UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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 June 30, 2002

                                       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 number: 000-25367

                       International Fuel Technology, Inc.
                       -----------------------------------
             (Exact name of registrant as specified in its charter)


                    Nevada                             88-0357508
                    ------                             ----------
       (State or other jurisdiction of      (IRS Employer Identification No.)
        incorporation or organization)

      7777 Bonhomme, Suite 1920, St. Louis, Missouri                  63105
      -------------------------------------------------------------------------
            (Address of principal executive offices)                (Zip Code)

                                 (314) 727-3333
                                 --------------
                         (Registrant's telephone number)

        Securities registered pursuant to Section 12(b) of the Act: None

                 Securities registered pursuant to Section 12(g)
                    of the Act: Common Stock, $.01 Par Value

      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 |X|      No |_|

      The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant, based upon the average bid and asked price
of the common stock on August 1, 2002, as reported on the OTC Bulletin Board,
was $10,049,591.

      Number of shares of common stock outstanding as of August 1, 2002:
59,115,243


                                       1
<PAGE>

                                    FORM 10-Q

                  For The Quarterly Period Ended June 30, 2002

                                      INDEX

Part I - FINANCIAL INFORMATION                                              Page

    Item 1- Financial Statements

            Balance Sheets - June 30, 2002 and December 31, 2001               3

            Statements of Operations - Three Month and Six Month
            Periods Ended June 30, 2002 and 2001.                              4

            Statement of Stockholders' Equity - Six Months Ended June
            30, 2002                                                           5

            Statements of Cash Flows - Six Months Ended June 30, 2002
            and 2001                                                           6

            Notes to Financial Statements                                 7 - 11

    Item 2- Management's Discussion and Analysis of Financial
            Condition and Results of Operations                          12 - 15

    Item 3- Quantitative and Qualitative Disclosures About Market
            Risk                                                              15

Part II - OTHER INFORMATION

    Item 6- Exhibits and Reports on Form 8-K                                  15


                                       2
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          June 30,      December 31,
ASSETS (Note 2)                                                             2002            2001
-----------------------------------------------------------------------------------------------------
                                                                         (Unaudited)
<S>                                                                     <C>             <C>
Current Assets
  Cash                                                                  $     80,628    $     33,168
  Accounts Receivable                                                          6,442              --
  Inventory                                                                   15,302              --
  Prepaid Expenses                                                            15,250          15,250
  Notes Receivable                                                            43,059          80,000
                                                                        ------------    ------------
                    Total current assets                                     160,681         128,418
                                                                        ------------    ------------

Property and Equipment
  Machinery and equipment                                                     26,881          26,881
  Accumulated depreciation                                                    (9,255)         (5,824)
                                                                        ------------    ------------
                    Total property and equipment                              17,626          21,057
                                                                        ------------    ------------

Purchased Patents & Technology, Net (Note 3)                               1,966,668       2,166,668
Goodwill, Net (Note 3)                                                     2,211,805       2,211,805
                                                                        ------------    ------------

                    Total assets                                        $  4,356,780    $  4,527,948
                                                                        ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable                                                      $    147,895    $    252,779
  Advances from stockholders                                                 250,000              --
  Accrued expenses                                                           378,771         342,030
  Accrued interest                                                            22,625          17,750
                                                                        ------------    ------------
                    Total current liabilities                                799,291         612,559
                                                                        ------------    ------------

Long-Term Liabilities
  Notes payable to stockholder                                               162,500         162,500
  Convertible debentures (net of discount) (Note 4)                           49,295          95,924
                                                                        ------------    ------------
                    Total liabilities                                      1,011,086         870,983
                                                                        ------------    ------------

Commitments and Contingencies

Stockholders' Equity (Notes 4, 5 and 6)
  Common stock, $.01 par value; authorized, 150,000,000,
    57,345,245 and 55,119,612 shares issued and outstanding
    at June 30, 2002 and December 31, 2001, respectively                     573,452         551,196
  Discount on common stock                                                  (819,923)       (819,923)
  Additional paid-in capital                                              33,688,273      32,595,070
  Accumulated deficit                                                    (30,096,108)    (28,669,378)
                                                                        ------------    ------------
                     Total stockholders' equity                            3,345,694       3,656,965
                                                                        ------------    ------------
                                                                        $  4,356,780    $  4,527,948
                                                                        ============    ============
</TABLE>

See Notes to Financial Statements.


