<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR
            15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

            For the Fiscal Year Ended December 31, 2001
                            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 Avenue, Suite 1920, St. Louis, Missouri 63105
             -----------------------------------------------------------
                            (Address of principal executive offices)

                                   (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
                                                  ---------               -----

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

         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 March 22, 2002 as reported on the OTC Bulletin
Board, was $22,532,424.

  Number of shares of common stock outstanding as of March 22, 2002: 56,331,061

<PAGE>


                       INTERNATIONAL FUEL TECHNOLOGY, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                    FORM 10-K

                   For the Fiscal Year Ended December 31, 2001

                                      INDEX
<TABLE>
<CAPTION>
<S>    <C>      <C>                                                                                <C>

Part I

       Item 1.    Business                                                                                  3-11
       Item 2.    Properties                                                                                  11
       Item 3.    Legal Proceedings                                                                           11
       Item 4.    Submission of Matters to a Vote of Security Holders                                         11

Part II

       Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters                       12
       Item 6.    Selected Financial Data                                                                     13
       Item 7.    Management's Discussion and Analysis of Results of Operations
                  and Financial Condition                                                                  14-23
       Item 7a.   Quantitative and Qualitative Disclosures About Market Risk                                  23
       Item 8.    Financial Statements and Supplementary Data                                                 24
       Item 9.    Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure                                                                    24
Part III

       Item 10.   Directors and Executive Officers of the Registrant                                       24-26
       Item 11.   Executive Compensation                                                                   26-27
       Item 12.   Security Ownership of Certain Beneficial Owners and Management                           27-28
       Item 13.   Certain Relationships and Related Transactions                                           28-30

Part IV

       Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         30-31

</TABLE>



                                               2



<PAGE>






                              PART I

Item 1.       Business

              Forward Looking Statements and Associated Risks
              -----------------------------------------------

              This Annual Report on Form 10-K 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 International Fuel Technology's
              ("IFT" or the "Company") 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.

              (a) History
              -----------

              The Company was incorporated under the laws of the State of Nevada
              on April 9, 1996, as MagnoDynamic Corporation. The name of the
              corporation was changed to International Fuel Technology, Inc. on
              November 13, 1996.

              IFT has an authorized capitalization of 150,000,000 shares of
              common stock, $.01 par value per share and no authorized preferred
              stock. On July 22, 1999, IFT effected a one-for-ten reverse split
              of its outstanding common stock. All references to share
              information have been restated to reflect this split. IFT's common
              stock is traded on the NASD OTC Bulletin Board under the symbol
              "IFUE."

              Effective March 31, 1998, IFT merged with United States Fuel
              Technology, Inc. United States Fuel Technology, Inc. was formed
              primarily to market PEERFUEL in North America. On May 29, 1998,
              IFT merged with Scientific Fuel Technology, LLC, a company related
              through common ownership to improve efficiency and reduce harmful
              emissions, which are reprocessed fuel.

              Pursuant to an Agreement and Plan of Merger effective as of
              October 27, 1999 IFT merged with Blencathia Acquisition
              Corporation("Blencathia") in which IFT was the surviving company.
              Blencathia (a development stage company) was incorporated in
              Delaware on December 3, 1998 to serve as a vehicle to effect a
              merger, exchange of capital stock, asset acquisition or other
              business combination with a domestic or foreign private business.



                                         3
<PAGE>


              On May 8, 2000 IFT issued 300,000 shars that were contingently
              issued per the Blencathia merger agreement.

              The officers, directors, and by-laws of IFT continued without
              change as the officers, directors, and by-laws of the successor
              issuer following the merger with Blencathia. All financial
              statement information presented for IFT reflects the operations of
              IFT and does not include any operations of Blencathia.

              On May 25, 2001 IFT issued 12,500,001 common shares to the
              shareholders of Interfacial Technologies (UK) Ltd., to acquire all
              of Interfacial's outstanding common stock. 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. 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 all of the stock certificates for the 8,500,002 common
              shares being released to the Interfacial shareholders. Revenues
              more than $5,000,000 but less 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 8,500,002 common shares being released to the
              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 an employment agreement
              with one of the Interfacial shareholders and into a consulting
              agreement with three of the Interfacial shareholders on May 25,
              2001.

                                            4



<PAGE>

              IFT is engaged in one reportable industry segment. Financial
              information regarding this segment is contained in IFT's financial
              statements included in this report.

              IFT has an authorized capitalization of 150,000,000 shares of
              common stock, $.01 par value per share and no authorized preferred
              stock. On July 22, 1999, IFT effected a one-for-ten reverse split
              of its outstanding common stock. All references to share
              information have been restated to reflect this split. IFT's common
              stock is traded on the NASD OTC Bulletin Board under the symbol
              "IFUE."

             (b) Description of Business
              ---------------------------

              The Company was founded in 1996 by a team of individuals who
              sought to address the issue of reducing harmful engine emissions
              while at the same time improving the operating performance of
              engines, especially with respect to engine power and fuel economy.
              After spending several years attempting to develop a fuel
              processing system (the PEERFUEL(TM) system, for Performance
              Enhanced Emission Reduced fuels), it was determined that the
              Company should broaden its technology base while still maintaining
              efforts to complete its original fuel processing system.

              As part of the Company's efforts to expand into promising new
              engine emission-reduction technologies, IFT completed the
              acquisition of Interfacial Technologies (UK) Ltd. ("Interfacial").
              Based in Manchester, England, the foundation of Interfacial's
              technology was started in 1999.

              Through the acquisition of Interfacial, IFT has acquired a family
              of proprietary fuels and fuel additive formulations. The additive
              formulations may be easily splash blended in diesel or gasoline,
              or combined with fossil fuel and a series of mediums including
              synthetic diesel, ethanol, biodiesel, and urea/water, creating
              environmentally friendly finished fuel blends. These fuel blends
              have been created to materially improve fuel economy, enhance
              lubricity (reducing engine wear and tear) and lower harmful engine
              emissions, while decreasing reliance on petroleum-based fuels
              through the use of more efficient, alternative and renewable fuel
              mediums. With the increasing pressure from public and private
              efforts around the world to reduce the level of harmful engine
              emissions, combined with the high cost of existing technologies
              now being sold to address this problem, management believes
              Interfacial is poised to be one of the leading technologies
              adopted as part of the effort to clean up the global environment.

              Although management still believes the PEERFUEL technology has
              significant potential, management has concluded that Interfacial's
              technology can be more expeditiously and cost effectively brought
              to market, and therefore has decided to focus all of its efforts
              on commercializing Interfacial's proprietary technology.

              The Company has emerged from its research and development phase
              and is now focused on the commercialization of its numerous fuel
              blends and additives. From an operating standpoint, IFT is
              primarily a marketing company. Primary research and development
              efforts are complete, intellectual property pertaining to its
              proprietary technology has been filed for, and all manufacturing
              of additive formulations is outsourced. Going forward, capital

                                     5

<PAGE>


              requirements for fixed assets, working capital, and research and
              development are expected to be approximately $1,800,000 for the
              year ended December 31, 2002.

              PRODUCTS AND TESTING

              The Company's additives, when mixed with a petroleum-based fuel or
              a combination of a petroleum-based fuel and an alternative fuel
              medium, form fuel blends that achieve perfect and stable emulsion,
              even at extreme temperatures. IFT currently has eight products
              ready for commercialization.

                  Premium Diesel
                  --------------
                  Premium Diesel is created by blending conventional diesel fuel
                  with an IFT additive (PD-1). Tests at Southwest Research
                  Institute ("SwRI") showed that this fuel blend, when compared
                  to conventional, EPA #2 diesel, had a 7% increase in fuel
                  economy, a 44% increase in lubricity and decreased levels of
                  particulate matter ("PM"), Carbon Dioxide ("CO2") and Oxides
                  of Nitrogen ("NOx"). This product can be used in any diesel
                  engine.

                  Premium Gasoline
                  ----------------
                  Premium Gasoline is created by adding an IFT additive to
                  conventional gasoline. Independent testing indicated that this
                  fuel blend, when compared to conventional gasoline, had an
                  increase in fuel economy and lubricity, and a reduction in
                  harmful emissions and Reid vapor pressure ("Rvp"). This
                  product can be used in any gasoline engine.

                  Synthetic Diesel
                  ----------------
                  Synthetic Diesel is created by adding an IFT additive to a
                  mixture of kerosene (distilled from natural gas condensate)
                  and #2 diesel or California certified diesel. Tests at SwRI
                  revealed that this fuel blend, when compared with #2 diesel,
                  had a 6% increase in fuel economy, a 46% increase in
                  lubricity, and decreased levels of PM, CO2 and NOx. This
                  product can be used in any diesel engine without the need for
                  any engine retrofit or changes in infrastructure for blending,
                  storing, or distributing the fuel. In addition to meeting CARB
                  diesel requirements, this fuel blend could be used in every
                  vehicle covered by EPAct, if EPAct status is received. (See
                  below for discussion of EPAct)

                  California Air Resources Board ("CARB") Equivalent Diesel
                  ---------------------------------------------------------
                  This fuel blend is created by adding kerosene (from the
                  barrel) with #2 diesel or CARB diesel to the IFT additive.
                  Test results at SwRI showed that this blend, when compared to
                  #2 diesel, had a 6% increase in fuel economy, a 46% increase
                  in lubricity, and decrease levels of PM, CO2 and NOx. This
                  product can be used in any diesel engine without the need for
                  any engine retrofit or change in infrastructure for blending,
                  storing, or distributing the fuel. In addition, this fuel
                  blend meets all CARB diesel requirements.

                  Urea/Water Diesel
                  -----------------
                  This fuel blend is created by adding the IFT additive to a
                  mixture of urea, water, and diesel. Tests at SwRI showed that
                  this fuel blend, when compared to #2 diesel, had no loss of
                  fuel economy or power or torque, no change in lubricity, and
                  decreased levels of PM, CO2 and NOx. This product can be used
                  in any diesel engine without the need for any engine retrofit
                  or change in infrastructure for blending, storing, or
                  distributing the fuel.

                  Spent Solvents Diesel
                  ---------------------
                  This fuel blend is created by adding spent solvents (e.g. an
                  alcohol/water mixture) and diesel to the IFT additive.
                  Chemical and pharmaceutical companies generate enormous
                  amounts of spent solvents/waste liquids annually, most of
                  which are disposed of at a substantial cost. Tests showed

                                      6


<PAGE>



                  that IFT's additive allows for the perfect emulsion of certain
                  spent solvents with diesel for cogeneration or resale as
                  oxygenated cleaner burning bunker fuel.

                  Enhanced E-diesel
                  -----------------
                  Enhanced E-diesel is created by combining ethanol and diesel
                  with the help of IFT's additive. Tests at SwRI showed that
                  this fuel blend, when compared with #2 diesel, had a 3%
                  increase in fuel economy, a 35% increase in lubricity, a 45%
                  decrease in PM, and decreased levels of CO2 and NOx. This
                  product can be used in any diesel engine without the need for
                  any engine retrofit or change in infrastructure for blending,
                  storing, or distributing the fuel.

                  Enhanced Biodiesel
                  ------------------
                  This fuel blend is created by a combination of biodiesel with
                  IFT additive. Tests at SwRI showed that this fuel blend, when
                  compared with #2 diesel, had no loss of fuel economy, power or
                  torque, an increase in lubricity, decreased levels of PM and
                  CO2, and no change in NOx. This product can be used in any
                  diesel engine without the need for any engine retrofit or
                  change in infrastructure for blending, storing, or
                  distributing the fuel.

              IFT's fuel additives are cost effective and easy to use. The raw
              materials used in IFT additives are readily available chemicals
              and the initial and ongoing capital investment in the
              manufacturing process is minimal. The cost of IFT additives ranges
              from less than 1 cent to 5 cents per gallon of fuel treated
              depending on the fuel blend. Management anticipates that cost
              reductions can be achieved through dosage optimization and volume
              purchase discounts associated with increased revenue levels. IFT
              additives have been engineered to be easily and conveniently added
              directly to fuel ("splash blended") at the terminal or a central
              fueling location. Most importantly, unlike certain competitive
              products that can require substantial investments in changing the
              fuel delivery infrastructure, IFT's additive formulations do not
              require the purchase of specialized blending or storage equipment,
              or require additional steps in the blending process.

              EPAct APPLICATION

              The Company recently filed a formal petition with the Department
              of Energy requesting "alternative fuel" status for its Synthetic
              Diesel fuel blend under the Energy Policy Act of 1992 ("EPAct").
              The EPAct program was designed with very specific goals in mind:
              make targeted reductions in the use of petroleum-based fuels in
              the U.S. while ensuring that the alternative fuels used to reduce
              our dependence on foreign oil are environmentally sound. IFT
              Synthetic Diesel is a fuel blend that consists substantially of
              synthetic diesel distilled from natural gas condensate, a
              non-petroleum or non-barrel natural resource that is in abundant
              supply in the U.S. By blending synthetic diesel with either
              conventional EPA #2 diesel or CARB diesel, plus a proprietary fuel
              additive formulation from IFT, management believes this new fuel
              meets the legislated definition of an alternative fuel under
              EPAct.

              The benefits Synthetic Diesel delivers with respect to increased
              fuel economy, greater lubricity, lower emissions and other gains,
              enables this fuel blend on a net basis to be comparable or even
              lower in price than conventional EPA #2 diesel. With the ability
              to readily and significantly increase the supply of synthetic
              diesel derived from gas condensate, the wholesale adoption of this
              fuel blend by both EPAct and regular commercial fleets can be
              relatively rapid. As with all IFT fuel blends, there are no
              special infrastructure requirements for blending, storing or
              distributing Synthetic Diesel. Furthermore, Synthetic Diesel is a
              proprietary IFT fuel blend.

                                          7

<PAGE>


              SOUTHWEST RESEARCH INSTITUTE

              Of the eight IFT products that are ready for commercialization,
              five (Premium Diesel, Synthetic Diesel, Enhanced E-Diesel,
              Enhanced Biodiesel, and Urea/Water Diesel) were tested extensively
              at SwRI. The test results confirmed the effectiveness of IFT's
              additive formulations. In particular, all IFT fuel blends tested
              achieved: (1) an increase in fuel economy; (2) no loss of power or
              torque; (3) an increase in lubricity; and (4) a reduction in CO2,
              NOx, and PM. SwRI is an independent, nonprofit, applied
              engineering and physical sciences research and development
              organization with 11 technical divisions using multidisciplinary
              approaches to problem solving. The institute occupies 1,200 acres
              and provides nearly two million square feet of laboratories, test
              facilities, workshops, and offices for more than 2,700 employees
              who perform contract work for industry and government clients.
              SwRI's main office is located in San Antonio, TX and their web
              site can be found at www.swri.com.

              The testing protocol at SwRI for the IFT tests used the California
              Air Resources Board ("CARB") reference engine, a 1991 Detroit
              Diesel Corporation Series 60 heavy-duty diesel engine (rebuilt to
              1994-model specifications). The engine performance tests were
              conducted using the Environmental Protection Agency ("EPA")
              Federal Test Procedure transient cycle, and the emissions were
              evaluated according to the California Code of Federal Regulations
              Title 40 requirements for heavy-duty engines. To get a
              representative picture of the use of different fuel mediums
              against base diesel fuels, the testing used both EPA #2 diesel and
              CARB-equivalent diesel, which has significantly lower sulfur and
              aromatics content.

              The significance of the results obtained by IFT's Premium Diesel
              fuel blend can be illustrated by a simple analysis of normal use
              patterns for heavy-duty vehicle engines. A heavy-duty diesel truck
              engine operating for 1,500 hours annually (equal to 100,000 miles
              at an average fuel economy of 5 miles per gallon) using IFT's
              Premium Diesel fuel blend (IFT additive with EPA #2 diesel fuel)
              would save approximately 1,200 gallons of fuel per year. In
              addition, use of Premium Diesel could eliminate 10.5 tons of
              carbon dioxide, a key component in the global warming problem, per
              year per vehicle. Equally important to truck drivers is the
              improvement in fuel lubricity and its effect on maintenance costs
              as today's lower sulfur fuels act as an abrasive in the fuel
              delivery system which may cause injector pump failure 50% sooner
              than occurred with "older" diesel containing more sulfur.

              COMPETITION

              The breadth of existing technologies making claims to have solved
              engine emissions problems runs the gamut from alternative fueled
              vehicles (electric cars, fuel cell vehicles, etc.) to engine
              magnets. Despite the vast amount of research that has been
              performed with the intention of solving emissions problems, no
              single technology has yet to gain widespread acceptance from both
              the public (regulatory) and private sectors. The governments of
              the U.S. and other countries have tried using economic incentives
              and tax breaks to promote the development of a variety of
              emissions reduction technologies. However the base cost of many of
              these coupled with issues such as lack of appropriate
              infrastructure (for example, compressed natural gas storage and
              delivery systems) and technical limitations (keeping alternative
              fuels emulsified, significant loss of power and fuel economy with
              current alternative fuels), currently makes market acceptance of
              many technologies economically unfeasible over the long term.

