UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


_________________





FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the quarterly period ended March 31,
2009





OR





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the transition period from ____________
to ________





Commission
File No. 000-25367


________________





INTERNATIONAL
FUEL TECHNOLOGY, INC.


(Exact
name of registrant as specified in its charter)





Nevada
              (State
      or other jurisdiction of incorporation or organization)
            88-0357508
              (I.R.S.
      Employer Identification No.)7777
      Bonhomme, Suite 1920
              St.
      Louis, Missouri
              (Address
      of principal executive offices)
            63105
              (Zip
      Code)(314)
      727-3333
              (Registrant’s
      telephone number, including area
code)


_________________





Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 xNo  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes  ̈No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of  “large accelerated filer,”
“accelerated filer” and “smaller reporting company”  in Rule 12b-2 of
the Exchange Act.





(Check
one)


Large
      accelerated filer   ̈
            
            Accelerated
      filer   ̈
            
            Non-accelerated
      filer   ̈
            
            Smaller
      reporting company  x(Do
      not check if a smallerreporting
      company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  ̈No x





The
number of shares outstanding of registrant's only class of stock as of May 5,
2009: Common stock, par value $0.01 per share – 101,256,284 shares
outstanding.











INDEX








PAGE
      NO.PART
      I.  FINANCIAL INFORMATIONItem
      1.  Financial Statements (Unaudited)Balance Sheets — March 31, 2009 and December 31,
      2008
            2Statements of Operations — Three-Month Periods Ended
      March 31, 2009 and March 31, 2008
            3Statement of Stockholders’ Equity —
      Three-Month Period Ended March 31, 2009
            4Statements of Cash Flows — Three-Month Periods Ended
      March 31, 2009 and March 31, 2008
            5Notes to Financial Statements
            6Item 2.  Management’s Discussion and Analysis
      of Financial Condition and Results of Operations
            11Item 4(T).  Controls and
      Procedures
            18PART II.  OTHER INFORMATIONItem 1.  Legal Proceedings
            18Item 2.  Unregistered Sales of Equity
      Securities and Use of Proceeds
            19Item 5.  Other Information
            20Item 6.  Exhibits
            20








1


INTERNATIONAL
FUEL TECHNOLOGY, INC.




BALANCE
SHEETS




March
      31,
                                    
                                    
                                    December
      31,2009
                                    
                                    
                                    2008ASSETS
                                    
                                    (Unaudited)Current
      assetsCash
      and cash equivalents
                                    
                                    $
                                    4,676,086
                                    
                                    
                                    $
                                    299,127Accounts
      receivable
                                    
                                    
                                    87,304
                                    
                                    
                                    
                                    94,318Inventory
                                    
                                    
                                    221,770
                                    
                                    
                                    
                                    221,770Prepaid
      expenses and other assets
                                    
                                    
                                    16,504
                                    
                                    
                                    
                                    19,152Total
      Current Assets
                                    
                                    
                                    5,001,664
                                    
                                    
                                    
                                    634,367Property
      and equipmentMachinery,
      equipment and office furniture
                                    
                                    
                                    63,706
                                    
                                    
                                    
                                    63,706Accumulated
      depreciation
                                    
                                    
                                    (54,246
                                    )
                                    
                                    
                                    (52,628
                                    )Net
      Property and Equipment
                                    
                                    
                                    9,460
                                    
                                    
                                    
                                    11,078Goodwill
                                    
                                    
                                    2,211,805
                                    
                                    
                                    
                                    2,211,805Total
      Assets
                                    
                                    $
                                    7,222,929
                                    
                                    
                                    $
                                    2,857,250LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                                    
                                    $
                                    346,043
                                    
                                    
                                    $
                                    252,872Accrued
      compensation
                                    
                                    
                                    19,123
                                    
                                    
                                    
                                    5,048Deferred
      revenue (Note 7)
                                    
                                    
                                    2,998,242
                                    
                                    
                                    
                                    -Other
      accrued expenses (Note 4)
                                    
                                    
                                    350,000
                                    
                                    
                                    
                                    350,000Total
      Current Liabilities
                                    
                                    
                                    3,713,408
                                    
                                    
                                    
                                    607,920Total
      Liabilities
                                    
                                    
                                    3,713,408
                                    
                                    
                                    
                                    607,920Commitments
      and contingenciesStockholders'
      equity (Notes 3 and 4)Common
      stock, $0.01 par value; 150,000,000 authorized, 101,672,284 (net of
      1,040,000 shares held in treasury) and 93,542,284 (net of 520,000 shares
      held in treasury) shares issued and outstanding at March 31, 2009 and
      December 31, 2008, respectively
                                    
                                    
                                    1,027,123
                                    
                                    
                                    
                                    940,623Treasury
      stock (Note 5)
                                    
                                    
                                    (519,000
                                    )
                                    
                                    
                                    (395,000
                                    )Discount
      on common stock
                                    
                                    
                                    (819,923
                                    )
                                    
                                    
                                    (819,923
                                    )Additional
      paid-in capital
                                    
                                    
                                    62,507,411
                                    
                                    
                                    
                                    60,168,501Accumulated
      deficit
                                    
                                    
                                    (58,686,090
                                    )
                                    
                                    
                                    (57,644,871
                                    )Total
      Stockholders' Equity
                                    
                                    
                                    3,509,521
                                    
                                    
                                    
                                    2,249,330Total
      Liabilities and Stockholders' Equity
                                    
                                    $
                                    7,222,929
                                    
                                    
                                    $
                                    2,857,250





See Notes
to Financial Statements.


2





INTERNATIONAL
FUEL TECHNOLOGY, INC.




STATEMENTS OF
OPERATIONS(Unaudited)





Three Months EndedMarch
      31,
                      
                      
                      March
      31,2009
                      
                      
                      2008Revenues
                      
                      $
                      76,331
                      
                      
                      $
                      30,597Operating
      expenses:Cost
      of operations (exclusive of depreciation)
                      
                      
                      8,057
                      
                      
                      
                      28,235Selling,
      general and administrative expense (including stock-based
      compensation expense) (Note 3)
                      
                      
                      1,108,767
                      
                      
                      
                      690,639Depreciation
                      
                      
                      1,618
                      
                      
                      
                      2,129Total
      operating expenses
                      
                      
                      1,118,442
                      
                      
                      
                      721,003Net loss from
      operations
                      
                      
                      (1,042,111
                      )
                      
                      
                      (690,406
                      )Other
      non-operating income (Note 5)
                      
                      
                      -
                      
                      
                      
                      123,836Interest
      income (expense), net
                      
                      
                      892
                      
                      
                      
                      (18,392
                      )Net loss
                      
                      $
                      (1,041,219
                      )
                      
                      $
                      (584,962
                      )Basic
      and diluted net loss per common share
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )Weighted-average
      common shares outstanding
                      
                      
                      95,213,959
                      
                      
                      
                      88,377,493




See Notes
to Financial Statements.