                                       3
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                          Three Months                     Six Months
                                                             Ended                           Ended
                                                            June 30,                        June 30,
                                                      2002            2001            2002            2001
--------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>
Revenues                                          $      2,361    $         --    $      7,684    $         --
Cost of Revenues                                         1,823              --           4,370              --
                                                  ------------------------------------------------------------
Gross Profit                                               538              --           3,314              --
                                                  ------------------------------------------------------------

Operating Expenses:
  Selling, general and administrative expenses         196,054       1,237,833       1,085,086       2,715,080
  Depreciation and Amortization                        101,715          37,500         203,431          37,500
                                                  ------------------------------------------------------------
                Total operating expenses               297,769       1,275,333       1,288,517       2,752,580
                                                  ------------------------------------------------------------
           Net loss from operations                   (297,231)     (1,275,333)     (1,285,203)     (2,752,580)

             Interest income                             3,128              --          16,502              --
             Interest expense (Note 4)                 (62,938)       (294,968)       (158,029)       (320,007)
                                                  ------------------------------------------------------------
             Total other expense, net                  (59,810)       (294,968)       (141,527)       (320,007)
                                                  ------------------------------------------------------------
             Net loss                             $   (357,041)   $ (1,570,301)   $ (1,426,730)   $ (3,072,587)
                                                  ============================================================

                     Basic and diluted net loss
                       per common share           $       (.01)   $       (.05)   $       (.03)   $       (.11)

Weighted average common shares outstanding          48,508,441      32,820,831      47,900,522      28,645,101
</TABLE>

See Notes to Financial Statements


                                       4
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED June 30, 2002
(Unaudited)

<TABLE>
<CAPTION>
                                                   Common      Common                   Discount on
                                                   Stock       Stock                      Common      Accumulated
                                                   Shares      Amount         APIC         Stock        Deficit         Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>         <C>           <C>           <C>            <C>
Balance, January 1, 2002                         55,119,612   $ 551,196   $32,595,070   $  (819,923)  $(28,669,378)  $ 3,656,965
Proceeds from the issuance of common stock          850,000       8,500       191,500            --             --       200,000
Stock-based compensation                                 --          --       150,000            --             --       150,000
Issuances of stock for compensation                 125,000       1,250        (1,250)           --             --            --
Issuances of stock for services                     340,000       3,400       141,500            --             --       144,900
Cancellation of Interfacial escrow shares          (500,000)     (5,000)        5,000            --             --            --
Issuances of stock for convertible debentures     1,410,633      14,106       385,894            --             --       400,000
Discount on issuances of convertible debt                --          --       112,759            --             --       112,759
Accrued stock based compensation                         --          --       102,816            --             --       102,816
Accrued stock based services                             --          --         4,984            --             --         4,984
Net loss                                                 --          --            --            --     (1,426,730)   (1,426,730)
--------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2002                           57,345,245   $ 573,452   $33,688,273   $  (819,923)  $(30,096,108)  $ 3,345,694
================================================================================================================================
</TABLE>

See Notes to Financial Statements


                                       5
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                                                          Six Months     Six Months
                                                                            Ended          Ended
                                                                           June 30,       June 30,
                                                                             2002           2001
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>
Cash Flows from Operating Activities:
Net loss                                                                $ (1,426,730)   $ (3,072,587)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation/Amortization                                                  203,431          38,861
  Stock issued and additional paid in capital
    recognized for services and compensation                                 402,700       1,754,341
  Interest expense recognized - discount and conversion of debt              146,130         285,683
  Loss on disposal of machinery and equipment                                     --           2,887
  Change in assets and liabilities:
    Increase in accounts receivable                                           (6,442)             --
    Increase in inventory                                                    (15,302)             --
    Increase in prepaid expenses                                                  --         (26,523)
    (Decrease)/Increase in accounts payable                                 (104,884)        157,105
    Increase in accrued expenses                                              36,741         182,859
    Increase in accrued interest                                               4,875           9,448
                                                                        ----------------------------
Net cash used in operating activities                                       (759,481)       (667,926)
                                                                        ----------------------------

Cash Flows from Investing Activities:
  Acquisition of machinery and equipment                                          --          (1,642)
  Increase in employee and stockholder receivables                                --         (35,000)
  Proceeds from repayments of notes receivable                                36,941              --
                                                                        ----------------------------
Net cash provided by (used in) investing activities                           36,941         (36,642)
                                                                        ----------------------------

Cash Flows from Financing Activities:
  Increase in amount due to related party                                         --         151,000
  Proceeds from common stock issued                                          200,000              --
  Advances from stockholders                                                 250,000              --
  Proceeds from convertible debentures                                       320,000         475,000
  Payment on notes payable                                                        --         (13,750)
                                                                        ----------------------------
Net cash provided by financing activities                                    770,000         612,250
                                                                        ----------------------------

