<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-K/A2

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

             For the Fiscal Period ended
                                        -----------------

[X]          TRANSITION REPORT PURSUANT TO SECTION 13 OR
             15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from  3/31/99  to  12/31/99
                                            ---------    ----------

                        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                   (IRS Employer
         of incorporation or                     Identification No.)
            organization)

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

                                 (314) 727-3333
                                 --------------
              (Registrant's telephone number, including area code)

   Blencathia Acquisition Corporation, 1504 R Street, N.W., Washington, D.C.,
   --------------------------------------------------------------------------
                                     20009.
                                     ------
                 (Former name and former address of Registrant)

        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
<PAGE>

registrant's knowledge, in definitive proxy or informational statements
incorporated by reference in Part III of this form 10-K/A2 or any amendment to
this form 10-K/A2. [X]

        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 November 30, 2000, as reported on the OTC Bulletin
Board, was $7,872,763.

        Number of shares of common stock outstanding as of November 30, 2000:
21,702,698

Documents Incorporated by Reference:  N/A












                                       2
<PAGE>

                      INTERNATIONAL FUEL TECHNOLOGY, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                          FOR THE FISCAL PERIOD ENDED
                               DECEMBER 31, 1999

                          Index to Transition Report
                                on Form 10-K/A2


Part I                                                                    Page

   Item 1- Business                                                       4-10

   Item 2- Properties                                                       10

   Item 3- Legal Proceedings                                                10

   Item 4- Submission of Matters to a Vote of Security Holders              10

Part II

   Item 5- Market for Registrant's Common Equity and Related Stockholder
           Matters                                                          11

   Item 6- Selected Financial Data                                          12

   Item 7- Management's Discussion and Analysis of Financial Condition
           and Results of Operation                                      13-21

   Item 7a- Quantitative and Qualitative Disclosures About Market Risk      21

   Item 8- Financial Statements and Supplementary Data                      21

   Item 9- Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure                                      21-22

Part III

   Item 10- Directors and Executive Officers of the Registrant           23-25

   Item 11- Executive Compensation                                       25-26

   Item 12- Security Ownership of Certain Beneficial Owners and
            Management                                                   27-28

   Item 13- Certain Relationships and Related Transactions               28-29

Part IV

   Item 14- Exhibits, Financial Statement Schedules, and Reports on
            Form 8-K                                                     29-30

                                       3
<PAGE>

                                     PART I

Item 1.    Business

           (a) General Business Development
           --------------------------------

           International Fuel Technology, Inc. ("IFT") was incorporated under
           the laws of the State of Nevada on April 9, 1996, to develop and
           commercialize a proprietary scientific process, "Performance Enhanced
           Emissions Reduced" ("PEER"). PEER is designed to reformulate various
           refined fuels, including #2 diesel fuel, home heating oil, #6
           (Bunker) fuel, jet engine fuel and gasoline to improve combustion
           efficiency and reduce the amounts of harmful exhaust emissions from
           internal combustion engines. The resulting reprocessed fuels are
           known as PEERFUEL/TM/ ("PEERFUEL"). IFT is a development stage
           company, has had no revenues to date and has raised capital for
           initial development through the issuance of its securities and
           promissory notes.

           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 the split.

           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
           entered into an agreement and plan of merger with Scientific Fuel
           Technology, LLC, a company related through common ownership.

           IFT's common stock is traded on the NASD OTC Bulletin Board under the
           symbol IFUE.

           Pursuant to an Agreement and Plan of Merger effective as of October
           27, 1999 between Blencathia Acquisition Corporation ("Blencathia")
           and IFT, all the outstanding shares of common stock of Blencathia
           were to be exchanged for $500,000 in shares of common stock of IFT in
           a transaction 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. As of the date of the merger
           Blencathia had not yet commenced any formal business operations, and
           the $264 of operations costs through September 30, 1999 related to
           Blencathia's formation. In a related transaction following the
           Blencathia merger, IFT paid consideration consisting of $100,000 cash
           to TPG Capital Corporation ("TPG"), a former shareholder of
           Blencathia, pursuant to an agreement entered into in October 1999
           under which IFT engaged TPG to provide services in connection with
           effecting a business combination between IFT and a publicly reporting
           company. Under the terms of the TPG agreement, IFT also agreed to
           register and sell common shares on behalf of Blencathia shareholders
           to generate the aggregate consideration of $500,000 for the
           acquisition of Blencathia.

                                       4
<PAGE>


           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.

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

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

           To date, IFT has focused on the development of PEERDIESEL/TM/
           ("PEERDIESEL"), its reformulated diesel fuel #2. Approximately 70% of
           the distillate fuel consumed in the United States, Canada and Mexico
           is diesel fuel #2. PEERDIESEL has undergone over two years of
           extensive testing at the California Environmental Engineering
           facility ("CEE"), an independent mobile emissions laboratory in
           Southern California recognized by the U.S. Environmental Protection
           Agency ("EPA") and certified by the California Air Resources Board
           ("CARB"), in order to obtain diploma certification. The testing by
           CEE is on three types of diesel engines representative of the
           majority of heavy duty diesels in use today. The initial certified
           test reports from CEE indicate that use of the PEERDIESEL process
           might significantly reduce airborne diesel exhaust particles. The use
           of PEERDIESEL does not require any engine retrofit and demonstrates
           no degradation in acceleration or loss of torque. PEERDIESEL can be
           produced, transported, stored and pumped without any special
           procedures beyond those already used in handling diesel fuel.
           Reformulated PEERDIESEL requires neither additives nor engine
           conversion and would be delivered to the consumer through the
           traditional distribution system so reformulation charges for
           PEERDIESEL will not add greatly to the pump price of the fuel. IFT
           anticipates that the additional cost of the pump price will not
           exceed $.10 per gallon.

           On June 17, 1999, the CARB issued Executive Order #D-485-1 to IFT
           permitting the use of the PEERDIESEL process in vehicles in
           California. This is a significant step in obtaining diploma
           certification in California for commercialization of PEERDIESEL.
           PEERDIESEL has entered the final stage of testing under a protocol
           established by CARB. This final stage involves specific transient
           testing to complete the full battery of tests on #2 diesel fuel
           necessary to confirm the pollution reduction results previously
           shown. Upon completion of final testing, IFT will begin marketing and
           distribution of PEERDIESEL.


                                       5
<PAGE>

          The State of California has some of the world's most stringent air
          pollution regulations and CARB certification of PEERDIESEL will allow
          IFT to automatically market PEERDIESEL in a majority of other states
          without further testing. Recently, the State of California declared
          diesel exhaust a carcinogen and the federal Clean Air Act Amendment of
          1990 requires that diesel engines reduce their emissions of
          particulates and other harmful air pollutants significantly by 2006.
          IFT anticipates that federal and state pressure to decrease diesel
          fuel particulates will result in a large demand for PEERDIESEL once
          certification is achieved. In addition, the Clean Air Act provides
          that any pollution source which reduces pollution emissions below
          permitted levels is eligible to earn emission reduction credits, which
          can be bought, sold, traded or banked.

          MARKETING

          As a development stage company with no immediate revenue generation
          capabilities, our marketing strategy and resulting efforts have been
          relatively limited. We have worked over the past year to identify
          those companies that would benefit specifically from access to
          PEERFUEL technology and the resulting products. The companies we have
          targeted for marketing efforts once we are in a position to
          commercialize our technology can be grouped into three categories:
          production/distribution, sales, and other strategic businesses. In a
          number of cases firms can be considered to be in both of the first two
          segments, while other strategic companies are generally not involved
          directly in the petroleum industry (such as motor vehicle
          manufacturers).

          It is our intention to remain conservative in our marketing efforts
          until such time as either/both emission reduction gains are accepted
          on a regulatory basis (CARB certification) and we have proven greater
          fuel economy from PEERFUEL products. CARB certification is important
          because it immediately opens up the California market for diesel #2 to
          our technology. Given current refining methods used to meet CARB fuel
          equivalency standards for diesel fuel #2, our technology is
          appreciably less expensive, enabling us to market directly to
          refiners. California is important as a market for two reasons: the
          size of its market, and the positive perception that will accrue for
          our technology from certification as a CARB equivalent fuel. Should
          the results from fleet testing show conclusive evidence of fuel
          economy benefits from PEERDIESEL, we will immediately alter our
          marketing efforts to concentrate more heavily on the sales segment,
          which we believe will have an immediate interest in knowing more about
          our technology.

          IFT's current strategy anticipates that after CARB diploma
          certification is received, initial revenues will likely come from the
          sale of equipment needed to install the PEER process and start the
          processing of PEERDIESEL. Licensing and affiliated revenues would
          follow thereafter. IFT's key business strategy is as follows:

               o    Complete South Coast Air Quality Management District
                    certification of PEERDIESEL and commercialization of
                    PEERDIESEL with CARB.

                                       6

<PAGE>

               o    Work with representatives from State of California to
                    introduce legislation to mandate use of PEERDIESEL.

               o    Implement PEERDIESEL in Honduras as the pilot program for
                    Emission Reduction Credits international trading.

               o    Enter a joint venture to license refineries for use of
                    PEERDIESEL reformulation process worldwide.

               o    Expand PEERDIESEL technology to other states that have
                    adopted California air quality regulations.

               o    Expand research and development of other diesel distillate
                    categories (jet fuel, home heating oil, bunkers for
                    maritime).

               o    Initiate gasoline testing research and development for
                    possible inclusion in the PEERFUEL family of products.

          Currently, IFT is introducing PEERDIESEL into the market through its
          Web site information, press releases, and publication of testing
          results. IFT maintains an Internet Website at http://www.peerfuel.com.
          IFT intends to market PEERDIESEL by licensing arrangements with
          refineries and/or other appropriate marketing strategies.

          COMPETITION

          The growth in concern over the falling quality of the environment has
          stimulated significant efforts in a range of areas that can be
          considered competitive to PEERFUEL technology. Most experts agree that
          it is not an issue of if, but when a viable alternative or set of
          alternatives will be available to replace or greatly reduce the use of
          fossil fuels. The work now being performed is centered around either
          reducing the harmful emissions of fossil fuels, or replacing fossil
          fuels altogether.

          The majority of the technologies seeking to reduce or even eliminate
          harmful emissions fall into three categories: cleaner fuels, engine
          emission reduction devices, and fossil fuel alternatives. Clean fuel
          technology is centered around either additional refining which pulls
          out harmful emission substances (such as sulfur), or use additives
          (such as Methyl Tertiary Butyl Ether or MTBE) which bind to the fuel
          causing reduction in certain harmful emissions. Engine emission
          reduction devices include such items as the catalytic converter, which
          trap or filter harmful emissions before they are released into the
          environment. Fossil fuel alternatives include both alternative-fuel
          vehicles (electric cars) and alternative-fuels (compressed natural
          gas).