              Given the limitations just outlined, it is unlikely that the
              global marketplace will accept just one or a limited number of
              technologies to solve the problems with harmful engine emissions.
              The Management of IFT believes the "natural selection" expected to
              take place over the coming decade for


                                            8

<PAGE>



              new technologies may evolve on a market-by-market basis and be
              largely dependent upon local political influence. Signs of the
              market development forces can be seen in:

              o   Europe, where several countries (England, France and Italy)
                  have enacted legislation providing tax breaks to companies
                  that use fuel emulsions blending diesel and water;

              o   U.S., where legislation has been enacted in Texas granting tax
                  incentives to diesel and water based emulsions, in California
                  where low-sulfur diesel is being phased in, and in the federal
                  government where powerful agricultural lobbies are promoting
                  the use of alternative fuels such as biodiesel and ethanol;

              o   China, where the central government has announced the
                  construction of its first ethanol facilities; and

              o   Brazil, where regulations require a fuel blend with up to 22%
                  ethanol.

              Because the efforts to reduce harmful engine emissions are so
              widespread throughout the world, the market for competitive
              alternatives to existing solutions is relatively robust. In
              general, these efforts can be placed into four categories: fuel
              blends (including aqueous and ethanol), additive technologies
              (catalysts such as metallic or precious metal additives),
              alternative fuels (CNG, biodiesel, and others), and after-market
              systems (catalytic converters and urea SCR systems). Despite the
              efforts of all of these disparate technologies, the management of
              IFT believes no one technology will come to dominate the emissions
              control market due to the technological limitations inherent in
              each one. Rather a combination of technologies will be used that
              maximizes their individual strengths while limiting their
              weakness, all while delivering the highest cost/value
              relationship.

              REGULATORY ISSUES

              In January, 2000 the EPA enacted a far-reaching, stringent set of
              diesel emission standards that requires the significant reduction
              in harmful emissions, especially Particulate Matter (PM) and
              Oxides of Nitrogen (NOx), beginning in 2004, and to be completely
              integrated by 2007. PM in diesel emissions is to be reduced by 90%
              and NOx is to be reduced by 95%. Equally important in the diesel
              fuel marketplace, the EPA is also requiring that 97% of the sulfur
              currently in diesel fuel be eliminated beginning in 2006.

              In addition to the EPA (a federal agency), each state has its own
              regulatory body governing emissions standards. The most well known
              state agency, and the precedent setter for many other states, is
              CARB. All diesel fuel sold in California must be approved by CARB,
              which has a thorough and well-defined procedure for certification.
              The Company anticipates no barriers to obtaining the required
              certification for these fuel blends targeted for this marketplace.
              Also, in order for the Company's products to be used in the U.S.,
              EPA registration is required. In December 2001, the Company
              received EPA registration for the additive component of its fuel
              blends.

              Another federal agency shaping the landscape of petroleum-based
              fuel consumption is the Department of Energy ("DOE"). In an effort
              to reduce dependence on foreign oil and keep up with increasing
              demand for petroleum products, the DOE has created and sponsored
              programs that encourage the use of alternative fuels. The
              programs, such as the Energy Policy Act (EPAct) and the ethanol
              and biodiesel subsidy programs, put in place by the DOE and other
              government agencies, provide

                                           9

<PAGE>


              significant incentives for the adoption of targeted fuel blends,
              many of which are created and enhanced by the use of IFT's
              products. The Company believes its products are well positioned to
              help consumers conform to current and future emissions standards
              and take advantage of existing incentive programs in the U.S. and
              the rest of the world. The Company has filed a formal petition
              with the DOE requesting EPAct status for its Synthetic Diesel fuel
              blend.

              MANUFACTURING PARTNER

              In 2001, the Company signed a manufacturing agreement with Tomah
              Products, Inc., which makes Tomah the primary manufacturer of
              IFT's fuel additives. The agreement covers existing and
              to-be-developed fuel additives. The agreement also involves Tomah
              in efforts to work with IFT to continue to optimize the
              effectiveness and reduce the manufactured costs of the fuel
              additives and additive formulations, as well as collaborate on
              research and development activities on behalf of IFT.

              Tomah, based in Milton, Wisconsin, is a privately owned company
              specializing in the manufacturing of industrial surfactants. Tomah
              manufactures products for a variety of industries including
              petroleum additives, mining, and industrial and institutional
              cleaning, and ships product to companies around the world.
              Originally founded in 1967, Tomah was acquired by Exxon in 1984
              and operated as a division of Exxon until 1994, when it was spun
              off in a management buyout. Tomah excels at custom manufacturing
              and in jointly developing products designed to meet specific
              needs. Tomah is an excellent partner for long term supply
              arrangements because of Tomah's unique manufacturing capabilities,
              rapid response times and technical expertise.

              TECHNOLOGY AND INTELLECTUAL PROPERTY

              The underlying technology for IFT's additive formulations is based
              on an emulsification technology that: (i) solves the issue of
              phase separation when trying to combine petroleum-based fuels with
              substances such as ethanol or urea/water, or other mediums known
              to impart performance and emissions benefits to base fuels; (ii)
              has the ability to alter the chemical makeup of the fuel creating
              a denser fuel and change the T temperatures resulting in a more
              efficient and powerful burn of the fuel; and (iii) substantially
              increases fuel lubricity. The Company's fuel blends form a perfect
              and stable emulsion. As a result, the reformulated fuel remains
              stable and combined on a perpetual basis at temperature extremes,
              especially at lower temperatures when other fuel formulations can
              begin to gel. Once the fuel blend is combined, there is no
              additional mixing or agitation required for the fuel to remain
              perfectly emulsified. IFT has filed four patents pertaining to
              eight applications of its proprietary technology relating to its
              fuel blends and fuel additives.

              IFT and Tomah have filed a joint patent covering urea/water
              technology, and the Company has filed a number of additional
              patents, in IFT's name only. In addition to Tomah, IFT will work
              with distribution partners to gain insight into the market needs
              and regulatory requirements of potential

                                          10

<PAGE>


              customers allowing the Company to create patented products that
              accurately fit the specific needs of potential customers.

              MARKETING STRATEGY

              Since completion of independent testing at SwRI and securing a
              manufacturing partner in Tomah, IFT has focused its efforts on
              product acceptance and sales into the marketplace. The Company has
              developed and is executing a four-pronged approach to product
              commercialization.

                  Field Engagement Partners
                  -------------------------

                  Management believes an expeditious means of achieving product
                  awareness and market acceptance is through strategic field
                  engagements with commercial level users of petroleum products.
                  IFT is in discussions with several fleet owners who represent
                  a cross-section of diesel engine use including trucking,
                  school buses, off-road construction, and marine applications.
                  The Company has not finalized any agreements to date.

                  Distribution Partners
                  ---------------------

                  In order to streamline operations and take advantage of
                  existing industry expertise, the Company is pursuing
                  distribution partnerships with certain companies that have
                  established operations in fuel additive markets to market and
                  sell IFT products worldwide. IFT is in formal discussions with
                  a number of potential distribution partners to market and sell
                  its products. The Company has not finalized any agreements to
                  date.

                  Direct Sales
                  ------------

                  In addition to marketing efforts with fleet owners and
                  distribution concerns, the Company will sell "additive only"
                  direct to the consumer using several distribution channels.
                  IFT will utilize trade show attendance, direct mail and direct
                  telemarketing to create initial awareness of the products and
                  their benefits to consumers, supported by an on-line, web
                  based ordering system and "800" number call-in support.

                  Since the "consumer" tends to be less price sensitive than
                  distributors/wholesalers of fuels, and the U.S. political
                  climate is desirable to market a product that reduces
                  dependence on foreign oil, protects the environment (through
                  reductions in harmful emissions) and ultimately pays for
                  itself two to three times over through increases in fuel
                  economy, management believes there is an opportunity with a
                  direct-to-the-customer strategy.

                  Regulatory and Trade Association Relationships
                  ----------------------------------------------

                  The final component of the Company's marketing strategy
                  involves educating a number of industry related entities as to
                  the benefits of IFT products. The Company has started to, and
                  will continue to, develop relationships with groups such as
                  the Renewable Fuels Association (an ethanol industry trade
                  group), California Air Resources Board, the United States
                  Department of Energy, the European Parliament, and other
                  entities representing a diverse group of private and

                                       11

<PAGE>

                  public interests, to push for the adoption of IFT additive
                  formulations in a variety of finished fuel blends.

              SUMMARY

              The Company believes its products are well-positioned to help
              consumers: (1) conform to current and future emissions standards,
              (2) take advantage of existing incentive programs in the U.S. and
              the rest of the world, and (3) realize fuel economy improvements.
              Going forward the Company believes its additive formulations will
              be especially advantageous as the utilization of lighter fraction
              fuels will increase. Historically, the blending of lighter
              fraction fuels with conventional heavier fraction fuels has
              resulted in a reduction in harmful emissions but a decrease in
              power, torque, fuel economy and lubricity. IFT additive
              formulations allow for the blending of lighter fraction fuels with
              conventional, heavier fraction fuels without a decrease in power,
              torque, fuel economy and lubricity while still reducing harmful
              emissions.

              EMPLOYEES

              Currently, IFT has eight full time employees. The management of
              IFT believes the relationship with its employees is satisfactory.

Item 2.       Properties

              IFT maintains its administrative offices at 7777 Bonhomme Avenue,
              Suite 1920, St. Louis, Missouri, 63105, under a lease agreement
              for office space and administrative services of $5,269 per month
              for approximately 1,500 square feet. A new five-year lease
              agreement was signed on January 1, 2002.

              The management of IFT believes that the current facilities are
              adequate to meet current operating requirements.

Item 3.       Legal Proceedings

              Name of the Court:    NYE County, Nevada
              Date Instituted:      August 27, 2001
              Parties:              Plaintiff Donald Thompson v.  Defendant
                                    International Fuel Technology, Inc.
                                    ("Company")
              Facts:                Plaintiff alleges that he entered into an
                                    oral consulting contract with the
                                    Company. Plaintiff alleges that one-time
                                    fee paid is an acceptance of his offer to
                                    provide monthly consulting services. There
                                    is no written proof of the consulting
                                    contract.
              Relief sought:        Money damages for consulting fees and
                                    expenses incurred.


              Name of the Court:    Superior Court of the State of California
                                    for the county of Los Angeles
              Date Instituted:      August 17, 2001
              Parties:              California Environmental Engineering, Inc.;
                                    George Gemayel; George Thaye; and The
                                    Brothers Trust; Plaintiffs v. International
                                    Fuel Technology; Terence Mendiretta; Salomon
                                    Grey Financial Corporation; SPIGA Limited;
                                    Investe Co Ernst & Company; Encore Holdings;
                                    Norman Barrett; Defendants

                                           12

<PAGE>

              Facts:                Plaintiffs allege the following against
                                    Defendants: negligent misrepresentation,
                                    fraud, conversion, specific recovery of
                                    personal property, breach of fiduciary duty,
                                    common count for money had and received, and
                                    elder abuse. Plaintiffs' claims are
                                    principally based on the allegation that the
                                    defendants are liable for a purported
                                    misappropriation of proceeds from sales of
                                    stock that were supposedly to have been
                                    conducted on the Plaintiffs' behalf.

              Relief sought:        Plaintiffs seek compensatory damages in
                                    excess of $3,000,000, plus interest,
                                    punitive damages, attorneys' fees and costs
                                    of an unspecified amount. Plaintiffs also
                                    seek certain injunctive relief.
                                    International Fuel Technology has not yet
                                    filed an answer.

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

              No matters were submitted to a vote of security holders during the
              fourth quarter of fiscal 2001.




                                     PART II

Item 5.       Market for Registrant's Common Equity and Related Stockholder
              Matters

              (a) Market Information
              ----------------------

              The Common Stock of IFT is traded on the National Association of
              Securities Dealers OTC Bulletin Board system under the symbol
              "IFUE." The range of closing high and low bid prices shown below
              is as reported by the OTC Bulletin Board. The quotations shown
              reflect inter-dealer prices, without retail mark-up, mark-down or
              commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                      Per Share Common Stock Bid Prices by Quarter
                                                      For the Fiscal Year Ended December 31, 2001
                                                      -------------------------------------------
                                                                                      High           Low
<S>                                                                          <C>                <C>

              First Quarter                                                         $ .56          $ .25
              Second Quarter                                                        $ .63          $ .25
              Third Quarter                                                         $ .70          $ .40
              Fourth Quarter                                                        $ .62          $ .41
</TABLE>

<TABLE>
<CAPTION>
                                                       Per Share Common Stock Bid Prices by Quarter
                                                       For the Fiscal Year Ended December 31, 2000
                                                       -------------------------------------------
                                                                                     High            Low
<S>                                                                          <C>                <C>
              First Quarter                                                         $3.97           $1.88
              Second Quarter                                                        $2.38           $ .41
              Third Quarter                                                         $ .98           $ .38
              Fourth Quarter                                                        $ .98           $ .33

</TABLE>


                                              13

<PAGE>

              (b) Holders of Common Stock
              ---------------------------

              As of the close of business on March 22, 2002, the last reported
              bid price per share of IFT's common stock was $.40. As of March
              22, 2002, IFT estimates there were 1,500 record holders
              of IFT's common stock. Such number does not include persons whose
              shares are held by a bank, brokerage house or clearing company,
              but does include such bank, brokerage houses and clearing
              companies.

              (c) Dividends
              -------------

              IFT has not declared or paid a cash dividend to stockholders. The
              Board of Directors presently intends to retain any future earnings
              to finance IFT operations and does not expect to authorize cash
              dividends in the foreseeable future.

Item 6.       Selected Financial Statement Data

              The following tables set forth certain information concerning the
              Statements of Operations and Balance Sheets of IFT and should be
              read in conjunction with the Financial Statements and the notes
              thereto appearing elsewhere in this report.

              (a) Selected Statement of Operations Data (In Thousands of
              Dollars, Except Per Share Data)
              -----------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                       Twelve Months Ended December 31,
                                                                             2001              2000
                                                                             ----              ----
<S>                                                                    <C>                 <C>

              Revenues                                                       $       0         $       0
              Operating Expenses                                                 6,787             4,690
              Net Loss                                                          (7,575)           (6,688)
              Basic and Diluted Net Loss per Common Share                        ($.21)            ($.36)

              Weighted Average Shares                                       36,416,469        18,827,802
</TABLE>

<TABLE>
<CAPTION>
                                                                       Nine Months Ended December 31,
                                                                                 1999
                                                                                 ----
<S>                                                                       <C>

              Revenues                                                       $       0
              Operating Expenses                                                 4,727
              Net Loss                                                          (5,132)
              Basic and Diluted Net Loss per Common Share                        ($.32)

              Weighted Average Shares                                       15,800,725
</TABLE>

<TABLE>
<CAPTION>

                                                                       Fiscal Year Ended March 31,
                                                                       1999           1998
                                                                       ----           ----
<S>                                                                 <C>          <C>
              Revenues                                                $     0      $     0
              Operating Expenses                                        7,751        1,083
              Net Loss                                                 (7,839)      (1,091)
              Basic and Diluted Net Loss per Common Share               ($.59)       ($.20)

              Weighted Average Shares                              13,390,417    5,351,089
</TABLE>

                                  14

<PAGE>


              IFT is a development stage company and has incurred $28,669,378 in
              expenses from inception in April 1996.

              (b) Selected Balance Sheet Data (In Thousands of Dollars)
               -------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                          --------------------------
                                                                          2001                  2000                    1999
                                                                          ----                  ----                    ----
<S>                                                                <C>                   <C>                       <C>

              Total Assets                                             $4,528               $  175                    $   68
              Long-Term Debt                                           $  258               $  162                    $    0
</TABLE>

<TABLE>
<CAPTION>

                                                                                    March 31,
                                                                                -----------------
                                                                                1999         1998
                                                                                ----         ----
<S>                                                                         <C>            <C>

               Total Assets                                                   $    6        $    7
               Long-Term Debt                                                 $    0        $    0
</TABLE>


Item 7.       Management's Discussion and Analysis of Results of Operations
              and Financial Condition

              The following discussion and analysis should be read in
              conjunction with the financial statements and related notes
              thereto and included elsewhere in this Form 10-K.

              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, through the Interfacial subsidiary, 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.

              Comparison of Twelve Months Ended 12/31/01 and Twelve Months
              Ended 12/31/00

              Operating expenses

              Total operating expenses from development stage operations were
              $6,787,050 for the twelve months ended December 31, 2001, as
              compared to the development stage operating expenses of $4,689,953
              for the twelve months ended December 31, 2000. Total operating
              expenses for the twelve months ended December 31, 2001 represents
              a $2,097,097, or 45%, increase from the prior period. The increase
              was mainly due to acquired in-process research and development
              costs of $1,900,000 in 2001. Operating expenses for the 2002 year
              are expected to be consistent with 2000 expenses.

              Following is an overview of the significant fluctuations in
              operating expenses:

                                        15

<PAGE>

              Advertising and marketing

              Total advertising and marketing expenses were $14,500 for the
              twelve months ended December 31, 2001, as compared to $20,522 for
              the twelve months ended December 31, 2000. Total advertising and
              marketing expenses for the twelve months ended December 31, 2001
              represent a $6,022 decrease, or 29.3% decrease from the prior
              period. The level of advertising and marketing expenses for the
              twelve months ended December 31, 2001 is consistent with the prior
              year. Advertising and marketing expenses should increase while IFT
              increases its efforts to commercialize its products.