3


INTERNATIONAL
FUEL TECHNOLOGY, INC.





STATEMENT OF STOCKHOLDERS’ EQUITY


FOR
THE THREE-MONTH PERIOD ENDED MARCH 31, 2009


(Unaudited)





Common
      StockShares
              
              
              Common
      StockAmount
              
              
              Treasury
                Stock
              
              
              Discount
      onCommon Stock
              
              
              AdditionalPaid-in
      Capital
              
              
              AccumulatedDeficit
              
              
              TotalBalance,
      December 31, 2008
              
              
              94,062,284
              
              
              $
              940,623
              
              
              $
              (395,000
              )
              
              $
              (819,923
              )
              
              $
              60,168,501
              
              
              $
              (57,644,871
              )
              
              $
              2,249,330Proceeds
      from issuance of stock
              
              
              8,650,000
              
              
              
              86,500
              
              
              
              -
              
              
              
              -
              
              
              
              2,076,000
              
              
              
              -
              
              
              
              2,162,500Shares
      repurchased from Director (Note 5)
              
              
              -
              
              
              
              -
              
              
              
              (124,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (124,000
              )Expense
      relating to stock-based compensation (Note 3)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              262,910
              
              
              
              -
              
              
              
              262,910Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,041,219
              )
              
              
              (1,041,219
              )Balance,
      March 31, 2009
              
              
              102,712,284
              
              
              $
              1,027,123
              
              
              $
              (519,000
              )
              
              $
              (819,923
              )
              
              $
              62,507,411
              
              
              $
              (58,686,090
              )
              
              $
              3,509,521




See Notes
to Financial Statements.


4


INTERNATIONAL
FUEL TECHNOLOGY, INC.





STATEMENTS OF CASH FLOWS


(Unaudited)





Three
      Months Ended
                            
                            
                            Three
      Months EndedMarch
      31,
                            
                            
                            March
      31,2009
                            
                            
                            2008Cash
      flows from operating activities:Net
      loss
                            
                            $
                            (1,041,219
                            )
                            
                            $
                            (584,962
                            )Gain
      on conversion of debt to equity, net of interest expense
                            
                            
                            -
                            
                            
                            
                            (105,137
                            )Shares
      issued for services
                            
                            
                            -
                            
                            
                            
                            8,000Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
                            
                            
                            1,618
                            
                            
                            
                            2,129Loss
      on disposition of property and equipment
                            
                            
                            -
                            
                            
                            
                            3Non-cash
      stock-based compensation
                            
                            
                            388,910
                            
                            
                            
                            27,509Change
      in assets and liabilities:Accounts
      receivable
                            
                            
                            7,014
                            
                            
                            
                            53,469Inventory
                            
                            
                            -
                            
                            
                            
                            31,755Prepaid
      expenses and other assets
                            
                            
                            2,648
                            
                            
                            
                            (39,903
                            )Accounts
      payable
                            
                            
                            93,171
                            
                            
                            
                            131,498Accrued
      compensation
                            
                            
                            14,075
                            
                            
                            
                            (11,879
                            )Deferred
      revenue
                            
                            
                            2,998,242
                            
                            
                            
                            -Net
      cash provided by (used in) operating activities
                            
                            
                            2,464,459
                            
                            
                            
                            (487,518
                            )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                            
                            
                            2,162,500
                            
                            
                            
                            200,000Treasury
      stock purchase from a Director
                            
                            
                            (250,000
                            )
                            
                            
                            -Net
      cash provided by financing activities
                            
                            
                            1,912,500
                            
                            
                            
                            200,000Net
      increase (decrease) in cash and cash equivalents
                            
                            
                            4,376,959
                            
                            
                            
                            (287,518
                            )Cash
      and cash equivalents, beginning of period
                            
                            
                            299,127
                            
                            
                            
                            364,242Cash
      and cash equivalents, end of period
                            
                            $
                            4,676,086
                            
                            
                            $
                            76,724





See Notes
to Financial Statements.




5





NOTES TO FINANCIAL STATEMENTS


(Unaudited)





Note
1 – Basis of Presentation





International
Fuel Technology, Inc. (“IFT”) is a technology company incorporated under the
laws of the State of Nevada on April 9, 1996. We have developed a number of
liquid fuel additive formulations that enhance the performance of
petroleum-based fuels and petroleum-based fuels that are mixed with alternative
fuels such as bio-diesel and ethanol. Our proprietary fuel additive formulations
have been extensively tested and proven, when mixed with a host fuel, to:
increase fuel economy; reduce harmful emissions, including green house gas
emissions; enhance lubricity (reducing engine wear); act as a detergent in the
fuel system; co-solve free water in the fuel system; and provide oxidation
stability and deposit formation control in bio-diesel and bio-diesel fuel
blends.





We began
transitioning from a development stage technology company to a commercial entity
during 2002 and have been increasing our product marketing and sales efforts
since. Since the beginning of 2005 and early 2006, our efforts have been
directed to commercializing our product slate, primarily our DiesoLIFTTM line of products
developed for use with diesel fuel and bio-diesel fuel blends, by focusing on
marketing, sales and distribution efforts.





The
interim financial statements included herein have been prepared by IFT, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”).  Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) have been condensed or omitted
pursuant to such rules and regulations, although we believe that the disclosures
are adequate to make the information presented not misleading.





These
statements reflect all adjustments, consisting of normal recurring adjustments,
which in the opinion of management, are necessary for fair presentation of the
information contained therein. Interim results are not necessarily indicative of
results for a full year. It is suggested that these financial statements are
read in conjunction with the financial statements and notes thereto included in
our annual report on Form 10-K for the year ended December 31,
2008.  We follow the same accounting policies in preparation of
interim reports as we do in our annual statements.





Basic
earnings per share are based upon the weighted-average number of common shares
outstanding for the period.  Diluted earnings per share are based upon
the weighted-average number of common and potentially dilutive common shares
outstanding for the period.  Pursuant to the Financial Accounting
Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”)
No. 128, Earnings per Share(“SFAS 128”), no
adjustment is made for diluted earnings per share purposes since we are
reporting a net loss, and common stock equivalents would have an anti-dilutive
effect.  As of March 31, 2009 and 2008, 33,285,556 and 17,662,556
shares, respectively, of common stock equivalents were excluded from the
computation of diluted net loss per share since their effect would be
anti-dilutive.





6




Note 2
– New Accounting Pronouncements
  New Accounting
Pronouncements Adopted
 
 In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business
Combinations, Applying the Acquisition Method (“SFAS 141R”), a revision of SFAS
141, Business Combinations. SFAS 141R establishes requirements for the
recognition and measurement of acquired assets, liabilities, goodwill, and
non-controlling interests. SFAS 141R also provides disclosure requirements
related to business combinations. SFAS 141R is effective for fiscal years
beginning after December 15, 2008. SFAS 141R will be applied prospectively to
business combinations with an acquisition date on or after the effective date.
We adopted SFAS 141R effective January 1, 2009 with no impact to our financial
position, results of operations or cash flows.
 