          The difficulty with most technologies now being pursued that work to
          reduce the harmful emissions from combusting fossil fuel, whether
          through cleaner fuel or engine devices, or a combination of the two,
          is that the improvements are only incremental and are very costly.
          While it is possible to make cleaner fuels that meet emission
          legislation targets for certain pollutants, to meet the

                                       7

<PAGE>

          more meaningful reduction standards it may push the cost of diesel
          fuel to two or even three times its current price. In addition, it has
          been proven that attempts to reduce a particular level of a pollutant
          such as sulfur, may have the unintended impact of increasing other
          pollutants. We are not aware of any research to date that generates a
          broad spectrum of emission reduction. Federal and state legislation
          covering emission reduction requirements also poses a problem for
          competitors because it can shift with respect to certain pollutants,
          leaving new technologies incompatible with new regulations and making
          them commercial nonviable.

          Alternative fuels and alternative vehicles are often acknowledged to
          hold the highest potential on a long term basis to solve pollution
          abatement needs, but face significant hurdles in crafting a solution
          in the near or medium term. Issues such as vehicle cost, engine re-
          fit, engine performance, potential environmental damage, scalability
          and others have effectively resulted in limiting the economic
          viability of these alternative technologies. Added to the problems
          just stated is the social cost of allowing for the potential
          elimination of a material part of the petroleum industry and the
          resulting effect on the world's economic system.

          While the level of competition in the market is wide, it is not
          believed to be especially deep in that no one emission reduction
          technology now dominates the market, and therefore, no one company or
          group of companies has a meaningful market share. We believe this is
          an opportune time for the introduction of PEERFUEL technology because
          it offers a low cost, high value product that can be seamlessly melded
          into the existing global economic framework.

          IFT anticipates three possible sources of competition for PEERFUEL:

               o    Companies with greater resources and more financial strength
                    that offer similar technology to PEERDIESEL;

               o    Vehicles utilizing alternative fuels; and

               o    Alternative fuels for use on current vehicles with engine
                    retrofitting.

          TRADEMARKS AND PATENTS

          IFT has two patents pending before the United States Patent and
          Trademark Office and has been issued six trademarks and service marks
          including PEERFUEL and PEERDIESEL. In addition to the foregoing
          proprietary technology restrictions, all testing by CEE or others is
          subject to strict privacy and confidentiality controls. No outside
          entity will be invited to evaluate the science underlying the PEER
          process until such time as the testing is completed.

          RESEARCH AND DEVELOPMENT

          IFT's research and development costs are related to the development
          and

                                       8

<PAGE>

          testing of the PEERDIESEL product. The costs incurred in research and
          development for the nine months ended December 31, 1999 was $330,353.
          Costs incurred in research and development for the years ended March
          31, 1999 and 1998, were $842,905 and $330,089, respectively.

          We have been performing research and development activities on
          PEERFUEL since 1996, with the majority of our testing activities
          occurring in 1998-1999. Initial testing activities were conducted on a
          limited basis in July 1996 and again in January 1997, with smaller run
          times on few engine types. Initial results from these tests were
          encouraging not only for reductions in key emission substances, but
          also showed the potential for increased fuel economy.

          IFT officially engaged California Environmental Engineering (CEE)
          located in Santa Ana, California, to conduct a complete test program
          starting in 1998 using a variety of engine types. CEE is a state/CARB
          certified laboratory and is also recognized by the EPA. CEE has the
          ability to test both diesel fuel and gasoline products. The list of
          entities for which CEE has conducted testing includes CARB, EPA, Ford,
          General Motors, Volvo as well as other multi-national corporations.

          The formal research and development work consisted of running a series
          of tests under EPA and Society of Automotive Engineers (SAE)
          recommended procedures to determine the gaseous emissions levels of
          four separate diesel engines. The test procedures consist of a
          prescribed sequence of engine operating conditions on an engine
          dynamometer with measurements of hydrocarbons (HC), nitrogen oxides
          (NOX), carbon monoxide (CO), carbon dioxide (CO2), and particulate
          matter (PM). The testing was done during 13 steady state modes
          consisting of five modes at rated engine speed, five modes at an
          intermediate speed, and three modes at idle. Four separate engines
          were used in the testing: Cummins L-10, Caterpillar 3208, and two
          separate Detroit Diesel engines. The test fuel used for the baseline
          program was standard D-2 diesel fuel, and for the PEERFUEL testing
          re-processed D-2 fuel was used which ranged in age from less than one
          month old to nearly 12 months old.

          IFT is not presently engaged in any research and development
          activities. We do expect to continue testing some time in the near
          future in an effort to further clarify the exact scientific elements
          involved in the processing of fuel through the PEERFUEL system. In
          addition, further testing may be necessary to continue to tightly
          define the emission reduction benefits to be realized from PEERFUEL
          products. We have held several discussions with CARB officials who
          have evidenced the need to conduct transient cycle testing, a
          specialized form of engine testing. This testing will be part of our
          ongoing efforts to achieve special certification from CARB that would
          enable IFT to make specific claims with regard to emission reduction
          performance.

          In addition to CARB certification-related research and development
          efforts, we expect to put together a series of fleet testing programs
          to identify specific fuel economy benefits from PEERFUEL. IFT is in
          discussions with a variety of companies representing different
          industries and geographical conditions,

                                       9

<PAGE>

          which would participate in a three-six month fleet program. The fleet
          testing efforts are planned for the second half of 2000.

          EMPLOYEES

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

Item 2.   Description of Property

          IFT maintains its administrative offices at 7777 Bonhomme, Suite 1920,
          St. Louis, Missouri, 63105, under an annual lease agreement for office
          space and administrative services of $5,000 per month for
          approximately 1,500 square feet from a company related through common
          ownership. The agreement expires in July 2000 and automatically renews
          for a six month term.

          IFT maintained its operations offices at 6170 W. Desert Inn Rd., Las
          Vegas, Nevada, 89146, under a month to month lease of $5,000 per month
          for office space and equipment from a company related through common
          ownership. During May 2000 IFT relocated its operations office to 7230
          Raven Avenue, Las Vegas, NV 89113.

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

Item 3.   Legal Proceedings

          Not Applicable

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

          Not Applicable


                                      10

<PAGE>

                                     PART II


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

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

          The Common Stock of IFT is traded in the over-the-counter market and
          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.

                                   Per Share Common Stock Bid Prices by Quarter
                            For the Fiscal Year Ended December 31, 1999 (Note 1)
                            ----------------------------------------------------
                                                          High           Low

          First Quarter (4/1/99-6/30/99)                $   2.969     $    2.656
          Second Quarter (7/1/99-9/30/99)               $   4.281     $    4.031
          Third Quarter (10/1/99-12/31/99)              $   6.187     $    2.562


                                   Per Share Common Stock Bid Prices by Quarter
                               For the Fiscal Year Ended March 31, 1999 (Note 1)
                               -------------------------------------------------
                                                      High            Low

          First Quarter (4/1/98-6/30/98)(Note 2)       N/A            N/A
          Second Quarter (7/1/98-9/30/98)(Note 2)      N/A            N/A
          Third Quarter (10/1/98-12/31/98)           $7.50          $6.25
          Fourth Quarter (1/1/99-3/31/99)            $3.44          $2.97

          Note 1 - Reflects a one-for-ten reverse split of outstanding common
          stock effected by IFT on July 22, 1999. All closing high and low bid
          prices have been restated to reflect this reverse split.

          Note 2 - Shares of IFT common stock began trading during October 1998

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

          As of March 24, 2000, IFT estimates there were 5,200 beneficial
          shareholders of IFT's common stock. The closing bid stock price on
          March 24, 2000 was $2.98.

          (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.

                                       11

<PAGE>

Item 6.   Selected Financial Statement Data

          Effective October 27, 1999, IFT changed the date of its fiscal year
          end from March 31 to December 31. The nine-month period ended December
          31, 1999, is referred to as the transition period. All year and
          quarter references relate to IFT's prior fiscal years and quarters,
          unless otherwise stated

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

          (a) Selected Income Statement Data (In Thousands of Dollars, Except
          Per Share Data)
          -------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                        Nine Months Ended December 31,
                                                               1999      1998
                                                               ----      ----
<S>                                                      <C>          <C>
          Revenues                                               $0           $0
          Operating Expenses                                  4,727        7,335
          Net loss                                            5,132        7,404
          Basic and Dilutive Net Loss per Common Share         $.32         $.57

          Weighted Average Shares                        15,800,725   12,993,978
</TABLE>
<TABLE>
<CAPTION>
                                                             Fiscal Year Ended March 31,
                                                         ------------------------------------
                                                              1999        1998         1997
                                                         ------------------------------------
<S>                                                      <C>            <C>          <C>
          Revenues                                               $0            $0          $0
          Operating Expenses                                  7,751         1,083         344
          Net loss                                            7,839         1,091         344
          Basic and Dilutive Net Loss per Common Share         $.59          $.20       $1.68

          Weighted Average Shares                        13,390,417     5,351,089     204,452
</TABLE>

          IFT is a development stage company and has incurred $14,407,032 in
          expenses from inception in April 1996.

          (b) Selected Balance Sheet Data (In Thousands of Dollars)
          ---------------------------------------------------------

                                                          December 31, 1999
                                                          -----------------
          Total Assets                                             $68
          Long-Term Debt                                           $ 0

                                                              March 31,
                                                         ------------------
                                                         1999   1998   1997
                                                         ----   ----   ----
          Total Assets                                   $  6   $  7   $  5
          Long-Term Debt                                 $  0   $  0   $  0

                                       12

<PAGE>

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

          Forward Looking Statements and Associated Risks

          This Transition Report on Form 10-K/A2 contains forward-looking
          statements made pursuant to the safe harbor provisions of the
          Securities Litigation Reform Act of 1995. These forward looking
          statements are based largely on IFT's expectations and are subject to
          a number of risks and uncertainties, many of which are beyond IFT's
          control, including, but not limited to, economic, competitive and
          other factors affecting IFT's operations, markets, products and
          services, expansion strategies and other factors discussed elsewhere
          in this report and the documents filed by IFT with the Securities and
          Exchange Commission. Actual results could differ materially from these
          forward-looking statements. In light of these risks and uncertainties,
          there can be no assurance that the forward-looking information
          contained in this report will in fact prove accurate. IFT does not
          undertake any obligation to revise these forward-looking statements to
          reflect future events or circumstances.

