UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

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

                   For the Fiscal Year Ended December 31, 2002

                                       OR

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

        For the transition period from _______________ to _______________

                        Commission file number: 000-25367

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

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

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

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

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

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

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) |_| No |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 June 30, 2002 as reported on the OTC Bulletin Board, was
$18,605,925.

      Number of shares of common stock outstanding as of March 26, 2003:
77,524,689
<PAGE>

                       INTERNATIONAL FUEL TECHNOLOGY, INC.

                                    FORM 10-K

                   For The Fiscal Year Ended December 31, 2002

                                      INDEX

Part I

    Item 1. Business                                                        3-11
    Item 2. Properties                                                        11
    Item 3. Legal Proceedings                                                 11
    Item 4. Submission of Matters to a Vote of Security Holders               12

Part II

    Item 5.  Market for Registrant's Common Equity and Related
             Stockholder Matters                                           12-13
    Item 6.  Selected Financial Data                                       13-14
    Item 7.  Management's Discussion and Analysis of Results of
             Operations and Financial Condition                            14-21
    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

Part III

    Item 10. Directors and Executive Officers of the Registrant            22-23
    Item 11. Executive Compensation                                        23-25
    Item 12. Security Ownership of Certain Beneficial Owners
             and Management                                                25-26
    Item 13. Certain Relationships and Related Transactions                26-28

Part IV

    Item 14. Control and Procedures                                           28
    Item 15. Exhibits, Financial Statement Schedules, and Reports
             on Form 8-K                                                   28-29


                                       2
<PAGE>

                                     PART I

Item 1. Business

            Forward Looking Statements and Associated Risks

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

            (a) History

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

            IFT has an authorized capitalization of 150,000,000 shares of common
            stock, $.01 par value per share and no authorized preferred stock.
            IFT's common stock is traded on the NASD OTC Bulletin Board under
            the symbol "IFUE."

            Effective March 31, 1998, IFT merged with United States Fuel
            Technology, Inc. United States Fuel Technology, Inc. was formed
            primarily to market PEERFUEL(TM) in North America. On May 29, 1998,
            IFT merged with Scientific Fuel Technology, LLC, a company
            affiliated with IFT through common ownership. Scientific Fuel
            Technology was in the reprocessed fuels business with technology
            designed to improve fuel efficiency and reduce harmful emissions.

            Pursuant to an Agreement and Plan of Merger effective as of October
            27, 1999, IFT merged with Blencathia Acquisition Corporation
            ("Blencathia") in which IFT was the surviving company. Blencathia (a
            development stage company) was incorporated in Delaware on December
            3, 1998 to serve as a vehicle to effect a merger, exchange of
            capital stock, asset acquisition or other business combination with
            a domestic or foreign private business. On May 8, 2000, IFT
            contingently issued 300,000 shares of it common stock pursuant to
            the Blencathia merger agreement.

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

            On May 25, 2001, IFT issued 12,500,001 shares of its common stock to
            the shareholders of Interfacial Technologies (UK) Ltd.
            ("Interfacial"), to acquire all of Interfacial's issued and
            outstanding capital stock. The purchase price of approximately
            $6,750,000 was determined based on the market price of IFT's common
            stock on the date the acquisition was announced. Stock


                                       3
<PAGE>

            certificates for an additional 8,500,002 shares of its common stock
            were placed in an escrow account subject to a performance escrow
            agreement that provided for the release of the stock certificates to
            the Interfacial shareholders based on the achievement of certain
            revenue levels by IFT. In January 2002, IFT and the former
            shareholders of Interfacial agreed to reduce the shares subject to
            the performance escrow by 500,000 shares. Revenues equal to, or
            greater than, $10,000,000 for the two year period ending May 24,
            2003 will result in all of the stock certificates for the 8,000,002
            shares of its common stock being released to the Interfacial
            shareholders. Revenues greater than $5,000,000 but less than
            $10,000,000 for the two year period ending May 24, 2003 will result
            in a portion, as determined by a formula in the performance escrow
            agreement, of the stock certificates for the 8,000,002 shares of its
            common stock being released to the Interfacial shareholders.

            In connection with the closing of this transaction three of the
            Interfacial shareholders were appointed to IFT's board of directors.
            In addition, IFT entered into an employment agreement with one of
            the Interfacial shareholders and into a consulting agreement with
            three of the Interfacial shareholders on May 25, 2001.

            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

            IFT was founded in 1996 by a team of individuals who sought to
            address the issue of reducing harmful engine emissions while at the
            same time improving the operating performance of engines, especially
            with respect to engine power and fuel economy. Since its
            incorporation, IFT's initial focus was on the research and
            development of a fuel processing system aimed at reducing harmful
            engine emissions called the PEERFUEL(TM) system for Performance
            Enhanced Emission Reduced fuels. The Board of Directors determined
            that IFT should broaden its technology base while still maintaining
            efforts to complete its original fuel processing system.

            As part of IFT's efforts to expand into promising new engine
            emission-reduction technologies, IFT completed the acquisition of
            Interfacial in May 2001. Interfacial is a developer of a family of
            proprietary fuels and fuel additive formulas based in Manchester,
            England.

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

            Although management still believes the PEERFUEL(TM) technology has
            significant potential in the future, management has concluded that
            Interfacial's technology can be more expeditiously and cost
            effectively sold in commercial markets. Therefore, management has
            decided to currently focus all of its efforts on commercializing
            Interfacial's proprietary technology.


                                       4
<PAGE>

            IFT has emerged from its research and development phase and is now
            primarily focused on the commercialization and marketing of its
            numerous fuel blends and additives. Primary research and development
            efforts were completed in August of 2001, patent applications to
            protect its intellectual property pertaining to its proprietary
            technology have been filed with the U.S. patent office and all
            manufacturing of additive formulations is outsourced. Management
            estimates that capital requirements for fixed assets, working
            capital, and research and development are expected to be
            approximately $1.3 million for the year ending December 31, 2003.

            PRODUCTS

            Unlike traditional fuel additives, which are predominantly
            hydrocarbon based -- derived from petroleum sources, IFT's
            proprietary technology is entirely based upon surfactant
            chemistry. A complex mixture of chemical molecules which, when
            blended into distillates or gasoline, positively alter the
            composition and make-up of the finished fuel. These resulting
            changes, add to the performance of the fuel, and have been proven
            to significantly reduce harmful emissions like Carbon Monoxide
            (CO) and environmental emissions including Carbon Dioxide (CO[2])
            and Nitrous Oxide (NO[X]), increase miles per gallon, reduce
            black smoke, reduce particulates and enable excellent fuel
            lubricity throughout the engine and fuel system.

            In summary IFT's technology can be adapted for any industry from
            Marine to Refinery, Motorsport to Transport -- its technical
            efficacy has been demonstrated and confirmed by many independent
            laboratories including Southwest Research Institute ("SwRI").

            IFT has introduced three trademarked brands to support the companies
            drive towards sales and marketing around the world --

                  Diesolift:        A range of diesel additives.
                  Kerolift:         A range of kerosene additives.
                  Gasolift:         A range of gasoline additives.

            Each brand has a number of products associated with it that have
            been specifically designed to meet industries exacting and
            diversifying requirements.

            Several technical papers have been co-published and presented on
            behalf of IFT by SwRI at world conferences, ensuring that IFT and
            its technology receives industry recognition and approval.

            To summarize the benefits of the technology:

               i.  Increase miles per gallon.
               i.  Increase fuel lubricity.
              ii.  Reduce toxic emissions, e.g. CO, HC.
             iii.  Reduce NOx and CO2, both attributed to global warming
                   (greenhouse gases).
              iv.  Reduce maintenance.
               v.  Eliminate the need for biocides in diesel (a difficult
                   product to handle.
              vi.  Supports the use of Ethanol within fuels -- thus ensuring a
                   stable fuel.
             vii.  Are natural corrosion inhibitors.
            viii.  Are natural detergents.


                                       5
<PAGE>

            It should also be recognized that through market knowledge and in
            particular environmental concerns around the world, the 'olift'
            series of products are allowing meaningful partnerships with
            associates to be formed.

            The marketing perspective is being determined by the initial
            appointment of consultants in these target areas, which will
            culminate after our due diligence into a firm presence in each
            market. This approach limits 'risk reward' and enables strategies
            with trade mark and patent protection in active areas.

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

            IFT's research and development expenses have been $16,802, $197,433,
            and $286,914 for the years 2002, 2001, and 2000, respectively.

            EP Act APPLICATION

            In February 2002, IFT filed a formal petition with the Department
            of Energy ("DOE") requesting "alternative fuel" status for its
            Synthetic Diesel fuel blend under the Energy Policy Act of 1992
            ("EP Act"). The EP Act program was designed with very specific
            goals in mind: make targeted reductions in the use of
            petroleum-based fuels in the United States while ensuring that
            the alternative fuels used to reduce our dependence on foreign
            oil are environmentally sound. IFT Synthetic Diesel is a fuel
            blend that consists substantially of synthetic diesel distilled
            from natural gas condensate, a non-petroleum or non-barrel
            natural resource that is in abundant supply in the United States.
            In July 2002, the DOE responded to IFT's petition deciding to
            take no additional action at this time. Management still believes
            that its Synthetic Diesel should qualify for alternative fuel
            status and is in the process of pursuing other avenues to achieve
            designation of such status.

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

            SOUTHWEST RESEARCH INSTITUTE

            All of IFT's products were tested extensively at SwRI. The test
            results confirmed the effectiveness of IFT's additive formulations.
            In particular, all IFT fuel blends tested achieved: (1)


                                       6
<PAGE>

            an increase in fuel economy; (2) no loss of engine power or torque;
            (3) an increase in lubricity; and (4) a reduction in CO2, NOx, and
            PM.

            SwRI is an independent, nonprofit, applied engineering and physical
            sciences research and development organization with 11 technical
            divisions using multidisciplinary approaches to problem solving. The
            institute occupies 1,200 acres and provides nearly two million
            square feet of laboratories, test facilities, workshops, and offices
            for more than 2,700 employees who perform contract work for industry
            and government clients. SwRI's main office is located in San
            Antonio, TX and their web site can be found at www.swri.com.

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

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

            COMPETITION

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

            Given these limitations, it is unlikely that the global marketplace
            will accept just one or a limited number of technologies to solve
            the problems with harmful engine emissions. Management believes the
            "natural selection" expected to take place over the coming decade
            for new technologies may evolve on a market-by-market basis and be
            largely dependent upon local political influence. Signs of the
            market development forces can be seen in:


                                      7
<PAGE>

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

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

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

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

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

            REGULATORY ISSUES

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

            Also, in order for IFT's products to be used in the United
            States, EPA registration is required. In December 2001, IFT
            received EPA registration for the additive component of its fuel
            blends. In addition to the EPA (a federal agency), each state has
            its own regulatory body governing emissions standards. The most
            well known state agency, and the precedent setter for many other
            states, is the California Air Resources Board ("CARB"). All
            diesel fuel sold in California must be approved by CARB, which
            has a thorough and well-defined procedure for certification.

            Another federal agency shaping the landscape of petroleum-based
            fuel consumption is the DOE. In an effort to reduce dependence on
            foreign oil and keep up with increasing demand for petroleum
            products, the DOE has created and sponsored programs that
            encourage the use of alternative fuels. The programs, such as the
            Energy Policy Act (EP Act) and the ethanol and biodiesel subsidy
            programs, put in place by the DOE and other government agencies,
            provide significant incentives for the adoption of targeted fuel
            blends, many of which are created and enhanced by the use of
            IFT's products. IFT believes its products are well positioned to
            help consumers conform to current and future emissions standards
            and take advantage of existing incentive programs in the United
            States and the rest of the world.


                                      8
<PAGE>

            MANUFACTURING PARTNER

            In 2001, IFT signed a manufacturing agreement with Tomah(3)
            Products, Inc., ("Tomah") which makes Tomah the primary
            manufacturer of IFT's fuel additives. The agreement covers
            existing and to-be-developed fuel additives. The agreement also
            involves Tomah in efforts to work with IFT to continue to
            optimize the effectiveness and reduce the manufactured costs of
            the fuel additives and additive formulations, as well as
            collaborate on research and development activities on behalf of
            IFT.

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

            TECHNOLOGY AND INTELLECTUAL PROPERTY

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

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


            MARKETING STRATEGY

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

                  Field Engagement Partners

                  Management believes an expeditious means of achieving
                  product awareness and market acceptance is through
                  strategic field engagements with commercial level users of
                  petroleum products. IFT is in discussions with several
                  fleet owners who represent a cross-section of


                                      9
<PAGE>

                  diesel engine use including trucking, school buses,
                  off-road construction, and marine applications. IFT has not
                  finalized any agreements to date.

