1 above
                 (filed as Exhibit 10.30.2 to the 2001 10-KSB and incorporated
                 herein by reference).

   10.28         Stock Purchase Agreement dated as of December 21, 2001, by and
                 between the Registrant and General Conference Corporation of
                 Seventh-day Adventists under which General Conference
                 Corporation of Seventh-day Adventists purchased 1,342,282
                 shares, subject to upward adjustments, of the Registrant's
                 common stock at $0.745 per share (filed as Exhibit 10.31 to the
                 December 2001 10-QSB and incorporated herein by reference).

   10.29         Stock Purchase Agreement dated as of January 15, 2002, by and
                 among the Registrant and accounts of Zesiger Capital Group, LLC
                 (filed as Exhibit 10.32 to the December 2001 10-QSB and
                 incorporated herein by reference).

   10.30.1       Form of Loan Agreement by and among the Registrant and the
                 lenders named therein (filed as Exhibit 10.33.1 to the March
                 2002 10-QSB and incorporated herein by reference).

   10.30.2       Form of Convertible Promissory Note made by the Registrant in
                 favor of the lenders named in the Loan Agreement (filed as
                 Exhibit 10.33.2 to the March 2002 10-QSB and incorporated
                 herein by reference).
</Table>


<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>

   10.30.3       Intercreditor and Security Agreement, dated as of March 29,
                 2002, by and among the Registrant, the collateral agent and the
                 secured parties named therein, which secures the obligations of
                 the Registrant under those certain promissory notes described
                 in Exhibit 10.33.2 above and short-term notes previously issued
                 by the Registrant (filed as Exhibit 10.33.3.2 to the March 2002
                 10-QSB and incorporated herein by reference).

   10.30.3.1     First Amendment to Intercreditor and Security Agreement, dated
                 as of July 26, 2002, by and among the Registrant, the
                 collateral agent and the secured parties named therein (filed
                 as Exhibit 10.33.3.1 to the June 2002 10-QSB and incorporated
                 herein by reference).

   10.31.1       Loan Extension and Modification Agreement, dated as of March
                 29, 2002, by and among the Registrant and the lenders named
                 therein (filed as Exhibit 10.34.1 to the March 2002 10-QSB and
                 incorporated herein by reference).

   10.31.2       Form of Amended and Restated Convertible Promissory Note made
                 by the Registrant in favor of the lenders named in the Loan
                 Extension and Modification Agreement filed as Exhibit 10.34.1.
                 These notes replace the forms of notes previously filed as
                 Exhibits 10.27.1, 10.28.1 and 10.30.1 to the Registrant's Form
                 10-KSB for the fiscal year ended September 30, 2001.

   10.32         Agreement for Engineering, Procurement and Construction
                 Services, by and between Probex Wellsville, L.P., as owner,
                 and Petrofac LLC, as contractor, dated as of April 11, 2002
                 (filed separately with the Securities and Exchange Commission
                 in connection with the June 2002 10-QSB pursuant to a request
                 for confidential treatment).

   10.33.1       Loan Agreement, dated as of July 26, 2002, by and among the
                 Registrant and the lenders named therein (filed as Exhibit
                 10.36.1 to the June 2002 10-QSB and incorporated herein by
                 reference).

   10.33.2       Form of Convertible Promissory Note made by the Registrant in
                 favor of the lenders named in the Loan Agreement set forth as
                 Exhibit 10.36.1 above (filed as Exhibit 10.36.2 to the June
                 2002 10-QSB and incorporated herein by reference).

   10.34         Retirement, Profit Sharing/401(k) Plan for the Registrant dated
                 December 5, 2001 (filed as Exhibit 10.34 to the November 25,
                 2002 Form SB-2 and incorporated herein by reference).

   10.35         Second Amendment to Investor Rights Agreement between HSB
                 Engineering Finance Corporation, Inc. and the Registrant,
                 effective as of April 26, 2002 (filed as Exhibit 10.35 to the
                 November 25, 2002 Form SB-2 and incorporated herein by
                 reference).

