---

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2004                
|                                                             
|OR                                                           
|                                                             
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
|                                                             
|For the transition period from   ____________ to ____________
|                                                             
|Commission file 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  
o

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.
x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)    Yes  o  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, 2004 as reported on the OTC Bulletin Board, was $32,159,360.

Number of shares of common stock outstanding as of March 21, 2005: 77,993,754

---



INTERNATIONAL FUEL TECHNOLOGY, INC.

FORM 10-K

For The Fiscal Year Ended December 31, 2004

INDEX

|Part I    |          |                                                                                                                     |      
|--------- | -------- | ------------------------------------------------------------------------------------------------------------------- | -----
|          |          |                                                                                                                     |      
|          | Item 1.  | Business                                                                                                            | 3-10 
|          | Item 2.  | Properties                                                                                                          | 10   
|          | Item 3.  | Legal Proceedings                                                                                                   | 10   
|          | Item 4.  | Submission of Matters to a Vote   of Security Holders                                                               | 10   
|          |          |                                                                                                                     |      
|Part   II |          |                                                                                                                     |      
|          |          |                                                                                                                     |      
|          | Item 5.  | Market for Registrants Common   Equity and Related Stockholder Matters and Issuer Purchases of Equity   Securities | 11   
|          | Item 6.  | Selected Financial Data                                                                                             | 11-12
|          | Item 7.  | Managements Discussion and   Analysis of Financial Condition and Results of Operations                             | 12-18
|          | Item 7a. | Quantitative and Qualitative   Disclosures About Market Risk                                                        | 18   
|          | Item 8.  | Financial Statements and Supplementary   Data                                                                       | 18   
|          | Item 9.  | Changes in and Disagreements   With Accountants on Accounting and Financial Disclosure                              | 18   
|          | Item 9a. | Controls and Procedures                                                                                             | 18-19
|          |          |                                                                                                                     |      
|Part III  |          |                                                                                                                     |      
|          |          |                                                                                                                     |      
|          | Item 10. | Directors and Executive Officers of   the Registrant                                                                | 19-20
|          | Item 11. | Executive Compensation                                                                                              | 20-22
|          | Item 12. | Security Ownership of Certain   Beneficial Owners and Management and Related Stockholder Matters                    | 22-23
|          | Item 13. | Certain Relationships and Related   Transactions                                                                    | 23-24
|          | Item 14. | Principal Accountant Fees and   Services                                                                            | 24   
|          |          |                                                                                                                     |      
|Part IV   |          |                                                                                                                     |      
|          |          |                                                                                                                     |      
|          | Item 15. | Exhibits, Financial Statement   Schedules, and Reports on Form 8-K                                                  | 25-26

2



PART I

|        | 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 or the Company) 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.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 1. | Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | INTRODUCTION:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | IFT was incorporated in Nevada 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 has been research and development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | IFT is engaged in one reportable industry segment.   Financial information regarding this segment is contained in IFTs financial   statements included in this report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | At December 31, 2004, IFT had seven full-time   employees. No employee of IFT is represented by a labor union or is subject   to a collective bargaining agreement. IFT believes that its employee   relations are good.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | Unlike other conventional fuel technologies, IFTs   additives are based on surfactant chemistry technology. Because of the unique   character of surfactant molecules, the IFT formulations coat the fuel system,   increasing lubricity (reducing engine wear and tear) while the detergent   character of the molecules prevents deposit formation on fuel injectors.   Finally, the dispersal of the surfactant molecules throughout the fuel   results in greater atomization and efficiency of combustion, providing proven   increases in fuel economy and reductions in emissions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 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. The   resulting additive fuel blends materially improve fuel economy, enhance   lubricity 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 that the Companys surfactant technology is   poised to be one of the leading technologies adopted as part of the effort to   clean up the global environment.                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | IFT has completed independent testing to confirm the   efficacy of its technology and is now primarily focused on the   commercialization and marketing of its proprietary additives and fuel blends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

3





| | TECHNOLOGY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Unlike most fuel additives, IFTs additive   formulations are non-petroleum based, environmentally friendly detergent   substances, known as surfactants. IFTs surfactant-based additive   formulations are composed of a complex mixture of chemical molecules which,   when blended into distillates of gasoline, lowers the fuels overall surface   tension. This allows for improved atomization of the fuel in the induction   and combustion chambers resulting in a more complete and efficient burn which   improves fuel economy and reduces harmful emissions. Due to their inherent   lubricious, detergency and emulsifaction properties, IFT additives also (i)   substantially increase fuel lubricity; (ii) eliminate phase separation when   combining petroleum-based fuels with oxygenates, such as ethanol; (iii) act   as a detergent in the fuel delivery system and significantly reduce deposits   on fuel injector heads; and (iv) emulsify any free water in the
system.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Once the additive is splash-blended with a fuel the   blend forms into a stable emulsion, no additional mixing or agitation is   required for the fuel blend to remain perfectly emulsified.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | The following summarizes the benefits of IFTs   technology:
| | ------------------------------------------------------------
| | (1)                                                         
| | (2)                                                         
| | (3)                                                         
| | (4)                                                         
| | (5)                                                         
| | (6)                                                         
| | (7)                                                         
| | (8)                                                         

4



| | INTELLECTUAL PROPERTY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | IFT has filed three patents pertaining to eight   different uses of its proprietary technology relating to its fuel additives   and fuel blends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | A patent application covering the chemical   formulations for the additives Diesolift, Gasolift, and Kerolift has been   filed and is pending. A patent application covering IFTs proprietary   synthetic diesel fuel blend (see EPAct Application) and the additive   formulation used to make that fuel blend has been filed and is pending. In   addition, IFT and Tomah (see Manufacturing Partner) have filed a joint   patent pertaining to urea/water technology. These patent applications protect   IFTs technology in many countries.                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Additional patent applications for the extension of   IFT technology are in the process of being filed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | INDEPENDENT TESTING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | IFT has completed extensive testing at Southwest   Research Institiute (SwRI), in San Antonio,  Texas and Prodrive Ltd, in the United Kingdom. The test results   confirmed the effectiveness of IFTs additive formulations. In particular,   all IFT fuel blends tested achieved: (i) an increase in fuel economy; (ii) no   loss of engine power or torque; (iii) an increase in lubricity; and (iv) 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.                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The testing protocol at SwRI for the IFT tests used   the California Air Resources Board (CARB) reference engine, a 1991 Detroit   Diesel Corporation Series 60 heavy-duty diesel engine (rebuilt to 1994-model   specifications). The engine performance tests were conducted using the   Environmental Protection Agency (EPA) Federal Test Procedure transient   cycle, and the emissions were evaluated according to the California Code of   Federal Regulations Title 40 requirements for heavy-duty engines. For 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.           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Prodrive Ltd. is the only independent fuels and   lubricants test laboratory in the United Kingdom. Prodrive works with   representatives from engine, oil and additive manufacturers to develop and   enhance test methods for the evaluation of fuel, lubricant and additive   technologies. Prodrives world-class test facilities have more than 100   engineers, with access to more than 50 engine test cells, including the   latest and advanced transient dynamometers. Prodrive plays a major role in   bringing together all the fuels and lubricants testing bodies from around the   world, including the Council for Development of Performance Tests for   Transportation Fuels, Lubricants and other Fluids, Japans OACIS and ACEA in   the U.S.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | PRODUCTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | IFT has introduced three trademark brands that are being   marketed around the world: Diesolift, Gasolift, and Kerolift.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

5



| | Diesolift:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Diesolift range of products applies IFTs   proprietary fuel enhancing technology to the field of diesel fuel and   engines. Specifically formulated for use in heavy distillate fuels, use of   Diesolift additized fuel blends provides all the benefits which characterize   IFTs portfolio of surfactant fuel enhancers. Variations of Diesolift can be   specifically formulated to maximize the performance of No.2 diesel, diesel   and ethanol blends, and diesel and biodiesel blends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Gasolift:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Gasolift is the range of products specifically   designed to apply IFTs fuel enhancing technology to gasoline and light   distillate fuels. Use of Gasolift brings significant improvements in engine   performance, resulting in improved fuel economy and therefore reduced fuel   costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Kerolift:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Kerolift has been specifically formulated to bring   added benefits to heating oils, fuel systems and oil burners for all   oil-fired equipment applications. Kerolift has a positive effect on the   environment by reducing harmful emissions and greenhouse gases and   eliminating black smoke.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | IFTs research and development expenses have been   $108,146; $31,300; and $16,802 for the years 2004, 2003, and 2002,   respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | EPAct APPLICATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In February 2002, IFT filed a formal petition with   the United States Department of Energy (DOE) requesting alternative fuel   status for its Synthetic Diesel fuel blend under the Energy Policy Act of   1992 (EPAct). The EPAct program was designed with very specific goals in   mind  make targeted reductions in the use of petroleum-based fuels in the   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, 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 and decided to take   no additional action at that time. Management 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 to   conventional EPA #2 diesel. With the ability to readily and significantly   increase the supply of synthetic diesel derived, the wholesale adoption of   this fuel blend by both EPAct and regular commercial fleets can be relatively   rapid. As with all IFT fuel blends, there are no special infrastructure   requirements for blending, storing or distributing Synthetic Diesel.   Furthermore, Synthetic Diesel is a proprietary IFT fuel blend.                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | MANUFACTURING PARTNER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In 2001, IFT signed a manufacturing agreement with   Tomah3 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   manufacturing costs of the fuel additives and additive formulations, as well   as collaborate on research and development activities on behalf of IFT.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