          Overview

          IFT was incorporated under the laws of the State of Nevada in April
          1996, to develop and commercialize a proprietary scientific process,
          "Performance Enhanced Emissions Reduced" ("PEER"), that reformulates
          various refined fuels, including #2 diesel fuel, home heating oil, #6
          (Bunker) fuel, jet engine fuel and gasoline to improve combustion
          efficiency and reduce the amounts of harmful exhaust emissions from
          internal combustion engines. The resulting reprocessed fuels are known
          as PEERFUEL. IFT is a development stage company, has had no revenues
          to date and has raised capital for initial development through the
          issuance of its securities and promissory notes.

          Comparison of Nine Months Ended 12/31/99 and Fiscal 3/31/99

          Total operating expenses from development stage operations were
          $4,726,799 for the nine months ended December 31, 1999, as compared to
          the development stage operating expenses of $7,751,844 for the twelve
          month period ended March 31, 1999. This represents a 39.0% decrease
          from the prior period. The total development stage operating expenses
          for the nine month period ended December 31, 1998, were $7,335,493.
          Decreased development stage operating expenses in the current period
          compared to the fiscal year ended March 31, 1999 are a result of
          decreased consulting fees, increased professional fees, and other
          expenses related to product development. IFT is presenting this
          comparison as the nine months ended December 31, 1999, compared to the
          nine months ended December 31, 1998. The primary expense incurred, of
          the $416,351 total expenses, during the three month period ended March
          31, 1999, was $328,558 of product development costs.

                                      13

<PAGE>

          Consulting expenses during the nine months ended December 31, 1999,
          were $295,000 representing a decrease of $6,045,500 from the
          corresponding period for 1998. This represents a decrease of 95.3%
          from the prior period. The decrease is primarily due to the issuance
          of 1,200,000 shares of IFT common stock to the former Board Chairman
          during December 1998 as reimbursement for personally owned IFT common
          shares he issued to others for consulting services rendered. These
          shares were valued at the estimated fair value per share of $5.00.

          Research and Development costs during the nine months ended December
          31, 1999 was $330,353, representing a decrease of $183,994 from the
          corresponding period for 1998. This represents a decrease of 35.8%
          from the prior period. The decrease is primarily due to the reduction
          in the purchase of testing supplies, rental equipment and decreased
          testing and laboratory fees.

          Rent expense during the nine months ended December 31, 1999 was
          $32,685 representing a decrease of $84,948 from the corresponding
          period of 1998. This represents a 72.2% decrease from the prior
          period. IFT rents its Las Vegas office space and equipment on a month
          to month basis from a company related through common ownership. From
          September 1, 1998 through March 31, 1999 the rent for the Las Vegas
          office facility was $18,000 per month. After March 31, 1999 the office
          rent decreased to $5,000 per month to reflect market and operations
          conditions. The revised rental amount was retroactive to March 1,
          1999. A credit was issued in the amount of $13,000 during the nine
          month period ended December 31, 1999. Prior to September 1, 1998 the
          office rent was $4,000 per month. IFT rents its St. Louis office space
          and equipment on a six month lease from a company related through
          common ownership. Payments totaled $32,500 during the nine month
          period ended December 31, 1999.

          Payroll expenses during the nine months ended December 31, 1999 were
          $318,036 representing an increase of $201,363 from the corresponding
          period of 1998. This represents a 172.6% increase from the prior
          period. The increase was primarily due to the hiring of additional
          employees to administer the day-to-day operations. Additionally, on
          July 13, 1999 IFT entered into employment agreements with its Chief
          Executive Officer and Chief Operating Officer which expire January 31,
          2000 with options to extend until July 31, 2000. Under the terms of
          the agreement(s), these officers will each receive base pay of $1,000
          per month plus a combined total of 90,000 shares of IFT's common stock
          payable at the end of the initial term of the agreement. The
          stock-based compensation earned through December 31, 1999 is $166,587
          and has been reflected in these financial statements as payroll
          expense and as additional paid in capital, calculated based on the
          trading price of IFT's stock at July 13, 1999 which was $2.1875 per
          share.

          Professional services during the nine months ended December 31, 1999,
          were $3,662,718 representing an increase of $3,581,282 over the
          corresponding period of 1998. 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

                                      14


<PAGE>

          various services including introduction to brokers, dealers and
          potential investors and for facilitating the writing of a minimum of
          three 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 have been reflected in the statement of
          operations for the nine month period ended December 31, 1999 as
          professional services expense. The increase in professional services
          is also due to hiring services for payroll, web-site initialization,
          costs related to investigation of patent filing, financial information
          report filing and new administrative expenses. Additionally, there
          were increases in legal and audit expenses during the nine month
          period ended December 31, 1999.

          Other expenses for the nine months ended December 31, 1999, were
          $59,234 representing an increase of $12,166 from the corresponding
          period of 1998. This represents a 25.8% increase from the prior
          period. The increase for the nine months ended December 31, 1999 is
          due primarily to the cost to purchase postage for shareholder news
          mailings, the rights offering information mailing to shareholders, the
          mailing of the rights offering stock certificates, printing costs for
          the new rights offering stock certificates, transfer agent fees to
          process the rights offering stock certificates and the purchase of a
          Director's and Officers Liability Insurance Policy.

          Interest expense during the nine months ended December 31, 1999 was
          $405,341 representing an increase of $336,769 for the corresponding
          period of 1998. This represents a 491.1% increase from the prior
          period. Interest expense increased primarily due to IFT's agreement
          entered into with certain promissory note holders on November 1, 1999
          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
          $704,255 and interest on the notes due in the amount of $142,820 at
          $2.00 per share. The 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 $2.84 trading price of the shares has been reflected in
          these financial statements as interest expense.

          The net loss for the nine months ended December 31, 1999, was
          $5,132,140 as compared to the net loss of $7,404,065 for the nine
          month period ended

                                      15


<PAGE>

          December 31, 1998. This represents a 30.7% decrease from the prior
          period. The net loss per share for the nine months ended December 31,
          1999 was $.32 as compared to the net loss per common share of $.57 for
          the nine month period ended December 31, 1998.

          Comparison of Fiscal 3/31/99 And Fiscal 3/31/98

          Total operating expenses were $7,751,844 for the twelve months ended
          March 31, 1999, as compared to the operating expenses of $1,083,148
          for the twelve months ended March 31, 1998 representing an increase of
          $6,668,696. This represents a 615.7% increase from the prior period.
          Increased operating expenses are a result of consulting fees, costs
          incurred in product development, rent expense, payroll expense and
          interest expense.

          Consulting expenses during the twelve months ended March 31, 1999 were
          $6,342,000 representing an increase of $5,798,588 from $543,412 during
          the twelve months ended March 31, 1998. This represents a 1067.1%
          increase from the prior period. The increase is primarily due to the
          issuance of 1,200,000 shares of the IFT's stock to the former Board
          Chairman during December 1998 as reimbursement for consulting services
          he personally paid for on behalf of IFT. These shares were valued at
          the estimated fair value per share of $5.00.

          Research and development costs during the twelve months ended March
          31, 1999 were $842,905 representing an increase of $512,816 from
          $330,089 during the twelve months ended March 31, 1998. This
          represents a 155.4% increase from the prior period. The increase is
          primarily due to the enhanced laboratory testing schedule and the
          purchase of additional shop and testing supplies.

          Rent expense during the 12 months ended March 31, 1999 was $146,000
          representing an increase of $96,724 from $49,276 during the twelve
          months ended March 31, 1998. This represents a 196.3% increase from
          the prior period. IFT rents its office space and equipment on a
          month-to-month basis from a company related through common ownership.
          IFT moved to new offices in Las Vegas on September 1, 1998. The rental
          expense for the new facility was $18,000 per month, an increase of
          $14,000 per month from $4,000 per month for the corresponding period
          for 1998.

          Payroll expenses and related benefits during the twelve months ended
          March 31, 1999 were $180,327 representing an increase of $127,321 from
          $53,006 during the twelve months ended March 31, 1998. This represents
          a 240.2% increase from the prior period. The increase is due primarily
          to the hiring of additional employees to administer the day-to-day
          operations of IFT.

          Professional services during the twelve months ended March 31, 1999
          were $84,634 representing an increase of $63,540 from $21,094 during
          the twelve months ended March 31, 1998. This represents a 301.2%
          increase from the prior period. The increase is due primarily to
          additional legal, accounting and financial information reporting



                                        16
<PAGE>


          Travel expenses for the twelve months ended March 31, 1999 were
          $41,164 representing a decrease of $2,552 from $43,716 during the
          twelve months ended March 31, 1998. This represents a 5.8% decrease
          from the prior period. The decrease is due primarily to a reduction of
          trips taken to the testing laboratory in California.

          Other expenses for the twelve months ended March 31, 1999 were $35,782
          representing an increase of $32,100 from $3,682 during the twelve
          months ended March 31, 1998. This represents a 871.8% increase from
          the prior period. The increase is due primarily to postage for
          shareholder mailings, meals and entertainment, laundry and cleaning of
          uniforms.

          Interest expense during the twelve months ended March 31, 1999 was
          $87,909 representing an increase of $80,391 from $7,518 during the
          twelve months ended March 31, 1998. This represents a 1069.3% increase
          from the prior period. The increase is due primarily to interest
          accrued on unsecured, short-term loans used for working capital for
          IFT, which bear interest at 12% per annum.

          The net loss for the year ended March 31, 1999, was $7,839,753 as
          compared to the net loss of $1,090,666 for the year ended March 31,
          1998. This represents a 618.8% increase from the prior period. The net
          loss per share for the year ended March 31, 1999 was $.59 as compared
          to the net loss per common share of $.20 for the year ended March 31,
          1998.

          New Accounting Pronouncements

          In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivatives
          and Hedging Activities," which establishes accounting and reporting
          standards for derivative instruments, including certain derivative
          instruments embedded in other contracts, (collectively referred to as
          derivatives) and for hedging activities. SFAS No. 133 is effective for
          years beginning after June 15, 2000 and requires comparative
          information for all fiscal quarters of fiscal years beginning after
          June 15, 2000. IFT does not expect the adoption of this statement to
          have significant impact on its results of operations, financial
          position or cash flows.

          Year 2000 Matters

          The "Year 2000" problem refers to the potential for computational
          errors or system malfunctions by computer hardware or software that
          fail to properly recognize dates beginning with January 1, 2000, or
          which fail to recognize 2000 as a leap year. In anticipation of this
          problem, we implemented a Year 2000 readiness program intended to
          identify, evaluate and address our Year 2000 exposure.

          At the time that this report was prepared, we had not experienced any
          material Year 2000 problems with our internal systems and were not
          aware of any such problems experienced by our vendors and other
          service providers. As a result, no material adverse impact of the Year
          2000 problem on our business and operations was expected at the time
          of this report, based upon

                                      17

<PAGE>

          the information available to us. Although we believe that it is
          unlikely at the time of this report, there can be no assurance that
          any Year 2000 problems will not result in material cost to us or have
          a material, adverse impact on our business, financial condition or
          results of operations.