 In
December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 (“SFAS 160”).
SFAS 160 establishes new standards for the accounting for and reporting of
non-controlling interests (formerly minority interests) and for the loss of
control of partially owned and consolidated subsidiaries. SFAS 160 does not
change the criteria for consolidating a partially owned entity.  SFAS
160 is effective for fiscal years beginning after December 15,
2008.  The provisions of SFAS 160 are applied prospectively upon
adoption except for the presentation and disclosure requirements, which are
applied retrospectively.  The provisions of SFAS 160 did not apply to
IFT and therefore had no impact on our financial position, results of operations
or cash flows.
  Effective
January 1, 2008, IFT partially adopted SFAS No. 157, Fair Value
Measurements (“SFAS 157”). SFAS 157 applies to most current accounting
pronouncements that require or permit fair value measurements. SFAS 157 provides
a framework for measuring fair value and requires expanded disclosures about
fair value methods and inputs by establishing a hierarchy for ranking the
quality and reliability of the information used by management to measure and
report amounts at fair value.
  In 2008,
IFT had only partially applied the provisions of SFAS 157 as management elected
the deferral provisions of FASB Staff Position (“FSP”) SFAS 157-2 as it applies
to non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. FSP SFAS 157-2
delayed the effective date of SFAS 157 for non-financial assets and liabilities
which are not measured at fair value on a recurring basis (at least annually)
until January 1, 2009 for IFT.  The major categories of assets and
liabilities that are recognized or disclosed at fair value on a nonrecurring
basis includes goodwill which is reported at fair value as a result of
impairment testing.  There was no impact to our financial position,
results of operations, or cash flows as a result of the adoption of SFAS 157 for
non-financial assets and liabilities.
 
 During
June 2008, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 07-05,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock (“EITF 07-05”), which is effective for fiscal years beginning
after December 15, 2008.  EITF 07-05 addresses the determination of
whether an instrument (or an embedded feature) is indexed to an entity's own
stock, which is the first part of the scope exception in paragraph 11(a) of FASB
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities  (“SFAS 133”). If an instrument (or an embedded feature)
that has the characteristics of a derivative instrument under paragraphs 6–9 of
SFAS 133 is indexed to an entity's own stock, it is still necessary to evaluate
whether it is classified in stockholders' equity (or would be classified in
stockholders' equity if it were a freestanding instrument). Other applicable
authoritative accounting literature, including Issues EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company Own Stock, and EITF 05-2, The Meaning of “Conventional Debt Instrument”
in Issue No. 00-19, provides guidance for determining whether an instrument (or
an embedded feature) is classified in stockholders' equity (or would be
classified in stockholders' equity if it were a freestanding instrument). EITF
07-05 does not address that second part of the scope exception in paragraph
11(a) of SFAS 133. We adopted EITF 07-05 effective January 1, 2009 with no
impact to our financial position, results of operations or cash
flows.
 
 During
June 2008, the FASB issued FSP EITF 03-6-1, Determining
Whether Instruments Granted in Share-based Payment Transactions are
Participating Securities, which effectively
considers any outstanding unvested share-based payment awards that contain
dividend provisions during the requisite service period and that are not
required to be forfeited by the employee, to participate in the undistributed
earnings of a company. Application of this FSP, specifically any changes to
forfeiture estimates that result from the application should not change prior or
current earnings-per-share computation. This FSP requires retroactive adoption
and is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years. We adopted EITF 03-6-1
effective January 1, 2009 with no impact to our financial position, results of
operations or cash flows.
 
 Recently Issued Accounting
Pronouncements
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of non-governmental entities that are
presented in conformity with GAAP in the United States (the “GAAP
hierarchy”).  SFAS 162 will be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.”  The FASB has stated that it does not
expect SFAS 162 will result in a change in current practice.
  In April
2009, the FASB issued FSP SFAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments, which enhances consistency in financial
reporting by increasing the frequency of fair value disclosures.  This FSP
is effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for interim and annual periods ending after March 15,
2009 subject to certain restrictions.  We did not elect early adoption in
the quarter ended March 31, 2009 and, therefore, will apply the provisions of
this FSP for the quarter ending June 30, 2009.


7




Note 3 –
Stock-based Compensation




Effective
January 1, 2006, we adopted SFAS No. 123 (revised), Share-Based Payment, an amendment of
FASB Statements Nos. 123 and 95 (“SFAS 123R”), applying the modified
prospective method.  Under the modified prospective method, SFAS 123R
applies to awards made on or after the effective date and awards that were
outstanding as of December 31, 2005 that are subsequently vested, modified,
repurchased, forfeited or cancelled.





SFAS 123R
requires companies to estimate the fair value of share-based employee awards on
the grant date using an option-pricing model and to expense that value over the
requisite service period for each related employee.  We use the
Black-Scholes option-pricing model as the method of valuation for our
stock-based compensation.





The value
of options and warrants issued to non-employees upon the date of issuance are
expensed over the related service periods.  For non-employee options
that are not subject to a performance criterion, we recompute the value of the
unvested options each quarter-end and adjust the related compensation expense
for the new value. That new value is based on various assumptions using
end-of-quarter information. For non-employee options subject to a performance
criterion, of which we have 317,200 options outstanding, expense is recognized
when it becomes probable that the performance criterion will be
met.





Stock-based
compensation expense recorded in the three months ended March 31, 2009 and 2008
is as follows:





Three
      Months EndedMarch 31,2009
                    
                    
                    Three
      Months EndedMarch 31,2008Stock-based
      compensation to employees/Directors
                    
                    $
                    178,684
                    
                    
                    $
                    22,172Stock-based
      compensation to non-employees
                    
                    
                    210,226
                    
                    
                    
                    13,337Total
      stock-based compensation expense
                    
                    $
                    388,910
                    
                    
                    $
                    35,509





Employee
and Director awards





During
the first quarter of 2009, 20,000 employee options were
granted.  Assumptions used to determine the average fair value of
these awards ($0.18 per option) included an expected term of 5 years, a
volatility rate of 106% and a risk free interest rate of 1.79%.





During
the first quarter of 2008, 182,000 employee options were
granted.  Assumptions used to determine the average fair value of
these awards ($0.23 per option) included an expected term of 5 years, a
volatility rate of 118% and a risk free interest rate of 2.73%.





No
options were granted to Directors in the first quarters of 2009 and
2008.





Non-employee
awards





In the
first quarter of 2009, 800,000 stock options were granted to non-employee
consultants for services. These options vested immediately and the fair value of
the option expense was recognized immediately at the various grant dates.
Assumptions used to determine the weighted-average fair value of these awards
($0.18 per option) included an expected term of 5 years, a volatility rate of
106% and a risk free interest rate of 1.93%.