Net increase (decrease) in cash                                               47,460         (92,318)
  Cash, beginning                                                             33,168         128,204
                                                                        ----------------------------
  Cash, ending                                                          $     80,628    $     35,886
                                                                        ============================

Schedule of non-cash investing and financing activities
  Discount on issuance of convertible debt                              $    112,759    $    324,917
  Conversion of debt to common stock                                    $    400,000    $    338,743
  Acquisition of Interfacial                                                      --    $  6,750,001
</TABLE>

See Notes to Financial Statements


                                       6
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

      NOTES TO FINANCIAL STATEMENTS
      (Unaudited)

      Note 1 - Basis of Presentation

      The interim financial statements included herein have been prepared by
      International Fuel Technology, Inc. ("IFT"), without audit, pursuant to
      the rules and regulations of the Securities and Exchange Commission.
      Certain information and footnote disclosures normally included in
      financial statements prepared in accordance with generally accepted
      accounting principles have been condensed or omitted pursuant to such
      rules and regulations, although IFT believes 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. It is suggested that
      these financial statements be read in conjunction with the financial
      statements and notes thereto included in IFT's annual report on Form 10-K
      for the twelve month period ended December 31, 2001. IFT follows the same
      accounting policies in preparation of interim reports.

      Results of operations for the interim periods are not indicative of annual
      results. Previous to the completion of the development of its main
      products and inception of revenue generating sales, the Company reported
      as a development stage Company.

      Note 2 -- Ability to Continue as a Going Concern

      IFT's financial statements are presented on the going concern basis, which
      contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. IFT has incurred significant losses
      since inception and has limited funds with which to operate. Management is
      in the process of executing a strategy based upon marketing pollution
      emission control technologies that also offer enhanced engine performance
      with respect to greater fuel economy. IFT already has several technologies
      in development, and may seek to add other technologies through
      acquisitions. Management anticipates receiving necessary regulatory and
      commercial acceptance for its acquired technologies within the next twelve
      months. IFT has begun selling products directly to the commercial
      marketplace and expects to eventually generate a level of revenues
      sufficient to meet IFT's working capital requirements. While management
      cannot make any assurance as to the accuracy of our projections of future
      capital needs, it is anticipated that a total of approximately $1,000,000
      over the remainder of the current fiscal year will be necessary in order
      to enable us to meet our current capital needs. The Company is currently
      looking for alternative sources of financing. Agora Capital has been hired
      as consultants to assist the Company with the securing of funding.
      Management believes the proceeds from financing will be used as follows:
      $100,000 for commercial fleet testing programs, $250,000 for professional
      fees, $250,000 for salary expenses and $400,000 working capital for
      administrative and other capital needs, including investigation of future
      acquisitions, if any.

      On January 3, 2001 IFT entered into a Securities Purchase Agreement with
      IIG Equity Opportunities Fund Ltd. ("IIG Fund"), which has a one-year
      commitment amount of $3 million, with an option at our control for an
      additional $3 million in financing after the completion of the one-year
      commitment. On March 1, 2001, IFT completed registration of the common
      shares required by the January 3, 2001 Securities Purchase Agreement (the
      "Agreement"). The Agreement provides for IFT to sell up to $250,000 in
      convertible debentures to the IIG Fund every thirty days. On March 2, 2001
      IFT initiated the first convertible debenture purchase and on March 7,
      2001 received $200,000 and on March 22, 2001 received $50,000. On April 6,
      2001, IFT initiated the second convertible debenture purchase and on April
      24, 2001 received $225,000. During May 2001 IFT received notification that
      due to regulatory issues relating to the structure of the transactions
      contemplated by the Securities Purchase Agreement, 18,163,872 shares
      issuable upon possible future conversion of debentures not yet issued and
      750,000 shares issuable upon possible future exercise of not yet issued
      warrants will never be issued. Due to the inability to sell additional
      convertible debentures after April 2001, IFT entered into a new Securities
      Purchase Agreement with IIG on July 10, 2001 that provides for the sale of
      common stock and has a


                                       7
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

      NOTES TO FINANCIAL STATEMENTS
      (Unaudited)

      one-year commitment amount of $3 million, with an option at our control
      for an additional $3 million in financing after the completion of the
      one-year commitment. A registration statement for the common stock to be
      issued in connection with this agreement was filed on July 12, 2001 and
      declared effective by the SEC on July 23, 2001. As of June 30, 2002, IFT
      has borrowed a total of $1,750,000 under the financing agreement. IIG has
      currently suspended its financing agreement with the Company due to IFT's
      low stock price. The Company is currently pursuing alternative financing
      sources.