              Amortization and depreciation

              Amortization and depreciation expenses were $474,797 for the
              twelve months ended December 31, 2001, as compared to $3,217 for
              the twelve months ended December 31, 2000. The increase was
              primarily due to amortization of goodwill and purchased technology
              associated with the purchase of Interfacial. Amortization and
              depreciation expenses should be approximately $400,000 in 2002 as
              IFT will only be amortizing the purchased technology in the
              future.

              Consulting Expenses

              Consulting expenses were $1,191,456 for the twelve months ended
              December 31, 2001, as compared to $0 for the twelve months ended
              December 31, 2000. The increase in consulting expenses is due to
              the issuance of common stock pursuant to consulting agreements
              with four former shareholders of Interfacial.

              Insurance

              Insurance expense was $38,592 for the twelve months ended December
              31, 2001, as compared to $34,454 for the twelve months ended
              December 31, 2000. Total insurance expense for the twelve months
              ended December 31, 2001 is consistent with the prior year.
              Insurance expense should remain consistent in 2002.

              Investment advisory fees

              Investment advisory fees were $0 during the twelve months ended
              December 31, 2001, as compared to $1,251,413 for the twelve months
              ended December 31, 2000. The decrease is attributable to IFT not
              issuing any warrants to any investors involved with the
              convertible debenture purchase agreement with IIG Equity
              Opportunities Fund, Ltd.

              Office and Other

              Office and other expenses were $221,595 for the twelve months
              ended December 31, 2001, as compared to $79,545 for the twelve
              months ended December 31, 2000. Office and other expenses for the
              twelve month period ended December 31, 2001 represent an increase
              of $142,050 from the prior period. The increase is primarily due
              to an increase in travel expense related to product
              commercialization and office expenses. Office and other expenses
              should remain consistent in 2002.

                                    16

<PAGE>


              Payroll

              Payroll expenses were $2,237,743 during the twelve months ended
              December 31, 2001, as compared to $2,329,521 for the twelve month
              period ended December 31, 2000. Payroll for the twelve month
              period ended December 31, 2001 represents a decrease of $91,778
              from the prior period. The decrease is attributable to a decrease
              in officer payroll of $410,886, partially offset by an increase of
              other and director payroll of $298,090. Payroll expenses included
              $1,661,313 and $1,691,099 of stock-based compensation in 2001 and
              2000, respectively.

              Professional Services

              Professional services were $510,934 during the twelve months ended
              December 31, 2001 as compared to $684,367 for the twelve months
              ended December 31, 2000. Professional services for the twelve
              month period ended December 31, 2001 represents a decrease of
              $173,433. The decrease is primarily due to a decrease in
              accounting and other fees. Professional services should remain
              consistent in 2002.

              Research and development costs

              Research and development costs were $197,433 during the twelve
              months ended December 31, 2001 as compared to $286,914 for the
              twelve months ended December 31, 2000. Research and development
              for the twelve months ended December 31, 2001 represents a
              decrease of $89,481 from the prior period. The decrease is due to
              decreased testing and laboratory fees of $88,957. Management
              expects expenditures for research and development during the year
              2002 to be approximately $200,000.

              Interest

              Interest expense was $787,760 for the twelve months ended December
              31, 2001 as compared to $1,997,583 for the twelve months ended
              December 31, 2000. Interest expense for the twelve months ended
              December 31, 2001 represents a decrease of $1,209,823 from the
              prior period. Interest expense was higher in 2000 due to discounts
              recorded on notes payable. Management expects that interest
              expenses should remain consistent with the 2001 year.

              Provision for Income Taxes

              The Company has operated at a net loss since inception and has not
              recorded or paid any income taxes. The Company has a significant
              net operating loss carryforward that would be recognized at such
              time as the Company demonstrates the ability to operate on a
              profitable basis for an extended period of time.

              Net Loss

              The net loss was $7,574,810 for the twelve months ended December
              31, 2001 as compared to the net loss of $6,687,536 for the twelve
              months ended December 31, 2000. Net loss for the twelve months
              ended December 31, 2001 represents an increase of $887,274, or
              13.2%, from the prior period. The net loss increased due to the
              purchase of in-process research and development offset by a
              reduction in interest expense. The net loss per common share was
              $.21 for the twelve months ended December 31, 2001 as compared to
              the net loss per common share of $.36 for the twelve months ended
              December 31, 2000.

              Comparison of Twelve Months Ended 12/31/00 and Nine Months Ended
              12/31/99
              -----------------------------------------------------------------

                                         17

<PAGE>

              Operating Expenses

              Total operating expenses from development stage operations were
              $4,689,953 for the twelve months ended December 31, 2000, as
              compared to the development stage operating expenses of $4,726,799
              for the nine months ended December 31, 1999. Total operating
              expenses for the twelve months ended December 31, 2000 represents
              a $36,846, or .8%, decrease from the prior period. Total operating
              expenses for the twelve months ended December 31, 2000 is
              consistent with the prior year.

              Consulting Expenses

              Consulting expenses were $0 for the twelve months ended December
              31, 2000, as compared to $295,000 for the nine months ended
              December 31, 1999. Consulting expenses decreased due to consulting
              expenses during the twelve months ended December 31, 2000 being
              reduced due to the elimination of a related party account payable
              that had previously been recorded to consulting expense.

              Investment Advisory Fees

              Investment advisory fees were $1,251,413 during the twelve months
              ended December 31, 2000, as compared to $0 for the nine months
              ended December 31, 1999. IFT entered into a convertible debenture
              purchase agreement dated February 25, 2000 with GEM Global Yield
              Fund Limited ("GEM"). In addition to the convertible debentures,
              GEM, one of the investors in the convertible debentures, received
              a warrant to purchase 390,000 shares of common stock as part of
              its fee for arranging the convertible debenture financing. On
              March 28, 2000 a warrant for 390,000 shares of common stock was
              exercised by GEM at a cost of $.01 per share. The closing trading
              price of IFT's stock on March 28, 2000 was $2.9375, resulting in a
              total market value of $1,145,625 for the 390,000 common shares.
              The market value in excess of the $.01 warrant exercise cost,
              $1,141,725, is reflected in the statement of operations for the
              twelve months ended December 31, 2000 as an investment advisory
              fee. During February 2000, IFT issued 195,000 shares of common
              stock and placed them in escrow in accordance with the convertible
              debenture purchase agreement entered into on February 25, 2000.
              The 195,000 shares were to be released from escrow and issued to
              the purchasers of the convertible debenture in the event of an
              uncured default by IFT prior to the closing of the convertible
              debenture purchase agreement. The 195,000 shares of common stock
              were released to the purchasers of the convertible debenture
              purchase agreement in conjunction with an amendment to the
              convertible debenture purchase agreement dated June 16, 2000, and
              were recorded as an investment advisory fee of $109,688 based on
              the closing trading price of IFT's stock on that date. The term of
              GEM's commitment period expired August 24, 2000. GEM was
              conditionally willing to further extend the deadline, however IFT
              management determined that the terms and conditions of the
              extension were not in the best interests of IFT's shareholders and
              elected not to enter into the extension.

              Payroll Expenses

              Payroll expenses were $2,329,521 during the twelve months ended
              December 31, 2000, as compared to $273,466 for the nine month
              period ended December 31, 1999. Payroll expenses for the twelve
              month period ended December 31, 2000 represents an increase of
              $2,056,055 from the prior period. The increase was primarily due
              to the Board of Director's granting of restricted stock awards to
              the executive officers of IFT at two separate times in

                                          18

<PAGE>


              2000. The first stock award of 100,000 restricted shares of IFT's
              common stock was granted to IFT's President/COO and IFT's Chief
              Executive Officer on February 23, 2000. The 200,000 restricted
              shares have been reflected in the statement of operations as
              payroll expense of $550,000 for the twelve months ended December
              31, 2000. Additionally, on February 23, 2000, the Board of
              Directors adopted the Director's Stock Compensation Plan, which
              provided for an annual award of 10,000 shares of IFT's common
              stock to Board members as reimbursement for their attendance at
              the Board meetings. The President/COO and the Chief Executive
              Officer were each awarded 10,000 restricted shares of IFT's common
              stock as Board members. These restricted shares have been
              reflected in the statement of operations as payroll expense of
              $55,000 for the twelve months ended December 31, 2000. The
              February 23, 2000 restricted stock award shares value was
              calculated based on the closing trading price of IFT's stock on
              February 23, 2000, which was $2.75 per share. The second stock
              award of 475,000 restricted shares of IFT's common stock was
              granted to IFT's President/COO and IFT's Chief Executive Officer
              on October 13, 2000. The 950,000 restricted shares have been
              reflected in the statement of operations as payroll expense of
              $593,750 for the twelve months ended December 31, 2000. The
              October 13, 2000 restricted stock award shares value was
              calculated based on the closing trading price of IFT's stock on
              October 13, 2000, which was $.625 per share. Additionally, on
              January 31, 2000, IFT entered into revised employment agreements
              with its President/COO and Chief Executive Officer. The revised
              employment agreements term extended through December 31, 2000 and
              automatically renewed on January 1, 2001, for another one year
              term. Under these agreements, the President/COO received an annual
              base salary of $200,000 and 20,833 restricted shares of IFT's
              common stock per month, and a bonus award as deemed appropriate by
              the Board of Directors of IFT. The Chief Executive Officer
              received an annual base salary of $200,000 and 20,833 restricted
              shares of IFT's common stock per month, and a bonus award as
              deemed appropriate by the Board of Directors of IFT. The 99,000
              restricted shares related to the two employment agreements are
              reflected in the statement of operations as payroll expense of
              $321,750 for the twelve months ended December 31, 2000. The
              restricted shares value was calculated based on the closing
              trading price of IFT's stock on February 1, 2000, which was $3.25
              per share. During the twelve month period ended December 31, 2000,
              payroll expense from restricted common stock issued totaled
              $834,067 for the Chief Executive Officer and $716,721 for the
              President/COO. During the twelve month period ended December 31,
              2000, payroll expense from payroll accruals pursuant to the
              employment agreements with the President/COO and the Chief
              Executive Officer totaled $204,325. Also, stock awards totaling
              275,000 restricted shares of IFT's common stock were granted to
              the three non-employee directors of IFT on October 13, 2000. The
              275,000 restricted shares have been reflected in the statement of
              operations as payroll expense of $171,875 for the twelve months
              ended December 31, 2000. The October 13, 2000 restricted stock
              award shares value was calculated based on the closing trading
              price of IFT's stock on October 13, 2000, which was $.625 per
              share. On February 23, 2001, IFT's Board of Directors
              authorized the issuance of 2,575,000 shares of restricted common
              stock to executive officers or non-employee directors for stock
              awards for the year 2001.

              Professional Services

              Professional services were $684,367 during the twelve months ended
              December 31, 2000 as compared to $3,662,718 for the nine months
              ended December 31, 1999. Professional services for the twelve
              months ended December 31, 2000 represents a decrease of
              $2,978,351, or 81.3%, from the prior period. Approximately
              $350,000 of the professional services for the twelve months ended
              December 31, 2000 is for accounting and legal fees related to
              IFT's attempt to obtain financing through the issuance of
              convertible debentures.

                                        19

<PAGE>


              Accounting and legal fees related to general business development
              and operations totaled approximately $100,000 for the year 2000.
              Professionals used for development of IFT's 2000 and 2001 product
              and business strategy totaled approximately $112,000 and investor
              relations totaled approximately $42,500 for the year 2000. On July
              1, 1999, IFT entered into an agreement with Onkar Corporation,
              Ltd. to issue 1,500,000 shares of common stock in exchange for
              various services including introduction to brokers, dealers and
              potential investors and for facilitating the writing of research
              reports on IFT. IFT received $750,000 for these shares. The
              $3,468,750 difference between the value of the shares using the
              market price at the date of the agreement and the $750,000 of
              proceeds received from the agreement were reflected in the
              statement of operations for the nine month period ended December
              31, 1999 as professional services expense.

              Research & Development Expenses

              Research and development costs were $286,914 during the twelve
              months ended December 31, 2000 as compared to $330,353 for the
              nine months ended December 31, 1999. Research and development for
              the twelve months ended December 31, 2000 represents a decrease of
              $43,439 from the prior period. The decrease is primarily due to
              decreased testing and laboratory fees.

              Interest Expense

              Interest expense was $1,997,583 for the twelve months ended
              December 31, 2000 as compared to $405,341 for the nine months
              ended December 31, 1999. Interest expense for the twelve months
              ended December 31, 2000 represents an increase of $1,592,242 from
              the prior period. The increase is primarily due to the
              amortization of discounts on notes payable in connection with
              IFT's issuance of common stock warrants to stockholders for
              advances received. The discount amount amortized during the twelve
              month period was $1,228,424. During the twelve month period ended
              December 31, 2000, IFT received advances from stockholders
              totaling $416,000. In addition to the repayment of principal, each
              stockholder received a warrant to purchase from IFT up to 25,000
              shares of common stock at $.01 per share for each $5,000 in
              principal advanced to IFT. The value of the warrants, $1,228,424,
              was based on the market value of IFT's common stock on the day(s)
              the advances were received. The warrant value was recorded as a
              discount on the notes payable to stockholders to be amortized as
              interest expense over the expected repayment period of the
              advance. The notes payable were repaid during December 2000 either
              by the issuance of a new note or by the issuance of restricted
              common stock. The restricted common stock was issued based on a
              value price of $.30 per share. The market value of IFT's common
              stock on the day this value was determined was $.50 per share. IFT
              issued 1,186,669 restricted shares as payment on $356,000 of note
              principal. The $.20 per share difference between the market value
              and the determined payment value, or $237,333, is included as
              interest expense in the statement of operations for the twelve
              months ended December 31, 2000. In addition, IFT repaid $374,000
              of note principal from other advances received with 1,626,086
              restricted common shares. The restricted common stock was issued
              based on a value price of $.23 per share. The market value of
              IFT's common stock on the day this value was determined was $.55
              per share. The $.32 per share difference between the market value
              and the determined payment

                                       20

<PAGE>

              value, or $520,347, is included as interest expense in the
              statement of operations for the twelve months ended December 31,
              2000.

              Net Loss

              The net loss was $6,687,536 for the twelve months ended December
              31, 2000 as compared to the net loss of $5,132,140 for the nine
              months ended December 31, 1999. Net loss for the twelve months
              ended December 31, 2000 represents a decrease of $1,555,396, or
              30.3%, from the prior period. The net loss per common share was
              $.36 for the twelve months ended December 31, 2000 as compared to
              the net loss per common share of $.32 for the nine months ended
              December 31, 1999.


              New Accounting Pronouncements
              -----------------------------

              In June 2001, the Financial Accounting Standards Board finalized
              FASB Statements No. 141., Business Combinations (SFAS 141), and
              No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141
              requires the use of the purchase method of accounting and
              prohibits the use of the pooling-of-interest method of accounting
              for business combinations initiated after June 30, 2001. SFAS 141
              also requires that IFT recognize acquired intangible assets apart
              from goodwill if the acquired intangible assets meet certain
              criteria. SFAS 141 applies to all business combinations initiated
              after June 30, 2001 and for purchase business combinations
              completed on or after July 1, 2001. It also requires, upon
              adoption of SFAS 142, that IFT reclassify the carrying amounts of
              intangible assets and goodwill based on the criteria in SFAS 141.

              SFAS 142 requires, among other things, that companies no longer
              amortize goodwill, but instead test goodwill for impairment at
              least annually. In addition, SFAS 142 requires that IFT identify
              reporting units for the purposes of assessing potential future
              impairments of goodwill, reassess the useful lives of other
              existing recognized intangible assets, and cease amortization of
              intangible assets with an indefinite useful life. An intangible
              asset with an indefinite useful life should be tested for
              impairment in accordance with the guidance in SFAS 142. SFAS 142
              is required to be applied in fiscal years beginning after December
              15, 2001 to all goodwill and other intangible assets recognized at
              that date, regardless of when those assets were initially
              recognized. SFAS 142 requires IFT to complete a transitional
              goodwill impairment test six months from the date of adoption. IFT
              is also required to reassess the useful lives of other intangible
              assets within the first interim quarter after adoption of SFAS
              142.

              Previous business combinations were accounted for using the
              purchase method. As of December 31, 2001, the net carrying amount
              of goodwill is $2,211,805 and other intangible assets is
              $2,166,668. Amortization expense during the year ended December
              31, 2001 was $471,528. Currently, IFT is assessing but has not yet
              determined how the adoption of SFAS 141 and SFAS 142 will impact
              its financial position and results of operations.

              In October 2001, the Financial Accounting Standards Board issues
              SFAS 144 "Accounting for the Impairment of Disposal of Long-Lived
              Assets ("FAS 144"). This statement addresses financial accounting
              and reporting for the impairment and disposal of long-lived
              assets. This Statement supercedes FASB Statement 121, "Accounting
              for the Impairment of Long-Lived Assets and for Long-Lived Assets
              to be Disposed of", and the accounting and reporting provisions of
              APB Opinion No. 30, "Reporting the Results of
              Operations--Reporting the Effect of Disposal of a Segment of a

                                       21

<PAGE>



              Business, and Extraordinary, Unusual and Infrequently Occurring
              Events and Transactions", for the disposal of a segment of a
              business. The provisions of FAS 144 will be effective for fiscal
              years beginning after December 15, 2001. The Company is currently
              evaluating the implications of adoption of FAS 144 and anticipates
              adopting its provisions in fiscal year 2002.