In the first
quarter of 2009, 2,600,000 options previously granted to non-employee
consultants for services vested as contingent triggering events were met. The
fair market value of the related options expense was recognized immediately upon
vesting.  Assumptions used to determine the weighted-average fair value of
these awards ($0.02 per option) included an expected term of 1 year, a
volatility rate of 98% and a risk free interest rate of 0.73%.




In the
first quarter of 2008, 104,000 stock options were granted to a non-employee
consultant for services.  These options originally had a vesting
period of 22.5 months. The fair value of these options was recomputed at
each quarter-end and was being expensed over the vesting
period.  During the first quarter of 2009, these options were modified
to have immediate vesting and we recognized full expense for these
options.





8


Other





No shares
of our common stock were sold or issued to non-employees for services during the
first three months of 2009.  During the first quarter of 2008, we
issued 52,000 shares of our common stock to non-employees for
services.




During
the first quarter of 2009, we received proceeds of $2,162,500 for the sale of
8,650,000 restricted shares of our common stock.  In connection with
this equity raise, we issued warrants to purchase an additional 4,325,000 shares
of our common stock at a price of $0.25 per share.  The warrants
became immediately exercisable upon issuance and expire five years from the
grant date.


Note 4
– Blencathia Merger





Effective
October 27, 1999, we merged with Blencathia Acquisition Corporation
(“Blencathia”).  Blencathia was a public shell company with immaterial
assets and liabilities and 312,000 shares outstanding at the time of the merger,
which it redeemed and cancelled upon the merger.  In exchange, we
issued 312,000 of our common shares to the prior Blencathia owner with the
contractual understanding that such shares were to be sold by that owner to
achieve gross cash proceeds of $500,000.  Any excess proceeds were to
be returned to us and any deficiency was to be made up by us issuing additional
shares or paying the difference in cash.  As we believed that we
controlled the ultimate timing of the sale of these 312,000 shares by the prior
Blencathia owner, we did not consider these shares as issued or outstanding for
purposes of computing earnings per share.





In 2006,
we learned that the prior Blencathia owner had, in fact, sold the 312,000 shares
for aggregate proceeds of approximately $150,000, without our
consent.  Accordingly, in the fourth quarter of 2006, we recorded
$500,000 of general expenses (representing the cost of the 1999 merger) and the
deemed issuance of approximately $150,000 of common stock.  The
remaining $350,000 obligation is reflected as a current accrued
expense.  We are in negotiations with the prior Blencathia owner to
resolve this obligation and may ultimately settle the obligation with either
cash or equity securities with a lower market value.  The 312,000
shares are reflected as outstanding for earnings per share
computations.





On July
31, 2006, we received notice from the American Arbitration Association ("AAA")
of a Demand for Arbitration dated July 27, 2006 received by the AAA naming IFT
as Respondent and TPG Capital Partners (“TPG”), the prior Blencathia owner, as
the Claimant.  The arbitration had been requested by TPG to resolve an
alleged aggregate proceeds shortfall from the sale of IFT securities issued in
the Blencathia merger.  TPG has claimed they sold some or all of the
312,000 shares and the sales have not generated at least $500,000 of proceeds,
as guaranteed in the merger documents.





In an
effort to resolve this matter prior to submission to binding arbitration, both
TPG and IFT participated in a non-binding mediation conference on January 30,
2007, which did not resolve the matter.  Informal discussions are
ongoing.  It is not expected that the ultimate settlement of this
matter, through the mediation or binding arbitration process, and considering we
have recorded a liability for the shortfall amount, will have an additional
adverse material effect on IFT.









9





Note
5 – Note Payable to a Related Party





During
the fourth quarter of 2007, we obtained an unsecured $500,000 loan from Harry F.
Demetriou, a Director of IFT and the holder of over 5% of our common stock.
Pursuant to the terms of the loan, a promissory note was executed by IFT in
favor of Mr. Demetriou in connection with the loan. Terms of the loan included
interest to be accrued at a rate of 15% per year in arrears with principal and
interest due and payable on January 1, 2009. The loan was guaranteed by Rex
Carr, a Director of IFT and the holder of over 5% percent of our common stock.
All IFT obligations related to this note were extinguished effective March 31,
2008 with the issuance of 1,040,000 restricted common shares of IFT stock to Mr.
Demetriou.  The shares issued were valued at $400,000 (based on a
$0.40/share previous day closing) and extinguished the $500,000 of principal
balance and $23,836 of accrued interest.  During the first quarter of
2008, a non-operating income gain of $123,836 was recorded based on the
aggregate liabilities exceeding the fair value of the
shares.  However, during the second quarter of 2008 the non-operating
gain was reversed and recorded to additional paid-in capital as the
excess was deemed a contribution from Mr. Demetriou.





During
the second quarter of 2008, IFT purchased 520,000 shares of its common stock
from Mr. Demetriou for $250,000. We have applied the cost method to account for
this treasury stock transaction in our financial statements.  Because
the amount paid by IFT was less than the fair market value of the stock on the
date of purchase (the closing price of our stock was $0.79 on June 18, 2008),
the difference was recorded to additional paid-in capital as Mr. Demetriou was
considered a holder of economic interest in IFT in accordance with SFAS
123R.





During
the first quarter of 2009, IFT purchased the remaining 520,000 common shares
outstanding relating to the debt settlement with Mr. Demetriou for an
aggregate of $250,000. We have applied the cost method to account for these
treasury stock transactions in our financial statements.  Because the
amount paid by IFT exceeded the fair market value of the stock on the dates of
purchase, the cumulative difference of $126,000 was recorded to stock
compensation expenses as Mr. Demetriou was considered a holder of economic
interest in IFT in accordance with SFAS 123R.





Note
6 - Equity Commitment from a Related Party





Effective
December 11, 2007, we received an investment commitment from Rex Carr, a
Director of IFT and a holder of over 5% of our common stock. Pursuant to the
terms of the commitment, Mr. Carr has agreed to invest up to an aggregate of
$1,000,000 in IFT, at such time or times as we may request, in the form of a
purchase or purchases of restricted common stock of IFT. IFT may elect to draw
from the commitment at one time or from time to time; provided, however, that
the aggregate of such draws may not exceed $1,000,000. If and when we elect to
utilize available commitment funds, we will issue to Mr. Carr that number of
shares of restricted common stock of IFT equal to the value of the investment
then provided to IFT. The number of shares to be issued will be calculated based
on the closing price of our common stock as quoted on The OTC Bulletin Board on
the date of the sale.  There is no stipulation regarding the duration
of this commitment. As of March 31, 2009. $800,000 was available under this
equity commitment.




On April 14,
2009, we repurchased 416,000 restricted common shares from Mr. Carr for
$200,000.  $1,000,000 is now currently available under this equity
commitment. We
will apply the cost method to account for this treasury stock transaction in our
financial statements for the second quarter of 2009.  Because the
amount paid by IFT exceeded the fair market value of the stock on the date of
purchase, the cumulative difference of $54,400 will be recorded to stock
compensation expense as Mr. Carr is considered a holder of economic interest in
IFT in accordance with SFAS 123R.