6



| | 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 products 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.                                                                                                                                                                                                                                                                                                                           
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | REGULATORY ISSUES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | In January 2000, the EPA enacted a far-reaching,   stringent set of diesel emission standards that requires 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 also requires   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, each state has its own regulatory body governing emissions   standards. The most well known state agency, and the precedent setter for   many other states, is CARB. All diesel fuel sold in California must be   approved by CARB, which has a thorough and well-defined procedure for   certification.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 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 (EPAct) and   the ethanol and biodiesel subsidy programs of 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.                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | COMPETITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The breadth of existing technologies claiming 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 technology, 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



| | (i)   | 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;                                                                                                                                       
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | United States, where legislation has been enacted in   Texas granting tax incentives to diesel and water based emulsions and in   California, where low-sulfur diesel is being phased in and  powerful agricultural lobbies are   promoting the use of alternative fuels such as biodiesel and ethanol in the   federal government;
| | (iii) | China, where the central government has announced   the construction of its first ethanol facilities; and                                                                                                                                                                                                                          
| | (iv)  | 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, management   believes no one technology will dominate the emissions control market due to   the technological limitations inherent in each one.  Rather, a combination of technologies that maximizes their   individual strengths while limiting their weakness, all while delivering the   highest cost/value relationship will be used. A number of our existing   competitors have significantly greater
financial, technical and marketing   resources than we do. We believe that the principal factors affecting   competition in our markets are product quality, scientific and technological   innovation, and price.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | MARKETING STRATEGY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | During 2003, IFT assembled a marketing and technical   team of experienced industry professionals to pursue commercial opportunities   for IFTs fuel additive technology. Significant gains are being achieved in   product exposure to the marketplace. Going forward, IFT will continue to   execute a four-pronged approach to product commercialization:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | Field Engagement Partners                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Management believes an expeditious means of   achieving product awareness and market    acceptance is through strategic field engagements with commercial   level users of petroleum products. IFT is in discussions with several fleet   owners who represent a cross-section of diesel engine use, including   trucking, school buses, off-road construction, and municipal fleet   applications. Formal trials have commenced, and management expects the efficacy   of their technology to be validated, resulting in sales to these fleet   owners. Currently, there are no such agreements in place.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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 the fuel and 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. In 2004, the following agreements were entered into:                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | May 13, 2004: IFT signed a development agreement   with Gulf Oil International to develop new product ranges using IFTs   proprietary surfactant technology.                                                                                                                                                                                                                                                                                                                                                                                                                                             

8



| | September 2, 2004: IFT signed an exclusive   distribution agreement with First Asia Fuel Corporation to market and   distribute IFT products and technology to certain Asian countries: China,   Hong Kong, Indonesia, Malaysia, Miramar, Philippines, Singapore, South Korea,   Thailand and Vietnam.                                                                                                                                                                                                                          
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | October 12, 2004: IFT announced that its exclusive   Asian distribution partner, First Asia Fuel Corporation, signed an agreement   with PT Prima Energy granting PT Prima the exclusive distribution rights to   IFT products throughout Indonesia.                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | November 10, 2004: IFT signed a distribution   agreement with Soliton R&D to distribute IFT products in the U.S.                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | November 18, 2004: IFT signed a commercial and   technical partnership agreement with Expertises Technologies et Services   Produits to jointly market IFTs technology and jointly develop and market   new products utilizing IFTs tedchnology in Europe.                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | December 7, 2004: IFT signed a distribution   agreement with European Consultants S.A. to market and distribute IFTs   products in Greece, Bulgaria, Serbia,    and Macedonia.                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | December 22, 2004: IFT signed an agreement with   National Power Corporation, a wholly owned and managed energy company of the   Philippine governments Department of Energy, to utilize IFTs DiesolIFT in a   pilot program.                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Direct Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | In addition to marketing efforts with fleet owners   and distribution concerns, IFT is currently selling additive only directly   to consumers using several distribution channels. IFT continues to utilize   trade show attendance, advertising in industry publications 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 and wholesalers of fuel, 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), CARB, DOE, 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: (i) conform to current and future emissions standards;   (ii) take advantage of existing incentive programs in the United States. and   the rest of the world; and (iii) 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.

9



|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 $4,249 per month   for approximately 1,500 square feet. A 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 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.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Item 4. | Submission of Matters to a Vote of   Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | On November 22, 2004, 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., Gary Kirk, 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   |  |     | 60,094,385 |          | 
|Rex Carr            |  |     | 60,180,433 |          | 
|David B. Norris     |  |     | 60,184,785 |          | 
|Harry F. Demetriou  |  |     | 60,184,035 |          | 
|John P. Stupp, Jr.1 |  |     | 60,187,785 |          | 
|Gary Kirk           |  |     | 60,183,035 |          | 
|Tony Cross          |  |     | 60,183,785 |          | 

| |                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1 Resigned from the board of   directors in December of 2004.                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                     
| | The shareholders also voted to ratify IFTs   auditors, BDO Seidman, LLP. 60,097,910 shares, being more than a majority of   the outstanding stock of IFT, were voted in favor of, 51,200 shares voted   against, and 80,355 shares abstained from ratification of the appointment of   BDO Seidman, LLP to audit the financial statements of IFT for the year 2004.

10



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.OB 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 |     
|-------------- |  | ---------------------------------------------- | ----
|               |  |                                                |     
|               |  | 2003                                           |     
|               |  |                                                |     
|               |  | High                                           |     
|               |  |                                                |     
|First Quarter  |  | $                                              | 0.13
|Second Quarter |  | $                                              | 0.15
|Third Quarter  |  | $                                              | 0.10
|Fourth Quarter |  | $                                              | 0.51

|        | (b) Holders of Common Stock                                                                                                                                                                                                                                                                                                                                                                               
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                           
|        | As of the close of business on March 21, 2005, the   last reported bid price per share of IFTs common stock was $2.32.  As of March 21, 2005, IFT estimates there   were 2,500 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) Recent Sales of Unregistered Securities                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                           
|        | In December 2004, IFT issued an aggregrate of   828,571 shares of restricted common stock at an average price of $0.78 per   share, which reflects the market price of the shares. The shares were issued   in a private placement in reliance on exemption from registration under   Section 4(2) of the Securities Act of 1933, as amended, and the shares were   only offered to accredited investors. 
|        |                                                                                                                                                                                                                                                                                                                                                                                                           
|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.                                                                                                                                                      

11



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

|                                            |  | Fiscal   Year Ended December 31, |           
|------------------------------------------- |  | -------------------------------- | ----------
|                                            |  |                                  |           
|                                            |  | 2004                             |           
|                                            |  |                                  |           
|Revenues                                    |  |                                  | 24        
|Cost of Goods Sold                          |  |                                  | 16        
|Operating Expenses                          |  |                                  | 4,526     
|Net Loss                                    |  |                                  | (4,519    
|Basic and Diluted Net Loss per Common Share |  | $                                | (0.06     
|Weighted Average Shares                     |  |                                  | 74,910,974

| | 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)                                                                                                                  

|               |  | Fiscal   Year Ended December 31, |      
|-------------- |  | -------------------------------- | -----
|               |  |                                  |      
|               |  | 2004                             |      
|               |  |                                  |      
|Total Assets   |  |                                  | 3,819
|Long-Term Debt |  |                                  | 0    

|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, Original Equipment Manufacturers,   and other companies.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | IFT began selling its products during the first   quarter of 2002 and is no longer a development stage company. IFT raised   capital for its initial development through the issuance of its equity   securities and debt instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | Comparison of Twelve Months Ended   12/31/04 and Twelve Months Ended 12/31/03                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | Operating   Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | Total operating expenses were $4,526,338 for the   twelve months ended December 31, 2004, as compared to operating expenses of   $2,812,494 for the twelve months ended December 31, 2003. Total operating   expenses for the twelve months ended December 31, 2004 represents an increase   of $1,713,844, or 61%, from the prior period. The net increase was mainly due   to additional consultants hired, increase in stock based compensation, offset   by a decrease in legal expenses.                                                                                                                                                                                                                                                                                   

12



| | Selling,   General and Administrative Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Total selling, general and administrative expenses   were $4,120,469 for the twelve months ended December 31, 2004, as compared to   $2,405,570 for the twelve months ended December 31, 2003. Total selling,   general and administrative expenses for the twelve months ended December 31,   2004 represent a $1,714,899 increase, or 71% from the prior period. The level   of selling, general and administrative expenses for the twelve months ended   December 31, 2004 was significantly higher due to the hiring of additional   consultants (approximately $516,000), increase in payroll expense   (approximately $1,422,000; see below). This increase of expense was partially   offset by approximately $400,000 of decreased legal fees, primarily related   to the settlement of litigation from previous years. Selling, general and   administrative expenses should increase in 2005 while IFT increases its   efforts to commercialize its products.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Payroll expenses were approximately $1,794,000   during the twelve months ended December 31, 2004, as compared to $372,000 for   the twelve-month period ended December 31, 2003. Payroll for the twelve-month   period ended December 31, 2004 represents an increase of approximately   $1,422,000 from the prior year. Payroll expenses increased primarily as a   result of an increase in stock based compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Amortization   and Depreciation Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Amortization and depreciation expenses were $405,869   for the twelve months ended December 31, 2004, as compared to $406,924 for   the twelve months ended December 31, 2003. The level of amortization and   depreciation expenses for the twelve months ended December 31, 2004 is   consistent with the expense in 2003. Amortization and depreciation expenses   should remain consistent in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Interest   Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Interest expense was $0 for the twelve months ended   December 31, 2004 as compared to $8,900 for the twelve months ended December   31, 2003.  Interest expense is   expected to be $0 in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Provision   for Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | IFT has operated at a net loss since inception and   has not recorded or paid any income taxes. IFT has  significant net operating loss carryforwards 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 income tax   asset resulting from the net operating loss carryforwards has been fully   reserved with a valuation allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Extinguishment   of Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In December 2003, as a result of a litigation   settlement, IFT was released from its obligation regarding notes payable in   the amount of $162,500, accrued interest relating to the notes of $27,500 and   interest expense of $8,900. The write-off of the notes and interest was   recognized as other income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