              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 revenues
              from license fees from our products, which may take the next few
              years or longer 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. Additionally, if IFT's
              stock price falls below its current level, additional shares may
              need to be issued upon the conversion of IFT's convertible
              debentures, which will dilute the existing shareholders. The
              independent auditor's reports included with the financial
              statements later in this 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 have
              totaled $16,235,379 and for the twelve month period ended December
              31, 2001, totaled $2,790,287. In addition, $3,086,385 of interest
              expense resulted from non-cash charges related to the convertible
              feature of our debt instruments. In addition to these amounts, the
              Company has raised $2,808,328 in cash from the issuance of common
              stock since IFT's inception, with $0 of this total raised during
              the twelve month period ended December 31, 2001. Most of these
              funds have been raised through private placement transactions. For
              the twelve months ended December 31, 2001 proceeds from notes
              payable totaled $1,431,000 with $23,500 repaid and $1,275,000
              converted to common stock.

              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. A more detailed description
              of the transaction is included below.

              The cash used in operating activities is $1,470,794 for the twelve
              months ended December 31, 2001 as compared to cash used in
              operating activities of $977,594 for the twelve months ended
              December 31, 2000. Cash used in operations for the twelve months
              ended December 31, 2001 increased primarily due to an increase in
              payments for rent, research and development, and consulting.
              Research and development expense in 2000 was substantially
              comprised of non-cash stock-based compensation. The cash used in
              investing activities was $31,742 for the twelve months ended
              December 31, 2001 as compared to $8,198 used in investing
              activities for the nine months ended December 31, 2000. Cash used
              in investing activities for the twelve months ended December 31,
              2001 increased primarily due to the issuance of a note receivable
              of $35,000. The cash provided by financing activities was
              $1,407,500 for the twelve months ended December 31, 2001 as
              compared to $1,087,150

                                         22

<PAGE>


              provided by financing activities for the twelve months ended
              December 31, 2000. Cash provided by financing activities for the
              twelve months ended December 31, 2001 related solely to the
              proceeds from additional notes payable. Net cash decreased by
              $95,036 for the twelve months ended December 31, 2001 as compared
              to net cash increasing by $101,358 for the twelve months ended
              December 31, 2000.

              The cash used in operating activities is $977,594 for the twelve
              months ended December 31, 2000 as compared to cash used in
              operating activities of $1,162,743 for the nine months ended
              December 31, 1999. Cash used in operations for the twelve months
              ended December 31, 2000 decreased primarily due to an increase of
              $200,919 in accrued expenses. The cash used in investing
              activities was $8,198 for the twelve months ended December 31,
              2000 as compares to $25,049 used in investing activities for the
              nine months ended December 31, 1999. Cash used in investing
              activities for the twelve months ended December 31, 2000 decreased
              primarily due to the nine month period ended December 31, 1999
              including $15,468 in cash used for employee and stockholder
              advances. The cash provided by financing activities was $1,087,150
              for the twelve months ended December 31, 2000 as compared to
              $1,214,150 provided by financing activities for the nine months
              ended December 31, 1999. Cash provided by financing activities for
              the twelve months ended December 31, 2000 decreased due to
              $921,800 less in proceeds being received from issuance of common
              stock while the net activity of notes payable provided funds of
              $794,800. Net cash increased by $101,358 for the twelve months
              ended December 31, 2000 as compared to net cash increasing by
              $26,358 for the nine months ended December 31, 1999.

              Working capital at December 31, 2001 was ($484,141) as compared to
              ($316,210) at December 31, 2000.

              Effective October 27, 1999, IFT merged with and into Blencathia
              Acquisition Corporation. Blencathia had 300,000 shares outstanding
              at the time of merger, which it redeemed and canceled. In exchange
              for 300,000 shares of Blencathia's common stock, IFT issued
              Blencathia 300,000 shares of its restricted common stock. These
              restricted common shares are expected to be sold in an amount
              sufficient to provide the former shareholders of Blencathia with
              proceeds of $500,000.

              On May 8, 2000, IFT issued 300,000 common shares that were
              contingently issued per the Blencathia merger agreement. The
              300,000 shares of common stock are included in the statement of
              stockholders' deficit for the twelve months ended December 31,
              2000 but are not included in earnings per share and weighted
              average share calculations for the twelve month period ended
              December 31, 2000. They will be included when the shares are sold
              to provide payment to the shareholders of Blencathia. The
              shareholders of Blencathia have represented to the management of
              IFT that the 300,000 shares will be sold only with IFT's approval.
              If the shares are sold and $500,000 is not generated additional
              shares may need to be issued to the shareholders of Blencathia.
              Based on the March 22, 2002 market price, $.40, of IFT's common
              stock, a total of 1,250,000 shares would need to be issued to
              generate the $500,000 proceeds.

              On May 25, 2001 IFT issued 12,500,001 common shares to the
              shareholders of Interfacial to acquire all of Interfacial's
              outstanding common stock. 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

                                            23

<PAGE>



              achievement of certain revenue levels by IFT within two years
              following May 25, 2001. 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 8,500,002 common being released to the
              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 was accounted for using the purchase method of
              accounting, with $4,850,001 of the purchase price being allocated
              to intangible assets, which are subject to amortization, and the
              remaining $1,900,000 recorded as in-process research and
              development. The intangible assets consist primarily of technology
              and goodwill. The 8,500,002 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 market price of IFT's common stock at that date, and
              will be excluded from the basic and diluted loss per share
              calculation until that date.

              On January 3, 2001 IFT entered into a Securities Purchase
              Agreement with IIG Equity Opportunities Fund Ltd. ("IIG Fund"),
              which had a one-year commitment amount of $3 million, with an
              option at IFT's 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 provided 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
              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
              Agreement with IIG on 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 December 31, 2001, IFT has borrowed a total of $
              1,430,000 under the financing agreement.

              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 $1.8 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
              our convertible-debenture agreement with IIG. Management believes
              the proceeds from its convertible debenture financing will be used
              as follows: $250,000 for commercial fleet testing programs,
              $600,000 for professional fees and advertising, $650,000 for
              salary expenses and $300,000 working capital for administrative
              and other capital needs, including investigation of future
              acquisitions, if any.

                                       24

<PAGE>


              Subsequent Events
              -----------------

              During January 2002, IFT sold 600,000 restricted shares of common
              stock at a price of $.25 per share to Harry F. Demetriou. The
              proceeds of $150,000 will provide the Company with additional cash
              and will be used to fund daily operating expenses.

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

Item 7a.      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
              cost of financing, investing and operating transactions. IFT has
              debt totaling 30% of total liabilities at fixed rates of interest
              and fluctuations in the interest rate could have a material impact
              on the underlying fair value. See Note 4 of the financial
              statements for further discussion.

Item 8.       Financial Statements and Supplementary Data

              Financial statements as of and for the twelve month periods ended
              December 31, 2001, and 2000 and for the nine month period ended
              December 31, 1999 are presented in a separate section of this
              report following Part IV.

Item 9.       Changes in and Disagreements With Accountants On Accounting and
              Financial Disclosure

              None.

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

              The following are the names of our directors and executive
              officers, their present positions with IFT and information about
              their background.

<TABLE>
<CAPTION>
              Name                          Age            Title
              ----                          ---            -----
         <S>                           <C>            <C>

              Jonathan R. Burst             43            Chief Executive Officer, President, Director,
                                                          Chairman
              William J. Lindenmayer        42            Chief Operating Officer, Director
              Michael F. Obertop            31            Chief Financial Officer, Corporate Secretary
              Senator George J. Mitchell    68            Director
              David B. Norris               53            Director
              Harry Demetriou               57            Director
              Ian Williamson                46            Director
              John P. Stupp Jr.             51            Director
              Simon Orange                  34            Director
              Geoff Robinson                58            Director
</TABLE>

                                     25

<PAGE>


              All directors hold office until the next annual meeting of
              shareholders or until their successors are elected and qualified.
              At present, our Articles of Incorporation provide for not less
              than one nor more than thirteen directors. Currently, we have nine
              directors. Our by-laws permit the Board of Directors to fill any
              vacancy and such director may serve until the next annual meeting
              of shareholders or until his successor is elected and qualified.
              Officers serve at the discretion of the Board of Directors.

                                      26

<PAGE>


              Background of Directors and Executive Officers:

              JONATHAN R. BURST has served as our Chief Executive Officer since
              July 1999. From July 1999 to February 2000 he also served as our
              President. From January 2002 he served as President again. In
              February 2000, Mr. Burst was appointed to our Board of Directors
              and became chairman in June 2000. In 1998, Mr. Burst founded
              Burcor International, in St. Louis, Missouri, an insurance
              brokerage firm, and has served as its President since its
              inception. From 1992 to 1998, Mr. Burst served as Executive Vice
              President and Managing Director of mergers and acquisitions at Aon
              Risk Services, a St. Louis, Missouri, mergers and acquisition risk
              management consulting company. Mr. Burst received his Bachelor of
              Arts degree in Economics from the University of Missouri in 1981.

              WILLIAM J. LINDENMAYER has served as our Chief Operating Officer
              since July 1999. He also served as our President from February
              2000 until January 2002. In February 2000, Mr. Lindenmayer was
              appointed to our Board of Directors. From 1999 to February 2000,
              Mr. Lindenmayer served as Managing Director of Burcor Capital,
              LLC, a venture capital merger and acquisitions subsidiary of
              Burcor International, St. Louis, Missouri. From 1997 to 1999, Mr.
              Lindenmayer served as president of DLW Partners, LLC, St. Louis,
              Missouri, a video tape distribution company. From 1995 to 1997,
              Mr. Lindenmayer served as President of WLI William Lindenmayer
              Group, Inc., St. Louis, Missouri, a financial consulting company.
              Mr. Lindenmayer received his Bachelor of Science degree in
              Business Management from Cornell University in 1982 and his
              Masters of Business Administration from University of Virginia in
              1988.

              MICHAEL F. OBERTOP, JD has served as our Chief Financial Officer
              since October 2001. From 1998 to September 2001, Mr. Obertop
              provided tax consulting services for PricewaterhouseCoopers LLP,
              St. Louis, Missouri. Mr. Obertop received his Masters in Business
              Administration and Juris Doctorate degree from the University of
              Missouri, Columbia in May of 1998.

              SENATOR GEORGE MITCHELL has served on our Board of Directors since
              June 2001. Senator Mitchell's professional career spans over 45
              years, and includes nearly 30 years of service in the public
              sector, most notably as a Senator from Maine. While in the Senate,
              he was the key sponsor of the Clean Air Act legislation that is
              the foundation for regulations governing the quality of the
              environment in the United States. Since leaving the Senate,
              Senator Mitchell has been involved in a number of advisory
              positions on behalf of the government of the United States, as
              well as other nations, in attempting to mediate disputes in
              Northern Ireland and the Middle East. Senator Mitchell also is
              active on the board of directors for several corporations and is a
              Special Counsel to a Washington, D.C.-based law firm. Senator
              Mitchell also serves on the following boards: The Walt Disney
              Company, FedEX Corporation, Xerox Corporation, UNUM, Casella Waste
              Systems, Starwood Motels & Resorts Worldwide, and MPS Group.

              DAVID B. NORRIS has served on our Board of Directors since April
              1999. Since 1983, Mr. Norris has been the owner and President of
              Addicks Services, Inc., Richmond, Texas, a construction company.

              HARRY DEMETRIOU has served on our Board of Directors since
              February 2000. Mr. Demetriou has been a ship owner for over 25
              years. The ships are bulk carriers of transport goods in bulk on a
              worldwide basis.

              IAN WILLIAMSON has served on our Board of Directors since May
              2001. Mr. Williamson has been involved with the combustion of
              non-barrel materials and looking for alternatives

                                     27

<PAGE>


              since 1975, predominantly in the field of district heating and
              energy schemes, utilizing trash and other non oil substitutes,
              until 1994 when "alternative fuels for the motor industry"
              research started. Mr. Williamson is the original inventor of a
              clear stable "e-diesel" (1996) and author of eight patents and
              applications related to cleaner burning and performance enhancing
              motor fuels utilizing alcohol, water, bio-diesel and liquids from
              natural gas. Mr. Williamson studied mechanical services and
              combustion at Nottingham University, United Kingdom for three
              years. Mr. Williamson was previoiusly employed by Interfacial.

              GEOFF ROBINSON has served on our Board of Directors since May
              2001. From 1973 to 1983 Mr. Robinson worked in different
              capacities with Lex Service Group Plc including the last 4.5 years
              as Managing Director of Lex Transfleet Ltd. and Lex Harvey Ltd
              (two small business units within Plc). In 1983, Mr. Robinson
              started Road Holdings which provided money and management
              expertise and was successfully sold in 1992. From 1994 to present,
              Mr. Robinson has served as Chairman of Fastrac Print Ltd.,
              Mailfast Ltd., UK Logistics Ltd. and Director of UK-US Holding
              Inc. Mr. Robinson was previously employed by Interfacial.

              SIMON ORANGE has served on our Board of Directors since May 2001.
              Mr. Orange is a fully qualified financial adviser and has
              extensive experience both investing in and managing diversified
              businesses including property, retail, finance and software
              technology. Mr. Orange's primary role in these businesses has been
              assistance in raising capital and company management at board
              level. Mr. Orange is a registered financial advisor in the U.K.
              Mr. Orange was previously employed by Interfacial.

              JOHN P. STUPP JR. has served on our Board of Directors since May
              2001. From 1992 to 1995 Mr. Stupp served as the president, and
              since 1995 as the Chief Executive Officer of Stupp Corporation,
              the steel pipe manufacturing division of Stupp Bros. Since 1985 he
              has been a director of Atrion Corporation, a publicly traded
              company involved in the medical device and component industry, and
              is an Advisory Board member of the Midwest BankCentre, a regional
              financial institution. Mr. Stupp holds a Bachelor of Science
              degree in Business and Economics from Leigh University, and is
              actively involved in working with a number of non-profit
              institutions and charitable organizations throughout the greater
              St. Louis region.

Item 11.      Executive Compensation

              The following table sets forth information concerning all cash and
              non-cash compensation paid or to be paid by IFT as well as certain
              other compensation awarded, earned by and paid, during the fiscal
              years indicated, to the Chief Executive Officer and for each of
              IFT's other executive officers whose annual salary and bonus
              exceeds $100,000 for such period in all capacities in which they
              served.

                                     28


<PAGE>


              Summary Compensation Table
<TABLE>
<CAPTION>

                                                              Long Term
                                    Annual Compensation                        Compensation
                                   -----------------------                     ------------
Name and                                                         Other          Restricted            All
Principal                  Period                               Compen-           Stock              Other
Position                   Ended       Salary        Bonus       sation           Awards          Compensation
--------                   -----    -------------    -----  ---------------   ---------------     ------------
<S>                   <C>          <C>             <C>      <C>              <C>                  <C>

Jonathan R. Burst,
Chief Executive          12/31/01        $200,000       $0           $0           $555,000               $0
Officer                  12/31/00         180,000        0            0            834,067                0

William J. Linden-       12/31/01         200,000        0            0            555,000                0
mayer, President         12/31/00         180,000        0            0            716,721                0
</TABLE>


              Perquisites and other personal benefits are omitted because they
              do not exceed either $50,000 or 10% of the total of annual salary
              and bonus for the named executive officer.

              Employment Agreements
              ---------------------

              In January 2001, IFT entered into an employment agreement with Mr.
              Burst to serve as Chief Executive Officer with an annual base
              salary of $200,000 and 20,834 IFT restricted common shares per
              month, and a bonus award as deemed appropriate by our Board of
              Directors. The agreement automatically renewed on January 1, 2002
              for another one year term.

              In January 2001, IFT entered into an employment agreement with Mr.
              Lindenmayer to serve as President/Chief Operating Officer with an
              annual base salary of $200,000 and 20,834 IFT restricted common
              shares per month, and a bonus award as deemed appropriate by our
              Board of Directors. The agreement automatically renewed on January
              1, 2002 for another one year term.

              Incentives
              ----------

              On February 23, 2000, the Board of Directors adopted a Stock
              Incentive Plan that will consist of stock awards paid in the
              amount of 100,000 shares of IFT's common stock to IFT's senior
              management when the finalization of a subordinated debt contract
              is complete, funding is secured to cover the budget for the next
              24 months, creation and enactment of the IFT's Business Plan is in
              progress and the initiation of the final protocol testing for the
              reference standard fuel has commenced.

              Compensation of Directors
              -------------------------

              On February 23, 2000, the Board of Directors adopted the
              Director's Stock Compensation Plan, which provides for an annual
              award of 10,000 shares of IFT's common stock to the Board members
              as reimbursement for their attendance at the Board meetings. Each
              Board member will be awarded additional 1,000 shares of IFT's
              common stock for any three-telephone conference call Board
              meetings attended. On March 6, 2000, IFT issued 15,000 shares of
              restricted common stock to each of its non-employee members of the
              Board of Directors.