      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
      possible inability of IFT to continue as a going concern.

      Note 3 - Acquisition

      On May 25, 2001 IFT issued 12,500,001 common shares to the shareholders of
      Interfacial Technology Ltd. ("Interfacial") to acquire all of
      Interfacial's outstanding common stock. Interfacial is a development stage
      company formed in May 2000 which has since its inception focused its
      efforts to develop proprietary fuels and fuel additive formulations that
      will improve fuel economy, enhance lubricity and lower harmful engine
      emissions, while decreasing reliance on petroleum-based fuels. IFT
      acquired Interfacial because it believed their technology could be more
      expeditiously and cost effectively brought to market than its previously
      acquired PEERFUEL(TM) technology. The purchase price of approximately
      $6,750,000 was determined based on the market price of IFT's common stock
      on the date the acquisition was announced. Stock certificates for an
      additional 8,500,002 common shares were placed in an escrow account
      subject to a performance escrow agreement that provides for the release of
      the stock certificates to the Interfacial shareholders based on the
      achievement of certain revenue levels by IFT within two years following
      May 25, 2001. In January 2002, the Company and the former shareholders of
      Interfacial agreed to reduce the additional shares subject to the
      performance escrow by 500,000 shares. Revenues equal to, or more than,
      $3,500,000 for the one year period ending May 24, 2002, or revenues equal
      to, or more than, $10,000,000 for the two year period ending May 24, 2003
      will result in a portion, as determined by a formula in the performance
      escrow agreement, of the stock certificates for the 8,000,002 common being
      released to the Interfacial shareholders. The shares placed in the escrow
      account will not be included in the computation of basic and diluted loss
      per share until they are released to the former Interfacial shareholders.
      In connection with the closing of this transaction three of the
      Interfacial shareholders have been appointed to IFT's board of directors.
      In addition, IFT entered into consulting agreements with four of the
      Interfacial shareholders on May 25, 2001.

      The acquisition has been accounted for using the purchase method of
      accounting, and the assets have been recorded at fair value. Results of
      operations have been included as of the effective date of the transaction.
      The purchase price of $6,750,001 was initially allocated to intangible
      assets and goodwill, and was being amortized over a 15-year life. During
      the fourth quarter of 2001, a valuation of the acquisition was completed.
      Based on this valuation, the Company re-assessed the allocation of the
      purchase price and the lives of the respective intangible assets acquired,
      allocating $2,400,001 to purchased technology, $1,900,000 to in-process
      research and development, and $2,450,000 to goodwill. After completion of
      the valuation report, the estimated lives of purchased technology and
      goodwill were changed to six years. In-process research and development
      related to ongoing testing and optimization efforts for which the
      underlying technology has not yet achieved market readiness and had no
      alternative future use. At the date of acquisition, Interfacial's efforts
      focused on fine-tuning its additive technology for aqueous blends and
      tailoring it to existing applications, in order to optimize the
      emission-reducing characteristics while preserving engine efficiency, and
      there existed uncertainties regarding the successful development of the
      technology. The amount allocated to in-process research and development
      was calculated in the valuation using the discounted cash flow method
      based on a useful life of six years, and the entire value of $1,900,000
      was charged to research and development expense during 2001. As of
      December 31, 2001, the Company had completed development of this
      technology and was shifting its focus to commercialization.


                                       8
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

      NOTES TO FINANCIAL STATEMENTS
      (Unaudited)

      Effective January 1, 2002 we adopted Statement of Financial Accounting
      Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142). Under
      the new rules, we are no longer required to amortize goodwill and other
      intangible assets with indefinite lives. We will be required to subject
      these assets to periodic testing for impairment. Impairment losses for
      goodwill and indefinite-lived intangible assets that arise due to the
      initial application of FAS 142 are required to be reported as resulting in
      a change in accounting principle.

      An evaluation of our existing goodwill as of January 1, 2002 was
      performed, and it was determined that goodwill associated with our sole
      business unit was not impaired. The business was evaluated using the
      quoted market price of our common stock as of January 1, 2002, which
      indicated that the fair value of the business exceeded its carrying value.