          Liquidity and Capital Resources

          A critical component of IFT's operating plan impacting the continued
          existence of IFT is the ability to obtain additional capital through
          additional debt and/or equity financing. We do not anticipate IFT will
          generate a positive internal cash flow until such time as IFT can
          generate revenues from license fees from its PEERFUEL process and/or
          direct sales of its PEERFUEL products, either or both of which may
          take the next few years to realize. In the event we cannot obtain the
          necessary capital to pursue our strategic plan, IFT may have to cease
          or significantly curtail its operations. This would materially impact
          our ability to continue as a going concern. The independent auditor's
          reports included with the financial statements later in this Form
          10-K/A2 indicate there is a substantial doubt that IFT can continue as
          a going concern.

          We have met our capital needs since inception primarily through the
          issuance of common stock as compensation for services rendered, which
          have totaled $9,950,476 since inception in April 1996, and for the
          nine-month period ended December 31, 1999, totaled $3,642,335. In
          addition to these amounts, we have raised $2,583,678 in cash from the
          issuance of common stock since the IFT's inception, with $1,146,450 of
          this total raised during the nine-month period ended December 31,
          1999. Most of these funds have been raised through private placement
          transactions. Finally, since IFT's inception, financing totaling
          $1,289,425 was raised privately through notes payable to various
          sources, of which $549,171 was repaid, $677,754 was converted to
          common stock, and $62,500 is recorded as a liability on the December
          31, 1999, balance sheet. For the nine months ended December 31, 1999
          proceeds from notes payable totaled $325,700, with $258,000 repaid and
          $677,754 converted to common equity. The notes payable were converted
          at an average price of $2.00 per share, and included both the
          outstanding principal and interest owed as of November 1, 1999.

          The cash used in operating activities for the nine months ended
          December 31, 1999 was $1,162,743 as compared to $1,396,056 and
          $773,808 used in operating activities for the years ended March 31,
          1999 and 1998, respectively. The cash provided by financing activities
          was $1,214,150 for the nine months ended December 31, 1999 as compared
          to $1,395,724 and $767,243 provided by financing activities for the
          years ended March 31, 1999 and 1998, respectively. Net cash increased
          by $26,358 for the nine months ended December 31, 1999 as compared to
          net cash decreasing by $4,612 and $6,207 for the years ended March
          31, 1999 and 1998, respectively.

          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 will issue Blencathia
          shares of its restricted common shares. 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.

          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 $3 million over the next two-year period will be
          necessary in order to enable us to meet our capital needs. We believe
          the $3 million will

                                      18

<PAGE>

          be used as follows: $1.2 million for specific testing as part of
          required regulatory procedures as set by the Air Resources Board of
          California ("CARB"), $300,000 for commercial fleet testing programs,
          $300,000 for initial sales and marketing efforts, and $1.2 million for
          salary and related administrative expenses (rent, telephone, etc.). In
          February 2000, IFT entered into a convertible debenture purchase
          agreement to raise $3,000,000 through the sale of convertible
          debentures. In connection with the convertible debenture purchase
          agreement IFT issued a warrant to purchase 390,000 shares of common
          stock. IFT is additionally required to issue 195,000 shares of common
          stock to place in escrow pending the sale of the convertible
          debentures. Such financing is contingent upon IFT's ability to
          register the shares of common stock underlying the warrants and
          debentures with the Securities and Exchange Commission ("SEC"). There
          can be no assurance that the registration will be granted
          effectiveness by the SEC, in which case IFT would be required to seek
          alternate sources of financing.

          Plan of Operation

          Since its inception IFT has sought to complete research and testing
          sufficient to prove that the proprietary PEERFUEL process results in a
          substantial reduction of certain harmful pollutants generated in the
          combustion of diesel fuel #2. Approximately $9 million has been spent
          since IFT's inception for research and development and consulting
          services related to the effort to prove these claims, with almost $2
          million spent directly on testing at California Environmental
          Engineering ("CEE"), a California certified testing laboratory. We
          believe the results of the CEE testing substantiate the value of
          PEERFUEL in reducing harmful pollutants, and are now ready to submit
          the test results to CARB to achieve the necessary regulatory approvals
          we feel are essential to commercialization of the PEERFUEL process.

          Our understanding of the regulatory process is that there are two
          separate divisions within CARB from whom we will need to receive
          regulatory approval. One of these divisions has a prescribed and
          well-understood protocol for approval. As part of this protocol, IFT
          will submit itself to the pre-set regulatory process at a
          to-be-determined laboratory approved by CARB for such work. We have
          held several discussions with Southwest Research Institute ("SRI"), a
          testing laboratory located in San Antonio, Texas, to have them perform
          this work. SRI has estimated the time frame to complete such testing
          at 2-4 weeks, with an associated cost of approximately $300,000. We
          believe the successful completion of this process will enable IFT to
          market its PEERFUEL technology to certain companies in the petroleum
          industry (primarily refineries) as a lower-cost alternative to
          creating CARB-reference diesel fuel #2 in the State of California.

          This specific component of our strategy will not result in
          Certification as defined by CARB, and therefore, will not allow IFT to
          make any specific claims in the marketplace concerning the ability of
          the PEERFUEL process to significantly reduce harmful levels of certain
          pollutants. To achieve CARB Certification it is necessary to submit a
          second application to a separate division of CARB. Discussions are
          ongoing with this division of CARB to better understand what criteria
          will be essential to achieving Certification, and based upon this

                                      19

<PAGE>

          criteria, what additional testing of PEERFUEL treated diesel fuel #2
          will/may be necessary. We have received confirmation through a letter
          from CARB that they will require testing results from one specific
          testing protocol (transient cycle testing). This testing is readily
          available in the marketplace through a number of qualified
          laboratories. We will begin soliciting bids from several of these labs
          with the intention of completing this testing in 3-6 months. Prior to
          this testing, however, we will formally submit for Certification with
          CARB. Again, as there is no formal, established protocol for
          Certification, it is not possible at this time to determine the cost
          or time frame to receive Certification, nor is it possible to predict
          whether the pollution reduction results achieved by PEERFUEL will
          warrant a grant of Certification from CARB. The ultimate objective
          with regard to Certification is to create significant economic value
          for IFT by providing companies who have commercial fleet vehicles the
          ability to realize a tax credit when they use PEERFUEL products.

          The third and final research and testing stage for the PEERFUEL
          process is to conduct live testing with commercial and public fleet
          vehicles. Heretofore in its research and testing efforts IFT has
          concentrated on the pollution reduction results achieved by PEERFUEL
          products. Based upon a single fleet test conducted in St. Louis with a
          long-haul trucking company in 1998, we believe further research into
          the fuel economy potentially contained in PEERFUEL products is
          warranted. While this test was not conclusive (and neither was it
          conducted in a formal, scientific manner) the results did show
          significant improvement in fuel economy under certain normal driving
          conditions with a limited range of engine and vehicle types.
          Therefore, IFT expects to commit approximately $300,000 over the
          coming year for commercial fleet tests to determine if there are any
          fuel economy benefits in PEERFUEL products.

          To conduct the potential testing necessary for both the regulatory and
          commercial fleet efforts we expect we will need to produce one or more
          PEERFUEL systems. The quantity and size of the system(s) to be
          produced will be determined by a number of factors, including number
          of locations requiring PEERFUEL processed diesel fuel #2 at any one
          time, geographic location and volume of fuel required. The approximate
          cost of a medium-sized system is $250,000. Other costs associated with
          the processing of diesel fuel #2 into PEERFUEL will be required,
          including salary and shipping expenses. While these costs cannot be
          estimated at this time, we believe IFT will obtain adequate financing
          to fund such costs.

          Management believes that IFT's anticipated strategic efforts do not
          require any additional personnel. As such, the administrative budget
          of $1.2 million for the next two years is believed to be adequate. We
          anticipate approximately $300,000 will be required for initial sales
          and marketing efforts during the coming year, provided results from
          our regulatory and commercial efforts described above are positive. It
          is our intention to begin immediately to generate revenues from
          license fees, direct sales, joint venture or any other business
          relationship deemed in the best interests of the shareholders at such
          time as the regulatory and commercial viability of the PEERFUEL
          process is proven.

                                       20
<PAGE>

          Subsequent Events

          During January 2000, IFT issued 100,000 shares of common stock in a
          private placement for $200,000.

          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.

          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. 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. 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
          $125,000. In addition, Mr. Lindenmayer is to receive 3,000 shares of
          common stock each month. On February 23, 2000 the Board of Directors
          awarded an initial grant of 100,000 shares of IFT's common to William
          Lindenmayer for his appointment as President and Chief Operating
          Officer.

          During February 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. 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.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

          N/A

Item 8.   Financial Statements and Supplementary Data

          Financial statements as of and for the nine month period ended
          December 31, 1999, and as of and for the years ended March 31, 1999
          and 1998, 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

          As of March 7, 2000, the Board of Directors have unanimously agreed to
          engage BDO Seidman, LLP to be IFT's new principal accountant. At no
          time during the past two fiscal years or any subsequent period prior
          to engagement as principal auditor did the Registrant consult with BDO
          Seidman, LLP regarding either the application of accounting principles
          to a specified transaction or type of audit opinion which might be
          rendered on the Registrant's financial statements or any other matter.

          The former accountant, McGladrey & Pullen, LLP declined to stand for
          re-election for the December 31, 1999 engagement. The independent
          auditors' reports for March 31, 1999 and 1998, were modified as to
          uncertainties about the entity's ability to continue as a going
          concern. IFT and its former accountants had no disagreements during
          the fiscal years ended March 31, 1999 and 1998, and through the date
          they declined to stand for re-election.

                                       21
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

          The executive officers and directors of IFT are as follows:

            Name                     Age   Title
            ----                     ---   -----

           Jonathan R. Burst         41    Chief Executive Officer, Director
           William J. Lindenmayer    40    President, Chief Operating Officer,
                                           Director
           Patty Foltz               45    Secretary/Treasurer
           Fred K. Jensen            64    Director, Chairman
           David B. Norris           51    Director
           Glen T. Slay              39    Director from April 1999 to
                                           February 2000
           Jeffrey C. Slay           28    Director from April 1999 to
                                           February 2000
           Dan Willis                58    Director from April 1999 to
                                           February 2000
           Harry Demetriou           56    Director

          All directors of IFT hold office until the next annual meeting of
          shareholders or until their successors are elected and qualified. At
          present, IFT's Bylaws provide for not less than one nor more than nine
          directors. Currently, there are five directors of IFT. The Bylaws
          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.