   10.36         Option to Purchase Agreement and Extension, between Columbiana
                 County Port Authority and the Registrant, dated as of June 19,
                 2002 (filed as Exhibit 10.36 to the November 25, 2002 Form SB-2
                 and incorporated herein by reference).

   10.37         Employment Agreement, dated as of June 12, 2000, by and between
                 David J. McNiel and the Registrant (filed as Exhibit 10.37 to
                 the November 25, 2002 Form SB-2 and incorporated herein by
                 reference).

   10.38         Employment Agreement, dated as of August 1, 2000, by and
                 between Charles M. Rampacek and the Registrant (filed as
                 Exhibit 10.38 to the November 25, 2002 Form SB-2 and
                 incorporated herein by reference).
</Table>


<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>

   10.39         Form of Registration Rights Agreement among the Registrant and
                 Fusion Capital Fund II, LLC (filed as Exhibit 10.39 to the
                 November 25, 2002 Form SB-2 and incorporated herein by
                 reference).

   10.40         Lease Agreement, effective as of June 1, 2002, among Tom
                 Taylor, Arch Jacobson and Estate of James Moran and the
                 Registrant (filed as Exhibit 10.40 to the November 25, 2002
                 Form SB-2 and incorporated herein by reference).

   10.41         Form of Loan Extension and Modification Agreement among the
                 Registrant and the lenders named therein (filed as Exhibit
                 10.41 to the November 25, 2002 Form SB-2 and incorporated
                 herein by reference).

   10.42         Common Stock Purchase Agreement, dated as of August 29, 2002,
                 among the Registrant and Fusion Capital Fund II, LLC (filed as
                 Exhibit 10.37 to the Registrant's Form 8-K dated September 11,
                 2002 and incorporated herein by reference).

   10.43         Form of Registration Rights Agreement among the Registrant and
                 certain holders of Series A Preferred Stock (filed as Exhibit
                 10.43 to the November 25, 2002 Form SB-2 and incorporated
                 herein by reference).

   10.44         Technology License Agreement dated December 6, 2002 (filed
                 separately with the Securities and Exchange Commission pursuant
                 to a request for confidential treatment).

   10.45         Shareholders Agreement dated December 6, 2002 (filed separately
                 with the Securities and Exchange Commission pursuant to a
                 request for confidential treatment).

   10.46         Extension to Option Agreement between Columbiana County Port
                 Authority and the Registrant, dated as of November 18, 2002
                 (filed as Exhibit 10.46 to the December 26,2002 Form 10-KSB and
                 incorporated herein by reference).

   10.46.1       Form of Letter Agreement extending the Option to Purchase
                 Agreement between Columbiana County Port Authority and the
                 Registrant, dated as of February 26, 2003 (filed as Exhibit
                 10.46.1 to the March 19, 2003 Form 10-KSB/A and incorporated
                 herein by reference).

   10.47         Secured Promissory Note, dated as of December 31, 2000, among
                 the Registrant and Bruce A. Hall(filed as Exhibit 10.47 to the
                 December 26, 2002 Form 10-KSB and incorporated herein by
                 reference).

   10.48         Pledge Agreement, dated as of December 31, 2000, among the
                 Registrant and Bruce A. Hall(filed as Exhibit 10.48 to the
                 December 26, 2002 Form 10-KSB and incorporated herein
                 by reference).

   10.49         Alliance Termination and Amendment Agreement, dated July 19,
                 2002, among the Registrant and Bechtel Corporation(filed as
                 Exhibit 10.49 to the December 26, 2002 Form 10-KSB and
                 incorporated herein by reference).

   21.1          List of Subsidiaries of Registrant(filed as Exhibit 21.1 to the
                 December 26, 2002 Form 10-KSB and incorporated herein by
                 reference).

   24.1          Power of Attorney (included on the signature page attached
                 hereto).

   99.1 *        Certification pursuant to Section 906 of the Sarbanes-Oxley
                 Act of 2002.

   99.2 *        Certification pursuant to Section 906 of the Sarbanes-Oxley
                 Act of 2002.
</Table>

----------

* Filed herewith.