                  Distribution Partners

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

                  Direct Sales

                  In addition to marketing efforts with fleet owners and
                  distribution concerns, IFT is currently selling "additive
                  only" directly to the consumer using several distribution
                  channels. IFT continues to utilize trade show attendance,
                  direct mail and direct telemarketing to create initial
                  awareness of the products and their benefits to consumers,
                  supported by "800" number call-in support.

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

                  Regulatory and Trade Association Relationships

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

            SUMMARY

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


                                       10
<PAGE>

      EMPLOYEES

      Currently, IFT has seven full time employees. Management believes that the
      relationship with its employees is satisfactory.

Item 2. Properties

      IFT maintains its administrative offices at 7777 Bonhomme Avenue, Suite
      1920, St. Louis, Missouri, 63105, under a lease agreement for office space
      and administrative services of $4,269 per month for approximately 1,500
      square feet. A new five-year lease agreement was signed on January 1,
      2002.

      Management believes that the current facilities are adequate to meet
      current operating requirements.

Item 3. Legal Proceedings

      Name of the Court: NYE County, Nevada
      Date Instituted:   August 27, 2001
      Parties:           Donald Thompson v.  IFT
      Facts:             Mr. Thompson alleges that he entered into an oral
                         consulting contract with IFT. Mr. Thompson alleges that
                         one-time fee paid is an acceptance of his offer to
                         provide monthly consulting services.
      Relief sought:     Money damages for consulting fees and expenses
                         incurred.

      Name of the Court: Superior Court of the State of California for
                         the county of Los Angeles
      Date Instituted:   August 17, 2001
      Parties:           California Environmental Engineering, Inc.; George
                         Gemayel; George Thaye; and The Brothers Trust; v. IFT;
                         Terence Mendiretta; Salomon Grey Financial Corporation;
                         SPIGA Limited; Investe Co Ernst & Company; Encore
                         Holdings; Norman Barrett; Defendants
      Facts:             Plaintiffs allege negligent misrepresentation, fraud,
                         conversion, specific recovery of personal property,
                         breach of fiduciary duty, common count for money had
                         and received, and elder abuse against IFT and the other
                         defendants. Plaintiffs' claims are principally based on
                         the allegation that IFT and the other defendants are
                         liable for a purported misappropriation of proceeds
                         from sales of stock that were supposedly to have been
                         conducted on the Plaintiffs' behalf.

      Relief sought:     Plaintiffs seek compensatory damages in excess of
                         $3,000,000, plus interest, punitive damages, attorneys'
                         fees and costs of an unspecified amount. Plaintiffs
                         also seek certain injunctive relief.

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


                                       11
<PAGE>

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

      On November 18, 2002, IFT's annual shareholders meeting was held in
      St.Louis. At this meeting the following directors were elected to the
      Board of Directors: Jonathan R. Burst, Rex Carr, David B. Norris, Harry F.
      Demetriou, John P. Stupp Jr., Ian Williamson, and Tony Cross. All
      directors will serve on IFT's Board of Directors until the next annual
      shareholders' meeting. A summary of the vote for Directors follows:

                                FOR          WITHHELD
                           ------------------------------

      Jonathan R. Burst      45,235,720      870,465
      Rex Carr               46,069,070       37,115
      David B. Norris        46,020,520       85,665
      Harry F. Demetriou     46,069,070       37,115
      John P. Stupp, Jr.     46,068,000       38,185
      Ian Williamson         45,944,220      161,965
      Tony Cross             46,007,200       98,985

      The other matter shareholders voted on was the ratification of IFT's
      auditors, BDO Seidman LLP. 45,045,470 shares, being more than a majority
      of the outstanding stock of IFT, were voted in favor of, 19,675 shares
      voted against, and 1,041,040 shares abstained from ratification of the
      appointment of BDO Seidman LLP to audit the financial statements of IFT
      for the year 2002.

                                     PART II

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

      (a) Market Information

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

                              Per Share Common Stock Bid Prices by Quarter
                                     2001                        2002
                             -----------------------------------------------
                             High           Low          High           Low

      First Quarter          $0.56         $0.25         $0.52         $0.30
      Second Quarter         $0.63         $0.25         $0.47         $0.16
      Third Quarter          $0.70         $0.40         $0.29         $0.11
      Fourth Quarter         $0.62         $0.41         $0.17         $0.07


                                       12
<PAGE>

      (b) Holders of Common Stock

      As of the close of business on March 26, 2003, the last reported bid price
      per share of IFT's common stock was $.09. As of March 26, 2003, IFT
      estimates there were 4,500 record holders of IFT's common stock. Such
      number does not include persons whose shares are held by a bank, brokerage
      house or clearing company, but does include such bank, brokerage houses
      and clearing companies.

      (c) Dividends

      IFT has not declared or paid a cash dividend to shareholders. 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.

      (d) Securities authorized for issuance under equity compensation plans

      <TABLE>
      <CAPTION>
      ------------------------------------------------------------------------------------------------------------
                                                                                       Number of securities
                                   Number of securities                               remaining available for
                                     to be issued upon        Weighted-average         future issuance under
                                        exercise of          exercise price of       equity compensation plans
                                   outstanding options,     outstanding options,       (excluding securities
      Plan Category                 warrants and rights     warrants and rights      reflected in column (a))
      ------------------------------------------------------------------------------------------------------------
                                            (a)                     (b)                         (c)
      ------------------------------------------------------------------------------------------------------------
      <S>                          <C>                      <C>                      <C>
      Equity compensation                8,360,000                  0.48                     9,140,000
      plans approved by
      security holders (1)
      ------------------------------------------------------------------------------------------------------------
      Equity compensation                    0                       0                           0
      plans not approved by
      security holders
      ------------------------------------------------------------------------------------------------------------
      Total                              8,360,000                                           9,140,000
      ------------------------------------------------------------------------------------------------------------
      </TABLE>

      (1) Includes IFT's long-term incentive plan

Item 6. Selected Financial Statement Data

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


                                       13
<PAGE>

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

      <TABLE>
      <CAPTION>
                                                                                     Nine Months    Fiscal Year
                                                                                       ended           Ended
                                             Fiscal Year Ended December 31,         December 31,     March 31,
                                           2002           2001          2000            1999            1999
                                       -------------------------------------------------------------------------
      <S>                               <C>            <C>           <C>              <C>             <C>
      Revenues                              20             0              0               0               0
      Operating Expenses                   3,237         6,787          4,690           4,727           7,751
      Net Loss                            (3,479)       (7,575)        (6,688)         (5,132)         (7,839)
      Basic and Diluted Net
      Loss per Common Share               ($0.06)       ($0.21)        ($0.36)         ($0.32)         ($0.59)
      Weighted Average Shares           55,489,495     36,416,469    18,827,802       15,800,725      13,390,417
      </TABLE>

      On July 22, 1999, IFT effected a one-for-ten reverse split of its
      outstanding common stock.
      All references to share information have been restated to reflect this
      split.

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

      <TABLE>
      <CAPTION>
                                                                                     Nine Months    Fiscal Year
                                                                                       ended           Ended
                                             Fiscal Year Ended December 31,         December 31,     March 31,
                                           2002           2001          2000            1999            1999
                                       -------------------------------------------------------------------------
      <S>                               <C>            <C>           <C>              <C>             <C>
      Total Assets                         4,067         4,528           175             68               6
      Long-Term Debt                        163           258            162              0               0
      </TABLE>

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

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

      Overview

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


                                       14
<PAGE>

      Comparison of Twelve Months Ended 12/31/02 and Twelve Months Ended
      12/31/01

      Operating expenses

      Total operating expenses were $3,236,761 for the twelve months ended
      December 31, 2002, as compared to operating expenses of $6,787,050 for the
      twelve months ended December 31, 2001. Total operating expenses for the
      twelve months ended December 31, 2002 represents a $3,550,289, or 52%,
      decrease from the prior period. The decrease was mainly due to acquired
      in-process research and development costs of $1,900,000 in 2001 and a
      reduction of stock based compensation and stock issued to consultants of
      $752,349 and $650,515, respectively.

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

      Selling, General and Administrative Expenses

      Total selling, general and administrative expenses were $2,829,898 for the
      twelve months ended December 31, 2002, as compared to $6,312,253 for the
      twelve months ended December 31, 2001. Total selling, general and
      administrative expenses for the twelve months ended December 31, 2002
      represent a $3,482,355 decrease, or 55% decrease from the prior period.
      The level of selling, general and administrative expenses for the twelve
      months ended December 31, 2002 was significantly lower because in 2001 IFT
      had $1,900,000 of acquired in-process research and development costs and
      IFT significantly reduced stock based compensation and stock issued to
      consultants by $752,349 and $650,515, respectively. Selling, general and
      administrative expenses should increase while IFT increases its efforts to
      commercialize its products.

      Payroll

      Payroll expenses were $1,369,600 during the twelve months ended December
      31, 2002, as compared to $2,237,743 for the twelve month period ended
      December 31, 2001. Payroll for the twelve month period ended December 31,
      2002 represents a decrease of $868,142 from the prior period. Payroll
      expenses decreased primarily as a result of a reduction in stock based
      compensation of $752,349.

      Amortization and depreciation

      Amortization and depreciation expenses were $406,863 for the twelve months
      ended December 31, 2002, as compared to $474,797 for the twelve months
      ended December 31, 2001. The level of amortization and depreciation
      expense for the twelve months ended December 31, 2002 has decreased over
      2001 as a result of IFT implementing FAS 142. As a result there is no
      goodwill amortization in 2002 which reduced the expense by $238,000. This
      reduction was offset by a full year of amortization of purchased
      technology of $400,000 in 2002 compared with amortization of purchased
      technology of $233,333 in 2001. Amortization and depreciation expenses
      should be consistent with 2002 in 2003.

      Interest

      Interest expense was $266,387 for the twelve months ended December 31,
      2002 as compared to $787,760 for the twelve months ended December 31,
      2001. Interest expense for the twelve months ended December 31, 2002
      represents a decrease of $521,373 from the prior period. Interest expense
      was higher in 2001 due to discounts recorded on the convertible debenture


                                       15
<PAGE>

      agreement with IIG Equity Opportunities Fund Ltd. ("IIG"). Management
      expects that interest expenses will decrease in 2003 due to the minimal
      debt balance at the end of 2002.

      Provision for Income Taxes

      IFT has operated at a net loss since inception and has not recorded or
      paid any income taxes. IFT has a significant net operating loss
      carryforward that would be recognized at such time as IFT demonstrates the
      ability to operate on a profitable basis for an extended period of time.
      The deferred tax asset resulting from the net operating loss carryforward
      has been fully reserved with a valuation allowance.

      Net Loss

      The net loss was $3,478,620 for the twelve months ended December 31, 2002
      as compared to the net loss of $7,574,810 for the twelve months ended
      December 31, 2001. Net loss for the twelve months ended December 31, 2002
      represents a decrease of $4,096,190, or 54%, from the prior period. The
      net loss decreased due to the purchase of in-process research and
      development in 2001 combined with a reduction in professional fees,
      interest expense, and officers stock awards. The net loss per share of
      common stock was $.06 for the twelve months ended December 31, 2002 as
      compared to the net loss per common share of $.21 for the twelve months
      ended December 31, 2001. The decrease in loss per share was caused by
      decreased net losses for the twelve months ended December 31, 2002 and
      greater dilution of common stock for the twelve months ended December 31,
      2002.

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

      Operating expenses

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

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

      Selling, General & Administrative Expenses

      Total selling, general and administrative expenses were $6,312,253 for the
      twelve months ended December 31, 2001, as compared to $4,686,736 for the
      twelve months ended December 31, 2000. Total selling, general and
      administrative expenses for the twelve months ended December 31, 2001
      represent a $1,625,517 increase, or 34.7% increase from the prior period.
      This increase was mainly due to acquired in-process research and
      development costs of $1,900,000 in 2001.

      Payroll

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


                                       16
<PAGE>

      of stock-based compensation in 2001 and 2000, respectively.

      Amortization and depreciation

      Amortization and depreciation expenses were $474,797 for the twelve months
      ended December 31, 2001, as compared to $3,217 for the twelve months ended
      December 31, 2000. The increase was primarily due to amortization of
      goodwill and purchased technology associated with the purchase of
      Interfacial.