                                         29

<PAGE>


Item 12.      Security Ownership of Certain Beneficial Owners and Management

              The following table sets forth information as of January 31, 2002,
              regarding the beneficial ownership determined in accordance with
              the rules of the SEC, which generally attributes beneficial
              ownership of securities to persons who possess sole or shared
              voting power and/or investment power with respect to those
              securities, of IFT's common stock of: (i) each person known by IFT
              to own beneficially more than five percent of IFT's common stock;
              (ii) each director and nominee for director of the IFT; (iii) each
              executive officer named in the Summary Compensation Table (see
              "Executive Compensation"); and (iv) all directors and executive
              officers of IFT as a group. Except as otherwise specified, the
              named beneficial owner has the sole voting and investment power
              over the shares listed.

<TABLE>
<CAPTION>
                     Name of                     Amount and Nature of                 Percent of
                  Beneficial Owner               Beneficial Ownership                Common Stock(1)
                  ----------------               --------------------                -------------
            <S>                                <C>                               <C>

                  Jonathan R. Burst(2)                 2,706,000                          4.9%
                  William J. Lindenmayer               1,901,000                          3.4%
                  Senator George J. Mitchell             400,000                          0.7%
                  David B. Norris                      1,096,562                          2.0%
                  Harry F. Demetriou(3)                1,806,667                          3.3%
                  Simon Orange                         3,495,230                          6.3%
                  Albert House, 18 Albert Square, Bowdon, Altrineham WA 14 2ND U.K.
                  Ian Williamson                       2,125,000                          3.9%
                  Geoff Robinson                         468,237                          0.8%
                  John P. Stupp Jr.                      318,233                          0.6%
                  All directors and executive
                   officers as a group                14,316,929                         26.0%
</TABLE>

                (1)Based upon 55,119,612 outstanding shares of common stock.
                (2)Includes 50,000 shares owned by Burcor Capital, LLC of which
                   Mr. Burst is an executive officer and deemed to be the
                   beneficial owner of such shares.
                (3)Includes  1,366,667  shares owned by Observor  Acceptances,
                   Ltd. of which Mr. Demetriou is the sole owner and deemed to
                   be the beneficial owner of such shares.

              Section 16(a) Beneficial Ownership Reporting Compliance
              -------------------------------------------------------
              Section 16(a) of the Securities Exchange Act of 1934, as amended
              (the "Exchange Act"), requires IFT's executive officers and
              directors, and persons who beneficially own more than ten percent
              of IFT's common stock, to file initial reports of ownership and
              reports of changes in ownership with the SEC. Executive officers,
              directors and greater than ten percent beneficial owners are
              required by SEC regulations to furnish IFT with copies of all
              Section 16(a) forms they file. Based upon a review of the copies
              of such forms furnished to IFT and written representations from
              IFT's executive officers and directors, IFT believes that during
              fiscal 2001 Forms 3 and 4 were not filed on a timely basis for
              IFT's executive officers and directors. All these forms have since
              been filed. Jonathan R. Burst failed to make 5 Form 4 filings on a
              timely basis during the 2001 year. William J. Lindenmayer failed
              to make 4 Form 4 filings on a timely basis during the 2001 year.

Item 13.      Certain Relationships and Related Transactions

              On January 31, 2001, IFT issued 33,333 shares in repayment of a
              $10,000 note payable to a stockholder. In connection with the
              issuance of the shares, IFT recognized $7,041 in interest expense

                                    30

<PAGE>


              due to the fair value of the stock on the date of extinguishment
              exceeding the carrying value of the debt.

              On April 6, 2001 IFT issued 10,000 restricted common shares to
              employees of Burcor Capital as payment for $4,375 in consulting
              services and 10,000 restricted common shares as a payment on a
              $3,500 account payable due to Steven Walters, CPA. Steven Walters
              was the former Chief Financial Officer of the Company.

              On May 25, 2001 IFT entered into consulting agreements with four
              Interfacial shareholders. Common stock totaling 960,000 shares was
              issued and recorded as a consulting expense. The consulting
              agreements provide for the total issuance of 960,000 shares of
              common stock on May 25, 2002 and 1,180,000 shares of common stock
              on May 25, 2003, and the Company is recording the value of these
              shares ratably over the term of the consulting agreements. On
              December 6, 2001, the Company issued 300,000 shares which were to
              be issued May 25, 2002 under the consulting agreements. IFT has
              recorded $1,024,817 to consulting expense for the year ended
              December 31, 2001, relating to these consulting agreements.

              On July 18, 2001, IFT issued 326,087 shares of common stock as
              payment to Mr. Simon Orange, a director of IFT in exchange for the
              director's rights on a $60,000 note receivable and $99,783 of
              consulting services.

              IFT obtained general and administrative services and rents office
              space and equipment from Burcor Capital, LLC, a company related
              through common ownership (Mr. Jonathan Burst, executive officer
              and director of IFT, is the founder and president of Burcor
              Capital, LLC), under an agreement requiring monthly payments of
              $5,000. Expenses recorded as professional services paid to Burcor
              totaled $51,848 during the twelve month period ended December 31,
              2001 and $60,000 during the twelve month period ended December 31,
              2000.

              On November 16th, 2001, IFT purchased Burcor Capital's equipment
              for $12,500.

              On October 7, 1999, we entered into an Advisory Agreement with Mr.
              Harry Demetriou, a director of IFT, on a non-exclusive basis to
              render financial advisory services in connection with the possible
              sale of IFT. As of December 31, 1999 no payments had been made
              related to this agreement. During June 2000 this agreement was
              canceled and replaced with an agreement that provided for payment
              of 250,000 restricted common shares. These shares were issued on
              June 16, 2000 with a value of $218,750.

              During October 1999 IFT entered into an agreement with TPG Capital
              Corporation, a company related through common ownership, for
              consulting services. A payment of $100,000 was made and expensed
              during the nine month period ended December 31, 1999.

              On November 1, 1999, IFT entered into an agreement with certain
              related party promissory note holders to issue 423,537 shares of
              its common stock by December 31, 1999 in exchange for the balance
              of the promissory notes due in the amount of $677,254, a related
              party account payable of $26,500 and interest on the notes due in
              the amount of $142,820 at $2.00 per share. The stock-based note
              and interest exchange value was calculated based on the trading
              price of IFT's stock at November 1, 1999. The $355,771 difference
              between the $2.00 (per the agreement) value of the shares and the
              trading price of the shares has been reflected in these financial
              statements as interest expense.

                                   31

<PAGE>


              At December 31, 1999, IFT owed one of its stockholders
              approximately $87,000 for legal services performed. Subsequent to
              December 31, 1999, the stockholder agreed to accept 27,559 shares
              of IFT's common stock in lieu of cash for the amounts due to him.

              During June 2000, IFT purchased a Directors and Officers Liability
              insurance policy from Burcor Insurance Group, a company owned by
              Jonathan Burst.

              During the year 2000, IFT paid MarketMatch, Inc. $106,293 for
              professional services. MarketMatch, Inc. is owned and operated by
              William Center. William Center was a director of IFT from October
              2000 through May 2001.

              During the year 2000, IFT paid Steven D. Walters, CPA $25,168 for
              professional services. Steven D. Walters, CPA was owned and
              operated by Steven Walters. Steven Walters was appointed as the
              Chief Financial Officer of IFT in October 2000.

              During the year 2000, IFT received advances from stockholders
              totaling $516,000. For $416,000 of the advances each stockholder
              received a warrant to purchase from IFT up to 25,000 shares of
              restricted common stock at $.01 per share for each $5,000 in
              principal advanced to IFT. IFT issued 2,030,000 restricted common
              shares based upon the exercise of the warrants. In addition, IFT
              repaid $356,000 of the advances received from the stockholders by
              issuing 1,186,669 restricted common shares and $27,500 of the
              advances received from stockholders by check disbursement.
              $132,500 of the advances received from stockholders is recorded as
              a liability on the December 31, 2000 balance sheet.

                                     PART IV

Item 14.      Exhibits, Financial Statements and Schedules, and Reports On
              Form 8-K

              (a) Document List
              1.  Financial Statements

                    See index to financial statements and supporting schedules
                    on page F-1 of this annual report on Form 10-K
              2.  Financial Statement Schedules

                    All other schedules for which provision is made in the
                    applicable accounting regulations of the SEC are not
                    required under the related instructions or are inapplicable
                    and therefore have been omitted.

              3.  Exhibits Required by Securities and Exchange Commission
                  Regulation S-K

                    The following exhibits are filed as part of the report or
                    are incorporated by reference:

                    EXHIBITS

                    **2.1 Agreement and Plan of Merger between Blencathia
                          Acquisition Corporation and and International Fuel
                          Technology, Inc.

                                        32

<PAGE>


                    **3.1 Certificate of Incorporation of International Fuel
                          Technology, Inc. and all amendments.

                    **3.2 By-laws of International Fuel Technology, Inc.

                    **10.1 TPG Consulting Agreement

                    **10.2 Convertible Debenture Purchase Agreement

                    **10.3 Jonathan R. Burst Employment Agreement

                    **10.4 William J. Lindenmayer Employment Agreement

                   ***10.5 IIG Securities Purchase Agreement


                    23.1 Consents of BDO Seidman, LLP

                   *Incorporated by reference to Exhibits to Form 8-K filed on
                    February 10, 2000

                   **Incorporated by reference to Exhibits to Form 10-K filed on
                     May 10, 2000

                   ***Incorporated by reference to Exhibits to S-1 filed on July
                      12, 2001

             (b) Reports on Form 8-K

                 - Form 8-K filed October 20, 2000, including press release as
                   an exhibit.

                 - Form 8-K filed October 20, 2000, including press release as
                   an exhibit.

                 - Form 8-K filed November 8, 2000, including press release as
                   an exhibit.

             (c) Exhibits

                 See (a) above

                                       33




<PAGE>



INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

Report of Independent Certified Public Accountants                       F-2

Financial Statements
       Balance sheets                                                    F-3
       Statements of operations                                          F-4
       Statements of stockholders' deficit                           F-5 & 6
       Statements of cash flows                                      F-7 & 8

Notes to Financial Statements                                     F-8 - F-25




                             F-1






















<PAGE>









         REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

         To the Board of Directors and Stockholders
         International Fuel Technology, Inc.
         St. Louis, Missouri

         We have audited the accompanying balance sheets of International Fuel
         Technology, Inc. (a development stage company) as of December 31, 2001
         and 2000, and the related statements of operations, stockholders'
         deficit and cash flows for the twelve month, twelve month, and nine
         month periods ended December 31, 2001, 2000, and 1999. These financial
         statements are the responsibility of the Company's management. Our
         responsibility is to express an opinion on these financial statements
         based on our audits.

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

         In our opinion, the financial statements referred to above present
         fairly, in all material respects, the financial position of
         International Fuel Technology, Inc. as of December 31, 2001 and 2000
         and the results of its operations and its cash flows for the twelve
         month, twelve month, and nine month periods ended December 31, 2001,
         2000, and 1999 in conformity with accounting principles generally
         accepted in the United States of America.

         The accompanying financial statements have been prepared assuming that
         International Fuel Technology, Inc. will continue as a going concern.
         As discussed in Note 2 to the financial statements, International Fuel
         Technology, Inc. has suffered recurring losses from operations, has
         negative working capital, cash used in operating activities and has a
         deficit accumulated during the development stage that raise substantial
         doubt about International Fuel Technology, Inc.'s ability to continue
         as a going concern. Management's plans in regard to these matters are
         also described in Note 2. The financial statements do not include any
         adjustments that might result from the outcome of this uncertainty.


         BDO SEIDMAN, LLP

         Chicago, Illinois
         January 25, 2002


                                      F-2

<PAGE>



INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>

  BALANCE SHEETS
                                                                          December 31,    December 31,
  ASSETS (Note 2)                                                             2001            2000
  -----------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>

  Current Assets
    Cash                                                                $      33,168     $   128,204
    Prepaid Expenses                                                           15,250          29,107
    Notes Receivable (Note 5)                                                  80,000               -
                                                                         -------------    ------------
                          Total current assets                                128,418         157,311
                                                                         -------------    ------------

  Property and Equipment
    Machinery and equipment                                                    26,881          23,703
    Accumulated depreciation                                                   (5,824)         (5,592)
                                                                         -------------    ------------
                             Total property and equipment                      21,057          18,111
                                                                         -------------    ------------

  Purchased Technology, Net (Note 3)                                        2,166,668               -
  Goodwill, Net (Note 3)                                                    2,211,805               -
                                                                         -------------    ------------

                           Total assets                                 $   4,527,948     $   175,422
                                                                         =============    ============

  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  Current Liabilities
    Accounts payable                                                    $     252,779     $   227,748
    Accrued expenses (Note 5)                                                 342,030         204,325
    Accrued interest                                                           17,750           8,948
    Notes payable to stockholders                                                   -          32,500
                                                                         -------------    ------------
                           Total current liabilities                          612,559         473,521
                                                                         -------------    ------------

  Long-Term Liabilities
    Notes payable to stockholder (Note 4)                                     162,500         162,500
    Convertible debentures (net of discount) (Note 4)                          95,924               -
                                                                         -------------    ------------
                           Total liabilities                                  870,983         636,021
                                                                         -------------    ------------

  Commitments, contingencies, and subsequent events (Notes,
  2, 3, 8, 9, and 10)
  Stockholders' Equity (Deficit) (Notes 5 and 10)
    Common stock, $.01 par value;150,000,000 shares authorized
    55,119,612 and 24,560,453 shares issued and outstanding at
    December 31, 2001 and December 31, 2000, respectively                     551,196         245,604
    Discount on common stock                                                 (819,923)       (819,923)
    Additional paid-in capital                                             32,595,070      21,208,288
    Deficit accumulated during the development stage                      (28,669,378)    (21,094,568)
                                                                         -------------    --------------
                    Total stockholders' equity (Deficit)                    3,656,965        (460,599)
                                                                         -------------    ---------------

                                                                        $   4,527,948     $   175,422
                                                                         =============    ============
</TABLE>

See Notes to Financial Statements.

                                  F-3

<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>



                                                                  Twelve          Twelve              Nine         From Inception
                                                                  Months          Months             Months       (April 9, 1996)
                                                                   Ended           Ended              Ended            Through
                                                                December 31,    December 31,         Dec. 31,        December 31,
                                                             ---------------- --------------------------------------- ------------
                                                                    2001           2000                1999              2001
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     (unaudited)
<S>                                                         <C>                  <C>                 <C>          <C>
Revenues                                                       $         -       $         -          $        -       $        -
Cost of Revenues                                                         -                 -                   -                -
                                                              ----------------  -----------------   ---------------- --------------
Gross Profit                                                             -                 -                   -                -
                                                              ----------------  -----------------   ---------------- --------------
Operating Expenses:
  Advertising and marketing                                         14,500             20,522             12,913           59,041
  Amortization & Depreciation                                      474,797              3,217              1,614          480,389
  Consulting                                                     1,191,456                  -            295,000       8,549, 720
  Insurance                                                         38,592             34,454             17,806           90,852
  Investment advisory fee                                                -          1,251,413                  -        1,251,413
  Office and other                                                 221,595             79,545            132,929          944,727
  Payroll                                                        2,237,743          2,329,521            273,466        5,091,866
  Professional services                                            510,934            684,367          3,662,718        4,987,835
  Purchased in-process research and development (Note 3)         1,900,000                  -                  -        1,900,000
  Research and development costs                                   197,433            286,914            330,353        2,027,424
                                                               ----------------  -----------------   ---------------- --------------
                     Total operating expenses                    6,787,050          4,689,953          4,726,799       25,383,267
                                                               ----------------  -----------------   ---------------- --------------
            Net loss from operations                             6,787,050       $  4,689,953          4,726,799       25,383,267

            Interest expense (Note 4)                              787,760          1,997,583            405,341        3,286,111
                                                              ----------------  -----------------   ---------------- --------------
            Net loss                                           $ 7,574,810       $  6,687,536         $5,132,140       28,669,378
                                                              ================  =================   ================ ==============

                          Basic and diluted net loss
                           per common share                    $       .21       $        .36         $      .32
                                                              ================  =================   ================


Weighted average common shares outstanding                      36,416,469         18,827,802         15,800,725

</TABLE>





See Notes to Financial Statements.