13



| | Net   Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The net loss was $4,518,936 for the twelve months   ended December 31, 2004 as compared to the net loss of $2,618,718 for the   twelve months ended December 31, 2003.    Net loss for the twelve months ended December 31, 2004 represents an   increase of $1,900,218, or 73%, from the prior period.  The net loss per share of common stock was   $.06 for the twelve months ended December 31, 2004 as compared to the net   loss per common share of $.04 for the twelve months ended December 31, 2003.   The increase in loss per share was caused by an increase in stock option   expense, as explained above, for the twelve months ended December 31, 2004.                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Comparison of Twelve Months Ended   12/31/03 and Twelve Months Ended 12/31/02                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Operating   Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Total operating expenses were $2,812,494 for the   twelve months ended December 31, 2003, as compared to operating expenses of   $3,236,761 for the twelve months ended December 31, 2002. Total operating   expenses for the twelve months ended December 31, 2003 represents a $424,267,   or 13.1%, decrease from the prior period. The decrease was mainly due to a   reduction in officers stock awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Selling,   General and Administrative Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Total selling, general and administrative expenses   were $2,405,570 for the twelve months ended December 31, 2003, as compared to   $2,829,898 for the twelve months ended December 31, 2002. Total selling,   general and administrative expenses for the twelve months ended December 31,   2002 represent a $424,328 decrease, or 15.0% from the prior period. The level   of selling, general and administrative expenses for the twelve months ended   December 31, 2003 was significantly lower because payroll expenses were   reduced $997,800 in 2003 (see below). This reduction of expense was partially   offset by approximately $300,000 of increased professional fees (primarily   related to the settlements of litigation in 2003) and an increase of   approximately $200,000 in consulting expense relating to additional   consultants hired by IFT during 2003.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Payroll expenses were $371,800 during the twelve   months ended December 31, 2003, as compared to $1,369,600 for the twelve   month period ended December 31, 2002. Payroll for the twelve month period   ended December 31, 2003 represents a decrease of $997,800 from the prior   period. Payroll expenses decreased primarily as a result of a reduction in   stock based compensation of approximately $266,000 and a reduction of officer   payroll of $610,000.                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Amortization   and Depreciation Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Amortization and depreciation expenses were $406,924   for the twelve months ended December 31, 2003, as compared to $406,863 for   the twelve months ended December 31, 2002. The level of amortization and   depreciation expense for the twelve months ended December 31, 2003 is   consistent with the expense in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Interest   Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Interest expense was $8,900 for the twelve months   ended December 31, 2003 as compared to $266,387 for the twelve months ended   December 31, 2002.  In 2002, there was   approximately $750,000 of convertible debentures and advances to stockholders   outstanding at various points throughout the year. These items were retired   and converted into shares of common stock in 2002. As a result, there were no   significant items generating interest in 2003.                                                                                                                                                                                                                                                                                                                                                                                                               

14



| | 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 carryforwards 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 income tax asset resulting from the net operating loss   carryforwards has been fully reserved with a valuation allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Extinguishment   of Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In December 2003, as a result of a litigation   settlement, IFT was released from its obligation regarding notes payable in   the amount of $162,500, accrued interest relating to the notes of $27,500 and   interest expense of $8,900. The write-off of the notes and interest were   recognized as other income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Net   Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The net loss was $2,618,718 for the twelve months   ended December 31, 2003 as compared to the net loss of $3,478,620 for the   twelve months ended December 31, 2002.    Net loss for the twelve months ended December 31, 2003 represents a   decrease of $859,902, or 24.7%, from the prior period.  The net loss per share of common stock was   $.04 for the twelve months ended December 31, 2003 as compared to the net   loss per common share of $.06 for the twelve months ended December 31, 2002.   The decrease in loss per share was primarily caused by a reduction of   selling, general and administrative expenses for the twelve months ended   December 31, 2003 and the extinguishment of liabilities in the year ended   December 31, 2003. In addition, there were more weighted-average shares outstanding   in 2003.                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In November 2004, the Financial Accounting Standards   Board (FASB) issued Statement of Financial Accounting Standards (SFAS)   No. 151 Inventory Costs-an amendment of ARB No. 43, Chapter 4 (FAS   151).  FAS 151 clarifies the   accounting for abnormal amounts of idle facility expense, freight, handling   costs, and wasted material (spoilage) to require that these items be included   as current-period charges and not included in overhead.  In addition, FAS 151 requires that   allocation of fixed production overheads to the costs of conversion be based   on the normal capacity of the production facilities.  The provisions in FAS 151 are effective   for inventory costs incurred during fiscal years beginning after June 15,   2005.  We are in the process of   evaluating the requirements of FAS 151 but do not expect the adoption of FAS   151 to have a significant effect on our financial
statements.                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In December 2004, the FASB issued SFAS No. 123   (revised 2004), ShareBased Payment (FAS 123R), which revised and   replaced SFAS No. 123, Accounting for Stock-Based Payment and superceded   APB Opinion No. 25, Accounting for Stock Issued to Employees.  FAS 123R requires the measurement of all   share-based payments to employees, including grants of employee stock   options, using a fair-value based method and the recording of such expense in   our consolidated statements of operations.    The pro-forma disclosures previously permitted under SFAS No. 123 will   no longer be an alternative to financial statement recognition. The   provisions of FAS 123R are effective for reporting periods beginning after   June 15, 2005.  We are currently   evaluating the requirements of FAS 123R, but because we are accounting for   employee stock option grants in a footnote disclosure as permitted by SFAS   No.
123, the adoption of FAS 123R will have an impact on our results of   operations.

15



| | In December 2004, the FASB issued Staff Position no.   FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings   Repatriation Provision within the American Jobs Creation Act of 2004 (FAS   109-2).  The American Jobs Creation   Act of 2004 allows for a special one-time dividends received deduction on the   repatriation of certain foreign earnings to a U.S. taxpayer if certain   criteria are met.  The provisions of   FAS 109-2 were effective immediately upon issuance.  The adoption of FAS 109-2 did not have a significant impact on   our financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Critical Accounting Policies and Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Valuation   of long-lived intangible assets.                                                                                                                                                                                                                                         
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | IFT assesses the impairment of identifiable   long-lived intangible assets 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:
| | (i)                                                                                                                                                                                                                                                                                  
| | (ii)                                                                                                                                                                                                                                                                                 
| | (iii)                                                                                                                                                                                                                                                                                
| | (iv)                                                                                                                                                                                                                                                                                 
| | (v)                                                                                                                                                                                                                                                                                  

| | As of December 31, 2004, there has been no   impairment of long-lived intangible assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Valuation   of goodwill.IFT   tests goodwill for impairment at least annually in the fourth quarter.  IFT will also review goodwill for   impairment throughout the year if any events or changes in circumstances that   indicate the carrying value may not be recoverable are identified (such   triggers for impairment review are described above in the section Valuation   of Long-Lived Intangible Assets).                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | To test impairment, IFT uses the market approach to   determine the fair value of the Company.    Following this approach, the fair value of the business exceeded the   carrying value of the business as of December 31, 2004.  As a result, no impairment of goodwill was   recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 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, 2004, IFTs deferred income tax assets consisted   principally of net operating loss carryforwards, and have been fully offset   with a valuation allowance due to the uncertainty that a tax benefit will be   realized from the assets in the future.                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 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 registered public   accounting firm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, depreciation   and stock compensation. In addition, IFT has offset some of its capital needs  through the issuance of common stock and options to its employees and   consultants as compensation for services rendered, which have totaled   $134,000 for the twelve month period ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                            