      Interest

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

      Net Loss

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

      New Accounting Pronouncements

      In April 2002, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission
      of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
      and Technical Corrections. This Statement rescinds SFAS No. 4, "Reporting
      Gains and Losses from Extinguishment of Debt" and an amendment of that
      Statement, SFAS No. 64, "Extinguishment of Debt Made to Satisfy
      Sinking-Fund Requirements." This Statement also rescinds SFAS No. 44,
      "Accounting for Intangible Assets of Motor Carriers." This Statement
      amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
      between the required accounting for sale-leaseback transactions and the
      required accounting for certain lease modifications that have economic
      effects that are similar to sale-leaseback transactions. This Statement
      also amends other existing authoritative pronouncements to make various
      technical corrections, clarify meanings or describe their applicability
      under changed conditions. The provisions of this Statement are effective
      for financial statements on or after May 15, 2002. Management does not
      believe that the adoption of this Statement will have a material impact on
      IFT's financial statements.

      In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
      with Exit or Disposal Activities." This Statement addresses financial
      accounting and reporting for costs associated with exit or disposal
      activities and nullifies Emerging Issues Task Force Issue No. 94-3,
      "Liability Recognition for Certain Employee Termination Benefits and Other
      Costs to Exit an Activity (including Certain Costs Incurred in
      Restructuring)." This Statement requires that a liability for costs
      associated with an exit or disposal activity be recognized and measured
      initially at fair value only when the liability in incurred. The
      provisions of this Statement are effective for exit or disposal activities
      that are initiated after December 31, 2002. Management does not believe
      that the adoption of this Statement will have a material impact on IFT's
      financial statements.


                                       17
<PAGE>

      In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure." This Statement amends the
      transition and disclosure requirements of FASB Statement No. 123,
      "Accounting for Stock-Based Compensation." For most companies, the impact
      of Statement 148 is more frequent and prominent disclosure of stock-based
      compensation expense beginning with financial statements for fiscal years
      ending after December 15, 2002. Statement 148 amends existing disclosures
      that a company should make in its annual financial statements and requires
      for the first time, disclosure in interim financial reports.

      In November 2002, FASB Interpretation No. 45 ("FIN 45"), "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Indebtedness of Others" was issued. FIN 45 elaborates on the disclosures
      to be made by a guarantor in its interim and annual financial statements
      about its obligations under certain guarantees that it has issued. It also
      clarifies that a guarantor is required to recognize, at the inception of a
      guarantee, a liability for the fair value of the obligation undertaken in
      issuing the guarantee. The initial recognition and initial measurement
      provisions of this Interpretation are applicable on a prospective basis to
      guarantees issued or modified after December 31, 2002. The required
      disclosures and a roll-froward of product warranty liabilities are
      effective for financial statements of interim or annual periods ending
      after December 15, 2002. At this time, IFT does not believe that the
      adoption of this interpretation will have a material effect on its
      financial statements.

      Critical Accounting Policies

      Valuation of long-lived and intangible assets and goodwill. IFT assesses
      the impairment of identifiable intangibles, long-lived assets and related
      goodwill whenever events or changes in circumstances indicate that the
      carrying value may not be recoverable. Factors IFT considers important
      which could trigger an impairment review include the following:
      o  Significant underperformance relative to expected historical or
         projected future operating results;
      o  Significant changes in the manner of IFT's use of the acquired assets
         or the strategy for IFT's overall business;
      o  Significant negative industry or economic trends;
      o  Significant decline in IFT's stock price for a sustained period; and
      o  IFT's market capitalization relative to net book value.

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

      In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" became
      effective and as a result, IFT ceased to amortize approximately $2.2
      million of goodwill. IFT recorded approximately $238,000 of amortization
      on these amounts during 2001 and would have recorded approximately
      $408,000 of amortization during 2002. The provisions of SFAS 142 also
      required the completion of transitional impairment test within 12 months
      of adoption, with any impairment treated as a cumulative effect of change
      in accounting principle. During the second quarter of 2002, IFT completed
      the transitional impairment test, which did not result in impairment of
      recorded goodwill.

      IFT adopted an annual goodwill impairment test date as of the beginning of
      the fourth quarter of 2002. Following this approach, the business was
      evaluated using the quoted market price of the common stock, which
      indicated that the fair value of the business exceeded its carrying value.
      As a result, no impairment of goodwill was recorded.


                                       18
<PAGE>

      Deferred Income Taxes. Deferred income taxes are recognized for the tax
      consequences of "temporary differences" by applying enacted statutory
      rates applicable to future years to differences between the financial
      statement carrying amounts and the tax basis of existing assets and
      liabilities. At December 31, 2002, IFT's deferred tax asset consisted
      principally of net operating loss carryforwards. IFT 's deferred tax asset
      has been reduced by a valuation allowance to the extent such benefits are
      not expected to be fully utilized.

      Liquidity and Capital Resources

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

      A significant portion of IFT's operating loss relates to charges for
      non-cash operating expenses such as amortization and depreciation,
      employee stock-based compensation, consulting services fees paid in IFT's
      common stock and interest expense related to conversion features of IFT
      debt. IFT has offset its capital needs primarily through the issuance of
      common stock to its employees and consultants as compensation for services
      rendered, which have totaled $1,387,423 for the twelve month period ended
      December 31, 2002. In addition, $249,613 of interest expense resulted from
      non-cash charges related to the convertible feature of our debt
      instruments during 2002. In addition to these amounts, IFT has raised
      $800,000 in cash from the issuance of common stock. Most of these funds
      have been raised through private placement transactions. For the twelve
      months ended December 31, 2002 proceeds from notes payable and advances
      from stockholders converted to common stock totaled $600,000.

      IFT has not made significant cash investments in property and equipment or
      in the acquisition of companies or technologies. During the period ended
      December 31, 2001, IFT acquired Interfacial in exchange for 12,500,001
      shares of the common stock. A more detailed description of the transaction
      is included below.

      The cash used in operating activities is $1,464,506 for the twelve months
      ended December 31, 2002 as compared to cash used in operating activities
      of $1,470,794 for the twelve months ended December 31, 2001. Cash used in
      operations for the twelve months ended December 31, 2002 stayed consistent
      with cash used in operations in the prior year. The cash provided by
      investing activities was $45,000 for the twelve months ended December 31,
      2002 as compared to $31,742 used in investing activities for the twelve
      months ended December 31, 2001. Cash provided by investing activities in
      2002 consists solely of proceeds received on repayment of notes
      receivable. The cash provided by financing activities was $1,400,000 for
      the twelve months ended December 31, 2002 as compared to $1,407,500
      provided by financing activities for the twelve months ended December 31,
      2001. Cash provided by financing activities in 2002 included $800,000 in
      proceeds from issuance of common stock and $600,000 in proceeds on debt
      that was converted to common stock. Net cash decreased by $19,506 for the
      twelve months ended December 31, 2002 as compared to net cash decreasing
      by $95,036 for the twelve months ended December 31, 2001.


                                       19
<PAGE>

      The cash used in operating activities is $1,470,794 for the twelve months
      ended December 31, 2001 as compared to cash used in operating activities
      of $977,594 for the twelve months ended December 31, 2000. Cash used in
      operations for the twelve months ended December 31, 2001 increased
      primarily due to an increase in payments for rent, research and
      development, and consulting. Research and development expense in 2000 was
      substantially comprised of non-cash stock-based compensation. The cash
      used in investing activities was $31,742 for the twelve months ended
      December 31, 2001 as compared to $8,198 used in investing activities for
      the twelve months ended December 31, 2000. Cash used in investing
      activities for the twelve months ended December 31, 2001 increased
      primarily due to the issuance of a note receivable of $35,000. The cash
      provided by financing activities was $1,407,500 for the twelve months
      ended December 31, 2001 as compared to $1,087,150 provided by financing
      activities for the twelve months ended December 31, 2000. Cash provided by
      financing activities for the twelve months ended December 31, 2001 related
      solely to the proceeds from additional notes payable. Net cash decreased
      by $95,036 for the twelve months ended December 31, 2001 as compared to
      net cash increasing by $101,358 for the twelve months ended December 31,
      2000.

      Working capital at December 31, 2002 was ($518,862) as compared to
      ($484,141) at December 31, 2001.

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

      On May 8, 2000, IFT issued 300,000 common shares that were contingently
      issued per the Blencathia merger agreement. The 300,000 shares of common
      stock are included in the statement of stockholders' deficit for the
      twelve months ended December 31, 2002, 2001, and 2000 but are not included
      in earnings per share and weighted average share calculations for the
      twelve month period ended December 31, 2002, 2001, and 2000. They will be
      included when the shares are sold to provide payment to the shareholders
      of Blencathia. The shareholders of Blencathia have represented to the
      management of IFT that the 300,000 shares will be sold only with IFT's
      approval. If the shares are sold and $500,000 is not generated additional
      shares may need to be issued to the shareholders of Blencathia. Based on
      the March 26, 2003 market price, $.09, of IFT's common stock, a total of
      5,555,555 shares would need to be issued to generate the $500,000
      proceeds.

      On May 25, 2001 IFT issued 12,500,001 common shares to the shareholders of
      Interfacial to acquire all of Interfacial's issued and outstanding capital
      stock. The purchase price of approximately $6,750,000 was determined based
      on the market price of IFT's common stock on the date the acquisition was
      announced. Stock certificates for an additional 8,500,002 shares of common
      stock were placed in an escrow account subject to a performance escrow
      agreement that provided for the release of the stock certificates to the
      Interfacial shareholders based on the achievement of certain revenue
      levels by IFT. In January of 2002, IFT and the former shareholders of
      Interfacial agreed to reduce the shares subject to the performance escrow
      by 500,000 shares. Revenues equal to, or greater than, $10,000,000 for the
      two year period ending May 24, 2003 will result in a portion, as
      determined by a formula in the performance escrow agreement, of the stock
      certificates for the 8,000,002 shares of common stock being released to
      the Interfacial shareholders. In connection with the closing of this
      transaction three of the Interfacial shareholders have been appointed to
      IFT's board of directors. In addition, IFT entered into consulting
      agreements with four of the Interfacial shareholders on May 25, 2001.


                                       20
<PAGE>

      On January 3, 2001 IFT entered into a Securities Purchase Agreement with
      IIG, which had a one-year commitment amount of $3 million, with an option
      at IFT's control for an additional $3 million in financing after the
      completion of the one-year commitment. On March 1, 2001, IFT completed
      registration of the common shares required by the January 3, 2001
      Securities Purchase Agreement (the "Agreement"). The Agreement provided
      for IFT to sell up to $250,000 in convertible debentures to IIG every
      thirty days. On March 2, 2001 IFT initiated the first convertible
      debenture purchase and on March 7, 2001 received $200,000 and on March 22,
      2001 received $50,000. On April 6, 2001, IFT initiated the second
      convertible debenture purchase and on April 24, 2001 received $225,000.
      During May 2001 IFT received notification that due to regulatory issues
      relating to the structure of the transactions contemplated by the
      Agreement, 18,163,872 shares issuable upon possible future conversion of
      debentures not yet issued and 750,000 shares issuable upon possible future
      exercise of not yet issued warrants will never be issued. Due to the
      inability to sell additional convertible debentures after April 2001, IFT
      entered into a new Agreement with IIG on July 10, 2001 that provides for
      the sale of convertible debentures and has a one-year commitment amount of
      $3 million. As of December 31, 2002, IFT has borrowed a total of
      $1,750,000 under the financing agreement. IIG has suspended its financing
      agreement with IFT due to IFT's low stock price.

      On August 15, 2002 IFT secured $2.5 million in new capital from the sale
      of restricted common Stock to R.C. Holding Company. The new capital
      consisted of a cash payment of $500,000 and guaranteed notes to be paid in
      three installments of $666,667 due in January 2003, June 2003 and January
      2004.

      While management cannot make any assurance as to the accuracy of our
      projections of future capital needs, it is anticipated that a total of
      approximately $1.3 million over the remainder of the 2003 fiscal year will
      be necessary in order to enable us to meet our current capital needs.
      These cash requirements will be met through the arrangement with R.C.
      Holding Company. Management believes that the proceeds from this financing
      will be used as follows: $100,000 for commercial fleet testing programs,
      $300,000 for professional fees and advertising, $750,000 for salary
      expenses and $150,000 working capital for administrative and other capital
      needs, including investigation of future acquisitions, if any.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

      In the normal course of business, operations of IFT may be exposed to
      fluctuations in interest rates. These fluctuations can vary the cost of
      financing, investing and operating transactions. IFT has debt totaling 22%
      of total liabilities at fixed rates of interest and fluctuations in the
      interest rate could have a material impact on the underlying fair value.
      See Note 4 of the financial statements for further discussion.

Item 8. Financial Statements and Supplementary Data

      Financial statements as of December 31, 2002 and 2001 and for the twelve
      month periods ended December 31, 2002, 2001 and 2000 are presented in a
      separate section of this report following Part IV.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

      None.