          Background of Directors and Executive Officers:

          JONATHAN R. BURST has served as Chief Executive Officer of IFT since
          July 1999. From July 1999 to February 2000 he also served as President
          of IFT. In February 2000 he was named a director of IFT. In 1998, Mr.
          Burst founded Burcor International, 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 President of IFT since February
          2000. He has also served as the Chief Operating Officer of IFT since
          July 1999. In February 2000 he was named a director of IFT. From 1999
          to the present, Mr. Lindenmayer has 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

                                       22
<PAGE>

          Science degree from Cornell University in 1982 and his Masters of
          Business Administration from University of Virginia in 1988.

          PATTY FOLTZ has served as Secretary/Treasurer of IFT since August
          1998. From 1995 to 1998, Ms. Foltz served as Corporate Secretary,
          Treasurer and Chief Financial Officer of Jake's Crane Rigging &
          Transport International, Inc., Las Vegas, Nevada, a large equipment
          rental company. From 1994 to 1995, Ms. Foltz served as Accounting
          Manager at Jake's Crane Rigging & Transport International, Inc. From
          1989 to 1997, Ms. Foltz served as Corporate Secretary, Treasurer and
          Chief Financial Officer of Jake's Wire Rope, a crane rigging supply
          sales division of Jake's Crane Rigging & Transport International.

          FRED K. JENSEN has served as a director of IFT since April 1999 and
          became chairman of the Board of Directors in February 2000. Since
          1975, Mr. Jensen has served as President of Jensen Oven Co., Inc.,
          Farmington Hills, Michigan, a manufacturer of industrial heating
          equipment. Since 1978, Mr. Jensen has also served as a consultant to
          casualty insurance companies regarding cause and origin investigations
          of fires and explosions in industrial process heating equipment and
          related equipment. Mr. Jensen received his Bachelor of Science degree
          in Mechanical Engineering in 1957 from Michigan State University.

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

          GLEN T. SLAY served as a director of IFT from April 1999 to February
          2000. Since 1983, Mr. Slay has served as Vice President at Slay
          Industries, a company specializing in transportation and distribution
          of goods and commodities via rail, truck and barge with facilities to
          store, package and reship goods. Mr. Slay received his Bachelor of
          Economics degree in 1982 from the University of Missouri. Mr. Slay
          resigned from the IFT Board of Directors in February 2000.

          JEFFREY C. SLAY served as a director of IFT from April 1999 to
          February 2000. Since 1995, Mr. Slay has served as Vice President of
          Slay Transportation, St. Louis, Missouri, a bulk chemical carrier
          (tank truck). Mr. Slay received his Bachelor of Science degree from
          University of Missouri in 1994. Mr. Slay resigned from the IFT Board
          of Directors in February 2000.

          DAN WILLIS served as a director of IFT from April 1999 to February
          2000. Since 1995, Mr. Willis has served as Regional Director for West
          Texas of National Wide Insurance, Waco, Texas. From 1988 to 1995, Mr.
          Willis served as Farm Director, KCEN-TV, Waco, Texas and produced
          several television spots for the station. Mr. Willis is a licensed
          auctioneer and a Texas Rodeo Hall of Fame inductee. In 1994, Mr.
          Willis was selected as Farm-Caster of the Year for Texas. Mr. Willis
          is a member of the Professional Rodeo Cowboys Association. Mr. Willis
          resigned from the IFT Board of Directors in February 2000.

                                       23
<PAGE>

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

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.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                        Annual Compensation           Long-Term Compensation
                                                              Awards


                                                   Other                   All
Name and                                          Annual     Restricted   Other
Principal             Period                      Compen-      Stock      Compen-
Position              Ended    Salary   Bonus     sation       Awards     sation
--------              ------   ------   -----     ------       ------     ------
<S>                  <C>       <C>          <C>        <C>    <C>             <C>
Jonathan R. Burst,
Chief Executive
Officer              12/31/99  $5,493       0          0      $111,056        0

Norman C. Barrett,
NOPEC Consultant
For IFT and former
Board Chairman       12/31/99       0       0          0             0        0
                      3/31/99       0       0   $100,000(1)          0        0
                      3/31/98       0       0          0             0        0
</TABLE>
          (1) Consultant Fees

          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

          On July 13, 1999 IFT entered into an employment agreement with
          Jonathan R. Burst serving as President and Chief Executive Officer.
          Mr. Burst receives a base pay of $1,000 per month plus 10,000 shares
          of IFT's common stock during the initial term for an aggregate of
          60,000 shares. The employment agreement provided that the initial term
          of office will expire on January 31, 2000 with extensions until July
          31, 2000, unless either party elects not to

                                       24
<PAGE>

          continue the agreement. The value of the 50,000 shares earned through
          December 31, 1999, $111,056, has been recorded as payroll expense. The
          agreement was extended during January 2000 with Mr. Burst serving as
          Chief Executive Officer with an annual base salary of $180,000, 6,000
          shares per month and a bonus award as deemed appropriate by the Board
          of Directors of IFT. The new agreement extends through December 31,
          2000 and will automatically renew unless either party elects not to
          continue the agreement. On February 23, 2000 the Board of Directors
          granted Jonathan Burst 100,000 shares of the IFT's common stock for
          his appointment as Chief Executive Officer.

          On July 13, 1999 IFT entered into an employment agreement with William
          J. Lindenmayer, serving as Chief Operating Officer. Mr. Lindenmayer
          receives a base pay of $1,000 per month plus 5,000 shares of IFT's
          common stock during the initial term for an aggregate of 30,000
          shares. The employment agreement provides that the initial term of
          office will expire on January 31, 2000 with extensions until July 31,
          2000 unless either party elects not to continue with the agreement as
          so stated. The agreement was extended in January 2000. Pursuant to the
          new agreement, Mr. Lindenmayer is entitled to an annual base salary of
          $125,000, 3,000 shares per month and a bonus award as deemed
          appropriate by the Board of Directors of IFT. The new agreement
          extends through December 31, 2000 and will automatically renew unless
          either party elect not to continue with the agreement as so stated in
          the agreement. On February 8, 2000, the Board of Directors appointed
          Mr. Lindenmayer as President and increased his annual base salary to
          $180,000. On February 23, 2000 the Board of Directors awarded an
          initial grant of 100,000 shares of the IFT's common stock to Mr.
          Lindenmayer for his appointment as President and Chief Operations
          Officer.

          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.

                                       25
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

          The following table sets forth information as of November 30, 2000,
          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>                         <C>
               Jonathan R. Burst(2)              1,541,250                     7.1%
               William J. Lindenmayer(3)           665,000                     3.1%
               Steven D. Walters                         0                     0.0%
               William H. Center                         0                     0.0%
               David B. Norris                     696,562                     3.2%
               Harry F. Demetriou(4)               805,000                     3.7%
               All directors and executive
                officers as a group              3,707,812                    17.1%
</TABLE>

          (1) Based upon 21,702,698 outstanding shares of common stock

          (2) Includes 150,000 shares owned by Burcor Capital, L.L.C. of which
          Mr. Burst is an executive officer and deemed to be the beneficial
          owner of such shares.

          (3) Includes 50,000 shares owned by Burcor Capital, L.L.C. of which
          Mr. Lindenmayer is an executive officer and deemed to be the
          beneficial owner of such shares.

          (4) Includes 805,000 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

                                       26
<PAGE>

          that during fiscal 1999 no Forms 3 and 4 were filed on a timely basis
          for IFT's executive officers and directors. IFT believes all such
          delinquent reports have since been filed.

Item 13.  Certain Relationships and Related Transactions

          IFT issued 1,200,000 restricted shares to a consultant on December 21,
          1998. 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 the 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. The $6,000,000 value has
          been included in consulting services for the year ended March 31,
          1999.

          IFT rents office space and equipment from Nevada Offshore Petroleum
          Export Corp., a company related through common ownership, under a
          month to month agreement requiring monthly payments. Prior to
          September 1, 1998 the office rent was $4,000 per month. From September
          1, 1998 through March 31, 1999 the rent for the Las Vegas office
          facility was $18,000 per month. After March 31, 1999 the office rent
          decreased to $5,000 per month. The revised rental amount was
          retroactive to March 1, 1999. A credit was issued in the amount of
          $13,000 during the nine-month period ended December 31, 1999.

          IFT obtains general and administrative services and rents office space
          and equipment from Burcor Capital, L.L.C., a company related through
          common ownership (Mr. Jonathan Burst, executive officer and director
          of IFT, is the founder and president of Burcor Capital, L.L.C.) ,
          under a six-month agreement requiring monthly payments of $5,000.
          Payments totaled $32,500 during the nine month period ended December
          31, 1999.

          On April 26, 1999, at the Annual Shareholders Meeting, the
          Shareholders of IFT approved the engagement of Burcor Capital, L.L.C.
          as IFT's investment bankers to develop investment and marketing
          relationships in connection with a merger or consolidation of IFT with
          any other business entity, the sale of all or part of IFT securities
          for cash or in exchange for other tangible or intangible consideration
          ("Potential Transactions") and the planning and actions taken for the
          purpose of effecting one or more Potential Transactions. As of
          December 31, 1999 no amounts have been paid related to this agreement.

          On October 7, 1999, IFT entered into an Advisory Agreement with Mr.
          Harry Demetriou on a non-exclusive basis to render financial advisory
          services to IFT in connection with the possible sale of IFT. As of
          December 31, 1999 no payments had been made related to this agreement.

          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

                                      27
<PAGE>

          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 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.

                                     PART IV

Item 14.  Exhibits, Financial Statements and Schedules, and Reports on Form
          8-K/A2

          (a) Document List

          1. Financial Statements

               - See index to financial statements and supporting schedules on
               page 31 of this annual report on Form 10-K/A2

          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 International Fuel Technology, Inc.

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

                                      28
<PAGE>

              **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

              *16.1 Letter, dated January 21, 2000, from McGladrey & Pullen, LLP
                    to the Registrant regarding resignation of certifying
                    accountant

              *16.2 Letter, dated February 10, 2000, from McGladrey & Pullen,
                    LLP regarding client-auditor relationship

               23.1 Consents of BDO Seidman, LLP

               23.2 Consents of McGladrey & Pullen, LLP

               27   Financial Data Schedule


          *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

          (b) Reports on Form 8-K

               -    Form 8-K filed November 3, 1999, including information about
                    changes in control of registrant, acquisition or disposition
                    of assets, other events (successor issuer election),
                    resignation of directors and executive officers, and change
                    in fiscal year. The Form 8-K did not include financial
                    statements.

               -    Form 8-K filed November 10, 1999, including press release as
                    an exhibit.