      Goodwill amortization was $238,195 through December 31, 2001, at which
      time amortization ceased with the implementation of FAS 142. The remaining
      book value of $2,211,805 will be periodically tested for impairment.
      Amortization of purchased technology amounted to $233,333 during the year
      ended December 31, 2001, and $200,000 during the six months ended June 30,
      2002. Amortization of purchased technology is expected to equal $400,000
      per annum through May 25, 2007, subject to periodic impairment tests.

      The following tables summarize the results of continuing operations and
      earnings per share had FAS 142 been adopted at the beginning of 2001:

                                               Six Months ended
                                                 June 30, 2001
                                             --------------------
        Reported net loss                        $(3,072,587)
        Add back: Goodwill amortization               13,611
                                             --------------------
        Adjusted net loss                        $(3,058,976)
                                             ====================

                                               Basic and Diluted
        Six months ended June 20, 2001          Loss per Share
                                             --------------------
        Reported net loss                              $(0.11)
        Goodwill amortization                            0.00
                                             --------------------
        Adjusted net loss                              $(0.11)
                                             ====================

      The 8,000,002 common shares placed in the escrow account will be valued as
      an addition to the purchase price if and when the shares are released to
      the Interfacial shareholders in accordance with the performance escrow
      agreement at the appropriate price of IFT's common stock at that date. The
      8,000,002 common shares are currently recorded at par value, or $80,000,
      as common stock and a reduction of additional paid-in capital.

      The summarized unaudited pro forma results of operations set forth below
      for the six months ended June 30, 2002 and 2001 assume the acquisition
      occurred as of the beginning of 2001.

      The unaudited pro forma results of operations are not necessarily
      indicative of what actually would have occurred if the acquisition had
      been completed at the beginning of 2001, nor are the results of operations
      necessarily indicative of the results that will be attained in the future.

                                       9
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

       NOTES TO FINANCIAL STATEMENTS
       (Unaudited)

                                                       Six Months Ended
                                                           June 30,
                                                    2002              2001
                                                  --------------------------

      Revenues                                         $7,684            $0
      Net loss                                    $(1,426,730)  $(5,320,544)
      Net loss per common share:
      Basic and diluted                                 $(.03)        $(.14)

      Note 4 - Convertible Debentures

      On June 30, 2002, IFT had outstanding convertible debentures of $75,000,
      less the related discount on the beneficial conversion feature of the
      debenture of $25,705. The debentures bear interest at a rate of 6% per
      annum commencing on the date of issuance, are convertible upon issuance,
      and will mature on December 31, 2003.

      The convertible debentures are immediately convertible at the option of
      the holder into the number of shares of our common stock equal to the
      principal amount of the debentures to be converted, including all accrued
      interest, divided by the conversion price in effect on the conversion
      date. The conversion price is calculated at 80% of the average of the two
      lowest closing bid prices for the ten trading days immediately subsequent
      to the convertible debenture issuance date.

      During the six months ended June 30, 2002, IFT issued 1,410,033 shares of
      common stock upon the conversion of $400,000 worth of convertible
      debentures owned by IIG. An additional $112,759 had been recorded as a
      discount on the convertible debenture and added to additional
      paid-in-capital, relating to the beneficial conversion feature.

      Note 5 - Stockholders' Equity

      During January 2002, the Company sold 600,000 restricted shares of common
      stock at a price of $.25 per share to a Director. The Company recorded
      payroll expense of $150,000 relating to the excess of the trading price of
      IFT's stock over the proceeds.

      During January 2002, 500,000 shares of the Company's common stock were
      removed from the Interfacial Technologies' escrow account and canceled.
      The shares were removed because Interfacial failed to pay liabilities it
      had incurred prior to being bought by the Company.

      During January 2002, the Company issued 125,000 shares of common stock to
      a Director. These shares had been accrued as payroll expense and
      additional paid in capital as of December 31, 2001.

      During February 2002, the Company sold 250,000 restricted shares of common
      stock at a price of $.20 per share to a consultant. The Company recorded
      consulting expense of $40,000 relating to the excess of the trading price
      of IFT's stock over the proceeds.

      During April and May 2002, the Company issued a total of 340,000 shares of
      common stock to consultants for services. The Company recorded consulting
      expense of $104,900.

      During the six months ended June 30, 2002, the Company recorded
      compensation expense of $102,816 relating to shares of common stock that
      were earned under employment agreements for two officers but unissued as
      of June 30, 2002.


                                       10
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

      NOTES TO FINANCIAL STATEMENTS
      (Unaudited)

      During the six months ended June 30, 2002, the Company recorded consulting
      expense of $4,984 relating to shares of common stock that were earned
      under consulting agreements for various consultants but unissued as of
      June 30, 2002.