                                       21
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

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

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

      Jonathan R. Burst        44                Chief Executive Officer,
                                                 President, Director, Chairman
      Michael F. Obertop       32                Chief Financial Officer,
                                                 Corporate Secretary
      Gary Kirk                41                Director of Sales and Marketing
      David B. Norris          54                Director
      Harry F. Demetriou       58                Director
      Ian Williamson           47                Director
      John P. Stupp Jr.        52                Director
      Rex Carr                 76                Director
      Tony Cross               54                Director

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

      Background of Directors and Executive Officers:

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

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

      GARY KIRK has served as Director of Sales and Marketing since January 1,
      2003. Mr. Kirk has 23 years (1980 to present) of experience in the
      petroleum industry, all with Petrochem Carless Ltd., a United Kingdom
      based refiner and marketer of petroleum products. Mr. Kirk spent his first
      eight years as a research chemist and the last fifteen years in the
      marketing department. Mr. Kirk reported directly to the President as the
      Marketing Manager for Performance Fuels, covering accounts in Europe and
      the rest of the world.


                                       22
<PAGE>

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

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

      IAN WILLIAMSON has served on IFT's Board of Directors since May 2001. Mr.
      Williamson has been involved with the combustion of non-barrel materials
      and looking for alternatives since 1975, predominantly in the field of
      district heating and energy schemes, utilizing trash and other non oil
      substitutes, until 1994 when "alternative fuels for the motor industry"
      research started. Mr. Williamson is the original inventor of a clear
      stable "e-diesel" (1996) and author of eight patents and applications
      related to cleaner burning and performance enhancing motor fuels utilizing
      alcohol, water, bio-diesel and liquids from natural gas. Mr. Williamson
      studied mechanical services and combustion at Nottingham University,
      United Kingdom for three years. Mr. Williamson was previously employed by
      Interfacial.

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

      REX CARR has served on IFT's Board of Directors since August 2002. Mr.
      Carr has served as the senior partner of a 36 man law firm,
      CarrKoreinTillery, with offices in Missouri and Illinois, for more than
      fifty years. He and his firm specialize in a trial practice representing
      plaintiffs in complex litigation, class actions, and injury actions. He is
      admitted to practice in the U.S. Supreme Court and the Illinois and
      Missouri Supreme Courts. His business ventures include RC Holding Company,
      which owns and operates five hotel boats in France; Art Company London,
      which manufactures and sells art reproduced on canvas; the Carlyle Limited
      Partnership, which operates a marina at Carlyle Lake in Illinois; and
      numerous apartment complexes in Illinois.

      TONY CROSS has served on IFT's Board of Directors since November 2002. Mr.
      Cross is a graduate Chemical Engineer from the University of Sheffield,
      UK. He spent 17 years with Exxon Chemical, in Australia, Belgium and the
      UK where he was marketing Manager for the Solvents Business Division. In
      1987, he joined the board of Carless Refining & Marketing Ltd., an
      independent UK refiner, as Marketing Director. Following its take-over by
      Repsol, Spain's leading oil company, he was made Managing Director in 1996
      overseeing the subsequent sale of the company as part of Repsol's
      divestment program in 2000.

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.


                                       23
<PAGE>

      Summary Compensation Table

      <TABLE>
      <CAPTION>
                                                  Annual Compensation                 Compensation
                                            ------------------------------       -----------------------
                                                                                              Securities
      Name and                                                      Other        Restricted   underlying    All Other
      Principal                  Period                            Compen-         Stock       Options/     Compen-
      Position                   Ended      Salary      Bonus       sation         Awards        SARs        sation
      --------                  ------------------------------------------       ------------------------------------
      <S>                       <C>        <C>          <C>        <C>           <C>          <C>           <C>
      Jonathan R. Burst,        12/31/02   $250,000      $0           $0                $0        $0           $0
      CEO                       12/31/01   $200,000      $0           $0          $555,000        $0           $0
                                12/31/00   $180,000      $0           $0          $834,067        $0           $0
      </TABLE>

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

      Employment Agreements

      In January 2002, IFT entered into an employment agreement with Mr. Burst
      to serve as Chief Executive Officer with an annual base salary of $250,000
      and options to purchase 250,000 shares of IFT stock annually and a bonus
      award as deemed appropriate by IFT's Board of Directors. The three-year
      agreement ends on December 31, 2004.

      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 an
      additional 1,000 shares of IFT's common stock for any three-telephone
      conference call Board meetings attended.

      The following table sets forth certain information concerning options
      granted during the fiscal year ended December 31, 2002 to the Named
      Executives by IFT. IFT did not grant any share appreciation rights during
      2002.


                                       24
<PAGE>

      <TABLE>
      <CAPTION>
                                 Number of         Percent of Total                             Potential Realized
                                 Securities         Options/ SARS                                Value of Assumed
                                 Underlying           Granted to      Exercise                 Annual Rates of Stock
                                  Options            Employees in     or Base    Expiration    Price Appreciation for
      Name and Principal        Granted (A)          Fiscal Year       Price        Date            Option Term
      ----------------------------------------------------------------------------------------------------------------
                                                                                                 5%          10%
      <S>                       <C>                  <C>              <C>        <C>           <C>         <C>
      Jonathan R. Burst,         1,000,000     (a)        19%           $0.25      8/19/07     $43,545     $120,417
      CEO                        1,000,000     (a)        19%           $0.50      8/19/07       (d)         (d)
                                 1,000,000     (a)        19%           $0.75      8/19/07       (d)         (d)
                                  250,000      (a)         6%           $0.14      8/19/07     $3,288      $13,315
                                  750,000      (b)        14%           $0.50      8/19/07       (d)         (d)
                                  750,000      (c)        14%           $0.50      8/19/07       (d)         (d)
                              -----------------    -------------------
                                 4,750,000                91%
                              =================    ===================
      </TABLE>

      (a)   3,250,000 options are exercisable at December 31, 2002
      (b)   750,000 options vest and become exercisable on August 19, 2003
      (c)   750,000 options vest and become exercisable on August 19, 2004
      (d)   Exercise price exceeds the potential realized value of assumed
            annual rates of stock price appreciation for option term.
      None of the options granted to Mr. Burst are in-the-money at December 31,
      2002

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth information as of January 31, 2003,
      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.

          Name of                  Amount and Nature of          Percent of
      Beneficial Owner             Beneficial Ownership        Common Stock(1)
      ----------------             --------------------        ---------------

      Jonathan R. Burst(2)              5,931,000                     7.3%
      David B. Norris                   1,096,562                     1.4%
      Harry F. Demetriou(3)             4,872,778                     6.3%
      Ian Williamson(4)                 3,425,000                     4.4%
      John P. Stupp Jr.                   318,233                     0.4%
      Rex Carr                         14,903,889                    19.2%
      Tony Cross                                0                       0%
      All directors and executive
       officers as a group(5)          30,837,462                    37.6%


                                       25
<PAGE>

      (1)   Based upon 77,524,689 outstanding shares of common stock and vested
            options of beneficial owners where applicable.
      (2)   Includes 50,000 shares owned by Burcor Capital, LLC of which Mr.
            Burst is an executive officer and deemed to be the beneficial owner
            of such shares. Includes 3,250,000 shares issuable upon exercise of
            stock options.
      (3)   Includes 4,832,778 shares owned by Observor Acceptances, Ltd. of
            which Mr. Demetriou is the sole owner and deemed to be the
            beneficial owner of such shares.
      (4)   Includes 1,000,000 shares issuable upon exercise of stock options.
      (5)   Includes 4,510,000 shares issuable upon exercise of stock options.

      Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934, as amended (the
      "Exchange Act"), requires IFT's executive officers and directors, and
      persons who beneficially own more than ten percent of IFT's common stock,
      to file initial reports of ownership and reports of changes in ownership
      with the SEC. Executive officers, directors and greater than ten percent
      beneficial owners are required by SEC regulations to furnish IFT with
      copies of all Section 16(a) forms they file. Based upon a review of the
      copies of such forms furnished to IFT and written representations from
      IFT's executive officers and directors, IFT believes that during fiscal
      2002 Forms 3, 4 and 5 were filed on a timely basis for IFT's executive
      officers and directors.

Item 13. Certain Relationships and Related Transactions

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

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

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

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


                                       26
<PAGE>

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

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

      In January 2002, IFT sold 600,000 restricted shares of common stock at a
      price of $.25 per share to Harry Demetriou, a Director. IFT recorded
      payroll expense of $150,000 relating to the excess of the trading price of
      IFT's stock over the proceeds. In August 2002, IFT issued an additional
      2,000,000 shares to this Director and recorded payroll expense of $460,000
      based on the closing stock price at the date of grant.

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

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

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

      In April and May 2002, IFT issued a total of 340,000 shares of common
      stock to consultants for services. IFT recorded consulting expense of
      $104,900 based on the closing stock price at the date of the grant.

      In July 2002, IFT entered into a consulting agreement with Sabita Dhingra
      in which IFT issued 1,250,000 shares of common stock upon inception of the
      agreement, and will issue an additional 1,250,000 shares at a mutually
      agreed upon time. The consulting agreement, for which IFT will receive
      strategic planning and general business consulting, is for a one-year term
      expiring July 31, 2003. IFT has recorded consulting expense of $140,625
      through December 31, 2002 in connection with this agreement. IFT is
      recording the value of these shares ratably over the term of the
      consulting agreement.

      In July 2002, IFT issued 500,000 shares of common stock to a consultant
      for services. The consulting agreement is for a one-year term expiring
      June 30, 2003. IFT has recorded consulting expense of $52,500 through
      December 31, 2002 in connection with this agreement. IFT is recording the
      value of these shares ratably over the term of the consulting agreement.

      In September 2002, IFT issued 1,555,555 shares of common stock to convert
      advances of $280,000 from stockholders and recorded deemed interest of
      $77,778 due to the fair value of the stock on the date of extinguishment
      exceeding the carrying value by this amount.

      In September 2002, IFT issued 960,000 shares of common stock to four
      consultants pursuant to two-year consulting agreements with these
      individuals, and recorded consulting expense of $216,000. IFT recorded a
      reduction in consulting expense of ($278,833) due to a reduction in value
      of 980,000 shares to be issued in May 2003 under these agreements.

      In August 2002, IFT secured $2.5 million in new capital from the sale of
      13,888,889 shares of restricted common stock to R.C. Holding Company. Rex
      Carr, a director of IFT, is the principal owner


                                       27
<PAGE>

      of R.C. Holding Company. The new capital consisted of a cash payment of
      $500,000 and $2,000,000 guaranteed notes to be paid in three installments.
      As of December 31, 2002, IFT has received $100,000 in proceeds for
      repayments of the notes receivable. The notes have been classified as a
      reduction of stockholders' equity on the accompanying balance sheet.

      In August 2002, IFT granted an additional 4,850,000 stock options to
      employees. 3,000,000 of these options vested immediately, and the
      remaining options will vest after 12 or 24 months. The options have
      exercise prices ranging from $0.25 to $0.75, and expire in August 2007.
      IFT applied the intrinsic value method under APB Opinion 25 and related
      interpretations in accounting for these options. Accordingly, no
      compensation cost has been recognized.

      During the twelve months ended December 31, 2002, IFT recorded $298,964 in
      compensation expense relating to shares that were to be issued to
      employees on various anniversary dates of their employment. These shares
      were never issued, and were replaced with grants of options to purchase an
      aggregate of 510,000 shares of common stock at exercise prices ranging
      from $0.14 to $0.25 per share, vesting immediately, and expiring in August
      2007.

      During the twelve months ended December 31, 2002, IFT recorded consulting
      expense of $174,167 in connection with the granting of 3,000,000 stock
      options to non-employees. 1,000,000 of these options vested immediately
      and were recorded as consulting expense at that time. The remaining
      2,000,000 options will vest after 12 and 24 months, and the fair value of
      these options are being recorded as consulting expense ratably over the
      vesting period. The options have exercise prices ranging from $0.25 to
      $0.75, and expire in August 2007.

                                     PART IV

Item 14. Controls and Procedures

  (a) Evaluation of disclosure controls and procedures. Based on their
      evaluations as of a date within 90 days of the filing of this report, our
      principal executive officer and principal financial officer, with the
      participation of our full management team, have concluded that our
      disclosure controls and procedures (as defined in Rules 13a-14(c) and
      15(d)-14(c) under the Securities Exchange Act) are effective to ensure
      that information required to be disclosed by us in reports that we file or
      submit under the Securities Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms of the SEC.

      Changes in controls. There were no significant changes in our internal
      controls or in other factors that could significantly affect these
      internal controls subsequent to the date of their most recent evaluation,
      including any corrective actions with regard to significant deficiencies
      and material weaknesses.

Item 15. Exhibits, Financial Statements and Schedules, and Reports on Form 8-K

      (a) Document List

      1. Financial Statements

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


                                       28
<PAGE>

      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.