          (c) Exhibits

              See (a) above



                                       29
<PAGE>

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


Report of Independent Certified Public Accountants                       F-2

Independent Auditor's Report                                             F-3

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

Notes to Financial Statements                                      F-8--F-20



                                       30
<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 sheet of International Fuel Technology,
Inc. (a Nevada corporation in the development stage) as of December 31, 1999,
and the related statements of operations, stockholders' deficit and cash flows
for the nine month period then ended and the related statements of operations
and cash flows for the period from inception (April 9, 1996) to December 31,
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 audit.  We did not audit the financial statements of
International Fuel Technology, Inc. for the period from inception (April 9,
1996) to March 31, 1999.  Such statements are included in the cumulative
inception to December 31, 1999 totals of the statements of operations and cash
flows and reflect a net loss of 61% of the related cumulative total.  Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts for the period from inception
(April 9, 1996) to March 31, 1999 included in the cumulative totals, is based
solely upon the report of the other auditors.

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

In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of International Fuel Technology, Inc. as of December 31,
1999 and the results of its operations and its cash flows for the nine month
period then ended and for the period from inception (April 9, 1996) to December
31, 1999 in conformity with generally accepted accounting principles.

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 stockholders' deficit 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.

As discussed in Note 12, the financial statements have been restated to reflect
the effect of the change in accounting treatment for the shares of stock issued
in the acquisition of Blencathia.

BDO SEIDMAN, LLP

St. Louis, Missouri
April 7, 2000
(except for Note 12, as to which
the date is November 15, 2000)

                                      F-2
<PAGE>

                         INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
International Fuel Technology, Inc.
Las Vegas, Nevada

We have audited the accompanying balance sheet of International Fuel Technology,
Inc., a development stage company, as of March 31, 1999, and the statements of
operations, stockholders' deficit and cash flows for the years ended March 31,
1999 and 1998. These financial statements are the responsibility of IFT's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 March 31, 1999, and the results of its operations and its cash flows
for the years ended March 31, 1999 and 1998, in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that IFT will
continue as a going concern.  As more fully described in Note 2 to the financial
statements, IFT has not yet commenced the operations for which it was organized
and its total liabilities exceeds its total assets.  Furthermore, IFT may need
to raise substantial capital in order to implement its business plan.  This
raises substantial doubt about IFT'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.

McGLADREY & PULLEN, LLP

Las Vegas, Nevada
September 27,1999

                                      F-3
<PAGE>

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

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  December 31,          March 31,
ASSETS                                                                1999                1999
--------------------------------------------------------------------------------------------------
                                                                 (as restated)
<S>                                                              <C>                 <C>
Current Assets
  Cash                                                           $      26,846       $         488
  Employee receivable                                                      468              -
  Note receivable, stockholder (Note 6)                                 15,000              -
  Prepaid insurance                                                     12,719              -
                                                                 ---------------------------------
          Total current assets                                          55,033                 488

  Machinery and equipment                                               15,505               5,924
  Accumulated depreciation                                              (2,374)               (760)
                                                                 ---------------------------------
                                                                 $      68,164       $       5,652
                                                                 =================================

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
  Current Liabilities
  Accounts payable                                               $     110,691       $     313,979
  Accounts payable-stockholders (Note 6)                               187,095               -
  Accrued expenses                                                       3,406              54,367
  Accrued interest expense                                                -                 93,270
  Due to related party                                                    -                 26,500
  Notes payable to stockholders (Note 4)                                62,500             672,554
                                                                 ---------------------------------
          Total current liabilities                                    363,692           1,160,670
                                                                 ---------------------------------

Commitments and Contingencies (Note 2)

Stockholders' Deficit (Note 5)
  Common stock, $.01 par value; authorized, 150,000,000,
    16,818,339 and 14,097,559 shares issued and outstanding
    at December 31, 1999 and March 31, 1999, respectively              168,184             140,976
  Discount on common stock                                            (816,923)           (816,923)
  Additional paid-in capital                                        14,760,243           8,795,821
  Deficit accumulated during the development stage                 (14,407,032)         (9,274,892)
                                                                 ---------------------------------
                                                                      (295,528)         (1,155,018)
                                                                 ---------------------------------
          Total stockholders' deficit                            $      68,164       $       5,652
                                                                 =================================
</TABLE>

See Notes to Financial Statements.

                                      F-4
<PAGE>

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

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                  From
                                                                                                Inception
                                                                                                (April 9,
                                                   Nine Months           Twelve Months            1996)
                                                      Ended                  Ended               Through
                                                   December 31,            March 31,           December 31,
                                                      1999            1999          1998           1999
                                                  ------------   ------------   ------------   ------------
                                                  (as restated)                                (as restated)
<S>                                               <C>            <C>            <C>            <C>
Revenues                                          $     -        $     -        $     -        $     -
Cost of Revenues                                        -              -              -              -
                                                  ------------   ------------   ------------   ------------
Gross Profit                                            -              -              -              -
                                                  ------------   ------------   ------------   ------------

Operating Expenses:
 Advertising and marketing                              12,913         11,106         -              24,019
 Consulting (Note 5)                                   295,000      6,342,000        543,412      7,358,264
 Research and development costs                        330,353        842,905        330,089      1,543,077
 Office                                                  1,002         26,377         25,973         55,154
 Other                                                  59,234         35,782          3,682        107,499
 Payroll (Note 5)                                      318,036        180,327         53,006        567,558
 Professional services (Note 5)                      3,662,718         84,634         21,094      3,792,534
 Rent                                                   32,685        146,000         49,276        275,961
 Stock transfer fees                                     5,249         18,378         -              23,627
 Telephone                                               2,957         23,171         12,900         43,696
 Travel                                                  6,652         41,164         43,716        114,875
                                                  ------------   ------------   ------------   ------------
        Total operating expenses                     4,726,799      7,751,844      1,083,148     13,906,264
                                                  ------------   ------------   ------------   ------------
    Net loss from operations                         4,726,799   $  7,751,844      1,083,148     13,906,264
    Interest expense (Note 5)                          405,341         87,909          7,518        500,768
                                                  ------------   ------------   ------------   ------------
    Net loss before income taxes                     5,132,140      7,839,753      1,090,666   $ 14,407,032
                                                                                               ============
    Provision for income taxes                          -              -              -
                                                  ------------   ------------   ------------
    Net loss                                      $  5,132,140   $  7,839,753   $  1,090,666
                                                  ============   ============   ============

             Basic and diluted net loss
              per common share                    $        .32   $        .59   $        .20

Weighted average common shares outstanding          15,800,725     13,390,417      5,351,089
</TABLE>

See Notes to Financial Statements.

                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' DEFICIT
                                                                   Common Stock    Common Stock    Discount on   Additional
                                                                      Shares          Amount      Common Stock  Paid-In Capital
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>             <C>           <C>
Issuances of common stock for cash                               $      41,616   $         416   $         -   $     148,960
Issuances of common stock for technology (Note 5)                      146,700           1,467       (14,670)         13,203
Issuances of common stock (Note 5)                                       8,500              85             -             (85)
Issuances of common stock for services (Note 5)                         84,623             846             -           7,616
Issuance of common stock for compensation (Note 5)                      15,000             150             -           1,350
Net loss                                                                     -               -             -               -
-------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997                                                296,439           2,964       (14,670)        171,044
Issuances of common stock for cash                                     158,350           1,584             -         286,268
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
Expense recorded for services rendered by consultants (Note 5)               -               -             -         169,980
Issuance of common stock for compensation (Note 5)                      70,100             701             -           6,309
Issuances of common stock in connection with the                                                                     346,545
  acquisition of United States Fuel Technology, Inc. (Note 3)        2,795,979          27,960             -          94,907
Cancellation of shares (Note 3)                                        (94,400)           (944)        9,440          (8,496)
Net loss                                                                     -               -             -               -
-------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998                                              9,901,583          99,016      (537,325)      1,558,183
Issuances of common stock for cash                                     200,000           2,000             -         998,000
Issuances of common stock for services (Note 5)                      1,200,000          12,000             -       5,988,000
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                                                                     -               -             -               -
-------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999                                             14,097,562         140,976      (816,923)      8,795,821
Issuances of common stock for services and cash (Note 5)             1,500,000          15,000             -       4,203,750
Issuances of common stock for cash (Note 5)                            794,740           7,947             -         388,503
Issuances of common stock for compensation (Note 5)                      2,500              25             -           6,975
Conversion of debt  (Note 4)                                           423,537           4,236             -       1,198,609
Accrued stock based compensation (Note 5)                                    -               -             -         166,585
Net loss (as restated)                                                       -                -             -               -
-------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 (as restated)                         $  16,818,339   $     168,184   $  (816,923)  $  14,760,243
===============================================================================================================================
<CAPTION>
                                                                     Accumulated
                                                                    Deficit During
                                                                      Development
                                                                         Stage            Total
------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>
Issuances of common stock for cash                                  $            -    $     149,376
Issuances of common stock for technology (Note 5)                                -                -
Issuances of common stock (Note 5)                                               -                -
Issuances of common stock for services (Note 5)                                  -            8,462
Issuance of common stock for compensation                                        -            1,500
Net loss                                                                  (344,473)        (344,473)
------------------------------------------------------------------------------------------------------
Balance, March 31, 1997                                                   (344,473)        (185,135)
Issuances of common stock for cash                                               -          287,852
Issuances of common stock for technology (Note 5)                                -                -
Issuances of common stock (Note 5)                                               -                -
Issuances of common stock for services (Note 5)                                  -          121,189
Expense recorded for services rendered by consultants (Note 5)                  -          169,980
Issuance of common stock for compensation (Note 5)                               -            7,010
Issuances of common stock in connection with the
  acquisition of United States Fuel Technology, Inc. (Note 3)                    -          374,505
Cancellation of shares (Note 3)                                                  -                -
Net loss                                                                (1,090,666)      (1,090,666)
------------------------------------------------------------------------------------------------------
Balance, March 31, 1998                                                 (1,435,139)        (315,265)
Issuances of common stock for cash                                               -        1,000,000
Issuances of common stock for services (Note 5)                                  -        6,000,000
Issuances of common stock in connection with the
  acquisition of Scientific Fuel Technology, LLC (Note 3)                        -                -
Net loss                                                                (7,839,753)      (7,839,753)
------------------------------------------------------------------------------------------------------
Balance, March 31, 1999                                                 (9,274,892)      (1,155,018)
Issuances of common stock for services and cash (Note 5)                         -        4,218,750
Issuances of common stock for cash (Note 5)                                      -          396,450
Issuances of common stock for compensation (Note 5)                              -            7,000
Conversion of debt  (Note 4)                                                     -        1,202,845
Accrued stock based compensation (Note 5)                                        -          166,585
Net loss (as restated)                                                  (5,132,140)      (5,132,140)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 (as restated)                            $  (14,407,032)   $    (295,528)
======================================================================================================
</TABLE>

See Notes to Financial Statements.

