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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    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.
  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
 þ o
  o o þ
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INDEX
  
 Page No.PART
I. FINANCIAL INFORMATIONItem 1.
Financial Statements (Unaudited)Balance Sheets March 31, 2007 and December 31, 2006
    
    
    3Statements of OperationsThree Month Periods Ended March
31, 2007 and March 31, 2006
    
    
    4Statement of Stockholders Equity Three Month Period
Ended March 31, 2007
    
    
    5Statements of Cash Flows Three Month Periods Ended March
31, 2007 and March 31, 2006
    
    
    6Notes to Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 6. Exhibits
    
    
    17Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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INTERNATIONAL FUEL TECHNOLOGY, INC.
 
 BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    448,556
    
    
    $
    654,841Short-term investments
    
    
    992,500
    
    
    
    1,506,919Accounts receivable
    
    
    9,458
    
    
    
    19,227Inventory
    
    
    405,962
    
    
    
    431,363Prepaid expenses and other assets
    
    
    43,423
    
    
    
    69,892Total Current Assets
    
    
    1,899,899
    
    
    
    2,682,242Property and equipmentMachinery, equipment and office furniture
    
    
    63,954
    
    
    
    63,954Accumulated depreciation
    
    
    (37,568
    )
    
    
    (35,115
    )Net Property and Equipment
    
    
    26,386
    
    
    
    28,839Purchased technology, net of accumulated
amortization of $2,333,333 and
$2,233,333 at March 31, 2007 and December
31, 2006, respectively
    
    
    66,667
    
    
    
    166,667Goodwill
    
    
    2,211,805
    
    
    
    2,211,805Total Assets
    
    $
    4,204,757
    
    
    $
    5,089,553LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    276,331
    
    
    $
    195,139Accrued compensation
    
    
    34,727
    
    
    
    47,628Other accrued expenses
    
    
    350,000
    
    
    
    350,000Total Current Liabilities
    
    
    661,058
    
    
    
    592,767Commitments and contingenciesStockholders equityCommon stock, $0.01 par value; 150,000,000
authorized, 84,861,326 shares issued and
outstanding at March 31, 2007 and December
31, 2006
    
    
    848,614
    
    
    
    848,614Discount on common stock
    
    
    (819,923
    )
    
    
    (819,923
    )Additional paid-in capital
    
    
    54,549,659
    
    
    
    54,326,473Accumulated deficit
    
    
    (51,034,651
    )
    
    
    (49,858,378
    )Total Stockholders Equity
    
    
    3,543,699
    
    
    
    4,496,786Total Liabilities and Stockholders Equity
    
    $
    4,204,757
    
    
    $
    5,089,553
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INTERNATIONAL FUEL TECHNOLOGY, INC.
 
 STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006Revenues
    
    $
    11,872
    
    
    $
    153,840Operating expenses:Cost of operations (exclusive of depreciation and amortization)
    
    
    8,444
    
    
    
    100,485Selling, general and administrative expenses (including stock option
expense of $223,186 and $464,410, respectively)
    
    
    1,088,195
    
    
    
    1,352,603Depreciation and amortization
    
    
    102,453
    
    
    
    101,099Total operating expenses
    
    
    1,199,092
    
    
    
    1,554,187Net loss from operations
    
    
    (1,187,220
    )
    
    
    (1,400,347
    )Interest income
    
    
    10,947
    
    
    
    17,665Net loss
    
    $
    (1,176,273
    )
    
    $
    (1,382,682
    )Basic and diluted net loss
per common share
    
    $
    (0.01
    )
    
    $
    (0.02
    )Weighted-average common shares outstanding
    
    
    84,861,326
    
    
    
    84,496,724
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INTERNATIONAL FUEL TECHNOLOGY, INC.
 
 STATEMENT OF STOCKHOLDERS EQUITY
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2007
 Common
    
    Discount on
    
    AdditionalCommon
    
    Stock
    
    Common
    
    Paid-in
    
    AccumulatedStock Shares
    
    Amount
    
    Stock
    
    Capital
    
    Deficit
    
    TotalBalance, December 31, 2006
    
    
    84,861,326
    
    
    $
    848,614
    
    
    $
    (819,923
    )
    
    $
    54,326,473
    
    
    $
    (49,858,378
    )
    
    $
    4,496,786Expense relating to stock-based compensation (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223,186
    
    
    
    
    
    
    
    223,186Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,176,273
    )
    
    
    (1,176,273
    )Balance, March 31, 2007
    
    
    84,861,326
    
    
    $
    848,614
    
    
    $
    (819,923
    )
    
    $
    54,549,659
    
    
    $
    (51,034,651
    )
    
    $
    3,543,699
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INTERNATIONAL FUEL TECHNOLOGY, INC.
 
 STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (1,176,273
    )
    
    $
    (1,382,682
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    102,453
    
    
    
    101,099Non-cash stock-based compensation
    
    
    223,186
    
    
    
    464,410Change in assets and liabilities:Accounts receivable
    
    
    9,769
    
    
    
    (101,278
    )Inventory
    
    
    25,401
    
    
    
    (146,173
    )Prepaid expenses and other assets
    
    
    26,469
    
    
    
    17,152Accounts payable
    
    
    81,192
    
    
    
    (262,625
    )Accrued compensation
    
    
    (12,901
    )
    
    
    (52,216
    )Net cash used in operating activities
    
    
    (720,704
    )
    
    
    (1,362,313
    )Cash flows from investing activities:Redemption of short-term investments
    
    
    514,419
    
    
    
    Acquisition of machinery and equipment
    
    
    
    
    
    
    (8,440
    )Net cash provided by (used in) investing activities
    
    
    514,419
    
    
    
    (8,440
    )Net decrease in cash and cash equivalents
    
    
    (206,285
    )
    
    
    (1,370,753
    )Cash and cash equivalents, beginning of period
    
    
    654,841
    
    
    
    3,382,012Cash and cash equivalents, end of period
    
    $
    448,556
    
    
    $
    2,011,259
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
 Note 1  Basis of Presentation
    Earnings per Share
 Note 2
 Ability to Continue as a Going Concern
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Note 3  Stock-based Compensation
 Share-Based Payment, an
amendment of FASB Statements Nos. 123 and 95
    Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006Stock-based options
to non-employees
    
    $
    15,375
    
    
    $
    37,257Stock-based options
to
employees/directors
    
    
    207,811
    
    
    
    427,153Total stock-based
option expense
    
    $
    223,186
    
    
    $
    464,410
 Options issued to employees
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Options issued to non-employees
  Other
  Note 4  Blencathia Merger
   Note 5  Adoption of New Accounting Standard
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109 (FIN 48)
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Note 6  Legal Proceedings
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements and Associated Risks
  Overview
    
    
    Stage 1  independent laboratory testing;
 
    
    Stage 2  initial customer contact detailing independent laboratory results generated;
 
    
    Stage 3  small-scale field trials with potential customers; and
 
    
    Stage 4  large-scale field trials with potential customers to confirm favorable results
generated from initial small-scale trials.
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Results of Operations
 Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006
 Revenues
 TM
  Operating Expenses
  Selling, General and Administrative Expense
  
    
    a decrease in stock compensation expense, as described below;
 
    
    a decrease in research and development expense ($125,970) as a result of increased
independent product testing activities during the first quarter of 2006, which have now
been completed;
 
    
    an increase in investor relations expense ($76,820), as an investor relations firm was
retained in the second quarter of 2006; and
 
    
    an increase in salaries expense ($53,092), as we had two more employees in the first
quarter of 2007 than in the first quarter of 2006.
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Depreciation and Amortization Expense
  Interest Income
  Provision for Income Taxes
  Net Loss
  New Accounting Pronouncements
   Fair Value Measurements ,
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, The Fair Value Option for Financial Assets and
Financial Liabilities
 Critical Accounting Policies and Estimates
  Revenue recognition
  Valuation of long-lived intangible assets
  
    
    Significant under-performance relative to expected historical or projected future
operating results;
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
    
    Significant changes in the manner of our use of the acquired assets or the strategy
for our overall business;
    
    Significant negative industry or economic trends;
    
    Significant decline in our stock price for a sustained period; and
    
    Our market capitalization relative to net book value.
  Valuation of goodwill
 Valuation of long-lived intangible assets
  Deferred income taxes
  Liquidity and Capital Resources
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
     
 Item 6. Exhibits
  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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By:
    
    /s/ Jonathan R. Burst
    
    Date:
    
    May 7, 2007Jonathan R. BurstChief Executive Officer(Principal Executive Officer)By:
    
    /s/ Gary S. Hirstein
    
    Date:
    
    May 7, 2007Gary S. HirsteinExecutive Vice President, Chief Financial Officer and Corporate Secretary(Principal Financial Officer)
 18