16



| | During 2004, IFT has raised $2,100,000 in cash from   the issuance of common stock.  These   funds have been raised through private placement transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The cash used in operating activities is $1,928,679   for the twelve months ended December 31, 2004 as compared to cash used in   operating activities of $2,153,948 for the twelve months ended December 31,   2003.  Cash used in operations for the   twelve months ended December 31, 2004 decreased by $225,269. The net decrease   is primarily attributable to a decrease in cash paid for litigation expenses,   offset by an increase in cash paid for payroll expenses. The cash used in   investing activities was $0 for the twelve months ended December 31, 2004 as   compared to $740 provided by investing activities for the twelve months ended   December 31, 2003.  The cash provided   by financing activities was $2,100,000 for the twelve months ended December   31, 2004 as compared to $2,499,980 provided by financing activities for the   twelve months ended December 31, 2003. In both periods, cash was provided   primarily for the issuance of stock. Net cash
increased by $171,321 for the   twelve months ended December 31, 2004 as compared to net cash increasing by   $345,292 for the twelve months ended December 31, 2003. The decrease from the   prior year is primarily a result of the timing from the sale of common stock.                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The cash used in operating activities is $2,153,948   for the twelve months ended December 31, 2003 as compared to cash used in   operating activities of $1,464,506 for the twelve months ended December 31,   2002.  Cash used in operations for the   twelve months ended December 31, 2003 increased by $689,442. The increase is   primarily attributable to a decrease of approximately $1,100,000 in non-cash   stock compensation, which was partially offset by an increase in cash paid   for consulting services and compensation. The cash used in investing   activities was $740 for the twelve months ended December 31, 2003 as compared   to $45,000 provided by investing activities for the twelve months ended   December 31, 2002. Cash used in investing activities in 2003 consists solely   of the purchase of office equipment, while the cash provided in 2002 was   solely from repayments of notes receivable previously assigned to IFT.  The cash provided by financing
activities   was $2,499,980 for the twelve months ended December 31, 2003 as compared to   $1,400,000 provided by financing activities for the twelve months ended   December 31, 2002. In both periods, cash was provided primarily for the   issuance of stock. Net cash increased by $345,292 for the twelve months ended   December 31, 2003 as compared to net cash decreasing by $19,506 for the   twelve months ended December 31, 2002. The increase is primarily a result of   $569,980 received for issuance of common stock during the fourth quarter of   2003.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Working capital (deficit) at December 31, 2004 was   $256,750 as compared to ($42,578) at December 31, 2003. The improvement is   primarily a result of the increase in cash of $171,321, and the settlement of   certain liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Effective October 27, 1999, IFT merged with and into   Blencathia Acquisition Corporation (Blencathia).  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 shares   of restricted common stock are expected to be sold in an amount sufficient to   provide the former shareholders of Blencathia with proceeds of $500,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

17



| | 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, 2004, 2003, and 2002 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 March 11,   2005 market price, $2.23, no additional shares would need to be issued to   generate the $500,000 in proceeds.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | During 2004, IFT sold restricted shares, in a   private placement, to a director netting $2,100,000 in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 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 $2 million over the 2005 fiscal year will be necessary   to enable IFT to meet its current capital needs. IFT will continue to seek   funding, on a monthly basis, through private placements with existing   shareholders/investors of IFT. However, there is the possibility that these   private placements may end at some point in the future. If IFT is unable to   secure this additional funding, IFT may need to significantly curtail   operations.                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Contractual Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                |  | Payments   due by period |        
|------------------------------- |  | ------------------------ | -------
|                                |  |                          |        
|                                |  | Total                    |        
|                                |  |                          |        
|Operating leases                |  | $                        | 105,600
|                                |  |                          |        
|Total contractual   obligations |  |                          | 105,600
|                                |  |                          |        

|Item 7a. | Quantitative and Qualitative   Disclosures About Market Risk                                                                                                                                           
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                        
|         | Not applicable.                                                                                                                                                                                        
|         |                                                                                                                                                                                                        
|Item 8.  | Financial Statements and   Supplementary Data                                                                                                                                                          
|         |                                                                                                                                                                                                        
|         | Financial statements as of December 31, 2004 and   2003 and for the twelve month periods ended December 31, 2004, 2003 and 2002   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.                                                                                                                                                                                                  
|         |                                                                                                                                                                                                        
|Item 9a. | Controls and Procedures                                                                                                                                                                                

| | (a) | Evaluation of disclosure controls and procedures.   Based on their evaluations as of a December 31, 2004, 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-15(e) and 15d-15(e) under the Securities Exchange   Act of 1934 (the Exchange Act)) are (i) designed to ensure that material   information relating to us is made known to our chief executive officer and   chief financial officer by others, particularly during the period in which   this report was being prepared, and (ii) effective to ensure that information   required to be disclosed by us in reports that we file or submit under the   Exchange Act is recorded, processed, summarized and reported within the time   periods specified in the rules and forms of the Securities and Exchange   Commission.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



| | Changes in controls. There were no   changes in our internal control over financial reporting that occurred during   the fiscal quarter ended December 31, 2004, that have materially affected, or   are reasonably likely to materially affect, our internal control over   financial reporting.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 biographical   information.

|Name               |  | Age |  | Title                                                   
|------------------ |  | --- |  | --------------------------------------------------------
|                   |  |     |  |                                                         
|Jonathan R. Burst  |  | 46  |  | Chief Executive Officer, President, Director,   Chairman
|Michael F. Obertop |  | 34  |  | Chief Financial Officer, Corporate Secretary            
|Gary Kirk          |  | 43  |  | Director of Sales and Marketing, Director               
|David B. Norris    |  | 56  |  | Director                                                
|Harry F. Demetriou |  | 60  |  | Director                                                
|Rex Carr           |  | 78  |  | Director                                                
|Tony Cross         |  | 56  |  | 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 six 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. Since   January 2002, he served as President. 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, CPA, MBA, 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 was elected to IFTs Board of   Directors on November 17, 2003. Mr. Kirk has 23 years 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.                                                                                                                                                                                                          

19



|         | 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., a   construction company located in Richmond, Texas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | HARRY DEMETRIOU has served on IFTs Board of   Directors since February 2000.  For 25   years, Mr. Demetriou has owned ships that transport goods in bulk on a   worldwide basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | REX CARR has served on IFTs Board of Directors   since August 2002. Mr. Carr currently operates  the Rex Carr Law Firm, a seven person firm with offices in East   St. Louis, IL, St. Louis, MO and Belleville, IL. Prior to starting the Rex   Carr Law Firm, Mr. Carr served as the senior partner of a 36 person law firm,   Carr, Korein, and Tillery, 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 personal injury actions.   He is admitted to practice in the U.S. Supreme Court and the Illinois and   Missouri Supreme Courts. His business ventures include R.C. 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, United Kingdom. He spent 17 years with Exxon   Chemical, in Australia, Belgium and the United Kingdom where he was marketing   Manager for the Solvents Business Division. In 1987, he joined the board of   Carless Refining & Marketing Ltd., an independent United Kingdom 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.                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | Section 16(a) Beneficial Ownership   Reporting Compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | Section 16(a) of 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 shareholders 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 2004 Forms 3, 4 and 5 were filed on a timely basis for   IFTs executive officers and directors.                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | Code of Ethics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | IFT has adopted a Code of Ethics that applies to the   Chief Executive Officer, the Chief Financial Officer, Senior Financial   Officers and employees with financial reporting responsibilities. A copy will   be provided at no charge. Requests can be sent to International Fuel   Technology at 7777 Bonhomme Avenue, Suite 1920, St. Louis, Missouri 63105, attention   Michael Obertop.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | Financial Expert                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | The Board of Directors has determined that David   Norris, an independent member of the Board, satisfies all of the criteria to   be a financial expert as defined in Item 401(h) of Regulation S-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

20



| | Summary Compensation Table
| | --------------------------

|Name and Principal Position |  | Period
Ended |            | Annual   Compensation |                             | Long Term   Compensation |                                          
|--------------------------- |  | ------------ | ---------- | --------------------- | --------------------------- | ------------------------ | -----------------------------------------
|                            | 
|Salary                      |  | Bonus        |            | Other   Compensation  | Restricted   Stock   Awards |                          | Securities   underlying   Options/   SARs
|                            |  |              |            |                       |                             |                          |                                          
|Jonathan R. Burst,          |  |              | 12/31/2004 |                       | $                           | 250,000                  |                                          
|CEO                         |  |              | 12/31/2003 |                       | $                           | 250,000                  |                                          
|                            |  |              | 12/31/2002 |                       | $                           | 250,000                  |                                          

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                  
| |                                                                                                                                                                                  
| | 1 Compensation expense related   to options granted in-the-money on the grant date.                                                                                              

OPTION/ SAR GRANTS IN 2004

|(a)                    |     | Individual   grants                                                 |         | (d)                                                                            |                              |      |                                     | Potential   realizable value at   assumed annual rates of stock   price appreciation for option term |                  
|---------------------- | --- | ------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------ | ---------------------------- | ---- | ----------------------------------- | ---------------------------------------------------------------------------------------------------- | -----------------
|                       |     |                                                                    
|                       | (b) |                                                                     | (c)     | (e)                                                                            |                              | (f)  |                                     | (g)                                                                                                  |                  
|Name                   |     | Number of   securities   underlying   options/   SARs   granted (#) |         | Percent of   total options/     SARs   granted to   employees in   fiscal year | Exercise   price per   share |      | Market   price at   date of   grant |                                                                                                      | Expiration   Date
|                       |     |                                                                     |         |                                                                                |                              |      |                                     |                                                                                                      |                  
|Jonathan R. Burst, CEO |     |                                                                     | 500,000 |                                                                                |                              | 12.7 | %                                   |                                                                                                      | 0.14             
|Jonathan R. Burst, CEO |     |                                                                     | 750,000 |                                                                                |                              | 19.0 | %                                   |                                                                                                      | 1.00             
|Jonathan R. Burst, CEO |     |                                                                     | 750,000 |                                                                                |                              | 19.0 | %                                   |                                                                                                      | 2.00             

| | Fiscal Year-End Option Values                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                     
| | The following table provides information on the   value of the Chief Executive Officers unexercised options at December 31,   2004.

|                  |  | Number of   Securities   Underlying Options at   December 31, 2004 |           | Value of   Unexercised   In-The-Money Options   at December 31, 2004 | 
|----------------- |  | ------------------------------------------------------------------ | --------- | -------------------------------------------------------------------- | 
|                  |  |                                                                    |           |                                                                      | 
|Name              |  | Exercisable                                                        |           | Unexercisable                                                        | 
|                  |  |                                                                    |           |                                                                      | 
|Jonathan R. Burst |  |                                                                    | 6,000,000 |                                                                      | 