      Note 6 - Subsequent Events

      In July 2002, the Company entered into a consulting agreement in which the
      Company issued 1,250,000 shares of common stock upon inception of the
      agreement, and will issue an additional 1,250,000 shares at a mutually
      agreed upon time. The consulting agreement, for which the Company will
      receive strategic planning and general business consulting, is for a
      one-year term expiring July 31, 2003.


                                       11
<PAGE>

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

      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
      IFT's expectations and are subject to a number of risks and uncertainties,
      many of which are beyond IFT's control, including, but not limited to,
      economic, competitive and other factors affecting IFT's operations,
      markets, products and services, expansion strategies and other factors
      discussed elsewhere in this report and the documents filed by IFT with the
      Securities and Exchange Commission. 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. IFT does
      not undertake any obligation to revise these forward-looking statements to
      reflect future events or circumstances.

      Overview

      International Fuel Technology and its subsidiary is comprised largely of
      the operations and assets that were previously the business of
      Interfacial, a company located in Manchester, England. IFT completed the
      acquisition of Interfacial on May 25, 2001.

      IFT has developed a family of fuel blends that have been created through
      the use of proprietary fuel additives. IFT is now in the process of
      patenting the fuel additives and resulting fuel blends as part of its
      efforts to commercialize these fuel blends. The individual fuel blends
      incorporating the IFT additive formulations include base fuel with
      additive only, base fuel with kerosene, base fuel with biodiesel, base
      fuel with ethanol, and base fuel with an urea/water solution. The Company
      seeks to commercialize these fuel blends on a global basis through the use
      of strategic partnerships with a variety of targeted companies including
      fuel refiners, distributors of fuel additives, OEM's, and other companies.
      IFT began selling its products during the first quarter of 2002 and is no
      longer a development stage company and has raised capital for initial
      development through the issuance of its securities and debt instruments.

      Three and Six Months Ended June 30, 2002 compared to the Three and Six
      Months Ended June 30, 2001

      Total operating expenses were $297,769 for the three months ended June 30,
      2002, as compared to the operating expenses of $1,275,333 for the three
      month period ended June 30, 2001. This represents a $977,564 decrease from
      the prior period. Decreased operating expenses in the current period
      compared to the prior period are a result of a reduction of selling,
      general and administrative expenses in 2002, as discussed below. Total
      operating expenses were $1,288,517 for the six months ended June 30, 2002,
      as compared to the operating expenses of $2,752,580 for the six months
      ended June 30, 2001. This represents a $1,464,063 decrease from the prior
      period which is primarily attributable to the significant reductions of
      selling, general and administrative expenses during the first six months
      of 2002, as discussed below.

      Selling, general and administrative expenses for the three months ended
      June 30, 2002 were $196,054, as compared to the selling, general and
      administrative expenses of $1,237,833 for the three month period ended
      June 30, 2001. This represents a decrease of $1,041,779 from the prior
      period. This decrease can be attributed to the issuance of consulting
      shares in the second quarter of 2001 which resulted in an expense of
      approximately $580,000. In addition, the remaining consulting shares were
      expensed over the remaining term of the consulting agreements, and
      adjusted for stock price fluctuations, resulted in a reversal of
      approximately $300,000 caused by a declining stock price in 2002. Selling,
      general and administrative expenses for the six months ended June 30, 2002
      were $1,085,086, as compared to the selling, general and administrative
      expenses of $2,715,080 for the six months period ended June 30, 2001. This
      represents a decrease of $1,629,994 from the prior


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<PAGE>

      period. The decrease is attributable to the following: In February 2001,
      the Company issued a one-time stock grant of 2,485,000 shares to employees
      and directors, resulting in compensation expense of over $1 million; The
      issuance of consulting shares, in the second quarter of 2001 resulted in
      expenses of approximately $580,000.

      Amortization and depreciation expenses for the three months ended June 30,
      2002 were $101,715, as compared to $37,500 for the corresponding period in
      2001. This increase of $64,215 is attributable to the amortization of
      technology which was acquired in May of 2001. Amortization and
      depreciation expenses for the six months ended June 30, 2002 were $203,431
      representing an increase of $165,931 from the corresponding period in
      2001. This increase is primarily attributable to the shorter period (1.2
      months) of amortization of intangibles in 2001.