            **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

            ***10.5 IIG Securities Purchase Agreement

            23.1 Consent of BDO Seidman, LLP

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

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

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

(b) Reports on Form 8-K

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

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

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

(c) Exhibits

      See (a) above


                                       29
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

Report of Independent Certified Public Accountants                           F-2

Financial Statements
       Balance sheets                                                        F-3
       Statements of operations                                              F-4
       Statements of stockholders' equity                                    F-5
       Statements of cash flows                                              F-6

Notes to Financial Statements                                         F-7 - F-24


                                      F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

      We have audited the accompanying balance sheets of International Fuel
      Technology, Inc. as of December 31, 2002 and 2001, and the related
      statements of operations, stockholders' equity and cash flows for each of
      the three years in the period ended December 31, 2002. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements
      based on our audits.

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

      In our opinion, the financial statements referred to above present fairly,
      in all material respects, the financial position of International Fuel
      Technology, Inc. as of December 31, 2002 and 2001 and the results of its
      operations and its cash flows for each of the three years in the period
      ended December 31, 2002 in conformity with accounting principles generally
      accepted in the United States of America.

      As discussed in Note 3 to the financial statements, effective January 1,
      2002, the Company adopted FASB Statement No. 142, "Goodwill and Other
      Intangible Assets."

      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 and cash used in operating activities that raise
      substantial doubt about International Fuel Technology, Inc.'s ability to
      continue as a going concern. Management's plans in regard to these matters
      are also described in Note 2. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.

      BDO SEIDMAN, LLP

      Chicago, Illinois
      January 29, 2003


                                      F-2
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  December 31,     December 31,
ASSETS (Note 2)                                                                       2002             2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>
Current Assets
  Cash                                                                                 $13,662          $33,168
  Accounts Receivable                                                                    3,338               --
  Inventory                                                                              7,070               --
  Prepaid Expenses                                                                      15,250           15,250
  Notes Receivable                                                                      35,000           80,000
                                                                                  ------------     ------------
                        Total current assets                                            74,320          128,418
                                                                                  ------------     ------------

Property and Equipment
  Machinery and equipment                                                               26,881           26,881
  Accumulated depreciation                                                             (12,687)          (5,824)
                                                                                  ------------     ------------
                        Total property and equipment                                    14,194           21,057
                                                                                  ------------     ------------

Purchased Technology, Net of accumulated amortization of $633,333 and
$233,333 at December 31, 2002 and 2001, respectively (Note 3)                        1,766,668        2,166,668
Goodwill (Note 3)                                                                    2,211,805        2,211,805
                                                                                  ------------     ------------

                        Total assets                                              $  4,066,987     $  4,527,948
                                                                                  ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable                                                                $    145,773     $    252,779
  Accrued compensation (Note 5)                                                        304,909          277,030
  Other Accrued expenses                                                               115,000           65,000
  Accrued interest                                                                      27,500           17,750
                                                                                  ------------     ------------
                        Total current liabilities                                      593,182          612,559
                                                                                  ------------     ------------

Long -Term Liabilities
  Notes payable to stockholder (Note 4)                                                162,500          162,500
  Convertible debentures (net of discount) (Note 4)                                         --           95,924
                                                                                  ------------     ------------
                        Total liabilities                                              755,682          870,983
                                                                                  ------------     ------------

Commitments and Contingencies (Notes, 2, 3, 8, 9, and 10)
Stockholders' Equity (Notes 5 and 10)
  Common stock, $.01 par value;150,000,000 shares authorized
  77,524,689 and 55,119,612 shares issued and outstanding at
  December 31, 2002 and December 31, 2001, respectively                                775,247          551,196
  Discount on common stock                                                            (819,923)        (819,923)
  Additional paid-in capital                                                        37,403,979       32,595,070
  Accumulated Deficit                                                             (32,147,998))     (28,669,378)
                                                                                  ------------     ------------
                                                                                     5,211,305        3,656,965
  Note receivable - stockholder (Note 5)                                            (1,900,000)              --
                                                                                  ------------     ------------
                        Total stockholders' equity                                   3,311,305        3,656,965
                                                                                  ------------     ------------
Total Liabilities and Stockholders' Equity                                           4,066,987        4,527,948
                                                                                  ============     ============
</TABLE>

See Notes to Financial Statements.


                                      F-3
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            Year             Year             Year
                                                           Ended            Ended            Ended
                                                        December 31      December 31      December 31
                                                        ------------    ------------------------------
                                                           2002              2001            2000
------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>              <C>
Revenues                                                $     20,073     $         --     $         --
Cost of Goods Sold                                            16,802               --               --
                                                        ------------     ------------     ------------
Gross Profit                                                   3,271               --               --
                                                        ------------     ------------     ------------

Operating Expenses:
  Selling, general and administrative expenses             2,829,898        6,312,253        4,686,736
  Amortization & Depreciation                                406,863          474,797            3,217
                                                        ------------     ------------     ------------
                     Total operating expenses              3,236,761        6,787,050        4,689,953
                                                        ------------     ------------     ------------
            Net loss from operations                      (3,233,490)      (6,787,050)      (4,689,953)
                                                        ------------     ------------     ------------

            Interest Income                                   21,257               --               --
            Interest expense (Note 4)                       (266,387)        (787,760)      (1,997,583)
                                                        ------------     ------------     ------------
            Total other expense, net                        (245,130)        (787,760)      (1,997,583)
                                                        ------------     ------------     ------------

            Net loss                                    $ (3,478,620)    $ (7,574,810)    $ (6,687,536)
                                                        ============     ============     ============

                          Basic and diluted net loss
                            per common share            $       (.06)    $       (.21)    $       (.36)
                                                        ============     ============     ============

Weighted average common shares outstanding                55,489,495       36,416,469       18,827,802
</TABLE>

See Notes to Financial Statements.


                                      F-4
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                                     Additional
                                                                       Common Stock      Common      Discount on       Paid-In
                                                                          Shares      Stock Amount  Common Stock       Capital
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>           <C>              <C>
Balance, January 1, 2000                                                16,818,339       168,184      (816,923)      14,760,243
Issuances of stock for cash and services (Note 5)                          491,800         4,918            --        1,472,407
Issuances of stock for compensation (Note 5)                             1,545,000        15,450            --        1,353,899
Issuances of stock for services (Note 5)                                   562,559         5,625            --          612,012
Issuance of stock warrants and notes payable-Stockholders (Note 4)              --            --            --        1,228,424
Issuance of stock for warrants exercised (Note 5)                        2,030,000        20,300            --               --
Conversion of debt (Note 4)                                              1,626,086        16,261            --          878,086
Conversion of debt and interest (Note 4)                                 1,186,669        11,866            --          581,467
Issuance of contingently issued stock (Note 5)                             300,000         3,000        (3,000)              --
Accrued stock based compensation (Note 5)                                       --            --            --          321,750
Net loss                                                                        --            --            --               --
-------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                                              24,560,453       245,604      (819,923)      21,208,288
Conversion of debt and interest (Note 5)                                    33,333           333            --           16,708
Issuances of stock for assignment of note receivable (Note 5)              326,087         3,261            --          156,522
Issuances of stock for compensation (Note 5)                             3,679,000        36,790            --        1,565,773
Issuances of stock for convertible debentures (Note 4)                   3,834,213        38,342            --        1,236,658
Issuances of stock of convertible debt interest (Note 4)                   406,523         4,066            --          139,135
Issuances of stock for accounts payable (Note 5)                            10,000           100            --            3,400
Issuances of stock for services (Note 5)                                 1,270,000        12,700            --          660,075
Issuances of stock for Interfacial acquisition (Note 3)                 12,500,001       125,000            --        6,625,001
Issuances of stock for Interfacial escrow (Note 3)                       8,500,002        85,000            --          (85,000)
Discount on issuances of convertible debt (Note 4)                              --            --            --          610,593
Issuances of common stock warrants (Note 4)                                     --            --            --           42,750
Accrued stock based compensation (Note 5)                                       --            --            --           58,750
Accrued stock based services (Note 5)                                           --            --            --          356,417
Net loss                                                                        --            --            --               --
-------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                                              55,119,612       551,196      (819,923)      32,595,070
Shares issued for cash and notes receivable (Note 5)                    13,888,889       138,889            --        2,361,111
Shares issued in repayment of shareholder advances (Note 4)              1,555,555        15,556            --          342,221
Proceeds from the issuance of common stock (Note 5)                        850,000         8,500            --          191,500
Issuances of stock for compensation (Note 5)                               125,000         1,250            --          148,750
Issuances of stock for services (Note 5)                                 5,075,000        50,750            --          967,375
Cancellation of Interfacial escrow shares (Note 5)                        (500,000)       (5,000)           --            5,000
Issuances of stock for convertible debentures (Note 4)                   1,410,633        14,106            --          460,894
Discount on issuances of convertible debt (Note 4)                              --            --            --          112,760
Accrued stock based compensation (Note 11)                                      --            --            --          298,963
Accrued stock based services (Note 5)                                           --            --            --         (253,832)
Compensation relating to stock options (Note 11)                                --            --            --          174,167
Net loss                                                                        --            --            --               --
-------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002                                              77,524,689       775,247      (819,923)      37,403,979
===============================================================================================================================

<CAPTION>
                                                                          Notes        Accumulated
                                                                        Receivable       Deficit           Total
------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>               <C>
Balance, January 1, 2000                                                       --      (14,407,032)       (295,528)
Issuances of stock for cash and services (Note 5)                              --               --       1,477,325
Issuances of stock for compensation (Note 5)                                   --               --       1,369,349
Issuances of stock for services (Note 5)                                       --               --         617,637
Issuance of stock warrants and notes payable-Stockholders (Note 4)             --               --       1,228,424
Issuance of stock for warrants exercised (Note 5)                              --           20,300
Conversion of debt (Note 4)                                                    --               --         894,347
Conversion of debt and interest (Note 4)                                       --               --         593,333
Issuance of contingently issued stock (Note 5)                                 --               --              --
Accrued stock based compensation (Note 5)                                      --               --         321,750
Net loss                                                                       --       (6,687,536)     (6,687,536)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                                                     --      (21,094,568)       (460,599)
Conversion of debt and interest (Note 5)                                       --               --          17,041
Issuances of stock for assignment of note receivable (Note 5)                  --               --         159,783
Issuances of stock for compensation (Note 5)                                   --               --       1,602,563
Issuances of stock for convertible debentures (Note 4)                         --               --       1,275,000
Issuances of stock of convertible debt interest (Note 4)                       --               --         143,201
Issuances of stock for accounts payable (Note 5)                               --               --           3,500
Issuances of stock for services (Note 5)                                       --               --         672,775
Issuances of stock for Interfacial acquisition (Note 3)                        --               --       6,750,001
Issuances of stock for Interfacial escrow (Note 3)                             --               --              --
Discount on issuances of convertible debt (Note 4)                             --               --         610,593
Issuances of common stock warrants (Note 4)                                    --               --          42,750
Accrued stock based compensation (Note 5)                                      --               --          58,750
Accrued stock based services (Note 5)                                          --               --         356,417
Net loss                                                                       --       (7,574,810)     (7,574,810)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                                                     --      (28,669,378)      3,656,965
Shares issued for cash and notes receivable (Note 5)                   (1,900,000)              --         600,000
Shares issued in repayment of shareholder advances (Note 4)                    --               --         357,777
Proceeds from the issuance of common stock (Note 5)                            --               --         200,000
Issuances of stock for compensation (Note 5)                                   --               --         150,000
Issuances of stock for services (Note 5)                                       --               --       1,018,125
Cancellation of Interfacial escrow shares (Note 5)                             --               --              --
Issuances of stock for convertible debentures (Note 4)                         --               --         475,000
Discount on issuances of convertible debt (Note 4)                             --               --         112,760
Accrued stock based compensation (Note 11)                                     --               --         298,963
Accrued stock based services (Note 5)                                          --               --        (253,832)
Compensation relating to stock options (Note 11)                               --               --         174,167
Net loss                                                                       --       (3,478,620)     (3,478,620)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002                                             (1,900,000)     (32,147,998)      3,311,305
==================================================================================================================
</TABLE>