Note
7 – Deferred Revenue





On
February 26, 2009, we received the first purchase order pursuant to a Memorandum
of Understanding (“MOU”) with Libya Oil Holdings Limited, Tamoil, Libya Africa
Investment Portfolio and Vision Oil Services Ltd. ("VOS").  Pursuant
to the MOU, IFT will sell 600 metric tons of DiesoLIFTTM 10 at a price of
6,000 Euros (approximately $7,600) per metric ton to VOS.  We received
cash proceeds of approximately $3 million from VOS in February 2009, net of the
related selling expenses, for this purchase order and expect a net cash margin
of approximately $1.5 million once the product is manufactured and delivered. We
will recognize gross revenues of approximately $4.5 million after all of the
DiesoLIFTTM 10
has been delivered, which we expect to occur in 2009.  No such
revenues were recorded during the first quarter of 2009.




VOS is the
exclusive distribution partner for sales of IFT's products to Libya Oil Holdings
and Tamoil, which are affiliated with VOS.





10





Note
8 - Stock Dividend





On
January 20, 2009, our Board of Directors declared a restricted stock dividend to
shareholders of record at the close of business on February 4, 2009 (the “Record
Date”) in the amount of 1 restricted share for every 25 common shares
owned.  The distribution date was February 10, 2009. The restricted
stock dividend is subject to resale conditions pursuant to Rule 144 of the
Securities and Exchange Act.  This stock dividend has been
retroactively reflected in our financial statements and notes to the financial
statements.




Stockholders'
Equity presented for 2008 herein has been slightly adjusted from the
presentation in our 2008 annual report on Form 10-K, reflecting a difference
between the actual number of restricted common dividend shares issued
(3,650,701) and the estimated restricted common dividend share issuance amount
(3,616,197) used for our 2008 annual report on Form 10-K
disclosures.


Item 2.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations





The
following is management’s discussion and analysis of certain significant factors
that have affected our financial condition, results of operations and cash flows
during the periods included in the accompanying financial
statements.  This discussion should be read in conjunction with the
financial statements and notes included in our annual report on Form 10-K for
the year ended December 31, 2008.





Forward-looking
Statements and Associated Risks





This
quarterly report on Form 10-Q contains forward-looking statements made pursuant
to the safe harbor provisions of the Securities Litigation Reform Act of
1995.  These forward-looking statements are based largely on our
expectations and are subject to a number of risks and uncertainties, many of
which are beyond our control, including, but not limited to, economic,
competitive and other factors affecting our operations, markets, products and
services, expansion strategies and other factors described elsewhere in this
report and documents filed by us with the Securities and Exchange Commission
(“SEC”), including in our annual report on Form 10-K for the year ended December
31, 2008 under the “Risk Factors” section.  Actual results could
differ materially from these forward-looking statements.  In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this report will, in fact, prove
accurate.  We do not undertake any obligation to revise these
forward-looking statements to reflect future events or
circumstances.





Overview





We are a
technology company that has developed a number of liquid fuel additive
formulations that enhance the performance of petroleum-based fuels and
petroleum-based fuels that are mixed with alternative fuels such as bio-diesel
and ethanol.





To date,
IFT’s commercialization efforts have focused primarily on two proprietary
products: DiesoLIFTTM10 and DiesoLIFTTMBD-3. DiesoLIFTTM 10 was
developed to increase fuel economy, reduce harmful emissions and reduce
maintenance costs when mixed with diesel fuel and bio-diesel fuel blends.
DiesoLIFTTM BD-3 was developed to address oxidation stability and deposit control
issues associated with bio-diesel fuel use, both pure or in blends.





The
potential market for DiesoLIFTTM10 and DiesoLIFTTMBD-3 is massive.
Virtually every gallon of diesel and bio-diesel fuel consumed in the world today
is a potential market for IFT fuel additive technologies.





11


IFT’s
proprietary technology has been extensively tested and verified at a number of
prominent independent test laboratories all over the world. IFT believes this
separates it from most of the other fuel additive companies in the
marketplace today.





For
example, DiesoLIFTTM10 has been tested at
the following independent test laboratories and has consistently demonstrated
the ability to increase fuel economy, on average by 5%:





•
            In
      the U.S.:   Southwest Research Institute and Motive
      Power;


•
            In
      the U.K.:  MI Technologies and
  Prodrive;


•
            In
      Canada:   the Forest Engineering Research Institute of
      Canada;


•
            In
      South Africa: Gerotek Test Facilities;
and


•
            In
      China: Tsinghua University.





In
addition,numerous
field trials all over the world have validated these independent laboratories’
test results. DiesoLIFTTM10 has been tested in
the field with road transport, rail and stationary power generation applications
and has consistently demonstrated the ability to improve fuel economy, on
average by 5%.





DiesoLIFTTMBD-3 has been tested at
the following independent test laboratories and has consistently demonstrated
that it is the top performing fuel additive technology in the market today for
addressing oxidation stability and deposit control in bio-diesel fuel
blends:





•
            In
      Belgium:  BfB Laboratories;
and


•
            In
      the U.S.: Montana State University -
Northern.





Both
products are easy to use. Once the additive is splash blended with a base fuel,
the mixture forms into and remains a stable solution. Unlike traditional fuel
additives, which are derived from petroleum, DiesoLIFTTM10 and DiesoLIFTTMBD-3 are derived from a
complex mixture of detergent substances (surfactant chemistry) that utilize
naturally occurring fractions that are bio-degradable.





The
manufacture of IFT’s additive formulations is outsourced to Multisol (France)
and Air Products and Chemicals, Inc. (U.S.). These relationships allow IFT to
consistently deliver quality additive formulations on a timely
basis.





The
commercial goal of IFT is the bulk sale (by the ton) of DiesoLIFTTM10 and DiesoLIFTTMBD-3 to the following
major end-users of diesel fuel and bio-diesel fuel blends:





•
            railroads;


•
            stationary
      power generation operators;


•
            centrally-fueled
      truck/bus fleets; and


•
            marine
      vessel operators.





IFT’s
primary strategy to achieve this goal is to outsource marketing and distribution
by partnering with oil companies and prominent fuel additive distribution
companies with existing customers and distribution channels. For example, IFT
has distribution relationships with Multisol (France), Caldic (U.K.), Nordmann
Rassmann (Germany), Tide Water Oil Co. (India) and Nulon India
(India).