21



|         | 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   and a bonus award as deemed appropriate by IFTs Board of Directors.  The three-year agreement ended on December   31, 2004. Mr. Burst continues to serve as the Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | Compensation of Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | On February 23, 2000, the Board of Directors adopted   the Directors Stock Compensation Plan, which provides, at the Boards   option, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | IFT did not grant stock awards or stock options   during the fiscal year ended December 31, 2004 to the directors in their   capacity as directors. IFT did not grant any share appreciation rights during   2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | Compensation Committee Interlocks and Insider   Participation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | The following individuals served as member of the   compensation committee of the registrants board of directors during the last   completed fiscal year: Harry F. Demetriou, David Norris, and Rex Carr.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Item 12. | Security Ownership of Certain   Beneficial Owners and Management and Related Stockholder Matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | The following table sets forth information as of   January 31, 2005 regarding the beneficial ownership determined in accordance   with the SEC rules, 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    of 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. The address for each shareholder on   this table is c/o International Fuel Technology, Inc., 7777 Bonhomme Avenue,   Suite 1920, St. Louis, MO 63105

|Name of   Beneficial Owner                       |  | Amount and   Nature of   Beneficial Ownership |            | Percent of   Common Stock1 | 
|------------------------------------------------ |  | --------------------------------------------- | ---------- | -------------------------- | 
|                                                 |  |                                               |            |                            | 
|Jonathan R. Burst2                               |  |                                               | 8,886,000  |                            | 
|David B. Norris                                  |  |                                               | 1,096,562  |                            | 
|Harry F. Demetriou3                              |  |                                               | 6,212,778  |                            | 
|Tony Cross4                                      |  |                                               | 250,000    |                            | 
|Gary Kirk5                                       |  |                                               | 1,500,000  |                            | 
|Rex Carr6                                        |  |                                               | 20,442,957 |                            | 
|All directors and executive officers as a group7 |  |                                               | 38,388,297 |                            | 

22



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * less than 1% of common stock outstanding                                                                                                                                                                                    
| | 1Based upon 77,993,754   outstanding shares of common stock and vested options of beneficial owners   where applicable.                                                                                                       
| | 2Includes 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 6,000,000 shares issuable   upon exercise of stock options.
| | 3Includes 6,172,778 shares owned   by Observor Acceptances, Ltd. of which Mr. Demetriou is the sole owner and   deemed to be the beneficial owner of such shares.                                                             
| | 4Includes 250,000 shares   issuable upon exercise of options                                                                                                                                                                  
| | 5 Includes 1,500,000 shares   issuable upon exercise of options                                                                                                                                                               
| | 6 Includes 19,414,589 shares   owned by R.C. Holding                                                                                                                                                                          
| | 7 Includes 7,750,000 shares   issuable upon exercise of stock options.                                                                                                                                                        

| | Securities authorized for issuance   under equity compensation plans
| | --------------------------------------------------------------------

|Plan Category                                                    |  | Number of   securities   to be issued upon   exercise of   outstanding options,   warrants and rights |            | Weighted-average   exercise price of   outstanding options,   warrants and rights |  | Number of   securities   remaining available for   future issuance under equity   compensation plans   (excluding securities   reflected in column (a)) | 
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | ---------- | --------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                 |  |                                                                                                       |            |                                                                                   |  |                                                                                                                                                         | 
|                                                                 |  | (a)                                                                                                   |            | (b)                                                                               |  | (c)                                                                                                                                                     | 
|Equity compensation plans   approved by security holders (1)     |  |                                                                                                       | 10,460,000 |                                                                                   |  | 0.79                                                                                                                                                    | 
|Equity compensation plans   not approved by security holders (2) |  |                                                                                                       | 9,480,000  |                                                                                   |  | 0.74                                                                                                                                                    | 
|Total                                                            |  |                                                                                                       | 19,940,000 |                                                                                   |  |                                                                                                                                                         | 

| |                                                
| | -----------------------------------------------
| | (1)   Includes IFTs long-term   incentive plan
| | (2)   See financial statement   footnote 11    

|Item 13. | Certain Relationships and Related   Transactions                                                                                                                                                                                                                                                 
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                  
|         | In 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 (a company of which Rex Carr is the sole owner).  IFT received $1,900,000 and $600,000 from   the sale of these shares in 2003 and 2002, respectively.
|         |                                                                                                                                                                                                                                                                                                  
|         | During 2004, IFT sold shares to Directors of the Company as follows:                                                                                                                                                                                                                             

|Director |  | Number of   Shares |           | Proceeds   Received |  
|-------- |  | ------------------ | --------- | ------------------- | -
|         |  |                    |           |                     |  
|Rex Carr |  |                    | 5,181,925 |                     | $

| | During 2003, IFT sold shares to Directors of the   Company as follows:
| | ----------------------------------------------------------------------

|Director        |  | Number of   Shares |           | Proceeds   Received |  
|--------------- |  | ------------------ | --------- | ------------------- | -
|                |  |                    |           |                     |  
|Rex Carr        |  |                    | 357,142   |                     | $
|Harry Demetriou |  |                    | 1,300,000 |                     |  

23



|Item 14. | Principal Accountants Fees and Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | Audit   Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | Audit fees for 2004 and 2003, were $66,800 and   $66,595, respectively. These fees relate to assurance and related services by   the principal accountant for the audit of the registrants annual financial   statement and review of financial statements included in the registrants   Form 10-Q for the years then ended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | Audit-Related   Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | No fees were billed for professional services   rendered by the principal accountant for audit-related services other than   the amounts described under the caption Audit Fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | Tax   Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | No fees were billed for professional services   rendered by the principal accountant for tax compliance, tax advice, and tax   planning.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | All   Other Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | No other fees were billed by the principal   accountant during 2004 and 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | Audit   Committee Pre-Approval Policies and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | The Charter for the Audit Committee of our Board of   Directors establishes procedures for the Audit Committee to follow to   pre-approve auditing services and non-auditing services to be performed by   our independent public accountants. Such pre-approval can be given as part of   the Committees approval of the scope of the engagement of the independent   registered public accounting firm or on an individual basis. The approved   non-auditing services must be disclosed in our periodic public reports. The   Committee can delegate the pre-approval of non-auditing services to one or   more of its members, but the decision must be presented to the full Committee   at the next scheduled meeting. The charter prohibits IFT from retaining our   independent registered public accounting firm to perform specified non-audit   functions, including (i) bookkeeping, financial information systems design   and implementation; (ii) appraisal or valuation services, fairness
opinions,   or contribution-in-kind reports; (iii) actuarial services; and (iv) internal   audit outsourcing services. The Audit Committee pre-approved all of the audit   services provided by our independent registered public accounting firm in   2004.

24



PART IV

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

| | (a) | Document List                                                           
| | --- | ------------------------------------------------------------------------
| |     |                                                                         
| | 1.  | Financial Statements                                                    
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| | 2.  | Financial Statement Schedules                                           
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| | 3.  | Exhibits Required by Securities and Exchange   Commission Regulation S-K
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         
| |     |                                                                         

25



| |  | (b) | Reports on Form 8-K                                                           
| |  | --- | ------------------------------------------------------------------------------
| |  |     |                                                                               
| |  |     | Incorporated by reference to Exhibits to Form 8-K   filed on December 22, 2004
| |  |     |                                                                               
| |  | (c) | Exhibits                                                                      
| |  |     |                                                                               
| |  |     | See (a) above                                                                 

26



INTERNATIONAL FUEL TECHNOLOGY, INC.

|Report of   Independent Registered Public Accounting Firm | 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-23

F - 1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

| | 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, 2004 and 2003, and the   related statements of operations, stockholders equity and cash flows for   each of the three years in the period ended December 31, 2004.  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 the   standards of the Public Company Accounting Oversight Board (United   States).  Those standards require that   we plan and perform the audits to obtain reasonable assurance about whether   the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included   consideration of internal control over financial reporting as a basis for   designing audit procedures that are appropriate in the circumstances, but not   for the purpose of expressing an opinion on the effectiveness of the   companys internal control over financial reporting. According, we express no   such opinion.  An audit also includes   examining, on a test basis, evidence supporting the amounts and disclosures   in the financial statements, assessing the accounting principles used and   significant estimates made by management, as well as evaluating the overall   presentation of the financial statements.    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, 2004 and 2003 and the   results of its operations and its cash flows for each of the three years in   the period ended December 31, 2004 in conformity with accounting principles   generally accepted in the United States of America.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The accompanying financial statements have been   prepared assuming that International Fuel Technology, Inc. will continue as a   going concern.  As discussed in Note 2   to the financial statements, International Fuel Technology, Inc. has suffered   recurring losses from operations and has significant cash outflows 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 21, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F - 2



INTERNATIONAL FUEL TECHNOLOGY, INC.