                                      F-6
<PAGE>

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

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                      From
                                                             Nine Months      Twelve Months      Twelve Months      Inception
                                                                Ended             Ended              Ended       (April 9, 1996)
                                                            December 31,        March 31,          March 31,     to December 31,
                                                                1999               1999               1998             1999
---------------------------------------------------------------------------------------------------------------------------------
                                                           (as restated)                                         (as restated)
<S>                                                      <C>               <C>                <C>                <C>
Cash Flows from Operating Activities
Net loss                                                 $    (5,132,140)  $     (7,839,753)  $     (1,090,666)     $(14,407,032)
Adjustments to reconcile net loss to net cash
 used in operating activities:
 Depreciation                                                      1,614                760                  -             2,374
 Stock issued and additional paid in capital
  recognized for services and compensation                     3,642,335          6,000,000            298,179         9,950,476
 Interest expense recognized on conversion of debt               355,771                  -                  -           355,771
 Change in assets and liabilities:
  (Increase) decrease in prepaid insurance                       (12,719)               590               (590)          (12,719)
  Increase (decrease) in accounts payable                       (203,288)           313,979                  -           110,691
  Increase in accounts payable--stockholders                     187,095                  -                  -           187,095
  Increase (decrease) in accrued expenses                         (1,411)           128,368             19,269           146,226
                                                         ------------------------------------------------------------------------
                 Net cash used in operating
                      activities                              (1,162,743)        (1,396,056)          (773,808)       (3,667,118)
                                                         ------------------------------------------------------------------------
Cash Flows from Investing Activities
 Acquisition of machinery and equipment                           (9,581)            (4,280)                 -           (13,861)
 Increase in employee and stockholder receivables                (15,468)                 -                  -           (15,468)
 Cash acquired in connection with the purchase of
  United States Fuel Technology, Inc.                                  -                  -                358               358
                                                         ------------------------------------------------------------------------
            Net cash (used in) provided by investing
                 activities                                      (25,049)            (4,280)               358           (28,971)
                                                         ------------------------------------------------------------------------
Cash Flows from Financing Activities
 Increase (decrease) in amount due to
  related party                                                        -           (142,000)           168,500            26,500
 Increase in due to United States Fuel Technology, Inc.                -                  -            224,391           372,503
 Proceeds from common stock issued                             1,146,450          1,000,000            287,852         2,583,678
 Proceeds from notes payable                                     325,700            828,895             86,500         1,289,425
 Payment on notes payable                                       (258,000)          (291,171)                 -          (549,171)
                                                         ------------------------------------------------------------------------
            Net cash provided by financing
             activities                                        1,214,150          1,395,724            767,243         3,722,935
                                                         ------------------------------------------------------------------------
                 Net increase (decrease) in cash                  26,358             (4,612)            (6,207)           26,846
Cash, beginning                                                      488              5,100             11,307                 -
                                                         ------------------------------------------------------------------------
Cash, ending                                             $        26,846   $            488   $          5,100      $     26,846
                                                         ========================================================================

Supplemental Cash Flow Information
 Interest paid                                           $             -   $          2,100   $              -      $      2,100
                                                         ========================================================================
 Taxes paid                                              $             -   $              -   $              -      $          -
                                                         ========================================================================
</TABLE>

See Notes to Financial Statements.

                                      F-7
<PAGE>

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

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

Note 1.  Nature of Business and Significant Accounting Policies

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

International Fuel Technology, Inc., ("IFT") is a developmental stage company
which 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 PEERFUEL(R). 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 States Fuel Technology, Inc., and Scientific Fuel Technology, LLC, to
streamline the selling of PEERFUEL/TM/. IFT, as described in Note 5, 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. IFT, as
described in Note 10, has changed its fiscal year end effective with the merger
with Blencathia Acquisition Corporation to December 31. Currently, IFT is
testing the treated diesel fuel in the State of California and hopes the test
results will persuade the State of California to use IFT's product in the
State's diesel engines.


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 estimated useful lives of five years.

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

Research and development costs are expensed in the period incurred.

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

                                     F-8
<PAGE>

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

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


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.

Basic and dilutive 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 dilutive earnings per share. Basic earnings per share are based
upon the weighted average number of common shares outstanding for the period.
Dilutive earnings per share are based upon the weighted average number of common
and potentially dilutive common shares outstanding for the period. Pursuant 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.

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 approximate their carrying basis based on the
short-term nature of these obligations and current interest rates approximating
stated interest rates.

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

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for years beginning after June 15, 2000
and requires comparative information for all fiscal quarters of fiscal years
beginning after June 15, 2000. IFT does not expect the adoption of this

                                      F-9
<PAGE>

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

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

statement to have significant impact on its results of operations, financial
position or cash flows.

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 limited funds with which to operate. Management anticipates
receiving diploma certification in 2000 from the California Air Resources Board
that its PEERDIESEL(R) product reduces polluting emissions from internal
combustion engines. Shortly thereafter, IFT expects to begin licensing its
product which management believes will generate sufficient revenue to continue
the IFT's operations. However, there is no assurance that IFT will receive
diploma certification or be able to generate sufficient revenue through the
licensing of its product to provide sufficient working capital. Management
believes approximately $3 million of additional capital will be required over
the next two years. Management does not have an estimate of the amount of
revenue necessary to attain positive cash flow. In February 2000, IFT entered
into a convertible debenture purchase agreement to raise $3,000,000 through the
sale of convertible debentures. In connection with the convertible debenture
purchase agreement IFT issued a warrant to purchase 390,000 shares of common
stock. (See Footnote 9) IFT is additionally required to issue 195,000 shares of
common stock to place in escrow pending the sale of the convertible debentures.
(See Footnote 9) Such financing is contingent upon IFT's ability to register the
shares of common stock underlying the warrants and debentures with the
Securities and Exchange Commission (the "SEC"). There can be no assurance that
the registration will be granted effectiveness by the SEC, in which case IFT
would be required to seek alternate sources of financing. IFT's continued
existence is dependent upon its ability to resolve its liquidity shortfall
principally by obtaining this additional debt financing or raising equity
capital. IFT must continue to operate on limited cash flow generated internally.
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.

                                     F-10
<PAGE>

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

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

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 PEERFUELS(R) 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.
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 as of
March 31, 1998.

The assets and liabilities of USFT at March 31, 1998 consisted of:

<TABLE>
            <S>                   <C>
            Cash                  $     358
            Due from IFT            372,503
            Computer equipment        1,644
                                  ---------
                                    374,505
            Liabilities                   -
                                  ---------
                                  $ 374,505
                                  =========
</TABLE>

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 94,400 shares were
valued at zero by IFT and were redeemed and canceled in connection with the
acquisition of USFT.

The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition of USFT had occurred on April 1, 1996. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition been
made on April 1, 1996, nor are they indicative of future results. As a result,
the unaudited pro forma net loss and pro forma per share amounts do not purport
to represent what IFT's results of operations would have been if the acquisition
of USFT had occurred on April 1, 1996, and is not intended to project IFT's
results of operations for any future period.

<TABLE>
<CAPTION>
                                        Year Ended March 31,
                                                1998
                                        --------------------
<S>                                     <C>
Total Revenues as reported              $            -
Total Revenues - Pro forma              $            -
Net loss as reported                    $   (1,090,666)
Net loss - Pro forma                    $   (1,154,424)
Loss Per Share:
     Basic as reported                  $          .20
     Diluted as reported                $          .20
     Basic - Pro forma                  $          .14
     Diluted - Pro forma                $          .14
</TABLE>

                                     F-11
<PAGE>

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

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

On May 29, 1998 IFT entered into an agreement and plan of merger 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 the stock issued.

Note 4.     Notes Payable to Stockholders

All notes payable at March 31, 1999 bear interest at 12%, are unsecured and are
due at various date through March 2000. On November 1, 1999, IFT offered the
note holders the option of extending the due dates of these notes for another
two years at 12% interest or converting the notes to common stock at a
conversion price of not less than $2.00 per share. (Notes 5 and 6) The market
value of IFT's stock on the day of the offer was $2.84. The option to convert
the notes into restricted stock was effective as of November 1, 1999 and expired
on November 15, 1999. All of the note holders elected to convert their notes to
common stock. IFT also had an amount due to a related party in the amount of
$26,500 with no terms of repayment or interest due at March 31, 1999.

On November 1, 1999, $26,500 due to related party, notes payable of $677,754
and related accrued interest of $142,820 were converted to common stock at $2.00
per share. At that date, the closing price of IFT's stock was $2.84. Additional
interest expense of $355,771 was recorded at the time of conversion reflecting
the $.84 difference between the closing market price and the conversion price
multiplied by the 423,537 shares issued as a result of the conversion.

At December 31, 1999 IFT has a note payable to ONKAR Corporation, LTD. for
$67,500 at an annual interest rate of 6%.

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.

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:

                                     F-12
<PAGE>

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

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

<TABLE>
<CAPTION>
          Date               Shares
          ----              ---------
     <S>                    <C>
     April 1996                71,000
     June/July 1996            75,700
                            ---------
     Total year ended
      March 31, 1997          146,700
                            =========

     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
                            =========
</TABLE>

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 $9,962 and $128,199
in fiscal 1997 and 1998, respectively. The shares were rendered as follows:

<TABLE>
<CAPTION>
                                                Expense
     Date                     Shares             Amount
     ----                   ---------           --------
<S>                    <C>                       <C>
SERVICES:
---------
     April 1996                13,000
     June 1996                 11,220
     July 1996                 19,250
     August-October 1996        4,630
     November 1996             12,275
     February 1997             16,098
     March 1997                 8,150
                            ---------
     Total year ended
      March 31, 1997           84,623            $  8,462
                            =========            ========
COMPENSATION:
-------------
     July 1996                  5,000
     February 1997             10,000
                            ---------
     Total year ended
      March 31, 1997           15,000            $  1,500
                            =========            ========

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>

                                     F-13
<PAGE>

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

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

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 were issued as follows:


          Date              Total Additional Shares
          ----              -----------------------

          July 1996                 4,000
          November 1996               300
          March 1997                4,200
                                  -------
          Total year ended
           March 31, 1997           8,500
                                  =======

          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 which 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 agrees 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 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.

                                     F-14
<PAGE>

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

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

On July 13, 1999 IFT entered into employment agreements with its Chief Executive
Officer and Chief Operating Officer which expire January 31, 2000 with options
to extend until July 31, 2000.  Under the terms of these agreements, these
officers will each receive 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 are 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.

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 will issue 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. Blencathia, which was incorporated on
December 3, 1998, had not commenced any significant operations, and was
considered a public "shell" IFT acquired no identifiable assets or liabilities.
The shareholders of Blencathia provided to IFT a "shell" entity that enabled IFT
to become a public reporting entity. Blencathia ceased to exist after the
merger. Based on the December 31, 1999 market price, $4.375, of IFT's common
stock 114,286 shares would need to be issued.