The first
major commercial breakthrough for IFT occurred in February 2009 when we sold 600
metric tons of DiesoLIFTTM10 to Vision Oil
Services (“VOS”). VOS is IFT’s exclusive
distribution partner for sales of IFT products to Tamoil and Libya Oil Holdings,
which are affiliated with VOS. In addition, we continued to make sales of
product to multiple distribution partners in the first quarter of
2009.  We are also in the evaluation phase with numerous large scale
projects all over the world.  If positive results are achieved in
these projects, we anticipate that they will lead to additional revenues in
2009.





12


In
summary, IFT has clearly demonstrated that it has two of the top performing fuel
additive formulations in the world today, DiesoLIFTTM10 and DiesoLIFTTMBD-3. We have emerged
from the research and development phase and are in the early stages of
commercializing our technology. Through distribution partners, we have clients
that are purchasing and using our products. The time consuming process of tests
and trials in which we have been engaged has led to real commercial
opportunities which have generated revenues in the first quarter of
2009.





Results
of Operations





Three Months Ended March 31,
2009 Compared to the Three Months Ended March 31, 2008





Revenues





Net
revenue for the three months ended March 31, 2009 was $76,331, as compared to
$30,597 for the three-month period ended March 31, 2008.  Sales
revenue in the first quarter of 2009 was primarily due to sales to distributors.
Sales revenue in the first quarter of 2008 was due to sales to end-user
customers, customers engaged in field trials and to distributors, partially
offset by a customer return of $6,375.  Sales revenue generated during
the first three months of 2009 was generated from the sale of DiesoLIFTTM 10 and
DiesoLIFTTM BD-3.  Sales
revenue generated during the first three months of 2008 was primarily generated
from the sale of DiesoLIFTTM 10.





Operating
Expenses





Total
operating expense was $1,118,442 for the three months ended March 31, 2009, as
compared to $721,003 for the three-month period ended March 31,
2008.  This $397,439 increase from the prior period was primarily
attributable to an increase in selling, general and administrative expense,
partially offset by a decrease in cost of operations expense.  These
fluctuations are more fully described below.





Cost
of Operations (exclusive of depreciation)





Cost of
operations (exclusive of depreciation) was $8,057 for the three months ended
March 31, 2009, as compared to $28,235 for the three-month period ended March
31, 2008.  This decrease, despite increased revenues, was due to a
favorable re-purchase of existing DiesoLIFTTM10 from a former
distributor in the first quarter of 2009.





Selling,
General and Administrative Expense





Selling,
general and administrative expense for the three months ended March 31, 2009 was
$1,108,767 (including stock-based compensation of $388,910), as compared to
$690,639 (including stock-based compensation of $35,509) for the three-month
period ended March 31, 2008. This increase of $418,128 was primarily
attributable to the following activities:





•
            an
      increase in stock-based compensation expense ($353,401) primarily due to
      expense recorded on options granted with immediate vesting and the vesting
      of previous option grants during the first quarter of 2009 (approximately
      $228,000), and expense recorded for treasury stock purchases
      ($126,000).





13





•
            an
      increase in legal expense ($69,914) primarily due to the defense of a
      lawsuit filed by a former distribution partner and current investor
      (activities that did not exist in the prior comparable
      period);


•
            an
      increase in bank charges ($55,007) primarily related to the first quarter
      2009 prepaid cash receipt of a sales order from
  VOS;


•
            a
      decrease in investor relations expense ($43,989) primarily due to less
      trailing expenses related to proxy mailings and registration statement
      drafts (not present in the current period) and a decrease in due diligence
      fees paid for potential investors’ efforts;
      and


•
            a
      decrease in advertising and marketing expense ($29,956) primarily due to
      less U.K. rail print media and trade conference promotion (approximately
      $18,000) and fewer promotional product samples provided for field trials
      (approximately $5,500), compared to the prior comparable
      period.





Depreciation
Expense





Depreciation
expense was $1,618 for the three months ended March 31, 2009, as compared to
$2,129 for the three months ended March 31, 2008.  This decrease was
primarily attributable to property and equipment becoming fully depreciated in
the first quarter of 2009.





Interest
Income (Expense)





Net
interest income (expense) for the three months ended March 31, 2009 was $892, as
compared to $(18,392) for the three months ended March 31, 2008. The increase in
net interest income (expense) is primarily attributable to interest expense
recorded in the prior comparable period related to debt issued in the fourth
quarter of 2007.  This debt was subsequently converted to equity
effective March 31, 2008.





Other
Non-operating Income





Other
non-operating income for the three months ended March 31, 2008 was due to a gain
recorded upon the conversion of debt to equity involving a transaction with
Harry F. Demetriou, a Director of IFT and the holder of over 5% percent of our
common stock.  This non-operating income gain was reversed during the
second quarter of 2008 due to Mr. Demetriou being considered a holder of
economic interest in IFT in accordance with the provisions of SFAS
123R.  The transaction was ultimately treated as a capital
contribution to IFT with no gain on the conversion recorded during
2008.





Provision
for Income Taxes





We have
operated at a net loss since inception and have not recorded or paid any income
taxes. We have significant net operating loss carry-forwards that would be
recognized at such time as we demonstrate the ability to operate on a profitable
basis for an extended period of time. The deferred income tax asset resulting
primarily from the net operating loss carry-forwards has been fully reserved at
March 31, 2009 with a valuation allowance.





Net
Loss





Net loss
for the three months ended March 31, 2009 was $1,041,219, as compared to
$584,962 for the three months ended March 31, 2008.  The increase in
net loss was primarily due to an increase in stock-based compensation expense,
legal expense and bank fees, partially offset by decreases in other
non-operating income, investor relations expense and advertising and marketing
expense as described above.  The basic and diluted net loss per common
share for the three months ended March 31, 2009 and 2008 was
$(0.01).