                                          F-4

<PAGE>





INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
                                                                                                           Deficit
                                                                                                          Accumulated
                                                       Common     Common      Discount     Additional        During
                                                        Stock      Stock     on Common     Paid-In        Development
                                                       Shares     Amount       Stock       Capital           Stage          Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>         <C>         <C>             <C>             <C>
Balance, April 1, 1997 (unaudited)                       296,439    $2,964   $(14, 670)       $171,044      $(344,473)    $(185,135)
Issuances of common stock for cash                       158,350     1,584       -             286,268         -            287,852
Issuances of common stock for technology (Note 5)      5,320,952    53,209    (532,095)        478,886         -              -
Issuances of common stock (Note 5)                       142,280     1,423       -             (1,423)         -              -
Issuances of common stock for services (Note 5)        1,211,883    12,119       -             109,070         -            121,189
Expense recorded for services rendered  by
 consultants (Note 5)                                                 -          -             169,980         -            169,980
Issuance of common stock for compensation (Note 5)        70,100       701       -               6,309         -              7,010
Issuances of common stock in connection with the
  acquisition of United States Fuel Technology,        2,795,979    27,960       -             346,545         -            374,505
Cancellation of shares (Note 3)                          (94,400)     (944)      9,440          (8,496)         -             -
Net loss                                                              -          -               -         (1,090,666)   (1,090,666)
------------------------------------------------------------------------------------------------------------------------------------
Balance, April 1, 1998 (unaudited)                     9,901,583    99,016    (537,325)      1,558,183     (1,435,139)     (315,265)
Issuances of common stock for cash                       200,000     2,000       -             998,000         -          1,000,000
Issuances of common stock for services (Note 5)        1,200,000    12,000       -           5,988,000         -          6,000,000
Issuances of common stock in connection with the
  acquisition of Scientific Fuel Technology, LLC
  (Note 3)                                             2,795,979    27,960    (279,598)        251,638         -              -
Net loss                                                              -          -               -         (7,839,753)   (7,839,753)
------------------------------------------------------------------------------------------------------------------------------------
Balance, April 1, 1999 (unaudited)                    14,097,562   140,976    (816,923)      8,795,821     (9,274,892)   (1,155,018)
Issuances of common stock for services and cash
(Note 5)                                               1,500,000    15,000       -           4,203,750         -          4,218,750
Issuances of common stock for cash (Note 5)              794,740     7,947       -             388,503         -            396,450
Issuances of common stock for compensation (Note 5)        2,500        25       -               6,975         -              7,000
Conversion of debt  (Note 4)                             423,537     4,236       -           1,198,609         -          1,202,845
Accrued stock based compensation (Note 5)                             -          -             166,585         -            166,585
Net loss                                                              -          -               -         (5,132,140)   (5,132,140)
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000                              16,818,339   168,184    (816,923)     14,760,243    (14,407,032)     (295,528)
Issuances of common stock for cash and services
(Note5)                                                  101,800     1,018       -             330,682         -            331,700
Issuances of common stock for compensation (Note 5)       90,000       900       -              29,388         -             30,288
Issuances of common stock for services (Note 5)           92,559       925       -             277,726         -            278,651
Issuances of common stock for compensation (Note 5)      200,000     2,000       -             548,000         -            550,000
Issuances of common stock for services (Note 5)          195,000     1,950       -             107,738         -            109,688
Issuance of common stock for services and cash
(Note 5)                                                 390,000     3,900       -           1,141,725         -          1,145,625
Issuance of common stock for services (Note 5)           250,000     2,500       -             216,250         -            218,750
Issuance of common stock warrants for notes payable-
Stockholders (Note 4)                                      -          -          -           1,228,424         -          1,228,424
Issuance of common stock for warrants exercised
(Note 5)                                               2,030,000    20,300       -               -             -             20,300
Issuance of common stock for compensation (Note 5)     1,255,000    12,550       -             776,511         -            789,061
Issuance of common stock for services (Note 5)            25,000       250       -              10,298         -             10,548
Conversion of debt (Note 4)                            1,626,086    16,261       -             878,086         -            894,347
Conversion of debt and interest (Note 4)               1,186,669    11,866       -             581,467                      593,333
Issuance of contingently issued common stock (Note 5)    300,000     3,000      (3,000)          -             -                  0
Accrued stock based compensation (Note 5)                  -          -          -             321,750         -            321,750
Net loss                                                   -          -          -               -         (6,687,536)   (6,687,536)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                            24,560,453  $245,604    $(819,923    $21,208,288   $(21,094,568)    $(460,599)
Conversion of debt and interest (note 5)                  33,333       333                      16,708                       17,041
Issuance's of stock for assignment of note
 receivable (Note 5)                                     326,087     3,261                     156,522                      159,783
Issuances of stock for compensation (Note 5)           3,679,000    36,790                   1,565,773                    1,602,563
Issuances of stock for convertible debentures
(Note 4)                                               3,834,213    38,342                   1,236,658                    1,275,000
</TABLE>

                                   F-5

<PAGE>


INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
                                                                                                           Deficit
                                                                                                          Accumulated
                                                       Common     Common      Discount     Additional        During
                                                        Stock      Stock     on Common     Paid-In        Development
                                                       Shares     Amount       Stock       Capital           Stage          Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>         <C>         <C>             <C>            <C>
Issuances of stock for convertible debt interest
(Note 4)                                                 406,523     4,066                     139,135                      143,201
Issuances of stock for accounts payable (Note 5)          10,000       100                       3,400                        3,500
Issuances of stock for services (Note 5)               1,270,000    12,700                     660,075                      672,775
Issuances of stock for Interfacial acquisition
(Note 3)                                              12,500,001   125,000                   6,625,001                    6,750,001
Issuances of stock for Interfacial escrow (Note 3)     8,500,002    85,000                     (85,000)                        -
Discount on issuance's of convertible debt (Note 4)        -         -                         610,593                      610,593
Issuances of common stock warrants (Note 4)                -         -                          42,750                       42,750
Accrued stock based compensation (Note 5)                  -         -                          58,750                       58,750
Accrued stock based services (Note 5)                      -         -                         356,417                      356,417
Net loss                                                                                                   (7,574,810)   (7,574,810)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                            55,119,612   551,196    (819,923)     32,595,070    (28,669,378)    3,656,965
====================================================================================================================================
</TABLE>

See Notes to Financial Statements






                                       F-6


<PAGE>



INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
                                                            Twelve Months     Twelve Months        Nine Months     From Inception
                                                                Ended             Ended               Ended       (April 9, 1996)
                                                            December 31,      December 31,          Dec. 31,      to December 31,
                                                                2001              2000                1999              2001
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     (unaudited)
<S>                                                   <C>                   <C>                  <C>             <C>
Cash Flows from Operating Activities
Net loss                                                  $     (7,574,810)$       (6,687,536)$        (5,132,140)   $  (28,669,378)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation/ Amortization                                       474,797              3,218               1,614           480,389
  In-process research and development acquired                   1,900,000                                                1,900,000
  Stock issued and additional paid in capital
  recognized for services and compensation                       2,790,287          3,494,616           3,642,335        16,235,379
  Interest expense recognized-discount on notes payable            594,267          1,228,424                   -         1,822,691
  Interest expense recognized-conversion of debt                   150,243            757,680             355,771         1,263,694
  Loss on disposal of machinery and equipment                        5,527                  -                   -             5,527
  Change in assets and liabilities:
    Decrease (increase) in prepaid insurance                        13,857            (16,388)            (12,719)          (15,250)
    Increase (decrease) in accounts payable                         28,531            132,525            (203,288)          271,747
    (Decrease) increase in accounts payable-stockholders                 -           (100,000)            187,095            87,095
    Increase (decrease) in accrued expenses                        137,705            200,919              (1,411)          350,832
    Increase in accrued interest                                     8,802              8,948                   -           151,768
                                                         ---------------------------------------------------------------------------
Net Cash Used in Operating Activities                           (1,470,794)          (977,594)          (1,162,743)      (6,115,506)
                                                         ---------------------------------------------------------------------------

Cash Flows from Investing Activities
  Acquisition of machinery and equipment                           (14,142)            (8,198)              (9,581)         (36,201)
  Increase in employee and stockholder receivables                       -                  -              (15,468)         (15,468)
  Proceeds from the sale of property and equipment                   2,400                  -                   -             2,400
  Issuance of Note Receivable                                      (35,000)                 -                   -           (35,000)
  Proceeds from repayments of Note Receivable                       15,000                  -                   -            15,000
  Cash acquired in connection with the purchase of
    United States Fuel Technology, Inc.                                  -                  -                   -               358
                                                         ---------------------------------------------------------------------------
Net Cash Used in Investing Activities                              (31,742)            (8,198)             (25,049)         (68,911)
                                                         ---------------------------------------------------------------------------

Cash Flows from Financing Activities
  Increase (decrease) in amount due to related party                     -                  -                   -            26,500
  Increase in due to United States Fuel Technology, Inc.                 -                  -                   -           372,503
  Proceeds from common stock issued                                      -            224,650           1,146,450         2,808,328
  Proceeds from notes payable                                    1,431,000            890,000             325,700         3,610,425
  Payment on notes payable                                         (23,500)           (27,500)           (258,000)         (600,171)
                                                         ---------------------------------------------------------------------------
Net Cash Provided by Financing Activities                        1,407,500          1,087,150           1,214,150         6,217,585
                                                         ---------------------------------------------------------------------------

Net (Decrease) Increase in Cash                                    (95,036)           101,358              26,358            33,168
Cash, beginning                                                    128,204             26,846                 488                 -
                                                         ---------------------------------------------------------------------------
Cash, ending                                             $          33,168$           128,204$             26,846            33,168
                                                         ===========================================================================

Supplemental Cash Flow Information
  Interest paid                                          $               -$             2,531$                  -      $      4,631
</TABLE>

See Notes to Financial Statements.

                                    F-7

<PAGE>


INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (CONT'D)
                                                            Twelve Months     Twelve Months        Nine Months     From Inception
                                                                Ended             Ended               Ended       (April 9, 1996)
                                                            December 31,      December 31,          Dec. 31,      to December 31,
                                                                2001              2000                1999              2001
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    (unaudited)
<S>                                                       <C>               <C>                 <C>             <C>

Schedule of non-cash investing and financing activities
  Discount on issuances of convertible debt and notes
  payable                                                          653,343          1,228,424                   -         1,881,767
  Conversion of debt to common stock                             1,438,742          1,487,680           1,202,845         4,129,267
  Acquisition of Interfacial                                     6,750,001                  -                   -         6,750,001
  Acquisition of United State Fuel Technology                            -                  -                   -           374,505
  Issuance of stock for note receivable                  $          60,000$                 -           $       -        $   60,000

</TABLE>

See Notes to Financial Statements.




         NOTES TO FINANCIAL STATEMENTS

         Note 1.  Nature of Business and Significant Accounting Policies

         Nature of business
         ------------------

         International Fuel Technology, Inc., ("IFT") is a development stage
         company that was incorporated under the laws of the State of Nevada on
         April 9, 1996 and was formerly known as MagnoDynamic Corporation. IFT
         was formed primarily for the production of a family of proprietary
         fuels known as PEERFUELTM. IFT developed a process, which it believes
         will make diesel fuel burn more efficiently and with less emissions.
         IFT, as described in Note 3, has acquired United State Fuel Technology,
         Inc, and Scientific Fuel Technology, LLC, to streamline the selling of
         PEERFUELTM. As described in Note 5, IFT has acquired Blencathia
         Acquisition Corporation to ensure IFT would remain a fully trading and
         reporting entity on the OTC Bulletin Board. United States Fuel
         Technology, Inc., Scientific Fuel Technology, LLC, and Blencathia
         Acquisition Corporation were all dissolved subsequent to their merger
         into IFT. As part of the Company's efforts to expand into promising new
         engine emission-reduction technologies, IFT completed the acquisition
         of Interfacial Technologies (UK) Ltd. ("Interfacial") on May 25, 2001.
         Through the acquisition of Interfacial, IFT has developed a family of
         proprietary fuels and fuel additive formulations. These unique fuel
         blends have been created to materially improve fuel economy, enhance
         lubricity (reducing engine wear and tear) and lower harmful engine
         emissions, while decreasing reliance on petroleum-based fuels through
         the use of more efficient, alternative and renewable fuel mediums. The
         Company has emerged from its research and development phase and is now
         focused on the commercialization of its numerous fuel blends and
         additives.


                                  F-8

<PAGE>



         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         Summaries of IFT's significant accounting policies follow:

         Use of estimates in the preparation of financial statements
         -----------------------------------------------------------

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statement and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         Cash
         ----

         IFT maintains cash in a bank account, which, at times, exceeds
         federally insured limits. IFT has experienced no losses relating to
         these excess amounts of cash in a bank.

         Machinery and equipment
         -----------------------

         Machinery and equipment are stated at cost. Depreciation is computed on
         the straight-line method over the appropriate estimated useful lives of
         the assets, generally over a period of 3 to 5 years.

         Deferred taxes
         --------------

         Deferred taxes are provided on a liability method whereby deferred tax
         assets are recognized for deductible temporary differences, operating
         losses and tax credit carryforwards and deferred tax liabilities are
         recognized for taxable temporary differences. Temporary differences are
         the differences between the reported amounts of assets and liabilities
         and their tax bases. Deferred tax assets are reduced by a valuation
         allowance when, in the opinion of management, it is more likely than
         not that some or all of the deferred tax assets will not be realized.
         Deferred tax assets and liabilities are adjusted for the effects of
         changes in tax laws and rates on the date of enactment.

         Research and Development
         ------------------------

         Research and development costs are expensed in the period incurred.

         Basic and diluted net loss per common share
         -------------------------------------------

         IFT adopted Statement of Financial Accounting Standards No. 128 (SFAS
         128), Earnings per Share. SFAS 128 establishes standards for computing
         and presenting earnings per share and replaces primary earnings per
         share with a presentation of basic and diluted earnings per share.
         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


                                    F-9


<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         to SFAS 128, no adjustment is made for diluted earnings per share
         purposes since IFT is reporting a net loss and common stock equivalents
         would have an anti-dilutive effect. For the fiscal years ended December
         31, 2001, 2000, and 1999, 587,853, 0, and 0 shares, respectively, of
         common stock equivalents were excluded from the computation of diluted
         earnings per share since their effect would be anti-dilutive.

         Fair value of financial instruments
         -----------------------------------

         Statement of Financial Accounting Standards FASB No. 107 (SFAS 107),
         Disclosures about Fair Value of Financial Instruments, requires the
         disclosure of fair value for all financial instruments as defined in
         SFAS 107 for which it is practicable to estimate fair value.

         The carrying amounts of accounts payable approximate fair value because
         of their short maturity.

         The fair value of notes payable and convertible debentures approximate
         their carrying basis based on the nature of these obligations and
         current interest rates approximating stated interest rates.

         New Accounting Pronouncements
         -----------------------------

         In June 2001, the Financial Accounting Standards Board finalized FASB
         Statements No. 141., Business Combinations (SFAS 141), and No. 142,
         Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the
         use of the purchase method of accounting and prohibits the use of the
         pooling-of-interest method of accounting for business combinations
         initiated after June 30, 2001. SFAS 141 also requires that IFT
         recognize acquired intangible assets apart from goodwill if the
         acquired intangible assets meet certain criteria. SFAS 141 applies to
         all business combinations initiated after June 30, 2001 and for
         purchase business combinations completed on or after July 1, 2001. It
         also requires, upon adoption of SFAS 142, that IFT reclassify the
         carrying amounts of intangible assets and goodwill based on the
         criteria in SFAS 141.

         SFAS 142 requires, among other things, that companies no longer
         amortize goodwill, but instead test goodwill for impairment at least
         annually. In addition, SFAS 142 requires that IFT identify reporting
         units for the purposes of assessing potential future impairments of
         goodwill, reassess the useful lives of other existing recognized
         intangible assets, and cease amortization of intangible assets with an
         indefinite useful life. An intangible asset with an indefinite useful
         life should be tested for impairment in accordance with the guidance in
         SFAS 142. SFAS 142 is required to be applied in fiscal years beginning
         after December 15, 2001 to all goodwill and other intangible assets
         recognized at that date, regardless of when those assets were initially
         recognized. SFAS 142 requires IFT to complete a transitional goodwill
         impairment test six months from the date of adoption. IFT is also
         required to reassess the useful lives of other intangible assets within
         the first interim quarter after adoption of SFAS 142.

         Previous business combinations were accounted for using the purchase
         method. As of December 31, 2001, the net carrying amount of goodwill is
         $2,211,805 and other intangible assets is $2,166,668. Amortization
         expense during the year ended December 31, 2001 was $471,528.
         Currently, IFT is assessing but has not yet determined how the adoption
         of SFAS 141 and SFAS 142 will impact its financial position and results
         of operations.

                                   F-10

<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         In October 2001, the Financial Accounting Standards Board issues SFAS
         144 "Accounting for the Impairment of Disposal of Long-Lived Assets
         ("FAS 144"). This statement addresses financial accounting and
         reporting for the impairment and disposal of long-lived assets. This
         Statement supercedes FASB Statement 121, "Accounting for the Impairment
         of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and
         the accounting and reporting provisions of APB Opinion No. 30,
         "Reporting the Results of Operations--Reporting the Effect of Disposal
         of a Segment of a Business, and Extraordinary, Unusual and Infrequently
         Occurring Events and Transactions", for the disposal of a segment of a
         business. The provisions of FAS 144 will be effective for fiscal years
         beginning after December 15, 2001. The Company is currently evaluating
         the implications of adoption of FAS 144.

         Reclassifications
         -----------------

         Certain amounts from the prior years' financial statements have been
         reclassified to conform to the current period presentation.