Note 6.     Related Party Transactions

IFT rents its administrative offices and administrative services from Burcor
Capital, LLC, a company related through common ownership, under a lease
agreement  requiring monthly rentals of $5,000 per month through July 13, 2000.
Total payments incurred in connection with this agreement were $32,500 for the
nine months ended December 31, 1999, and $0 for the years ended March 31, 1999
and 1998, respectively.  Payments related to this agreement are included in
professional services expense.

IFT rents additional office space located at 6170 W. Desert Inn Road, Las Vegas,
Nevada and equipment from Nevada Offshore Petroleum Export Corp. ("NOPEC"), a
company related through common ownership, under a month-to-month agreement.
Total rent incurred in connection with this lease

                                     F-15
<PAGE>

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

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

was $32,000 for the nine months ended December 31, 1999 and $146,000 and $48,000
for the years ended March 31, 1999 and 1998, respectively.

IFT has consulting arrangements with certain stockholders and related parties.
Consulting expense includes $6,000,000 and $278,712 for the years ended March
31, 1999 and 1998, respectively, paid through the issuance of common stock at
its then fair value as determined by IFT and the Chairman of IFT's Board of
Directors.  IFT also incurred $180,000 in consulting fees for the nine month
period ended December 31, 1999.

Total interest on stockholder loans incurred in connection with stockholders
loans (Note 4) for the nine months ended December 31, 1999 was $405,341.  Total
interest on stockholder loans for the years ended March 31, 1999 and 1998 was
$87,909 and $7,461 respectively.

At December 31, 1999, IFT owed one of its stockholders $87,095 for legal
services performed. Subsequent to December 31, 1999, 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 were based upon the market value average for
January 3 through January 10, 2000. The total amount due to this stockholder
included in accounts payable-stockholders at December 31, 1999 was $87,095.

At December 31, 1999, IFT was owed $15,000 by one of its stockholders for a
short term advance with interest at 6%.  The amount was due December 31, 1999.
The amount has not been paid pending resolution of amounts included in accounts
payable to this stockholder.  The total amount due to this stockholder included
in accounts payable at December 31, 1999 was $100,000.

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 during the nine month period ended December 31, 1999 and
was recorded as consulting expense. TPG Capital Corporation provided consulting
and administrative services in connection with the acquisition of
Blencathia.

Note 7.     Income Taxes

For income tax purposes approximately $6,850,000 of IFT's expenses are
considered start-up costs to be amortized over five years beginning with the
commencement of operations. IFT has not started amortization of these startup
costs as of December 31, 1999. For accounting purposes these start-up costs have
been expensed. IFT has an approximate net operating loss carryforward of
$7,557,000 as of December 31, 1999. This approximate net operating loss will
expire as follows: $33,000 in year 2011, $600,000 in year 2012, $5,000,000 in
year 2018 and $1,924,000 in year 2019. Due to the inherent uncertainty in
forecasts of future events and operating results, IFT has provided for a
valuation allowance in an amount equal to the net deferred tax asset arising
from this net operating loss carryforward and startup costs. No income tax
benefit has been recorded in the statement of operations due to the valuation
allowance on the deferred tax assets.

                                     F-16
<PAGE>

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

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

                                       December 31, 1999  March 31, 1999
                                       -----------------  --------------
     Deferred Tax Assets
          Start up costs                      $2,329,000      $  819,000
          Net operating loss                   2,571,000       2,336,000
                                              ----------      ----------
     Total gross deferred tax asset            4,900,000       3,155,000
     Less Valuation Allowance                  4,900,000       3,155,000
                                              ----------      ----------
     Net Deferred Tax Asset                   $        -      $        -
                                              ==========      ==========

Income tax expense for the period ended December 31, 1999 and the years ended
March 31, 1999 and 1998 differed from the amount computed by applying the
statutory U.S. federal corporate income tax rate of 34% to income before income
tax benefit as a result of the following:


                                         December 31,    March 31,    March 31,
                                             1999           1999         1998
                                        --------------  -----------   ---------
         Expected income tax
               (benefit) expense           $(1,745,000) $(2,665,000)  $(371,000)

         Increase (decrease) in
            Income tax resulting from:
               Valuation allowance
                Increase                     1,745,000    2,665,000     371,000
                                           -----------  -----------   ---------

         Income tax expense
            (benefit)                      $         -  $         -   $       -
                                           ===========  ===========   =========


Note 8. Lease Commitment

As of December 31, 1999, IFT leased office space, certain equipment and
administrative services under two operating leases from companies related
through common ownership.  Future minimum leases payments are $35,000 for the
year 2000.

Note 9. Subsequent Events

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 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 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

                                     F-17
<PAGE>

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

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

salary of $180,000.  In addition, Mr. Burst is to receive 6,000 shares of common
stock each month. The value of the stock based compensation for these shares is
$214,500 and is based on the trading price of IFT's stock on February 1, 2000.
These shares are earned and recorded on a monthly basis. It is expected the
shares will be issud as one lump sum.

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 $125,000. In addition, Mr. Lindenmayer is to receive
3,000 shares of common stock each month. The value of the stock based
compensation for these shares is $107,250 and is based on the trading price of
IFT's stock on February 1, 2000. These shares are earned and recorded on a
monthly basis. It is expected the shares will be issued as one lump sum.


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. 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, $550,000, has
been calculated on the trading price of IFT's stock on February 23, 2000 and has
been recorded to payroll expense.

In February 2000 an immediately exercisable warrant for 390,000 shares was
issued to GEM Global Yield Fund Limited. During March 2000 the warrant for
390,000 shares of common stock was exercised at a cost of $.01 per share. The
value over par value of these shares, $1,141,725, has been calculated based on
the trading price of IFT's stock on March 28, 2000 and has been recorded as
deferred financing charge.

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 are issuable if IFT is unable to
register the shares of common stock underlying the convertible debenture
purchase agreement discussed in No. 2 by June 24, 2000.

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,
$178,750, has been calculated based on the trading price of IFT's stock on
February 23, 2000 and has been recorded as $55,000 payroll expense, $117,216
board meeting expense and $6,534 travel expense.

Note 10. Fiscal Year End Change

Effective October 27, 1999, IFT changed the date of its fiscal year end from
March 31 to December 31.  The nine-month period ended December 31, 1999, is
referred to as the transition period.  All year and quarter references relate to
IFT's prior fiscal years and quarters, unless otherwise stated.  Unaudited
financial information for the comparable nine-month period ended December 31,
1998, is presented in the table below and includes any adjustments (consisting
of normal, recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation.


                                          For the Nine Months Ended
                                                 December 31,
                                         1999          1998 (Unaudited)
                                     ---------------  -----------------
     Revenues                        $             -  $               -
     Cost of Revenues                              -                  -
                                     ---------------  -----------------
     Gross Profit                                  -                  -
                                     ---------------  -----------------

     Advertising and Marketing                12,913              4,772
     Consulting                              295,000          6,340,500
     Research & Development Costs            330,353            514,347

                                     F-18
<PAGE>

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

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

     Office                              1,002       30,669
     Other                              59,234       47,068
     Payroll                           318,036      116,673
     Professional Services           3,662,718       81,436
     Rent                               32,685      117,633
     Stock Transfer Fees                 5,249       17,293
     Telephone                           2,957       27,400
     Travel                              6,652       37,702
                                   -----------  -----------
     Total Operating Expenses        4,726,799    7,335,493
                                   -----------  -----------

     Net Loss from Operations        4,726,799    7,335,493
     Interest Expense                  405,341       68,572
                                   -----------  -----------
     Net Loss Before Income Tax      5,132,140    7,404,065
     Provision for Income Tax                -            -
                                   -----------  -----------
     Net Loss                      $ 5,132,140  $ 7,404,065
                                   ===========  ===========

     Basic and Diluted Net Loss
      Per Common Share             $       .32  $       .57
                                   ===========  ===========

     Weighted Average Common
     Shares Outstanding             15,800,725   12,993,978
                                   ===========  ===========

                                     F-19
<PAGE>

Note 11. Supplemental Disclosures of Cash Flow Information

Supplemental non-cash investing and financing activities were as follows:

Nine months ended December 31, 1999
-----------------------------------

IFT exchanged $26,500 due to a related party, $677,754 notes payable and
$498,591 accrued interest for 423,537 common shares; $4,235 common stock and
$1,198,610 additional paid in capital.

Twelve months ended March 31, 1999
----------------------------------

IFT issued 2,795,979 common shares for the common stock of the inactive SFT. The
issuance of $279,598 of common stock was offset by a discount to common stock as
SFT had no net assets or market value.

Twelve months ended March 31, 1998
----------------------------------

IFT issued 2,795,979 common shares for the net book value of the assets of USFT
in the amount of $374,505.

Note 12. Restatement

The financial statements have been restated to reflect the effect of the change
in accounting treatment for the shares of stock issued in the acquisition of
Blencathia to reflect this transaction as a recapitalization with common stock
to be offset by discount on common stock when the common stock shares are
issued. (See Note 5) The transaction had previously recorded an acquisition
expense in the amount of $500,000. The restatement resulted in a decrease in the
account payable-other liability and a corresponding decrease in acquisition
expense in the amount of $500,000. As a result of the restatement the net loss
for the nine months ended December 31, 1999 decreased by $500,000 and basic and
diluted net loss per common share for the nine months ended December 31, 1999
decreased by $.04.

On May 8, 2000 IFT issued 300,000 common shares that were contingently issued
per the Blencathia merger agreement. 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 November 15, 2000 market price, $.66, of IFT's common stock, a total of
757,576 shares would need to be issued to generate the $500,000 proceeds.

                                     F-20
<PAGE>



                                   SIGNATURES


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


          INTERNATIONAL FUEL TECHNOLOGY, INC.
          (Registrant)



          By: /s/ William J. Lindenmayer          Date:  January 2, 2001
             ------------------------------
             William J. Lindenmayer
             President

          By: /s/ Steven D. Walters               Date:  January 2, 2001
             ------------------------------
             Steven D. Walters
             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:  January 2, 2001
             ------------------------------
             Jonathan R. Burst
             Chairman of the Board

           By: /s/ William J. Lindenmayer         Date:  January 2, 2001
             ------------------------------
             William J. Lindenmayer
             Director

           By: /s/ William H. Center              Date:  January 2, 2001
             ------------------------------
             William H. Center
             Director

           By: /s/ David B. Norris                Date:  January 2, 2001
             ------------------------------
             David B. Norris
             Director

           By: /s/ Harry Demetriou                Date:  January 2, 2001
             ------------------------------
             Harry Demetriou
             Director