See Notes to Financial Statements


                                      F-5
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                             Year Ended       Year Ended      Year Ended
                                                            December 31,     December 31,    December 31,
                                                                2002             2001           2000
---------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>              <C>
Cash Flows from Operating Activities
Net loss                                                    $(3,478,620)     $(7,574,810)     $(6,687,536)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation/ Amortization                                    406,863          474,797            3,217
  In-process research and development acquired                       --        1,900,000
  Non-cash stock compensation                                 1,387,423        2,790,287        3,494,616
  Interest expense recognized-discount on notes payable         171,835          594,267        1,228,424
  Interest expense recognized-conversion of debt                 77,778          150,243          757,680
  Loss on disposal of machinery and equipment                        --            5,527               --
  Change in assets and liabilities:
    Increase in accounts receivable                              (3,338)              --               --
    Increase in inventory                                        (7,070)              --               --
    Decrease (increase) in prepaid insurance                         --           13,857          (16,387)
    (Decrease) Increase in accounts payable                    (107,006)          28,531          132,525
    Decrease in accounts payable-stockholders                        --               --         (100,000)
    Increase in accrued expenses                                 77,879          137,705          200,919
    Increase in accrued interest                                  9,750            8,802            8,948
                                                            ---------------------------------------------
Net cash used in operating activities                        (1,464,506)      (1,470,794)        (977,594)
                                                            ---------------------------------------------
Cash Flows from Investing Activities
  Acquisition of machinery and equipment                             --          (14,142)          (8,198)
  Proceeds from the sale of property and equipment                   --            2,400               --
  Issuance of Note Receivable                                        --          (35,000)              --
  Proceeds from repayments of Note Receivable                    45,000           15,000               --
                                                            ---------------------------------------------
Net cash provided by (used in) investing activities              45,000          (31,742)          (8,198)
                                                            ---------------------------------------------
Cash Flows from Financing Activities
  Proceeds from common stock issued                             800,000               --          224,650
  Advances from stockholders                                    280,000               --               --
  Proceeds from notes payable                                   320,000        1,431,000          890,000
  Payment on notes payable                                           --          (23,500)         (27,500)
                                                            ---------------------------------------------
Net cash provided by financing activities                     1,400,000        1,407,500        1,087,150
                                                            ---------------------------------------------
Net (decrease) increase in cash                                 (19,506)         (95,036)         101,358
Cash, beginning                                                  33,168          128,204           26,846
                                                            ---------------------------------------------
Cash, ending                                                $    13,662      $    33,168      $   128,204
                                                            =============================================
Supplemental Cash Flow Information
  Interest paid                                             $        --      $        --      $     2,531
Schedule of non-cash investing and financing activities
  Discount on issuances of convertible debt and notes
  payable                                                       190,537          653,343        1,228,424
  Conversion of debt to common stock                            475,000        1,438,742        1,487,680
  Shares issued in repayment of shareholder advances            280,000               --               --
  Acquisition of Interfacial                                         --        6,750,001               --
  Issuance of stock for note receivable                     $ 1,900,000      $    60,000      $        --
</TABLE>

See Notes to Financial Statements


                                      F-6
<PAGE>

NOTES TO FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Nature of business

International Fuel Technology, Inc., ("IFT") is a company that was incorporated
under the laws of the State of Nevada on April 9, 1996 and was formerly known as
MagnoDynamic Corporation. IFT was formed primarily for the production of a
family of proprietary fuels known as PEERFUELTM. IFT developed a process, which
it believes will make diesel fuel burn more efficiently and with less emissions.
IFT, as described in Note 3, acquired United States Fuel Technology, Inc, and
Scientific Fuel Technology, LLC, to streamline the selling of PEERFUELTM. As
described in Note 5, IFT acquired Blencathia Acquisition Corporation to ensure
IFT would remain a fully trading and reporting entity on the OTC Bulletin Board.
United States Fuel Technology, Inc., Scientific Fuel Technology, LLC, and
Blencathia Acquisition Corporation were all dissolved subsequent to their merger
into IFT. As part of IFT's efforts to expand into promising new engine
emission-reduction technologies, IFT completed the acquisition of Interfacial
Technologies (UK) Ltd. ("Interfacial") on May 25, 2001. All of the operations of
Interfacial were transferred to IFT subsequent to the acquisition. Through the
acquisition of Interfacial, IFT has developed a family of proprietary fuels and
fuel additive formulations. These unique fuel blends have been created to
materially improve fuel economy, enhance lubricity (reducing engine wear and
tear) and lower harmful engine emissions, while decreasing reliance on
petroleum-based fuels through the use of more efficient, alternative and
renewable fuel mediums. In 2002, IFT emerged from its research and development
phase and is now focused on the commercialization of its numerous fuel blends
and additives.

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 statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Revenue Recognition

IFT recognizes revenue from the sale of its product when the merchandise is
shipped. IFT also intends to license its products, which will result in
recognition of revenue over the life of the contract. At December 31, 2002, IFT
has not yet entered into any agreements to license its products.

Cash

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

Machinery and equipment

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


                                      F-7
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

Long-lived Assets

IFT reviews the carrying values of its long-lived and intangible assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. As of December 31,
2002 there has been no impairment of long-lived assets.

Deferred taxes

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

Research and Development

Research and development costs are expensed in the period incurred. Expense for
the years ended 2002, 2001 and 2000 was $16,802, $197,433, and $286,914,
respectively.

Advertising Expenses

Advertising expenses amounted to $11,852, $14,500 and $20,522 in 2002, 2001 and
2000, respectively.

Basic and diluted net loss per common share

IFT adopted Statement of Financial Accounting Standards No. 128 (SFAS 128),
Earnings per Share. SFAS 128 establishes standards for computing and presenting
earnings per share and replaces primary earnings per share with a presentation
of basic and diluted earnings per share. Basic earnings per share are based upon
the weighted average number of common shares outstanding for the period. Diluted
earnings per share are based upon the weighted average number of common and
potentially dilutive common shares outstanding for the period. Pursuant to SFAS
128, no adjustment is made for diluted earnings per share purposes since IFT is
reporting a net loss and common stock equivalents would have an anti-dilutive
effect. For the fiscal years ended December 31, 2002, 2001, and 2000, 8,360,000,
587,853, and 0 shares, respectively, of common stock equivalents were excluded
from the computation of diluted earnings per share since their effect would be
anti-dilutive.

Fair value of financial instruments

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

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

The fair value of notes payable and convertible debentures approximate their
carrying basis based on the


                                      F-8
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

nature of these obligations and current interest rates approximating stated
interest rates.

Accounting for Stock-Based Compensation

IFT applies the intrinsic value method under APB Opinion 25 and related
interpretations in accounting for employee stock options, which represents the
excess of market price of the stock over the exercise price on the measurement
date. In addition, as a result of replacing stock grants with options certain
options are treated as variable-based awards in accordance with APB 25. As a
result, IFT will incur future compensation expense if the stock price exceeds
the exercise price established by repricing.

IFT has elected to continue to utilize the accounting provisions of APB25 for
stock options, and is required to provide pro forma disclosures of net income
and earnings per share had IFT adopted the fair value method under SFAS No. 123

The weighted-average, grant date fair value of stock options granted to
employees during the year and the weighted-average significant assumptions used
to determine those fair values, using a modified Black-Sholes option pricing
model, and the pro forma effect on earnings of the fair value accounting for
stock options under Statement of Financial Accounting Standards No. 123, are as
follows:

                                                                       2002
-------------------------------------------------------------------------------
Significant assumptions (weighted average)
    Weigthed average fair value per options granted                   $0.50
    Risk-free interest rate at grant date                             2.21%
    Expected stock price volatility                                    1.5
    Expected dividend payout                                            0
    Expected option life (years)                                        4

Net loss
    As Reported                                                    ($3,478,620)
    Deduct total stock-based employee compensation expense
       determined under the fair value based method                 ($559,987)
    Proforma                                                       ($4,038,607)

Net loss per share
    As Reported                                                      ($0.06)
    Proforma                                                         ($0.07)

New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" and an amendment of that Statement,


                                      F-9
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements."
This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends SFAS No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings or describe their applicability
under changed conditions. The provisions of this Statement are effective for
financial statements issued on or after May 15, 2002. Management does not
believe that the adoption of this Statement will have a material impact on IFT's
financial statements.

In July 2002, the Financial Accounting Standard Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in Restructuring)."
This Statement requires that a liability for costs associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002.
Management does not believe that the adoption of this Statement will have a
material impact on IFT's financial statements.

In November 2002, FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Indebtedness of
Others" was issued. FIN 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of this Interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The required disclosures and a roll-froward of product
warranty liabilities are effective for financial statements of interim or annual
periods ending after December 15, 2002. At this time, IFT does not believe that
the adoption of this interpretation will have a material effect on its financial
statements

Note 2. Ability to Continue as a Going Concern

IFT's financial statements are presented on the going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. IFT has incurred significant losses since
inception and has previously had limited funds with which to operate. Management
is in the process of executing a strategy based upon developing pollution
emission control technologies that also offer enhanced engine performance with
respect to greater fuel economy. IFT has several technologies in the
commercialization phase and in development, and may seek to add other
technologies through acquisitions. IFT has received necessary regulatory and
commercial acceptance for its products currently in the commercialization phase.
During the first quarter of 2002, IFT began selling its products directly to the
commercial marketplace. IFT expects to begin licensing its products and
increasing its direct sales to the marketplace, with IFT eventually generating a
level of revenues sufficient to meet IFT's working capital requirements. While
management cannot make any assurance as to the accuracy of our projections of
future capital needs, it is anticipated that a total of $1,333,000 over the 2003
fiscal year will be necessary in order to enable us to meet our capital needs.
Management believes the proceeds from its financing from R.C. Holding (see
below) will be used as follows: $100,000 for commercial fleet testing programs,
$250,000 for professional fees and advertising $750,000 for salary expenses and
$233,000


                                      F-10
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

working capital for administrative and other capital needs, including
investigation of future acquisitions, if any.

On January 3, 2001 IFT entered into a Securities Purchase Agreement with IIG
Equity Opportunities Fund Ltd. ("IIG"), which had a one-year commitment amount
of $3 million, with an option for an additional $3 million in financing after
the completion of the one-year commitment. On March 1, 2001, IFT completed
registration of the common shares required by the January 3, 2001 Securities
Purchase Agreement (the "Agreement"). The Agreement provided for IFT to sell up
to $250,000 in convertible debentures to the IIG Fund every thirty days. On
March 2, 2001 IFT initiated the first convertible debenture purchase and on
March 7, 2001 received $200,000 and on March 22, 2001 received $50,000.

On April 6, 2001, IFT initiated the second convertible debenture purchase and on
April 24, 2001 received $225,000. During May 2001 IFT received notification that
due to regulatory issues relating to the structure of the transactions
contemplated by the Agreement, 18,163,872 shares issuable upon possible future
conversion of debentures not yet issued and 750,000 shares issuable upon
possible future exercise of not yet issued warrants will never be issued. Due to
the inability to sell additional convertible debentures after April 2001, IFT
entered into a new Agreement with IIG on July 10, 2001 that provided for the
sale of convertible debentures and had a one-year commitment amount of $3
million. A registration statement for the common stock to be issued in
connection with this agreement was filed on July 12, 2001 and declared effective
by the SEC on July 23, 2001. As of December 31, 2002, IFT has received proceeds
from the sale of convertible debentures of $ 1,750,000 under the financing
agreement. IIG has currently suspended its financing agreement with IFT due to
IFT's low stock price. (Note 4)

On August 15, 2002 IFT secured $2.5 million in new capital from the sale of
restricted common stock to R.C. Holding Company. The new capital consisted of a
cash payment of $500,000 and guaranteed notes to be paid in three installments
of $666,667 due in January 2003, June 2003 and January 2004. As of December 31,
2002, IFT has received $100,000 in proceeds in advance on the first installment
from repayment of the notes receivable.

The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
IFT to continue as a going concern.

Note 3. Acquisitions

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

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


                                      F-11
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

canceled in connection with the acquisition of USFT.

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

On May 25, 2001 IFT issued 12,500,001 common shares to the shareholders of
Interfacial Technology Ltd. ("Interfacial") to acquire all of Interfacial's
outstanding common stock. Interfacial is a company formed in May 2000 which has
since its inception focused its efforts to develop proprietary fuels and fuel
additive formulations that will improve fuel economy, enhance lubricity and
lower harmful engine emissions, while decreasing reliance on petroleum-based
fuels. IFT acquired Interfacial because it believed their technology could be
more expeditiously and cost effectively brought to market than its previously
acquired PEERFUEL(TM) technology. The purchase price of approximately $6,750,000
was determined based on the market price of IFT's common stock on the date the
acquisition was announced. Stock certificates for an additional 8,500,002 common
shares were placed in an escrow account subject to a performance escrow
agreement that provides for the release of the stock certificates to the
Interfacial shareholders based on the achievement of certain revenue levels by
IFT. In January of 2002, IFT and the former shareholders of Interfacial agreed
to reduce the additional shares subject to the performance escrow by 500,000
shares. Revenues equal to, or more than, $5,000,000 for the two year period
ending May 24, 2003 will result in a portion, as determined by a formula in the
performance escrow agreement, of the stock certificates for the 8,000,002 common
being released to the Interfacial shareholders. The shares placed in the escrow
account will not be included in the computation of basic and diluted loss per
share until they are released to the former Interfacial shareholders. In
connection with the closing of this transaction three of the Interfacial
shareholders have been appointed to IFT's board of directors. In addition, IFT
entered into consulting agreements with four of the Interfacial shareholders on
May 25, 2001.