      Interest expense was $62,938 for the three months ended June 30, 2002, as
      compared to the interest expense of $294,968 for the three month period
      ended June 30, 2001. The decrease is primarily attributable to a larger
      discount amortization on convertible debt in 2001 due to warrants issued
      and a one-time $143,200 beneficial conversion feature. Interest expense
      was $158,029 for the six months ended June 30, 2002, as compared to the
      interest expense of $320,007 for the six months ended June 30, 2001. This
      represents a $161,978 decrease from the prior period. The decrease is
      primarily attributable to a one-time $143,200 beneficial conversion
      feature in 2001.

      The net loss for the three months ended June 30, 2002 was $357,041 as
      compared to the net loss of $1,570,301 for the three months ended June 30,
      2001. This represents a $1,213,260 decrease from the prior period,
      primarily due to a greater stock-based compensation and interest in 2001
      due to one-time charges. The net loss for the six months ended June 30,
      2002, was $1,426,730 as compared to the net loss of $3,072,587 for the six
      months ended June 30, 2001. This represents a $1,645,857 decrease from the
      prior period. This decrease is primarily attributable to significant
      reductions in stock-based compensation and interest in 2002. The basic and
      dilutive net loss per common share for the three months ended June 30,
      2002 was $.01 as compared to the basic and dilutive net loss per common
      share of $.05 for the three months ended June 30, 2001. The basic and
      dilutive net loss per common share for the six months ended June 30, 2002
      was $.03 as compared to the basic and dilutive net loss per common share
      of $.11 for the six months ended June 30, 2001. The decrease in loss per
      share was caused by decreased net losses and greater dilution of common
      stock.

      Critical Accounting Policies

      Valuation of long-lived and intangible assets and goodwill. We assess the
      impairment of identifiable intangibles, long-lived assets and related
      goodwill whenever events or changes in circumstances indicate that the
      carrying value may not be recoverable. Factors we consider important which
      could trigger an impairment review include the following:

      o     Significant underperformance relative to expected historical or
            projected future operating results;
      o     Significant changes in the manner of our use of the acquired assets
            or the strategy for our overall business;
      o     Significant negative industry or economic trends;
      o     Significant decline in our stock price for a sustained period; and
      o     Our market capitalization relative to net book value.

      When we determine that the carrying value of intangibles, long-lived
      assets and related goodwill may not be recoverable based upon the
      existence of one or more of the above indicators of impairment, we measure
      any impairment based on the quoted market price of our common stock.

      In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
      "Goodwill and Other Intangible Assets" became effective and as a result,
      we will cease to amortize approximately $2.2 million of goodwill. We had
      recorded approximately $238,000 of amortization on these amounts during
      2001 and would have recorded approximately $408,000 of amortization during
      2002. In lieu of amortization, we are required to perform an initial
      impairment review of our goodwill in 2002 and an annual impairment review
      thereafter. We completed our initial review during the second quarter of
      2002, and did not record an


                                       13
<PAGE>

      impairment charge.

      Liquidity and Capital Resources

      A critical component of management's operating plan impacting the
      continued existence of IFT is the ability to obtain additional capital
      through additional debt and/or equity financing. Management does not
      anticipate IFT will generate a positive internal cash flow until such time
      as IFT can generate significant revenues from either sale of our products
      or license fees for our technologies, which may take the next few years to
      realize. If IFT cannot obtain the necessary capital to pursue our business
      plan, IFT may have to cease or significantly curtail its operations. This
      would materially impact our ability to continue as a going concern. The
      independent auditor's reports included with the December 31, 2001
      financial statements in Form 10-K indicate there is a substantial doubt
      that IFT can continue as a going concern.

      A significant portion of the Company's operating loss relates to charges
      for non-cash operating expenses such as amortization and depreciation,
      employee stock-based compensation, consulting services fees paid in the
      Company's common stock and interest expense related to conversion features
      of the Company debt. The Company has offset its capital needs since
      inception primarily through the issuance of common stock to its employees
      and consultants as compensation for services rendered, which totaled
      $402,700 for the six month period ended June 30, 2002. For the six months
      ended June 30, 2002 proceeds from notes payable and advances from
      stockholders totaled $570,000 with $0 repaid and $400,000 converted to
      common stock. During the six months ended June 30, 2002, the Company
      received $200,000 in proceeds from the sale of common stock to Directors
      and consultants.

      The Company has not made significant cash investments in property and
      equipment or in the acquisition of companies or technologies. During the
      period ended December 31, 2001, the Company acquired Interfacial
      Technologies, Ltd., a UK company in exchange for 12,500,001 shares of the
      common stock.