         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 previously had limited funds
         with which to operate. Management is in the process of executing a
         strategy based upon developing pollution emission control technologies
         that also offer enhanced engine performance with respect to greater
         fuel economy. IFT already has one technology in development, and may
         seek to add other technologies through acquisitions. Management
         anticipates receiving necessary regulatory and commercial acceptance
         for its existing technology and acquired technologies within the next
         twelve months. Immediately thereafter, IFT expects to begin licensing
         its products and/or selling them directly to the commercial
         marketplace, with IFT eventually generating 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 $1,800,000 over
         the remainder of the 2002 fiscal year will be necessary in order to
         enable us to meet our capital needs. Management believes the proceeds
         from its convertible debenture financing will be used as follows:
         $250,000 for commercial fleet testing programs, $600,000 for
         professional fees and advertising $650,000 for salary expenses and
         $300,000 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
         Agreement, 18,163,872 shares issuable upon possible

                          F-11

<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         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 Agreement with IIG
         on 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. 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 December 31, 2001, IFT has borrowed a total of $ 1,430,000 under the
         financing agreement. (Note 4)

         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.     Acquisitions of Subsidiaries

         On April 3, 1998, the stockholders approved a merger with United States
         Fuel Technology, Inc. ("USFT"), effective March 31, 1998. USFT was
         formed primarily to market PEERFUELSTM in North America. IFT granted
         USFT an exclusive license to market its product pursuant to an Amended
         and Restated License Agreement dated October 16, 1997, in exchange for
         94,400 shares of USFT common stock. Because IFT did not have a
         commercially viable product, USFT did not have any revenues but had
         incurred some general and administrative expenses through the date of
         the merger, the most significant of which were consulting and
         professional fees. As a result of the merger, each non-dissenting
         holder of outstanding shares of USFT Common Stock received one share of
         IFT Common Stock for every share of USFT common stock. IFT issued
         2,795,979 shares. This merger has been accounted for as a purchase
         based upon the net asset value, which represented the fair value, of
         USFT on March 31, 1998.

         IFT's investment in USFT consisted of the 94,400 shares of USFT common
         stock issued to IFT in exchange for certain marketing rights. These
         shares were valued at zero by IFT and were redeemed and canceled in
         connection with the acquisition of USFT.

         On May 29, 1998 IFT merged with Scientific Fuel Technology, LLC
         ("SFT"), a company related through common ownership. The assets and
         liabilities of SFT consisted solely of an agreement whereby SFT would
         receive 50% of USFT's rights pursuant to the Amended and Restated
         License Agreement dated October 16, 1997 with IFT. As IFT did not have
         a commercially viable product at the time of the merger with SFT, there
         had been no payments made to SFT and SFT had not yet begun operations.
         This marketing agreement was valued by SFT at zero due to the
         uncertainty of the future revenues. SFT had no revenues, expenses,
         assets or liabilities as of the date of the purchase. Management
         believed it was no longer in IFT's best interest to be contractually
         bound to acquire these sales and marketing services from SFT and,
         accordingly it initiated the merger with SFT. As a result of the
         merger, 2,795,979 shares of IFT were exchanged for the member interests
         in SFT. The issuance of these shares was accounted for by recording a
         discount on common stock equal to the par value of stock issued.

                                     F-12

<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         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. 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 8,500,002 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. (Note 5)

         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, 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.

         Goodwill amortization was $238,195 through December 31, 2001, at which
         time amortization ceased with the implementation of SFAS 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.


                             F-13

<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         The 8,500,002 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 8,500,002 common shares are currently recorded
         at par value, or $85,000, as common stock and a reduction of additional
         paid-in capital (Note 10).

         The summarized unaudited pro forma results of operations set forth
         below for the years ended December 31, 2001 and 2000 assume the
         acquisition occurred as of the beginning of 2001 and upon inception of
         Interfacial on May 15, 2000.

         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 each of the periods presented, nor
         are the results of operations necessarily indicative of the results
         that will be attained in the future.

                                                       Year Ended
                                                       December 31,
                                                     2001      _     2000
                                               --------------------------

         Revenues                                      $0             $0
         Net loss                              $8,097,073    $12,136,666
         Net loss per common share:
         Basic and diluted                           $.20           $.46


         Note 4.     Notes Payable and Convertible Debentures

         In March 2000 ONKAR Corporation, Ltd. ("ONKAR"), a stockholder of IFT,
         advanced IFT $50,000 which is due in March 2005 and has an annual
         interest rate of 6%. In April 2000 ONKAR advanced IFT $50,000 which is
         due in April 2005 and has an annual interest rate of 6%. In addition,
         IFT has a note payable to ONKAR for $62,500 that is due in November
         2004 at an annual interest rate of 6%.

         During the twelve-month period ended December 31, 2000 IFT received
         advances from stockholders totaling $416,000. IFT repaid $356,000 of
         the advances received from the stockholders by issuing 1,186,669
         restricted common shares and repaid $27,500 of the advances received
         from stockholders by cash. In connection with the issuance of the
         1,186,669 restricted common shares IFT recognized $237,333 in interest
         expense due to the fair value of the stock on the date of
         extinguishment exceeding the carrying value by this amount. Notes
         payable to stockholders totaling $32,500 with an annual interest of 10%
         and a due date of April 30, 2001 is recorded as a liability on the
         December 31, 2000 balance sheet. Of this amount, $22,500 was repaid in
         2001 and the remaining $10,000 was converted to common stock on January
         31, 2001 (Note 5). In addition to the repayment of principal each
         stockholder received a warrant to purchase from IFT up to 25,000 shares
         of common stock at $.01 per share for each $5,000 in principal advanced
         to IFT. The value of the warrants, $1,228,424 based on the market value
         of IFT's common stock on the day(s) the advances were received has been
         recorded as a discount on


                                      F-14

<PAGE>


INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         the notes payable to stockholders and as an addition to additional paid
         in capital. During the twelve months ended December 31, 2000,
         $1,228,424 was amortized against the discount on notes payable to
         stockholders and recognized as interest expense.

         During the twelve-month period ended December 31, 2000 IFT received
         advances totaling $374,000 from four individuals. IFT repaid $374,000
         of the advances received by issuing 1,626,086 restricted common shares.
         In connection with the issuance of the 1,626,086 restricted common
         shares IFT recognized $520,347 in interest expense due to the fair
         value of the stock on the date of extinguishment exceeding the carrying
         value by this amount.

         On April 11, 2001 IFT issued 406,523 common shares to a total of four
         individuals as a recalculation of the beneficial conversion rate used
         for the payment of notes payable in November 2000. The recalculation
         was required due to 1,626,086 common shares issued in November 2000 not
         being registered with the United States Securities and Exchange
         Commission by March 31, 2001, as the notes payable specified.

         On December 31, 2001, IFT had outstanding convertible debentures of
         $155,000 less the related discount for the beneficial conversion
         feature of the debenture of $59,076. 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
         discount will be amortized until the note matures or is converted. The
         convertible debentures are immediately convertible at the option of the
         holder into the number of shares of IFT 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 three lowest closing bid prices for the ten trading days
         immediately prior to the conversion date, but in no event more than
         110% of the average of the three lowest closing bid prices for the ten
         trading days immediately preceding the convertible debenture issuance
         date.

         During the year ended December 31, 2001, IFT has issued 3,834,213
         shares of common stock upon the conversion of $1,275,000 worth of
         convertible debentures owned by IIG. An additional $653,343 had been
         recorded as a discount on the convertible debenture and added to
         additional paid-in-capital, relating to the beneficial conversion
         feature and the $42,750 value of 150,000 warrants related to the
         convertible debentures. The warrants were valued at the fair value on
         the date of issuance using the Black-Scholes option pricing model. The
         beneficial conversion feature was calculated as the excess value of the
         shares to be converted over the amount of the proceeds allocated to the
         convertible debentures. (Note 5)

         Note 5.     Stockholders' Deficit

         On July 7, 1999 the stockholders approved a 1 for 10 reverse stock
         split which was effected on July 22, 1999. The effect of the split is
         presented within stockholders' deficit at March 31, 1999 by
         transferring the par value for the reduction in shares issued from
         common stock to additional paid in capital. All references in the
         financial statements referring to shares, share prices, per share
         amounts and stock plans have been adjusted retroactively for the split.


                                        F-15

<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         IFT issued shares to certain founding stockholders during fiscal years
         1998 and 1997 in exchange for the technology related to its diesel fuel
         treatment business. This technology constituted research and
         development expenditures to these stockholders and consistent with
         Generally Accepted Accounting Principles, was not recorded as an asset
         but rather was recorded as an expense by these shareholders. Because
         the subsequent transfer of this technology to IFT was a transaction
         between entities under common control, it was accounted for using the
         carrying value of the technology which was zero. A discount on common
         stock was recorded equal to the par value of the stock issued in
         exchange for the technology. The shares were issued as follows:


                      Date                                         Shares
                      ----                                   ---------------
                      April 1997                                   1,558,084
                      July 1997                                      783,944
                      August 1997                                     51,800
                      September 1997                               2,927,124
                                                              --------------
                      Total year ended March 31, 1998              5,320,952
                                                              ===============

         IFT also issued shares to certain stockholders in exchange for services
         and certain corporate officers were issued stock as additional
         compensation. Management valued the services that were received at
         their fair value. Common stock shares were issued, at par, to equal the
         fair value of the services. The fair value of the services and
         additional compensation was $128,199 in fiscal 1998. The shares were
         issued as the services were rendered as follows:

<TABLE>
<CAPTION>

                                                                                               Expense
                      Date                                         Shares                      Amount
                      ----                                       ----------                    -------
                 <S>                                      <C>                           <C>

                      SERVICES:
                      --------
                      April 1997                                           6,900
                      May 1997                                            10,900
                      July-August 1997                                   251,315
                      September 1997                                     942,768
                                                              ------------------
                      Total year ended March 31, 1998                  1,211,883                $121,189
                                                              ==================                ========
                      COMPENSATION:
                      -------------
                      April 1997                                          10,000
                      July 1997                                           10,100
                      September 1997                                      50,000
                                                              ------------------
                      Total year ended March 31, 1998                     70,100                  $7,010
                                                              ==================                  ======
</TABLE>

         Certain stockholders who purchased stock for cash were subsequently
         issued additional shares of stock for no consideration to adjust the
         amount of shares previously issued to them. The adjustment was required
         due to shares being sold to stockholders at different prices while the
         fair value of the common stock remained consistent. The original shares
         had been issued on various dates between July 30, 1996 and September
         13, 1997 and the additional shares were issued with the same date as
         the original shares. Since IFT has no retained earnings, a charge to
         additional paid-in-capital was recorded to reflect the par value of the
         stock issued. The additional shares


                                   F-16

<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         were issued as follows:

                      Date                              Total Additional Shares
                      ----                           --------------------------
                      July 1997                                          6,350
                      August 1997                                       40,000
                      September 1997                                    95,930
                                                            ------------------
                      Total year ended March 31, 1998                  142,280
                                                            ==================

         From January through March 1998, a principal shareholder of IFT
         distributed 1,699,800 of his personal shares to others for services.
         These services included providing business contacts to assist IFT in
         its business plan and to assist IFT in raising capital. Because there
         were no formal service agreements and no specified time frame for the
         performance of these services, the cost of the services was recognized
         at the date the shares were distributed. The value of the services was
         deemed to be $169,980 by the Board of Directors. This amount was
         expensed in the year ended March 31, 1998 with an increase to
         additional paid-in capital. During December 1998, the Board of
         Directors approved issuance of 1,200,000 restricted shares to a
         consultant and former Board Chairman. This consultant had been a
         founder of IFT, served as Board Chairman and provided services in
         connection with the technology of IFT. These shares served as payment
         to this consultant for his past services. Because there were no formal
         service agreements and no specified time frame for the performance of
         these services, the cost of the services was recognized as expense at
         the date the shares were distributed. The market value of these shares
         was determined by the Board of Directors based upon the private
         placement of common stock sold in November 1998 at $5.00 per share.
         This $6,000,000 was expensed in the year ended March 31, 1999.

         On April 26, 1999 IFT offered all stockholders of record on March 31,
         1999 the right to purchase 900 common shares at $.50 per share, a price
         determined by IFT's Board of Directors. The market price of IFT's stock
         on April 26, 1999 was $1.40 per share. IFT issued 794,740 shares and
         received proceeds of $396,450 as a result of this offering that expired
         May 28, 1999.

         IFT issued 2,500 shares on June 2, 1999 to a director. The shares were
         issued in exchange for serving as a director. The value of these
         services was determined based upon the market value at the date of
         issuance. IFT has recorded a charge to operations in the amount of
         $7,000.

         On July 1,1999, IFT entered into a one year advisory agreement with
         ONKAR Corporation, Ltd. ("ONKAR") for various services including
         introductions to brokers, dealers and potential investors and ONKAR
         agreed to facilitate the writing of a minimum of three research reports
         on IFT. Two of these research reports have been received by IFT, one
         dated July 22, 1999 and one dated August 25, 1999. The third research
         report was not generated and no services were provided after September
         30, 1999 due to IFT terminating the agreement. As consideration for the
         services, ONKAR received the right to purchase 1.5 million shares of
         restricted common stock at $.50 per share. These rights were issued and
         exercised with IFT receiving cash proceeds of $750,000. IFT determined
         the value of the services to be provided based upon the market value of
         the common stock, $2.81, on July 1, 1999, the date of the agreement.
         The total value of this agreement was determined to be $4,218,750. The
         amount in excess of the cash proceeds received of $750,000 has been
         charged to operations as professional services. No shareholders of


                                   F-17

<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         IFT were shareholders of ONKAR prior to this transaction.

         On July 13, 1999 IFT entered into employment agreements with its Chief
         Executive Officer and Chief Operating Officer which expired on January
         31, 2000. Under the terms of these agreements, these officers each
         received base pay of $1,000 per month plus up to a total of 60,000 and
         30,000 shares of IFT's stock, respectively, payable at the end of the
         initial term of the agreements. The shares were earned ratably on a
         monthly basis. The value of the stock based compensation for these
         90,000 shares is $196,875. The stock based compensation earned through
         December 31, 1999, $166,585, reflected in these financial statements as
         payroll expense and as additional paid in capital, has been calculated
         based on the trading price of IFT's stock at July 13, 1999.

         On April 26, 1999 IFT offered all stockholders of record on March 31,
         1999 the right to purchase 900 common shares at $.50 per share. During
         January 2000 IFT issued 1,800 shares and received proceeds of $450 as a
         result of this offering that expired May 28, 1999. The $450 for the
         other 900 shares was received during the nine month period ended
         December 31, 1999.

         During January 2000 IFT issued 100,000 shares of common stock in a
         private placement for $200,000 to a company whose sole owner is a
         director of IFT. The market value of the shares on the date of issuance
         was $331,250. The $131,250 of market value in excess of the cash amount
         received has been recorded as consulting expense during the twelve
         month period ended December 31, 2000.

         The 90,000 shares earned by the Chief Executive Officer and Chief
         Operating Officer under employment agreements which expired on January
         31, 2000 were issued on January 31, 2000.

         The stock based compensation earned through January 31, 2000, $30,288,
         reflected in these financial statements as payroll expense and as
         additional paid in capital, has been calculated based on the trading
         price of IFT's stock at July 13, 1999.

         At December 31, 1999, IFT owed one of its stockholders approximately
         $87,000 for legal services performed. In February 2000, the stockholder
         agreed to accept 27,559 shares of IFT's stock in lieu of cash for the
         amounts due to him. The value of the shares issued, $99,901, was based
         upon the market value price of the common shares on February 9, 2000.

         Effective January 14, 2000 IFT adopted a Consultant and Employee Stock
         Compensation Plan. This plan provides that the Board of Directors may
         award shares of IFT's stock to officers, directors, consultants and
         employees as compensation for services. The maximum number of shares of
         common stock, which may be awarded under this plan, is 500,000 shares.
         During March 2000 IFT issued a total of 65,000 shares of common stock
         to five directors as reimbursement for directors' expenses. The value
         of these shares, reflected in these financial statements as payroll
         expenses for Jonathan Burst and William J. Lindenmayer in the amount of
         $55,000 and as board meeting and travel expenses in the amount of
         $117,216 and $6,534, respectively, for the remaining directors, has
         been calculated based on the trading price of IFT's stock at February
         23, 2000.

                                   F-18

<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         On February 23, 2000 the Board of Directors granted Jonathan Burst
         100,000 shares of IFT's common stock for his appointment as Chief
         Executive Officer. The value of these shares, reflected in these
         financial statements as payroll expense, has been calculated based on
         the trading price of IFT's stock at February 23, 2000. On February 23,
         2000 the Board of Directors awarded an initial grant of 100,000 shares
         of IFT's common stock to William Lindenmayer for his appointment as
         President and Chief Operating Officer. The value of these shares,
         reflected in these financial statements as payroll expense, has been
         calculated based on the trading price of IFT's stock at February 23,
         2000. The total charged to payroll expense for these transactions was
         $550,000.

         In February 2000, IFT entered into a convertible debenture purchase
         agreement to raise $3,000,000 through the sale of convertible
         debentures to GEM Global Yield Fund, Ltd. and Turbo International Ltd.
         ("GEM") During June 2000 this agreement was amended to raise $1,500,000
         through the sale of convertible debentures to GEM. In connection with
         the convertible debenture purchase agreement IFT issued a warrant to
         GEM for the purchase of 390,000 shares of common stock at $.01 per
         common share. During February 2000 IFT issued 195,000 shares of common
         stock and placed them in escrow in accordance with the convertible
         debenture purchase agreement entered into in February 2000. The shares
         were to be released from escrow and issued to the purchasers of the
         convertible debenture in the event of an uncured default by IFT prior
         to the closing of the convertible debenture purchase agreement. The
         195,000 shares of common stock were released to the purchasers of the
         convertible debenture purchase agreement in conjunction with an
         amendment to the convertible debenture purchase agreement dated June
         16, 2000, and were recorded as an investment advisory fee of $109,688
         based on the trading price of IFT's stock.