The acquisition has been accounted for using the purchase method of accounting,
and the assets have been recorded at fair value. Results of operations have been
included as of the effective date of the transaction. The purchase price of
$6,750,001 was allocated as follows: $2,400,001 to purchased technology,
$1,900,000 to in-process research and development, and $2,450,000 to goodwill.
IFT is using an estimated life of six years for the purchased technology. At the
date of acquisition, Interfacial's efforts focused on fine-tuning its additive
technology for aqueous blends and tailoring it to existing applications, in
order to optimize the emission-reducing characteristics while preserving engine
efficiency, and there existed uncertainties regarding the successful development
of the technology. The amount allocated to in-process research and development
was calculated in a valuation using the discounted cash flow method based on a
useful life of six years, and the entire value of $1,900,000 was charged to
research and development expense during 2001. As of December 31, 2001, IFT had
completed development of this technology and was shifting its focus to
commercialization. Amortization of purchased technology amounted to $400,000 and
$233,333 for the years ended December 31, 2002 and 2001, respectively.


                                      F-12
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

Amortization expense for the next five years will be as follows: 2003 -
$400,000; 2004 - $400,000; 2005 - $400,000; 2006 - $400,000; 2007 - $166,668.

On January 1, 2002, IFT adopted SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), which addresses the financial accounting and reporting
standards for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires that goodwill no longer be
amortized, and instead, be tested for impairment on a periodic basis.

In accordance with SFAS 142, IFT discontinued the amortization of goodwill
effective January 1, 2002. The provisions of SFAS 142 also required the
completion of a transitional impairment test within 12 months of adoption, with
any impairment treated as a cumulative effect of change in accounting principle.

During the second quarter of 2002, IFT completed the transitional impairment
test, which did not result in impairment of recorded goodwill.

IFT adopted an annual goodwill impairment test date as of the beginning of the
fourth quarter of 2002. Following this approach, the business was evaluated
using the quoted market price of the common stock, which indicated that the fair
value of the business exceeded its carrying value. As a result, no impairment of
goodwill was recorded.

A reconciliation of previously reported net loss and net loss per share to the
amounts adjusted for the exclusion of goodwill amortization as follows:

                                                       Year ended December 31,
                                                    ---------------------------
                                                       2001             2000
                                                    ---------------------------
Reported net loss                                   (7,574,810)      (6,687,536)
Add goodwill amortization                              238,195               --
                                                    ---------------------------
Adjusted net loss                                   (7,336,615)      (6,687,536)
                                                    ===========================

Net loss per share, basic and diluted                    (0.21)           (0.36)
Add goodwill amortization                                 0.01               --
                                                    ---------------------------
Adjusted net loss per share, basic and diluted           (0.20)           (0.36)
                                                    ===========================

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

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

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


                                      F-13
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

                                                      Year Ended December 31,
                                                       2001            2000
                                                   ----------------------------
Revenues                                                    $0               $0
Net loss                                           ($8,097,073)    ($12,136,666)
Net loss per common share (Basic and diluted)           ($0.20)          ($0.46)

Note 4. Notes Payable and Convertible Debentures

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

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

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

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

During 2002, IFT received advances totaling $280,000 from shareholders. IFT
repaid the $280,000 by issuing 1,555,555 shares of common stock. In connection
with the issuance of the shares, IFT recognized $77,778 in interest expense due
to the fair value of the stock on the date of extinguishment exceeding the
carrying value by this amount.

On December 31, 2002, IFT had no outstanding convertible debentures. On December
31, 2001, IFT had outstanding debentures of $155,000 less the related discount
for the beneficial conversion feature of the debenture of $59,076. During 2002,
IFT received proceeds of $320,000 relating to the convertible


                                      F-14
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

debentures.

During the years ended December 31, 2002 and 2001, IFT issued 1,410,633 and
3,834,213 shares of common stock upon the conversion of $475,000 and $1,275,000
worth of convertible debentures owned by IIG. An additional $112,760 and
$653,343 had been recorded as a discount on the convertible debentures and added
to additional paid-in capital, relating to the beneficial conversion feature in
2002 and 2001 and the $42,750 value of 150,000 warrants related to the
convertible debentures in 2001. The warrants were valued at the fair value on
the date of issuance using the Black-Scholes option pricing model. The
beneficial conversion feature was calculated as the excess value of the shares
to be converted over the amount of the proceeds allocated to the convertible
debentures.

Note 5. Stockholders' Deficit

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

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

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

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

Effective January 14, 2000 IFT adopted a Consultant and Employee Stock
Compensation Plan. This plan provides that the Board of Directors may award
shares of IFT's stock to officers, directors, consultants and employees as
compensation for services. The maximum number of shares of common stock, which
may be awarded under this plan, is 500,000 shares. During March 2000 IFT issued
a total of 65,000 shares of common stock to five directors and recognized
$178,750 as reimbursement for directors' expenses. The value of these shares,
reflected in these financial statements as payroll expenses for Jonathan Burst
and William J. Lindenmayer in the amount of $55,000 and as board meeting and
travel expenses in the amount of $117,216 and $6,534, respectively, for the
remaining directors, has been calculated based on the trading price of IFT's
stock at February 23, 2000.

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


                                      F-15
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

In February 2000, IFT entered into a convertible debenture purchase agreement to
raise $3,000,000 through the sale of convertible debentures to GEM Global Yield
Fund, Ltd. and Turbo International Ltd. ("GEM") During June 2000 this agreement
was amended to raise $1,500,000 through the sale of convertible debentures to
GEM. In connection with the convertible debenture purchase agreement IFT issued
a warrant to GEM for the purchase of 390,000 shares of common stock at $.01 per
common share.

During February 2000 IFT issued 195,000 shares of common stock and placed them
in escrow in accordance with the convertible debenture purchase agreement
entered into in February 2000. The shares were to be released from escrow and
issued to the purchasers of the convertible debenture in the event of an uncured
default by IFT prior to the closing of the convertible debenture purchase
agreement. The 195,000 shares of common stock were released to the purchasers of
the convertible debenture purchase agreement in conjunction with an amendment to
the convertible debenture purchase agreement dated June 16, 2000, and were
recorded as an investment advisory fee of $109,688 based on the trading price of
IFT's stock.

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

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

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

On October 13, 2000 the Board of Directors granted Jonathan Burst 475,000 shares
of IFT's common stock for achievement of a milestone event for IFT. The value of
these shares, reflected in these financial statements as payroll expense of
$296,875, has been calculated based on the trading price of IFT's stock at
October 13, 2000. On October 13, 2000 the Board of Directors granted William
Lindenmayer 475,000 shares of IFT's common stock for achievement of a milestone
event for IFT. The value of these shares, reflected in these financial
statements as payroll expense of $296,875, has been calculated based on the
trading price of IFT's stock at October 13, 2000. On October 13, 2000 the Board
of Directors granted the three non employee directors of IFT a total of 275,000
shares of IFT's common stock for achievement of a milestone event for IFT. The
value of these shares, reflected in these financial statements as payroll
expense of $171,875, has been calculated based on the trading price of IFT's
stock at October 13, 2000. On October 10, 2000 the Board of Directors granted an
employee of IFT 30,000 shares of IFT's common stock for achieving a milestone
event. The value of these shares, reflected in these financial statements as
payroll expense of $23,436, has been calculated based on the trading price of
IFT's stock at October 10, 2000.

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


                                      F-16
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

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

On May 8, 2000 IFT issued 300,000 common shares that were contingently issued
per the Blencathia merger agreement. The 300,000 shares of common stock are
included in the statement of stockholders' deficit for the year ended December
31, 2002, 2001 and 2001 but are not included in earnings per share and weighted
average share calculations for those periods. They will be included when the
shares are sold to provide payment to the shareholders of Blencathia. The
shareholders of Blencathia have represented to the management of IFT that the
300,000 shares will be sold only with IFT's approval. If the shares are sold and
$500,000 is not generated additional shares may need to be issued to the
shareholders of Blencathia. Based on the December 31, 2002 market price, $.10,
of IFT's common stock, a total of 5,000,000 shares would need to be issued to
generate the $500,000 proceeds.

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

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

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

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

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


                                      F-17
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

well as their 2000 employment agreement, was unpaid and included in accrued
expenses.

In 2002, IFT terminated the employment agreement with William J. Lindenmayer and
amended the employment agreement with Jonathan R. Burst. The amended agreement
with Mr. Burst replaced the stock grants to be issued in 2002 with 250,000
options. Expense was recognized for these options under the variable method of
accounting (see Note 11). As of December 31, 2002, $287,575 of compensation
relating to the 2000, 2001 and 2002 employment agreements was unpaid and
included in accrued expenses.

On May 25, 2001 IFT entered into consulting agreements with four Interfacial
shareholders. Common stock totaling 960,000 shares was issued and recorded as a
consulting expense at the inception of the consulting agreement. The consulting
agreements provide for the total issuance of 960,000 shares of common stock on
May 25, 2002 and 1,180,000 shares of common stock on May 25, 2003, and IFT is
recording the value of these shares ratably over the term of the consulting
agreement. During 2002 and 2001, IFT issued 960,000 and 300,000 shares,
respectively, relating to this agreement. IFT recorded $1,024,817 to consulting
expense for the year ended December 31, 2001, relating to these consulting
agreements. During 2002, IFT recorded $216,000 of expense relating to the
960,000 shares issued and a reduction in consulting expense of ($278,833) due to
a reduction in value of the 880,000 shares still to be issued in May 2003 under
these agreements.

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

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

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

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

As of December 31, 2001and 2002, IFT had a total of 150,000 common stock
warrants outstanding. Warrants to purchase 75,000 shares of common stock at
$0.53 per share expire March 6, 2003. Warrants to purchase 75,000 shares of
common stock at $0.45 per share expire April 6, 2003.

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

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

During January 2002, IFT issued 125,000 shares of common stock to a Director.
These shares had been


                                      F-18
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

accrued as payroll expense and additional paid in capital as of December 31,
2001.

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

During April and May 2002, IFT issued a total of 340,000 shares of common stock
to consultants for services. IFT recorded consulting expense of $104,900 based
on the closing stock price on the date of the grants.

In July 2002, IFT entered into a consulting agreement in which IFT issued
1,250,000 shares of common stock upon inception of the agreement, and will issue
an additional 1,250,000 shares at a mutually agreed upon time. The consulting
agreement, for which IFT will receive strategic planning and general business
consulting, is for a one-year term expiring July 31, 2003. IFT has recorded
consulting expense of $140,625 through December 31, 2002 in connection with this
agreement. IFT is recording the value of these shares ratably over the term of
the consulting agreement.

In July 2002, IFT issued 500,000 shares of common stock to a consultant for
services. The consulting agreement is for a one-year term expiring June 30,
2003. IFT has recorded consulting expense of $52,500 through December 31, 2002
in connection with this agreement. IFT is recording the value of these shares
ratably over the term of the consulting agreement.

In July 2002, IFT issued 20,000 shares of common stock to a consultant for
services. IFT recorded a consulting expense of $2,800 based on the closing stock
price on the date of the grant.

In August 2002, IFT issued 5,000 shares of common stock to a consultant for
services. IFT recorded a consulting expense of $1,300 based on the closing stock
price on the date of the grant.

In August 2002, IFT issued 2,000,000 shares to a Director for services. IFT
recorded a consulting expense of $460,000 based on the closing stock price on
the date of the grant.

In August 2002, IFT secured $2.5 million in new capital from the sale of
13,888,889 shares of restricted common stock to R.C. Holding Company. The new
capital consisted of a cash payment of $500,000 and $2,000,000 guaranteed notes
to be paid in three installments. As of December 31, 2002, IFT has received
$100,000 in proceeds from repayment of the note receivable. The notes have been
classified as a reduction of stockholders' equity on the accompanying balance
sheet.

During the twelve months ended December 31, 2002, IFT recorded consulting
expense of $25,001 under an agreement in which IFT will issue 20,833 shares per
month for services to consultant. IFT is recording the value of these shares
ratably over the term of the consulting agreement.

Note 6. Related Party Transactions

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

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


                                      F-19
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

subsequently resigned as a director in 2001.