BALANCE SHEETS

|                                                                                                                                                                                 |  | December   31,   2004 |             | December   31,   2003 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----------- | --------------------- | -
|                                                                                                                                                                                 |  |                       |             |                       |  
|ASSETS                                                                                                                                                                           |  |                       |             |                       |  
|Current Assets                                                                                                                                                                   |  |                       |             |                       |  
|Cash                                                                                                                                                                             |  | $                     | 530,275     |                       | $
|Accounts Receivable                                                                                                                                                              |  |                       | 6,741       |                       |  
|Inventory                                                                                                                                                                        |  |                       | 87,226      |                       |  
|Prepaid Expenses                                                                                                                                                                 |  |                       | 14,275      |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total   current assets                                                                                                                                                           |  |                       | 638,517     |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Property and Equipment                                                                                                                                                           |  |                       |             |                       |  
|Machinery and equipment                                                                                                                                                          |  |                       | 27,621      |                       |  
|Accumulated   depreciation                                                                                                                                                       |  |                       | (25,480     | )                     |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total   property and equipment                                                                                                                                                   |  |                       | 2,141       |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Purchased Technology, Net of accumulated   amortization of $1,433,333 and $1,033,333 at December 31, 2004 and 2003,   respectively                                               |  |                       | 966,668     |                       |  
|Goodwill                                                                                                                                                                         |  |                       | 2,211,805   |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total   assets                                                                                                                                                                   |  | $                     | 3,819,131   |                       | $
|                                                                                                                                                                                 |  |                       |             |                       |  
|LIABILITIES AND STOCKHOLDERS   EQUITY                                                                                                                                           |  |                       |             |                       |  
|Current Liabilities                                                                                                                                                              |  |                       |             |                       |  
|Accounts payable                                                                                                                                                                 |  | $                     | 123,972     |                       | $
|Accrued compensation                                                                                                                                                             |  |                       | 257,795     |                       |  
|Other Accrued expenses                                                                                                                                                           |  |                       |            |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total   current liabilities                                                                                                                                                      |  |                       | 381,767     |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total   liabilities                                                                                                                                                              |  |                       | 381,767     |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Commitments and Contingencies                                                                                                                                                    |  |                       |             |                       |  
|Stockholders Equity                                                                                                                                                             |  |                       |             |                       |  
|Common stock, $.01 par   value;150,000,000 shares authorized; 77,993,754 and 72,461,829 shares issued   and outstanding at December 31, 2004 and December 31, 2003, respectively |  |                       | 779,937     |                       |  
|Discount on common   stock                                                                                                                                                       |  |                       | (819,923    | )                     |  
|Additional paid-in   capital                                                                                                                                                     |  |                       | 42,763,002  |                       |  
|Accumulated Deficit                                                                                                                                                              |  |                       | (39,285,652 | )                     |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total   stockholders equity                                                                                                                                                     |  |                       | 3,437,364   |                       |  
|                                                                                                                                                                                 |  |                       |             |                       |  
|Total Liabilities and Stockholders   Equity                                                                                                                                     |  | $                     | 3,819,131   |                       | $
|                                                                                                                                                                                 |  |                       |             |                       |  

See Notes to Financial Statements.

F - 3



INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF OPERATIONS

|                                               |  | Year   Ended   December 31   2004 |            | Year   Ended   December 31   2003 |   | Year   Ended   December 31   2002 |  
|---------------------------------------------- |  | --------------------------------- | ---------- | --------------------------------- | - | --------------------------------- | -
|                                               |  |                                   |            |                                   |   |                                   |  
|Revenues                                       |  | $                                 | 23,822     |                                   | $ | 9,021                             |  
|Cost of Goods Sold                             |  |                                   | 16,420     |                                   |   | 5,245                             |  
|                                               |  |                                   |            |                                   |   |                                   |  
|Gross Profit                                   |  |                                   | 7,402      |                                   |   | 3,776                             |  
|Operating Expenses:                            |  |                                   |            |                                   |   |                                   |  
|Selling, general and   administrative expenses |  |                                   | 4,120,469  |                                   |   | 2,405,570                         |  
|Amortization &   Depreciation                  |  |                                   | 405,869    |                                   |   | 406,924                           |  
|                                               |  |                                   |            |                                   |   |                                   |  
|Total operating   expenses                     |  |                                   | 4,526,338  |                                   |   | 2,812,494                         |  
|                                               |  |                                   |            |                                   |   |                                   |  
|Net loss from   operations                     |  |                                   | (4,518,936 | )                                 |   | (2,808,718                        | )
|Interest Income                                |  |                                   |           |                                   |   |                                  |  
|Interest expense                               |  |                                   |           |                                   |   | (8,900                            | )
|Extinguishment of   liabilities                |  |                                   |           |                                   |   | 198,900                           |  
|                                               |  |                                   |            |                                   |   |                                   |  
|Total other income   (expense), net            |  |                                   |           |                                   |   | 190,000                           |  
|Net loss                                       |  | $                                 | (4,518,936 | )                                 | $ | (2,618,718                        | )
|                                               |  |                                   |            |                                   |   |                                   |  
|Basic and diluted net   loss per common share  |  | $                                 | (.06       | )                                 | $ | (.04                              | )
|                                               |  |                                   |            |                                   |   |                                   |  
|Weighted average common shares outstanding     |  |                                   | 74,910,974 |                                   |   | 70,140,774                        |  
|                                               |  |                                   |            |                                   |   |                                   |  

See Notes to Financial Statements.

F - 4



INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF STOCKHOLDERS EQUITY

|                                                     |  | Common   Stock Shares |            | Common   Stock   Amount |   | Discount   on   Common   Stock |   | Additional   Paid-In   Capital |          | Notes   Receivable |   | Accumulated   Deficit |  | Total |           
|---------------------------------------------------- |  | --------------------- | ---------- | ----------------------- | - | ------------------------------ | - | ------------------------------ | -------- | ------------------ | - | --------------------- |  | ----- | ----------
|                                                     |  |                       |            |                         |   |                                |   |                                |          |                    |   |                       |  |       |           
|Balance, January 1, 2002                             |  |                       | 55,119,612 |                         | $ | 551,196                        |   | $                              | (819,923 | )                  | $ | 32,595,070            |  |       |          
|Shares issued for cash and   notes receivable        |  |                       | 13,888,889 |                         |   | 138,889                        |   |                                |         |                    |   | 2,361,111             |  |       | (1,900,000
|Shares issued in repayment   of shareholder advances |  |                       | 1,555,555  |                         |   | 15,556                         |   |                                |         |                    |   | 342,221               |  |       |          
|Proceeds from the issuance   of common stock         |  |                       | 850,000    |                         |   | 8,500                          |   |                                |         |                    |   | 191,500               |  |       |          
|Issuances of stock for   compensation                |  |                       | 125,000    |                         |   | 1,250                          |   |                                |         |                    |   | 148,750               |  |       |          
|Issuances of stock for   services                    |  |                       | 5,075,000  |                         |   | 50,750                         |   |                                |         |                    |   | 713,543               |  |       |          
|Cancellation of Interfacial   escrow shares          |  |                       | (500,000   | )                       |   | (5,000                         | ) |                                |         |                    |   | 5,000                 |  |       |          
|Issuances of stock for   convertible debentures      |  |                       | 1,410,633  |                         |   | 14,106                         |   |                                |         |                    |   | 460,894               |  |       |          
|Discount on issuances of   convertible debt          |  |                       |           |                         |   |                               |   |                                |         |                    |   | 112,760               |  |       |          
|Accrued stock based   compensation                   |  |                       |           |                         |   |                               |   |                                |         |                    |   | 298,963               |  |       |          
|Compensation relating to stock   options             |  |                       |           |                         |   |                               |   |                                |         |                    |   | 174,167               |  |       |          
|Net loss                                             |  |                       |           |                         |   |                               |   |                                |         |                    |   |                      |  |       |          
|                                                     |  |                       |            |                         |   |                                |   |                                |          |                    |   |                       |  |       |           
|Balance, December 31, 2002                           |  |                       | 77,524,689 |                         | $ | 775,247                        |   | $                              | (819,923 | )                  | $ | 37,403,979            |  | $     | (1,900,000
|Payments received on notes   receivable              |  |                       |           |                         |   |                               |   |                                |         |                    |   |                      |  |       | 1,900,000 
|Proceeds from issuance of   common stock             |  |                       | 2,457,142  |                         |   | 24,571                         |   |                                |         |                    |   | 575,409               |  |       |          
|Issuances of stock for services                      |  |                       | 480,000    |                         |   | 4,800                          |   |                                |         |                    |   | 243,259               |  |       |          
|Expense relating to stock   option grants            |  |                       |           |                         |   |                               |   |                                |         |                    |   | 33,279                |  |       |          
|Forgiveness of officers   salary                    |  |                       |           |                         |   |                               |   |                                |         |                    |   | 70,000                |  |       |          
|Cancellation of Interfacial   escrow shares          |  |                       | (8,000,002 | )                       |   | (80,000                        | ) |                                |         |                    |   | 80,000                |  |       |          
|Net loss                                             |  |                       |           |                         |   |                               |   |                                |         |                    |   |                      |  |       |          
|                                                     |  |                       |            |                         |   |                                |   |                                |          |                    |   |                       |  |       |           
|Balance, December 31, 2003                           |  |                       | 72,461,829 |                         | $ | 724,618                        |   | $                              | (819,923 | )                  | $ | 38,405,926            |  | $     |          
|Proceeds from issuance of   common stock             |  |                       | 5,181,925  |                         |   | 51,819                         |   |                                |         |                    |   | 2,048,181             |  |       |          
|Issuances of stock for   services                    |  |                       | 350,000    |                         |   | 3,500                          |   |                                |         |                    |   | 130,500               |  |       |          
|Expense relating to stock   option grants            |  |                       |           |                         |   |                               |   |                                |         |                    |   | 2,143,395             |  |       |          
|Forgiveness of officers   salary                    |  |                       |           |                         |   |                               |   |                                |         |                    |   | 35,000                |  |       |          
|Net loss                                             |  |                       |            |                         |   |                                |   |                                |          |                    |   |                       |  |       |           
|                                                     |  |                       |            |                         |   |                                |   |                                |          |                    |   |                       |  |       |           
|Balance, December 31, 2004                           |  |                       | 77,993,754 |                         | $ | 779,937                        |   | $                              | (819,923 | )                  | $ | 42,763,002            |  | $     |          
|                                                     |  |                       |            |                         |   |                                |   |                                |          |                    |   |                       |  |       |           