         On March 28, 2000 a warrant for 390,000 shares of common stock was
         exercised by GEM Global Yield Fund Limited at a cost of $.01 per share.
         The closing trading price of IFT's stock on March 28, 2000 was $2.9375,
         resulting in a total market value of $1,145,625 for the 390,000 common
         shares. The market value in excess of the $.01 warrant exercise cost,
         $1,141,725, is reflected in the statement of operations for the twelve
         months ended December 31, 2000 as an investment advisory fee.

         On June 19, 2000 IFT issued 250,000 common shares to a director of IFT
         for consulting services. The value of the shares, $218,750, was
         recorded to research and development expense and was based on the
         trading price of IFT's stock on June 19, 2000.

         During the twelve month period ended December 31, 2000 IFT issued
         2,030,000 common shares due to the exercise of warrants issued in
         connection with the advances received from stockholders discussed in
         Note 4. There were no warrants outstanding at December 31, 2000.

         On October 13, 2000 the Board of Directors granted Jonathan Burst
         475,000 shares of IFT's common stock for achievement of a milestone
         event for IFT. The value of these shares, reflected in these financial
         statements as payroll expense of $296,875, has been calculated based on
         the trading price of IFT's stock at October 13, 2000. On October 13,
         2000 the Board of Directors granted William Lindenmayer 475,000 shares
         of IFT's common stock for achievement of a

                                     F-19


<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         milestone event for IFT. The value of these shares, reflected in these
         financial statements as payroll expense of $296,875, has been
         calculated based on the trading price of IFT's stock at October 13,
         2000. On October 13, 2000 the Board of Directors granted the three non
         employee directors of IFT a total of 275,000 shares of IFT's common
         stock for achievement of a milestone event for IFT. The value of these
         shares, reflected in these financial statements as payroll expense of
         $171,875, has been calculated based on the trading price of IFT's stock
         at October 13, 2000. On October 10, 2000 the Board of Directors granted
         an employee of IFT 30,000 shares of IFT's common stock for achieving a
         milestone event. The value of these shares, reflected in these
         financial statements as payroll expense of $23,436, has been calculated
         based on the trading price of IFT's stock at October 10, 2000.

         On December 18, 2000 IFT issued 25,000 common shares for consulting
         services. The value of the shares, $10,548, was recorded to payroll
         expense and was based on the trading price of IFT's stock on December
         18, 2000.

         Effective October 27, 1999, IFT merged with and into Blencathia
         Acquisition Corporation ("Blencathia"). Blencathia had 300,000 shares
         outstanding at the time of the merger, which it redeemed and canceled.
         In exchange for 300,000 shares of Blencathia's common stock, IFT issued
         300,000 shares of its restricted common stock. These shares are
         expected to be sold in an amount sufficient to provide the former
         shareholders of Blencathia with proceeds of $500,000, the negotiated
         cost of the acquisition.

         On May 8, 2000 IFT issued 300,000 common shares that were contingently
         issued per the Blencathia merger agreement. The 300,000 shares of
         common stock are included in the statement of stockholders' deficit for
         the year ended December 31, 2000 but are not included in earnings per
         share and weighted average share calculations for the year ended
         December 31, 2000. They will be included when the shares are sold to
         provide payment to the shareholders of Blencathia. The shareholders of
         Blencathia have represented to the management of IFT that the 300,000
         shares will be sold only with IFT's approval. If the shares are sold
         and $500,000 is not generated additional shares may need to be issued
         to the shareholders of Blencathia. Based on the December 31, 2001
         market price, $.47, of IFT's common stock, a total of 1,063,830 shares
         would need to be issued to generate the $500,000 proceeds.

         During January 2000, IFT entered into an employment agreement with
         Jonathan R. Burst to serve as Chief Executive Officer of IFT until
         December 31, 2000 at a base annual salary of $180,000. In addition, Mr.
         Burst is to receive 6,000 shares of common stock each month. During
         January 2000, IFT entered into an employment agreement with William J.
         Lindenmayer to serve as Chief Operating Officer of IFT until December
         31, 2000 at a base annual salary of $180,000. In addition, Mr.
         Lindenmayer is to receive 3,000 shares of common stock each month. The
         shares are earned ratably on a monthly basis. The stock based
         compensation earned through December 31, 2000, reflected in these
         financial statements as payroll expense and as additional paid in
         capital of $321,750, has been calculated based on the trading price of
         IFT's stock at February 1, 2000. The 99,000 common shares were issued
         on January 31, 2001. As of December 31, 2000, $204,325 of compensation
         relating to these employment agreements are unpaid and included in
         accrued expenses.

                                       F-20
<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         On January 31, 2001, IFT issued 33,333 shares in repayment of a $10,000
         note payable to a stockholder. In connection with the issuance of the
         shares, IFT recognized $7,041 in interest expense due to the fair value
         of the stock on the date of extinguishment exceeding the carrying value
         of the debt.

         On February 23, 2001 the Board of Directors of IFT authorized the
         issuance of 2,475,000 shares of common stock to employees and
         non-employee directors of IFT. The value of the common shares,
         $1,082,812, has been included in payroll expense for the year ended
         December 31, 2001, and was calculated based on the closing stock price
         of $.4375 on February 23, 2001. The 2,475,000 shares of restricted
         common stock were issued to the employees and non-employee directors of
         IFT on April 10, 2001.

         On April 6, 2001 IFT issued 10,000 restricted common shares as payment
         for $4,375 in consulting services and 10,000 restricted common shares
         as a payment on a $3,500 account payable.

         During January 2001, IFT entered into an employment agreement with
         Jonathan R. Burst to serve as Chief Executive Officer and William J.
         Lindenmayer to serve as President and Chief Operating Officer until
         December 31, 2003, each at annual salaries of $200,000. The agreements
         provide for a stock grant of 20,834 shares of common stock at the end
         of each month to each employee. The shares are earned ratably on a
         monthly basis. The stock based compensation earned through December 31,
         2001, reflected in these financial statements as payroll expense and as
         additional paid in capital of $235,000, has been recalculated based on
         the trading price of IFT's stock on December 12, 2001, the date the
         shares were issued. As of December 31, 2001, $265,546 of compensation
         relating to these employment agreements, as well as their 2000
         employment agreement, was unpaid and included in accrued expenses.

         On May 25, 2001 IFT entered into consulting agreements with four
         Interfacial shareholders. Common stock totaling 960,000 shares was
         issued and recorded as a consulting expense at the inception of the
         consulting agreement. The consulting agreements provide for the total
         issuance of 960,000 shares of common stock on May 25, 2002 and
         1,180,000 shares of common stock on May 25, 2003, and the Company is
         recording the value of these shares ratably over the term of the
         consulting agreement. On December 6, 2001, the Company issued 300,000
         shares which were to be issued May 25, 2002 under the consulting
         agreements. IFT has recorded $1,024,817 to consulting expense for the
         year ended December 31, 2001, relating to these consulting agreements.

         On July 18, 2001, IFT issued 326,087 shares of common stock valued at
         $159,783 based on the closing market price of IFT common stock on July
         18, 2001,as payment to a director of IFT in exchange for the director's
         rights on a $60,000 note receivable and $99,783 of consulting services.

         On August 16, 2001, IFT issued 5,000 shares of common stock valued at
         $2,750, or $.55 per share, to an employee. The stock price was based on
         the closing stock price on the date of the grant.

                              F-21

<PAGE>

         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         On December 12, 2001, IFT issued a total of 600,000 shares of common
         stock, valued at $282,000 to two Directors. The value of the shares was
         based on the trading price of IFT's stock on December 12, 2001.

         On December 12, 2001, IFT's Board of Directors agreed to issue 125,000
         shares of common stock to a Director. The Company recorded $58,750 as
         payroll expense and additional paid in capital in 2001. The 125,000
         shares of common stock were issued in 2002, and valued at the trading
         price of IFT's stock on December 12, 2001.

         As of December 31, 2001, the Company had in total of 150,000 common
         stock warrants outstanding. Warrants to purchase 75,000 shares of
         common stock at $0.53 per share expire March 6, 2003. Warrants to
         purchase 75,000 shares of common stock at $0.45 per share expire April
         6, 2003.

         Note 6.     Related Party Transactions

         On October 7, 1999, IFT entered into an Advisory Agreement with Mr.
         Harry Demetriou, a director of IFT, on a non-exclusive basis to render
         financial advisory services in connection with the possible sale of
         IFT. As of December 31, 1999 no payments had been made related to this
         agreement. During June 2000 this agreement was canceled and replaced
         with an agreement that provided for payment of 250,000 restricted
         common shares. These shares were issued on June 16, 2000 with a value
         of $218,750.

         During October 1999 IFT entered into an agreement with TPG Capital
         Corporation, a company related through common ownership, for consulting
         services. A payment of $100,000 was made and expensed during the nine
         month period ended December 31, 1999.

         On November 1, 1999, IFT entered into an agreement with certain related
         party promissory note holders to issue 423,537 shares of its common
         stock by December 31, 1999 in exchange for the balance of the
         promissory notes due in the amount of $677,254, a related party account
         payable of $26,500 and interest on the notes due in the amount of
         $142,820 at $2.00 per share. The stock- based note and interest
         exchange value was calculated based on the trading price of IFT's stock
         at November 1, 1999. The $355,771 difference between the $2.00 (per the
         agreement) value of the shares and the trading price of the shares has
         been reflected in these financial statements as interest expense.

         At December 31, 1999, IFT owed one of its stockholders approximately
         $87,000 for legal services performed. Subsequent to December 31, 1999,
         the stockholder agreed to accept 27,559 shares of IFT's common stock in
         lieu of cash for the amounts due to him.

         During June 2000, IFT purchased a Directors and Officers Liability
         insurance policy from Burcor Insurance Group, a company owned by
         Jonathan Burst.

         During the year 2000, IFT paid MarketMatch, Inc. $106,293 for
         professional services. MarketMatch, Inc. is owned and operated by
         William Center. William Center became a director of IFT in October
         2000. He subsequently resigned as a director in 2001.

                              F-22


<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         During the year 2000, IFT paid Steven D. Walters, CPA $25,168 for
         professional services. Steven D. Walters, CPA was owned and operated by
         Steven Walters. Steven Walters was appointed as the Chief Financial
         Officer of IFT in October 2000, and he subsequently resigned in 2001.

         IFT obtained general and administrative services and rents office space
         and equipment from Burcor Capital, LLC, a company related through
         common ownership (Mr. Jonathan Burst, executive officer and director of
         IFT, is the founder and president of Burcor Capital, LLC), under an
         agreement requiring monthly payments of $5,000. Expenses recorded as
         professional services totaled $51,848 during the twelve month period
         ended December 31, 2001 and $60,000 during the twelve month period
         ended December 31, 2000. IFT has subleased its administrative offices
         and administrative services from Burcor Capital under a lease agreement
         requiring monthly rentals of $5,000 per month through July 13, 2001.
         This agreement ended on October 31, 2001, at which time the Company
         assumed the lease on a month to month basis. (Note 8)

         On November 16th, 2001, IFT purchased equipment from Burcor Capital for
         $12,500.

         Note 7.     Income Taxes

         Deferred tax benefits arising from net operating loss carryforwards
         were determined using the applicable statutory rates. The net operating
         loss carryforward balances vary from the applicable percentages of net
         loss due to expenses recognized under generally accepted accounting
         principles, but not deductible for tax purposes. The difference between
         the effective tax rate and the statutory tax rate results from the
         difference in fair market value of shares issued for services and
         compensation and the book expense recorded on those issuances.

         Net operating loss carryforwards available for the Company for Federal
         tax purposes are as follows:

         BALANCE                 EXPIRATION
         -------                 ----------

         $   344,473                2012
         $ 1,090,666                2013
         $12,971,893                2019
         $ 4,213,207                2020
         $ 2,878,026                2021
         -----------
         $21,498,265

         For federal tax purposes, at December 31, 2001 and 2000, the Company
         had net deferred tax assets of approximately $8,117,000 and $6,400,000
         respectively, which are fully offset by valuation allowances. These net
         deferred tax assets principally arise due to the Company's net
         operating loss carryforwards.

         In accordance with generally accepted accounting principles, a
         valuation allowance must be established for a deferred tax asset if it
         is uncertain that a tax benefit may be realized from the asset in the
         future. The Company has established a valuation allowance to the extent
         of its deferred tax assets since it is more likely than not that the
         benefit cannot be realized in the future.


                                  F-23

<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------

         Note 8. Lease Commitment

         As of January 1, 2002, IFT leased office space under a five-year
         operating lease, expiring on December 31, 2006. Future minimum lease
         payments are $63,600 for the years 2002, 2003, 2004, 2005, and 2006.
         Rent expense was $63,408, $9,219, and $32,685 during the fiscal years
         ended December 31, 2001, 2000, 1999, respectively.

         Note 9. Legal Proceedings

         The Company is 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 the ultimate liabilities resulting from
         such lawsuits and claims will not materially affect the consolidated
         results, liquidity or financial positions of the Company.

         Note 10. Subsequent Events

         During January 2002, IFT sold 600,000 restricted shares of common stock
         at a price of $.25 per share to Harry F. Demetriou. The proceeds of
         $150,000 will provide the Company with additional cash and will be used
         to fund daily operating expenses.

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


         Note 11. Quarterly Statements of Operation Information (Unaudited)

<TABLE>
<CAPTION>
                                                      For the Three Month Period Ended
                                 March 31, 2001      June 30, 2001   September 30, 2001     December 31, 2001
                                 --------------      -------------   ------------------     -----------------
<S>                          <C>                  <C>              <C>                   <C>

         Revenues                $               0  $            0   $               0      $             0
         Gross profit                            0               0                   0                    0
         Net loss                $       1,502,286  $    1,570,301   $       1,096,967      $     3,405,256
         Basic and diluted
          net loss per share     $             .06  $          .05   $             .03      $           .08
         Weighted average
          common shares
          outstanding                   24,422,973      32,820,831          41,984,052           45,153,558
</TABLE>



                                         F-24



<PAGE>


         INTERNATIONAL FUEL TECHNOLOGY, INC.
         (A DEVELOPMENT STAGE COMPANY)

         NOTES TO FINANCIAL STATEMENTS
         -----------------------------
<TABLE>
<CAPTION>

                                                      For the Three Month Period Ended
                                 March 31, 2000      June 30, 2000   September 30, 2000   December 31, 2000
                                 --------------      -------------   ------------------   -----------------
      <S>                    <C>                  <C>              <C>                  <C>


         Revenues                $               0  $            0   $             0      $            0
         Gross profit                            0               0                 0                   0
         Net loss                $       2,417,801  $      800,357   $     1,200,778      $    2,268,600
         Basic and diluted
          net loss per share     $             .14  $          .04   $           .06      $          .12
         Weighted average
          common shares
          outstanding                   17,096,481      17,879,918        18,716,339          18,905,000

</TABLE>



                                    F-25


<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)

<TABLE>
<CAPTION>
<S>                                                         <C>

              By: /s/ Jonathan R. Burst                       Date              April 1, 2002
                 ------------------------------------                 -----------------------
                  Jonathan R. Burst
                  President and Chief Executive Officer

              By:  /s/ Michael F. Obertop                     Date              April 1, 2002
                 ------------------------------------                 -----------------------
                   Michael F. Obertop
                   Chief Financial Officer


              Pursuant to the requirements of the Securities Exchange Act of
              1934, this report has been signed below on behalf of the
              registrant and in the capacities and on the dates indicated.

              By:  /s/ Jonathan R. Burst                      Date             April 1, 2002
                  -----------------------------------                -----------------------
                  Jonathan R. Burst
                  Chairman of the Board


              By: /s/ William J. Lindenmayer                  Date              April 1, 2002
                  -----------------------------------                ------------------------
                  William J. Lindenmayer
                  Director


              By: /s/ George J. Mitchell                      Date              April 1, 2002
                 ------------------------------------                ------------------------
                 Senator George J. Mitchell
                 Director


              By   /s/ David B. Norris                        Date              April 1, 2002
                  -----------------------------------                ------------------------
                  David B. Norris
                  Director


              By: /s/ Harry Demetriou                         Date              April 1, 2002
                 ------------------------------------                ------------------------
                 Harry Demetriou
                 Director


                                     F-26

<PAGE>


              By: /s/ John P. Stupp Jr.                       Date              April 1, 2002
                  -----------------------------------                ------------------------
                  John P. Stupp Jr.
                  Director


              By: /s/ Ian Williamson                          Date              April 1, 2002
                 ------------------------------------                ------------------------
                 Ian Williamson
                 Director


              By   /s/ Geoff Robinson                         Date              April 1, 2002
                  -----------------------------------                ------------------------
                    Geoff Robinson
                    Director


              By: /s/ Simon Orange                            Date              April 1, 2002
                 ------------------------------------                ------------------------
                   Simon Orange
                   Director

</TABLE>



                              F-27