      The cash used in operating activities was $759,841 for the six months
      ended June 30, 2002 as compared to cash used in operating activities of
      $667,926 for the six months ended June 30, 2001. Cash used in operations
      for the six months ended June 30, 2002 increased primarily because the
      Company paid down over $100,000 of accounts payable for the period ended
      June 30, 2002. The cash provided by investing activities was $36,941 for
      the six months ended June 30, 2002 as compared to ($36,642) used in
      investing activities for the six months ended June 30, 2001. Cash provided
      by investing activities for the six months ended June 30, 2002 increased
      primarily due to the proceeds from repayments of notes receivable. The
      cash provided by financing activities was $770,000 for the six months
      ended June 30, 2002 as compared to $612,250 provided by financing
      activities for the six months ended June 30, 2001. Cash provided by
      financing activities for the six months ended June 30, 2002 related to the
      issuance of convertible debentures, advances from stockholders, and the
      sale of common stock. Net cash increased by $47,460 for the six months
      ended June 30, 2002 as compared to net cash decreasing by $92,318 for the
      six months ended June 30, 2001.

      Working capital at June 30, 2002 was ($638,610) as compared to ($484,141)
      at December 31, 2001.

      IFT's main source of capital has been a Securities Purchase Agreement with
      IIG dated July 10, 2001 that provides for the sale of convertible
      debentures and has a one-year commitment amount of $3 million, with an
      option at our control for an additional $3 million in financing after the
      completion of the one-year commitment. As of June 30, 2002, IFT has
      borrowed a total of $1,750,000 under the financing agreement. IIG has
      currently suspended its financing agreement with the Company due to IFT's
      low stock price. The Company is currently pursuing alternative financing
      sources.


                                       14
<PAGE>

      While management can not make any assurance as to the accuracy of our
      projections of future capital needs, it is anticipated that a total of
      approximately $1 million over the remainder of the 2002 fiscal year will
      be necessary in order to enable us to meet our current capital needs. We
      expect to obtain this financing through alternative financing sources. The
      Company is currently looking for alternative sources of financing. Agora
      Capital has been hired as consultants to assist the Company with the
      securing of funding. Management believes the proceeds from its financing
      will be used as follows: $100,000 for commercial fleet testing programs,
      $250,000 for professional fees, $250,000 for salary expenses and $400,000
      working capital for administrative and other capital needs, including
      investigation of future acquisitions, if any.

      Subsequent Events

      In July 2002, the Company entered into a consulting agreement in which the
      Company issued 1,250,000 shares of common stock upon inception of the
      agreement, and will issue an additional 1,250,000 shares at a mutually
      agreed upon time. The consulting agreement, for which the Company will
      receive strategic planning and general business consulting, is for a
      one-year term expiring July 31, 2003.

      Item 3. Quantitative and Qualitative Disclosures About Market Risk

      In the normal course of business, operations of IFT may be exposed to
      fluctuations in interest rates. These fluctuations can vary the costs of
      financing, investing and operating transactions. At June 30, 2002 IFT has
      debt totaling 21% of total liabilities at fixed interest rates and
      fluctuations in the interest rate could have a material impact on the
      underlying fair value.

      Item 6. Exhibits and Reports on Form 8-K

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

                  None

            (b)   Reports on Form 8-K

                  None

            All other items of this report are inapplicable.


                                       15
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
         Exchange Act of 1934, registrant has duly caused this report to be
         signed on its behalf by the undersigned, thereunto duly authorized.

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (Registrant)

         By:  /s/ Jonathan R. Burst            Date: August 14, 2002
              ---------------------------            ---------------
              Jonathan R. Burst
              Chief Executive Officer

         By:  /s/ Michael F. Obertop           Date  August 14, 2002
              ---------------------------            ---------------
              Michael F. Obertop
              Chief Financial Officer


                                 CERTIFICATION

         Each of the undersigned hereby certifies, in accordance with 18 U.S.C.
         ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of
         2002, in his capacity as an officer of International Fuel Technology
         Inc. ("IFT"), that the Quarterly Report of IFT on Form 10-Q for the
         period ended June 30, 2002, fully complies with the requirements of
         Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
         the information contained in the report fairly represents, in all
         material respects, the financial condition and results of operation of
         IFT.

         By:  /s/ Jonathan R. Burst            Date: August 14, 2002
              ---------------------------            ---------------
              Jonathan R. Burst
              Chief Executive Officer

         By:  /s/ Michael F. Obertop           Date  August 14, 2002
              ---------------------------            ---------------
              Michael F. Obertop
              Chief Financial Officer


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