See Notes to Financial Statements

F - 5



INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF CASH FLOWS

|                                                                              |  | Year Ended   December 31,   2004 |            | Year Ended   December 31,   2003 |   | Year Ended   December 31,   2002 |  
|----------------------------------------------------------------------------- |  | -------------------------------- | ---------- | -------------------------------- | - | -------------------------------- | -
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Cash Flows from Operating Activities                                          |  |                                  |            |                                  |   |                                  |  
|Net loss                                                                      |  | $                                | (4,518,936 | )                                | $ | (2,618,718                       | )
|Adjustments to reconcile net loss to net cash used   in operating activities: |  |                                  |            |                                  |   |                                  |  
|Depreciation/   Amortization                                                  |  |                                  | 405,869    |                                  |   | 406,924                          |  
|Non-cash stock   compensation                                                 |  |                                  | 2,277,395  |                                  |   | 281,338                          |  
|Interest expense   recognized-discount on notes payable                       |  |                                  |           |                                  |   |                                 |  
|Interest expense   recognized-conversion of debt                              |  |                                  |           |                                  |   |                                 |  
|Extinguishment of   liabilities                                               |  |                                  |           |                                  |   | (198,900                         | )
|Write-off of note   receivable                                                |  |                                  |           |                                  |   | 35,000                           |  
|Change in assets and   liabilities:                                           |  |                                  |            |                                  |   |                                  |  
|Increase in accounts receivable                                               |  |                                  | (641       | )                                |   | (2,762                           | )
|Increase in inventory                                                         |  |                                  | (24,916    | )                                |   | (55,240                          | )
|(Increase)/Decrease in   prepaid expense                                      |  |                                  | (1,138     | )                                |   | 2,113                            |  
|(Decrease)/Increase in   accounts payable                                     |  |                                  | (87,681    | )                                |   | 65,880                           |  
|Increase/(Decrease) in   accrued expenses                                     |  |                                  | 21,369     |                                  |   | (69,583                          | )
|Increase in accrued   interest                                                |  |                                  |           |                                  |   |                                 |  
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Net cash used in operating   activities                                       |  |                                  | (1,928,679 | )                                |   | (2,153,948                       | )
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Cash Flows from Investing Activities                                          |  |                                  |            |                                  |   |                                  |  
|Acquisition of   machinery and equipment                                      |  |                                  |           |                                  |   | (740                             | )
|Proceeds from   repayments of Note Receivable                                 |  |                                  |           |                                  |   |                                 |  
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Net cash (used in) provided by   investing activities                         |  |                                  |           |                                  |   | (740                             | )
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Cash Flows from Financing Activities                                          |  |                                  |            |                                  |   |                                  |  
|Proceeds from common   stock issued                                           |  |                                  | 2,100,000  |                                  |   | 2,499,980                        |  
|Advances from   stockholders                                                  |  |                                  |           |                                  |   |                                 |  
|Proceeds from notes   payable                                                 |  |                                  |           |                                  |   |                                 |  
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Net cash provided by financing   activities                                   |  |                                  | 2,100,000  |                                  |   | 2,499,980                        |  
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Net increase (decrease) in cash                                               |  |                                  | 171,321    |                                  |   | 345,292                          |  
|Cash, beginning                                                               |  |                                  | 358,954    |                                  |   | 13,662                           |  
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Cash, ending                                                                  |  | $                                | 530,275    |                                  | $ | 358,954                          |  
|                                                                              |  |                                  |            |                                  |   |                                  |  
|Schedule of non-cash investing and financing   activities                     |  |                                  |            |                                  |   |                                  |  
|Discount on issuances   of convertible debt and notes payable                 |  | $                                |           |                                  | $ |                                 |  
|Conversion of debt to   common stock                                          |  |                                  |           |                                  |   |                                 |  
|Shares issued in   repayment of shareholder advances                          |  |                                  |           |                                  |   |                                 |  
|Issuance of stock for   note receivable                                       |  |                                  |           |                                  |   |                                 |  
|Forgiveness of   officers salary                                             |  |                                  | 35,000     |                                  |   | 70,000                           |  

See Notes to Financial Statements.

F - 6



INTERNATIONAL FUEL TECHNOLOGY, INC.

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. As described in Note 6, 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 (United Kingdom) 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. IFT began selling its products during the first quarter of 2002 and is no longer a development stage company.

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 products when the merchandise is shipped. IFT also intends to license its products, which will result in recognition of revenue ratably over the term of the license. At December 31, 2004, 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.

Accounts Receivable

An allowance for doubtful accounts is maintained at a level management believes is sufficient to cover potential losses based on historical trends and known current factors impacting the Companys customers.

F - 7



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

Inventory

Inventory, which consists of finished products, is valued at the lower of cost, based on the first-in, first-out (FIFO) method, or market.

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.

Long-lived Assets

IFT reviews the carrying values of its long-lived and intangible assets for possible impairment whenever events or changes in circumstances (such as changes in operations or estimated future cash flows) indicate that the carrying amount of the assets may not be recoverable. As of December 31, 2004 there has been no impairment of long-lived assets.

Goodwill

Goodwill is tested at least annually in the fourth quarter for impairment, unless any events occur during the year which might indicate an impairment. IFT calculates the fair value of the Company based on the quoted market price of the common stock compared to the carrying value of the Company. No impairments of goodwill have been recorded as of December 31, 2004.

Deferred income taxes

Deferred income taxes are provided on a liability method whereby deferred income tax assets are recognized for taxable temporary differences, operating losses and tax credit carryforwards and deferred income tax liabilities are recognized for deductible temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred income 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 income tax assets will not be realized.  Deferred income 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 2004, 2003 and 2002 was $108,146; $31,300; and $16,802, respectively.

Advertising Expenses

Advertising expenses are expensed as incurred and amounted to $42,884; $32,964; and $11,852 in 2004, 2003 and 2002, respectively.

F - 8



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

Basic and Diluted Net Loss per Common 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, 2004, 2003, and 2002, 19,940,000, 8,760,000, and 8,360,000 shares, respectively, of common stock equivalents were excluded from the computation of diluted net loss per share since their effect would be anti-dilutive.

Fair value of financial instruments

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.

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 expenses 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 and are marked to market through compensation expense until the options are exercised, expired or forfeited. In 2004 and 2003, IFT recognized $746,700 and $32,500, respectively, of compensation expense as a result of the stock price exceeding the exercise price established by repricing. Options granted to non-employees are accounted for under SFAS No.123, which requires options to be accounted for based on their fair value,  and EITF 96-18, which requires options to be marked to market until vested.

IFT has elected to continue to utilize the accounting provisions of APB 25 for stock options, and is required to provide pro forma disclosures of net loss and net loss 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 net loss of the fair value accounting for stock options under Statement of Financial Accounting Standards No. 123, are as follows:

F - 9



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

|                                                                                                        |  | 2004 |            | 2003 |   | 2002       |  
|------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                                        |  |      |            |      |   |            |  
|Significant assumptions   (weighted average)                                                            |  |      |            |      |   |            |  
|Weighted   average fair value per options granted
(1)                                                   |  | $    | 0.47       |      | $ | 0.08       |  
|Risk-free   interest rate at grant date                                                                 |  |      | 3.41       | %    |   | 2.38       | %
|Expected   stock price volatility                                                                       |  |      | 1.5        |      |   | 1.7        |  
|Expected   dividend payout                                                                              |  |      | 0          |      |   | 0          |  
|Expected   option life (years)                                                                          |  |      | 4          |      |   | 4          |  
|Net loss                                                                                                |  |      |            |      |   |            |  
|As   Reported                                                                                           |  | $    | (4,518,936 | )    | $ | (2,618,718 | )
|Add   expense recognized for in the money and variable based awards                                     |  |      | 1,626,700  |      |   | 32,500     |  
|Deduct   total stock-based employee compensation expense determined under the fair   value based method |  |      | (1,954,007 | )    |   | (166,472   | )
|                                                                                                        |  |      |            |      |   |            |  
|Proforma                                                                                                |  | $    | (4,846,243 | )    | $ | (2,752,690 | )
|Net loss per share                                                                                      |  |      |            |      |   |            |  
|As   Reported                                                                                           |  | $    | (0.06      | )    | $ | (0.04      | )
|Proforma                                                                                                |  | $    | (0.06      | )    | $ | (0.04      | )

|   
|---
|(1)

New Accounting Pronouncements

In November 2004, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 151
Inventory Costs-an amendment of ARB No. 43, Chapter 4 (FAS
151).  FAS 151 clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage) to
require that these items be included as current-period charges and not included
in overhead.  In addition, FAS 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities.  The provisions in FAS 151 are effective for
inventory costs incurred during fiscal years beginning after June 15,
2005.  We in the process of evaluating the requirements of FAS 151 but do
not expect the adoption of FAS 151 to have a significant effect on our financial
statements.

In December 2004, the FASB issued SFAS No.
123 (revised 2004), ShareBased Payment (FAS 123R),
which revises and replaces SFAS No. 123, Accounting for Stock-Based
Payment and supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees.  FAS 123R requires the measurement of all
share-based payments to employees, including grants of employee stock options,
using a fair-value based method and the recording of such expense in our
consolidated statements of operations.  The pro-forma disclosures
previously permitted under SFAS No. 123 will no longer be an alternative to
financial statement recognition.   The provisions of FAS 123R are
effective for reporting periods beginning after June 15, 2005.  We are
currently evaluating the requirements of FAS 123R, but because we are accounting
for employee stock option grants in a footnote disclosure as permitted by SFAS
No. 123, the adoption of FAS 123R will have an impact on our results of
operation.