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

IFT obtained general and administrative services and rents office space and
equipment from Burcor Capital, LLC, a company related through common ownership
(Mr. Jonathan Burst, executive officer and director of IFT, is the founder and
president of Burcor Capital, LLC), under an agreement requiring monthly payments
of $5,000. Expenses recorded as professional services totaled $51,848 during the
twelve month period ended December 31, 2001 and $60,000 during the twelve month
period ended December 31, 2000. IFT has subleased its administrative offices and
administrative services from Burcor Capital under a lease agreement requiring
monthly rentals of $5,000 per month through July 13, 2001. This agreement ended
on October 31, 2001, at which time IFT assumed the lease on a month to month
basis. In January 2002, IFT entered into a five-year lease with a third party
for its office space. (Note 8)

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

Note 7. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effects of temporary
differences that give rise to significant portions of the net deferred tax asset
are as follows:

December 31,                                          2002              2001
-------------------------------------------------------------------------------
Net operating loss carryforwards                 $  8,238,000      $  7,309,000
Amortization                                          700,000           718,000
Stock option expense                                  161,000                --
Accrued compensation                                   28,000            90,000
-------------------------------------------------------------------------------
                                                    9,127,000         8,117,000
Less valuation allowance                           (9,127,000)       (8,117,000)
-------------------------------------------------------------------------------
Deferred tax asset                               $         --      $         --
===============================================================================

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

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

<TABLE>
<CAPTION>
                                                                                                       Total
                                                                                                    -----------
<S>            <C>         <C>            <C>            <C>           <C>            <C>           <C>
Balance        $344,473    $1,090,666     $12,971,893    $4,213,207    $2,878,026     $2,729,826    $24,228,091
                                                                                                    -----------
Expiration       2012         2013           2019           2020          2021           2022
</TABLE>


                                      F-20
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

The reconciliation of income tax computed at the United States federal statutory
tax rate of 34% to income tax benefit is as follows:

<TABLE>
<CAPTION>
Year ended December 31,                              2002            2001            2000
-----------------------------------------------------------------------------------------
<S>                                            <C>             <C>             <C>
Tax benefit at federal statutory rate          (1,183,000)     (2,575,000)     (2,274,000)
Change in deferred tax valuation allowance      1,010,000       1,717,000       1,592,000
Stock based compensation                          173,000         858,000         682,000
-----------------------------------------------------------------------------------------
Income tax benefit                                     --              --              --
=========================================================================================
</TABLE>

Note 8. Lease Commitment

As of January 1, 2002, IFT leased office space under a five-year operating
lease, expiring on December 31, 2006. Future minimum lease payments are $52,800
for the years 2003, 2004, 2005, and 2006. Rent expense was $57,607, $63,408, and
$9,219 during the fiscal years ended December 31, 2002, 2001, 2000,
respectively.

Note 9. Legal Proceedings

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

Note 10. Quarterly Statements of Operation Information (Unaudited)

<TABLE>
<CAPTION>
                                        For the Three Month Period Ended
                      March 31, 2002   June 30, 2002   September 30, 2002    December 31, 2002
                      --------------   -------------   ------------------    -----------------
<S>                   <C>              <C>             <C>                   <C>
Revenues                $      5,323    $      2,361         $      9,855         $      2,534
Gross profit            $      2,776    $        538         $      3,765         $     (3,808)
Net loss                $ (1,069,689)   $   (357,041)        $ (1,373,198)        $   (678,692)
Basic and diluted
 net loss per share     $       (.02)   $       (.01)        $       (.02)        $       (.02)
Weighted average
 common shares
 outstanding              47,223,346      48,508,441           56,049,132           69,735,120
</TABLE>


                                      F-21
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                             For the Three Month Period Ended
                        March 31, 2001     June 30, 2001    September 30, 2001   December 31, 2001
                        --------------     -------------    ------------------   -----------------
<S>                     <C>                <C>              <C>                  <C>
Revenues                  $          0      $          0          $          0        $          0
Gross profit              $          0      $          0          $          0        $          0
Net loss                  $ (1,502,286)     $ (1,570,301)         $ (1,096,967)       $ (3,405,256)
Basic and diluted
 net loss per share       $       (.06)     $       (.05)         $       (.03)       $       (.08)
Weighted average
 common shares
 outstanding                24,422,973        32,820,831            41,984,052          45,153,558
</TABLE>

<TABLE>
<CAPTION>
                                              For the Three Month Period Ended
                        March 31, 2000       June 30, 2000    September 30, 2000   December 31, 2000
                        --------------       -------------    ------------------   -----------------
<S>                     <C>                  <C>              <C>                  <C>
Revenues                  $          0        $          0          $          0        $          0
Gross profit              $          0        $          0          $          0        $          0
Net loss                  $ (2,417,801)       $   (800,357)         $ (1,200,778)       $ (2,268,600)
Basic and diluted
 net loss per share       $       (.14)       $       (.04)         $       (.06)       $       (.12)
Weighted average
 common shares
 outstanding                17,096,481          17,879,918            18,716,339          18,905,000
</TABLE>

Note 11. Options

On October 23, 2001, the Board of Directors adopted International Fuel
Technology, Inc.'s Long-term Incentive Plan. The Board of Directors will be
responsible for the administration of this Plan, and will grant Awards under
this Plan. Subject to the express provisions of the Plan, the Board of Directors
shall have full authority and sole and absolute discretion to interpret and
amend this Plan, to prescribe, amend and rescind rules and regulations relating
to it, and to make all other determinations which it believes to be necessary or
advisable in administering this Plan. The determinations of the Board of
Directors on the matters referred to in this Section shall be conclusive. No
member of the Board of Directors shall be liable for any act or omission in
connection with the administration of this Plan unless it resulted from the
member's willful misconduct.

The maximum number of shares of common stock as to which awards may be granted
under this Plan, subject to subsequent amendments, is 17,500,000 shares. The
common stock which is issued on grant of awards may be authorized except for
unissued shares or shares which have been issued and reacquired by IFT. The
Board of Directors may increase the maximum number of shares of common stock as
to which awards may be granted at such time as it deems advisable. Awards may be
granted to employees or consultants of IFT in their individual capacity only.

During the twelve months ended December 31, 2002, IFT recorded $298,963 in
compensation expense relating to shares that were to be issued to employees on
various anniversary dates of their employment. These shares were never issued,
and were replaced with grants of options under the Long-Term Incentive Plan to
purchase an aggregate of 510,000 shares of common stock at exercise prices
ranging from $0.14


                                      F-22
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

to $0.25 per share, vesting immediately, and expiring in August 2007. These
options are being accounted for using variable-based accounting in accordance
with APB25. As a result, IFT will incur future compensation expense if the stock
price exceeds the exercise price established by repricing, ranging from $0.26 to
$0.48.

In August 2002, IFT granted an additional 4,850,000 stock options to employees.
3,000,000 of these options vested immediately, and the remaining options will
vest after 12 or 24 months. The options have exercise prices ranging from $0.25
to $0.75, and expire in August 2007. IFT applied the intrinsic value method
under APB Opinion 25 and related interpretations in accounting for these
options. Accordingly, no compensation cost has been recognized, as the market
price of the stock did not exceed the exercise price on the measurement date.

The following tables summarize information about stock options during the year
ended December 31, 2002:

<TABLE>
<CAPTION>
                                                                                   Weighted
                                                               Exercise Price      Average
                                                  Shares         per Share      Exercise Price
                                                ----------       ----------     --------------
<S>                                             <C>            <C>              <C>
Outstanding at December 31, 2001                        --
Granted                                          5,360,000       $0.14-0.75       $     0.47
Exercised                                               --               --               --
Cancelled                                               --               --               --
                                                ----------

Outstanding at December 31, 2002                 5,360,000       $0.14-0.75       $     0.47
                                                ==========       ==========       ==========

Options excercisable at December 31, 2002        3,510,000       $0.14-0.75       $     0.46
                                                ==========       ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                      Options Outstanding                    Options Exercisable
                        ------------------------------------------------  --------------------------
                                           Weighted
                            Number          Average                           Number        Weighted
                        Outstanding at     Remaining         Weighted     Exercisable at    Average
                         December 31,     Contractual         Average      December 31,     Exercise
Exercise Price              2002             Life         Exercise Price      2002           Price
----------------------------------------------------------------------------------------------------
<C>                     <C>               <C>             <C>             <C>               <C>
$0.14 - $0.25             1,510,000           4.7              $0.23        1,510,000        $0.23

$0.50 - $0.75             3,850,000           4.7               0.56        2,000,000         0.63
                        -------------     -----------     --------------  --------------    --------

                          5,360,000           4.7              $0.47        3,510,000        $0.46
                        =============     ===========     ==============  ==============    ========
</TABLE>

During the twelve months ended December 31, 2002, IFT recorded consulting
expense of $174,167 in connection with the granting of 3,000,000 stock options
to non-employees. 1,000,000 of these options vested immediately and were
recorded as consulting expense at that time. The remaining 2,000,000 options
will vest after 12 and 24 months, and the fair value of these options are being
recorded as consulting expense ratably over the vesting period. The options have
exercise prices ranging from $0.25


                                      F-23
<PAGE>

INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

to $0.75 and expire in August 2007. Additional consulting expense will be
recognized each period, based on the market value of IFT's stock, until the
options become fully vested.


                                      F-24
<PAGE>

                                   SIGNATURES

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

INTERNATIONAL FUEL TECHNOLOGY, INC.
(Registrant)

By: /s/ Jonathan R. Burst                      Date               March 31, 2003
    -------------------------------------                    -------------------
    Jonathan R. Burst
    President and Chief Executive Officer

By: /s/ Michael F. Obertop                     Date               March 31, 2003
    -------------------------------------                    -------------------
    Michael F. Obertop
    Chief Financial Officer

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

By: /s/ Jonathan R. Burst                      Date               March 31, 2003
    -------------------------------------                    -------------------
    Jonathan R. Burst
    Chairman of the Board

By: /s/ Rex Carr                               Date               March 31, 2003
    -------------------------------------                    -------------------
    Rex Carr
    Director

By: /s/ Ian Williamson                         Date               March 31, 2003
    -------------------------------------                    -------------------
    Ian Williamson
    Director

By  /s/ David B. Norris                        Date               March 31, 2003
    -------------------------------------                    -------------------
    David B. Norris
    Director

By: /s/ Harry Demetriou                        Date               March 31, 2003
    -------------------------------------                    -------------------
    Harry Demetriou
    Director

By: /s/ John P. Stupp Jr.                      Date             March 31, 2003
    -------------------------------------                    -------------------
    John P. Stupp Jr.
    Director

By: /s/ Tony Cross                             Date             March 31, 2003
    -------------------------------------                    -------------------
    Tony Cross
    Director


                                      F-25
<PAGE>

                                  CERTIFICATION

I, Jonathan R. Burst, certify that:

      1.    I have reviewed this annual report on Form 10-K of International
            Fuel Technology, Inc.;

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;

      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and we have:

                  a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

                  c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent function):

                  a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal controls; and

      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether or not there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: March 31, 2003

         By: /s/ Jonathan R. Burst
            ------------------------------
            Jonathan R. Burst
            Chief Executive Officer


                                      F-26
<PAGE>

                                  CERTIFICATION

I, Michael F. Obertop, certify that:

      1.    I have reviewed this annual report on Form 10-K of International
            Fuel Technology, Inc.;

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this quarterly report;

      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and we have:

                  a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

                  c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent function):

                  a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal controls; and

      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether or not there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: March 31, 2003

         By: /s/ Michael F. Obertop
            -----------------------------
            Michael F. Obertop
            Chief Financial Officer


                                      F-27
<PAGE>

                        CERTIFICATION OF PERIODIC REPORT

      I, Jonathan R. Burst, the chief executive officer of International Fuel
Technology, Inc. (the "Company"), certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my
knowledge:

(1) the Annual Report on Form 10-K of the Company for the year ended December
30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.

Dated:  March 31, 2003                           By:  /s/ Jonathan R. Burst
                                                      --------------------------
                                                          Jonathan R. Burst
                                                       Chief Executive Officer

      I, Michael F. Obertop, the chief financial officer of International Fuel
Technology, Inc. (the "Company"), certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my
knowledge:

(1) the Annual Report on Form 10-K of the Company for the year ended December
30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.

Dated:  March 31, 2003                           By:  /s/ Michael F. Obertop
                                                      --------------------------
                                                          Michael F. Obertop
                                                        Chief Fiancial Officer


                                      F-28
<PAGE>

Consent of Independent Certified Public Accountants

International Fuel Technology, Inc.
St. Louis, Missouri

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Numbers 333-74596 and 333-96261) of our report
dated January 29, 2003 relating to the financial statements of International
Fuel Technology, Inc. appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.

/s/ BDO Seidman, LLP

Chicago, Illinois
March 31, 2003


                                      F-29