14


New
Accounting Pronouncements
  New
Accounting Pronouncements Adopted
  In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business
Combinations, Applying the Acquisition Method (“SFAS 141R”), a revision of SFAS
141, Business Combinations. SFAS 141R establishes requirements for the
recognition and measurement of acquired assets, liabilities, goodwill, and
non-controlling interests. SFAS 141R also provides disclosure requirements
related to business combinations. SFAS 141R is effective for fiscal years
beginning after December 15, 2008. SFAS 141R will be applied prospectively to
business combinations with an acquisition date on or after the effective date.
We adopted SFAS 141R effective January 1, 2009 with no impact to our financial
position, results of operations or cash flows.
  In
December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 (“SFAS 160”).
SFAS 160 establishes new standards for the accounting for and reporting of
non-controlling interests (formerly minority interests) and for the loss of
control of partially owned and consolidated subsidiaries. SFAS 160 does not
change the criteria for consolidating a partially owned entity.  SFAS
160 is effective for fiscal years beginning after December 15,
2008.  The provisions of SFAS 160 are applied prospectively upon
adoption except for the presentation and disclosure requirements, which are
applied retrospectively.  The provisions of SFAS 160 did not apply to
IFT and therefore had no impact on our financial position, results of operations
or cash flows.
  Effective
January 1, 2008, IFT partially adopted SFAS No. 157, Fair Value
Measurements (“SFAS 157”). SFAS 157 applies to most current accounting
pronouncements that require or permit fair value measurements. SFAS 157 provides
a framework for measuring fair value and requires expanded disclosures about
fair value methods and inputs by establishing a hierarchy for ranking the
quality and reliability of the information used by management to measure and
report amounts at fair value.
  In
2008, IFT had only partially applied the provisions of SFAS 157 as management
elected the deferral provisions of FASB Staff Position (“FSP”) SFAS 157-2 as it
applies to non-financial assets and liabilities that are recognized or disclosed
at fair value in the financial statements on a nonrecurring basis. FSP SFAS
157-2 delayed the effective date of SFAS 157 for non-financial assets and
liabilities which are not measured at fair value on a recurring basis (at least
annually) until January 1, 2009 for IFT.  The major categories of
assets and liabilities that are recognized or disclosed at fair value on a
nonrecurring basis includes goodwill which is reported at fair value as a result
of impairment testing.  There was no impact to our financial position,
results of operations, or cash flows as a result of the adoption of SFAS 157 for
non-financial assets and liabilities.
  During
June 2008, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 07-05,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock (“EITF 07-05”), which is effective for fiscal years beginning
after December 15, 2008.  EITF 07-05 addresses the determination of
whether an instrument (or an embedded feature) is indexed to an entity's own
stock, which is the first part of the scope exception in paragraph 11(a) of FASB
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities  (“SFAS 133”). If an instrument (or an embedded feature)
that has the characteristics of a derivative instrument under paragraphs 6–9 of
SFAS 133 is indexed to an entity's own stock, it is still necessary to evaluate
whether it is classified in stockholders' equity (or would be classified in
stockholders' equity if it were a freestanding instrument). Other applicable
authoritative accounting literature, including Issues EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company Own Stock, and EITF 05-2, The Meaning of “Conventional Debt Instrument”
in Issue No. 00-19, provides guidance for determining whether an instrument (or
an embedded feature) is classified in stockholders' equity (or would be
classified in stockholders' equity if it were a freestanding instrument). EITF
07-05 does not address that second part of the scope exception in paragraph
11(a) of SFAS 133. We adopted EITF 07-05 effective January 1, 2009 with no
impact to our financial position, results of operations or cash
flows.
  During June
2008, the FASB issued FSP EITF 03-6-1, Determining
Whether Instruments Granted in Share-based Payment Transactions are
Participating Securities,
which effectively considers any outstanding unvested share-based payment
awards that contain dividend provisions during the requisite service period and
that are not required to be forfeited by the employee, to participate in the
undistributed earnings of a company. Application of this FSP, specifically any
changes to forfeiture estimates that result from the application should not
change prior or current earnings-per-share computation. This FSP requires
retroactive adoption and is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within those
fiscal years. We
adopted EITF 03-6-1 effective January 1, 2009 with no impact to our financial
position, results of operations or cash flows.
  Recently
Issued Accounting Pronouncements
  In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of non-governmental entities that are
presented in conformity with GAAP in the United States (the “GAAP
hierarchy”).  SFAS 162 will be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.”  The FASB has stated that it does not
expect SFAS 162 will result in a change in current practice.
  In
April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments, which enhances consistency in
financial reporting by increasing the frequency of fair value disclosures. 
This FSP is effective for interim and annual periods ending after June 15, 2009,
with early adoption permitted for interim and annual periods ending after March
15, 2009 subject to certain restrictions.  We did not elect early adoption
in the quarter ended March 31, 2009 and, therefore, will apply the provisions of
this FSP for the quarter ending June 30, 2009.


15





Critical
Accounting Policies and Estimates





Preparation
of our financial statements and related disclosures in compliance with U.S.
generally accepted accounting principles (“GAAP”) requires the application of
appropriate technical accounting rules and guidance, as well as the use of
estimates. Our application of these policies involves judgments regarding many
factors, which in and of themselves could materially affect the financial
statements and disclosures. We have outlined below the critical accounting
policies that we believe are most difficult, subjective or complex. Any change
in the assumptions or judgments applied in determining the following matters,
among others, could have a material impact on future financial
results.





Revenue
recognition





We
recognize revenue from the sale of our products when the products are shipped,
and title and risk of loss has passed to the buyer.  The majority of
our revenues is from sales to product distributors.  Product
distributors do not have the option to return product that is not immediately
sold to an end-user.  Therefore, our revenue recognition is not
conditional on whether a distributor is able to sell product to an ultimate
product end-user.  Our sales policies for end-users are consistent
with product distributor sales policies.





Valuation
of goodwill





We test
goodwill for impairment at least annually in the fourth quarter.  We
will also review goodwill for impairment throughout the year if any events or
changes in circumstances indicate the carrying value may not be
recoverable.





Factors
we consider important, which could trigger an impairment review, include the
following:





1.
            Significant
      under-performance relative to expected historical or projected future
      operating results;


2.
            Significant
      changes in the manner of our use of the acquired assets or the strategy
      for our overall business;


3.
            Significant
      negative industry or economic
trends;


4.
            Significant
      decline in our stock price for a sustained period;
  and


5.
            Our
      market capitalization relative to net book
  value.





To test
impairment, we use the market approach to determine the fair value of the
Company.  Following this approach, the fair value of the business
exceeded the carrying value of the business as of March 31, 2009.  As
a result, no impairment of goodwill was recorded.





Deferred income
taxes





Deferred
income taxes are recognized for the tax consequences of “temporary differences”
by applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. At March 31, 2009, our deferred income tax assets
consisted principally of net operating loss carry-forwards, and have been fully
offset with a valuation allowance because it is more likely than not that a tax
benefit will not be realized from the assets in the future.





16


Liquidity
and Capital Resources





A
critical component of our operating plan affecting our ability to execute the
product commercialization process is the cash resources needed to pursue our
marketing and sales objectives.  Until we are able to generate
positive and sustainable operating cash flow, our ability to attract additional
capital resources in the future will be critical to continue the funding of our
operations.  Current U.S. and worldwide adverse economic conditions
and the tightening of credit markets may hinder our ability to attract
additional capital resources in the future.





While we
cannot make any assurances as to the accuracy of our projections of future
capital needs, we believe that, as a result of first quarter 2009 equity raise
activities ($2,162,500), cash received for a prepaid sales purchase order during
the first quarter of 2009 (net cash margin expected of approximately $1,500,000)
and the remaining equity commitment of $1,000,000 (entered into with a related
party Board member of IFT and significant shareholder during 2008), we have
adequate cash and cash equivalents balances and commitments to fund operations
through at least the end of 2010.  If we are unable to generate
positive and sustainable operating cash flows in time, we would need to raise
additional capital to fund our future operations.





Cash
provided by (used in) operating activities was $2,464,459 for the three months
ended March 31, 2009, compared to $(487,518) for the three months ended March
31, 2008.  The increase in cash flow from operating activities was due
primarily to cash received from a prepaid sales order from VOS during the first
quarter of 2009.





Cash
provided by financing activities was $1,912,500 for the three months ended March
31, 2009, as compared to $200,000 for the three months ended March 31,
2008.  The increase in financing cash flow was primarily due to
increased cash proceeds obtained from the issuance of equity.  During
the first quarter of 2009, we raised $2,162,500 with the issuance of 8,650,000
restricted shares of our common stock.  During the first quarter of
2008, we raised $200,000 with the issuance of 416,000 restricted shares of our
common stock to a related party.  During the first quarter of 2009, we
also had treasury stock acquisitions ($250,000 of cash disbursements) related to
the re-purchases of shares previously owned by a Director.





Net cash
increased by $4,376,959 for the three months ended March 31, 2009, as compared
to a decrease in net cash of $287,518 for the three months ended March 31,
2008.





Working
capital at March 31, 2009 was $1,288,256, as compared to $26,447 at December 31,
2008.  This increase was primarily attributable to a first quarter
2009 equity funding of $2,162,500, partially offset by cash operating expenses
incurred during the first three months of 2009.





During
the three months ended March 31, 2009 and March 31, 2008, we did not make
significant investments in property and equipment and do not anticipate doing so
in the immediate future.





17


Item 4(T). Controls and Procedures





Disclosure
Controls and Procedures





Our
management has evaluated, with the participation of our principal executive
officer and principal financial officer, the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31,
2009.  Disclosure controls and procedures are controls and procedures
designed to reasonably ensure that information required to be disclosed in our
reports filed under the Exchange Act, such as this quarterly report, is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.  Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to our management, including our CEO and CFO, or
persons performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure.  Our disclosure controls and procedures
include some, but not all, components of our internal control over financial
reporting.  Based on this evaluation, the principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures were not effective as of March 31, 2009 due to an existing material
weakness in our internal control over financial reporting as discussed
below.





Change
in Internal Control over Financial Reporting





In our
annual report on Form 10-K for the fiscal year ended December 31, 2008,
management identified a material weakness related to IFT’s limited accounting
personnel with sufficient expertise, accounting knowledge and training in GAAP
and financial reporting requirements. Specifically, IFT lacks sufficient
personnel to anticipate, identify, resolve and review complex accounting issues
and to complete a timely review of the financial statements.





A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on at timely basis.





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
fiscal quarter ended March 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.  However, as discussed above, we have identified a material
weakness in our internal control over financial reporting.





Plan
for Remediation





Some of
the remediation action steps discussed in our annual report on Form 10-K for the
fiscal year ended December 31, 2008 are dependent on the completion of a
financing to support operations for at least two years.  As such
financing has not yet been fully achieved, we have not yet been able to consider
the hiring of additional accounting and finance staff with the commensurate
knowledge, experience and training necessary to complement the current staff in
the financial reporting functions.





During
the fiscal quarter ended March 31, 2009, we were unable to further develop our
financial statement closing and reporting practices to include additional levels
of checks and balances in our procedures and a timely review.  The
actions we plan to take are subject to continued management review supported by
confirmation and testing, as well as audit committee oversight.





PART II.  OTHER INFORMATION





Item 1. Legal Proceedings





We are
subject to various lawsuits and claims with respect to matters arising out of
the normal course of business. While the impact on future financial results is
not subject to reasonable estimation because considerable uncertainty exists,
management believes, after consulting with counsel, that it is more likely than
not that the ultimate liabilities resulting from such lawsuits and claims will
not materially affect our financial position, results of operations or
liquidity.





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Item 2.  Unregistered Sales of Equity Securities and
Use of Proceeds





On March
16, 2009, we sold 400,000 shares of our common stock and 200,000 warrants to
purchase our common stock for $100,000.  The warrants vested
immediately, have an exercise price of $0.25 and expire five years from the
grant date.  The private placement involved the sale of securities to
an accredited investor. The transaction was exempt from registration pursuant to
Rule 506 of Regulation D promulgated under the Securities Act of 1933 ("Rule
506"), as the securities were sold to an accredited investor.





In
addition, on March 18, 2009, we sold 40,000 shares of our common stock and
20,000 warrants to purchase our common stock for an aggregate of
$10,000.  The warrants vested immediately, have an exercise price of
$0.25 and expire five years from the grant date.  The private
placement involved the sale of securities to an accredited investor. The
transaction was exempt from registration pursuant to Rule 506, as the securities
were sold to an accredited investor.





The
private placements did not involve underwriters or broker-dealers. Therefore,
there were no underwriting discounts or commissions.





During
the first quarter of 2009, we repurchased shares of our common stock as
follows:





Period
              
              Total
      Number of Shares (or Units) Purchased
              
              Average
      Price Paid per Share (or Unit)
              
              Total
      Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
      or Programs
              
              Maximum
      Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be
      Purchased Under the Plans or ProgramsJanuary
      1, 2009 – January 31, 2009
              
              0
              
              N/A
              
              N/A
              
              N/AFebruary
      1, 2009 – February 28, 2009
              
              312,000
      (1)
              
              $0.48
              
              0
              
              N/A
      (2)March
      1, 2009 –March 31, 2009
              
              208,000
      (3)
              
              $0.48
              
              0
              
              N/A
      (2)Total
              
              520,000
              
              $0.48
              
              0
              
              N/A
      (2)





(1)
            None
      of these shares were purchased through a publicly announced plan or
      program.  All of these shares were purchased pursuant to a
      private arrangement involving IFT purchasing restricted shares from a
      Director of IFT and the holder of over 5% of our common
      stock.  See Note 5 to our financial statements
      herein.





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(2)
            Purchases
      were not part of a publicly announced plan or
  program.





(3)
            None
      of these shares were purchased through a publicly announced plan or
      program.  All of these shares were purchased pursuant to private
      arrangements involving IFT purchasing restricted shares from a Director of
      IFT and the holder of over 5% of our common stock. See Note 5 to our
      financial statements herein.





Item 5.  Other Information





(a)
            None.


(b)
            There
      have been no material changes to the procedures by which security holders
      may recommend nominees to our Board of Directors since the filing of our
      annual report on Form 10-K for the fiscal year ended December 31,
      2008.





Item 6.  Exhibits




(a)
            The
      following exhibits are filed as part of this
  report:





31.1
      Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as
amended.





31.2
      Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as
amended.





32.1
      Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





32.2
      Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


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SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.







INTERNATIONAL
      FUEL TECHNOLOGY, INC.(Registrant)Date: 
      May 7,
2009
                  By:
                  /s/
      Jonathan R.
      BurstJonathan
      R. BurstChief
      Executive Officer(Principal
      Executive Officer)






Date: 
      May 7,
2009
              By:
              /s/
      Stuart D.
      BeathStuart
      D. BeathChief
      Financial Officer(Principal
      Financial Officer)


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