F - 10



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

In December 2004, the FASB issued Staff Position no. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (FAS 109-2).  The American Jobs Creation Act of 2004 allows for a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer if certain criteria are met.  The provisions of FAS 109-2 were effective immediately upon issuance.  The adoption of FAS 109-2 did not have a significant impact on our 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. However, it is possible that this may take a few years or may never occur. 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 $2 million over the 2005 fiscal year will be necessary in order to enable IFT to meet its current capital needs. IFT will continue to seek funding, on a monthly basis, through private placements of equity securities with existing shareholders/investors of IFT. However, there is the possibility that these private placements may end at some point in the future. If IFT is unable to secure this additional funding, IFT may need to significantly curtail operations.

During 2004, IFT entered into four distribution agreements to market and sell its products in the United States, Europe, and Asia.

In December 2004, IFT sold restricted shares, in a private placement, to a director netting $650,000 in cash.

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 May 25, 2001 IFT issued 12,500,001 common shares to the shareholders of 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 technology. The purchase price of approximately $6,750,001 was determined based on the market price

F - 11



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

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 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 additional shares subject to the performance escrow by 500,000 shares. In May 2003, IFT cancelled the remaining 8,000,002 shares in the escrow account as a result of IFT not achieving the revenue levels described in the performance agreement.

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, $400,000 and $400,000 for the years ended December 31, 2004, 2003, and 2002, respectively. Amortization expense for the next three years will be as follows: 2005 - $400,000; 2006 - $400,000; 2007 - $166,668.

IFT adopted an annual goodwill impairment test date as of the beginning of the fourth quarter of 2002 and updated its test at the beginning of the fourth quarter of 2004. 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. Goodwill is currently being deducted over 15 years for tax purposes.

Note 4.     Notes Payable and Convertible Debentures

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 2002.  In connection with the issuance of the shares, IFT recognized $77,777 in interest expense due to the fair value of the stock on the date of extinguishment exceeding the carrying value by this amount.

During the year ended December 31, 2002, IFT issued 1,410,633 shares of common stock upon the conversion of $475,000 worth of convertible debentures owned by Equity Opportunities Fund, Ltd. (IIG).  An additional $112,760 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. 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.

As of December 31, 2004 and 2003, IFT had no outstanding notes payable or convertible debentures.

F - 12



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

Note 5.     Extinguishment of Liabilities

Included in accrued compensation at December 31, 2004 and 2003, is $239,469 and $194,785, respectively, of compensation relating to employment agreements for which services have been rendered.  During 2004 and 2003, an officer of IFT agreed to relieve IFT from its obligation of $35,000 and $70,000, respectively, of salary owed to him for service in previous years.  The write-off of the $35,000 and $70,000 liabilities were accounted for as a contribution of capital.

In December 2003, as a result of a litigation settlement, IFT was released from its obligation regarding notes payable in the amount of $162,500 accrued interest relating to the notes of $27,500 and 2003 interest expense of $8,900.  The write-off of the notes and interest was recognized as other income.

Note 6.     Stockholders Equity

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, 2004, 2003 and 2002 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, 2004 market price, $1.90, of IFTs common stock, no additional shares would need to be issued to generate the $500,000 proceeds.

During 2002, IFT entered into consulting agreements providing for the issuance of shares through 2003.  IFT recorded the value of the shares to be issued ratably based on the fair value of the stock over the terms of the consulting agreements.  During 2002, IFT issued 5,075,000 shares of common stock and recorded $764,293 of consulting expense.  During 2003, IFT issued 480,000 shares of common stock and recorded $248,059 of consulting expense.  No additional stock is to be issued under these agreements. During 2004, IFT issued 350,000 shares of common stock under new agreements and recorded $134,000 of consulting expense.

During 2002, IFT issued 125,000 shares of stock to employees and Directors. Compensation expense of $150,000 was recognized in 2002, based on the trading price on the date of issuance.

In 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.  IFT received $1,900,000 and $600,000 from the sale of these shares in 2003 and 2002, respectively.

F - 13



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

During 2002, IFT sold 850,000 shares of common stock to a consultant and received proceeds of $200,000. During 2003, IFT sold 2,457,142 shares of common stock to consultants (800,000) and Directors (1,657,142) and received proceeds of $319,980 and $280,000, respectively. During 2004, IFT sold 5,181,925 shares of common stock to a director and received proceeds of $2,100,000. The sale price of the stock was based on the trading price on the date of issuance.

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 income tax asset are as follows:

|December 31,                       |  | 2004 |             | 2003 |  
|---------------------------------- |  | ---- | ----------- | ---- | -
|                                   |  |      |             |      |  
|Net operating loss   carryforwards |  | $    | 9,865,000   |      | $
|Goodwill                           |  |      | 666,000     |      |  
|Stock option expense               |  |      | 901,000     |      |  
|Accrued compensation               |  |      | 40,000      |      |  
|                                   |  |      |             |      |  
|                                   |  |      | 11,472,000  |      |  
|Less valuation allowance           |  |      | (11,472,000 | )    |  
|                                   |  |      |             |      |  
|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:

|Balance |            | Expiration | 
|------- | ---------- | ---------- | 
|        |            |            | 
|$       | 344,473    |            | 
|        | 1,090,666  |            | 
|        | 12,971,893 |            | 
|        | 4,213,207  |            | 
|        | 2,878,026  |            | 
|        | 2,729,826  |            | 
|        | 2,441,976  |            | 
|        | 2,345,857  |            | 
|        |            |            | 
|$       | 29,015,924 |            | 
|        |            |            | 

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

F - 14



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

|Year ended December 31,                    |  | 2004 |            | 2003 |   | 2002     |  
|------------------------------------------ |  | ---- | ---------- | ---- | - | -------- | -
|                                           |  |      |            |      |   |          |  
|Tax benefit at federal statutory rate      |  | $    | (1,536,000 | )    | $ | (890,000 | )
|Change in deferred tax valuation allowance |  |      | 1,528,000  |      |   | 817,000  |  
|Other                                      |  |      | 8,000      |      |   | 73,000   |  
|                                           |  |      |            |      |   |          |  
|Income tax benefit                         |  | $    |           |      | $ |         |  
|                                           |  |      |            |      |   |          |  

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 2005 and 2006. Rent expense was $47,976, $52,755, and $57,607, during the fiscal years ended December 31, 2004, 2003, and 2002, 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)

|                                             |  | For the   Three Month Period Ended |           
|-------------------------------------------- |  | ---------------------------------- | ----------
|                                             |  |                                    |           
|                                             |  | March 31,   2004                   |           
|                                             |  |                                    |           
|Revenues                                     |  | $                                  | 3,614     
|Gross profit                                 |  | $                                  | 2,048     
|Net loss                                     |  | $                                  | (602,540  
|Basic and diluted net loss   per share       |  | $                                  | (0.01     
|Weighted average common   shares outstanding |  |                                    | 72,720,699

F - 15



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

|                                             |  | For the   Three Month Period Ended |           
|-------------------------------------------- |  | ---------------------------------- | ----------
|                                             |  |                                    |           
|                                             |  | March 31,   2003                   |           
|                                             |  |                                    |           
|Revenues                                     |  | $                                  | 1,295     
|Gross profit                                 |  | $                                  | 511       
|Net loss                                     |  | $                                  | (783,206  
|Basic and diluted net loss   per share       |  | $                                  | (0.01     
|Weighted average common   shares outstanding |  |                                    | 69,474,685

Note 11. Options

On October 23, 2001, the Board of Directors adopted IFT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 to $0.25 per share, vesting immediately, and expiring in December 2009. These options are being accounted for using variable-based accounting in accordance with APB 25. As a result, IFT incurred compensation expense of $746,700 and $32,500 in 2004 and 2003, respectively, as a result of the stock price exceeding the exercise price established by repricing (which ranged from $0.26 to $0.48).

In 2002 and 2003, IFT granted an additional 4,850,000 and 1,500,000 stock options to employees.   3,000,000 of the options granted in 2002 vested immediately, and the remaining 2002 options and all the 2003 options vest over 12 or 24 months.  The options have exercise prices ranging from $0.25 to $0.75 and expire in 2007 and 2008. In 2004, IFT granted an additional 3,950,000 stock options to employees.

F - 16



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

2,300,000 of the options granted in 2004 vested immediately, and the remaining 2004 options vest over 12 or 24 months. The options have exercise prices ranging from $0.14 to $2.00 and expire in 2009 and 2010.  IFT applied the intrinsic value method under APB 25 and related interpretations in accounting for these options.  Accordingly, $880,000 of compensation expense was recognized in 2004 as the market price of the stock exceeded the exercise price on the measurement date for 500,000 stock options. No compensation cost has been recognized for the options granted with a market price of the stock that did not exceed the exercise price on the measurement date.

The following tables summarize information about stock options during the three years ended December 31, 2004:

|                                           |  | Shares |            | Exercise   Price   per Share |   | Weighted   Average   Exercise Price | 
|------------------------------------------ |  | ------ | ---------- | ---------------------------- | - | ----------------------------------- | 
|                                           |  |        |            |                              |   |                                     | 
|Outstanding at December   31, 2001         |  |        |           |                              |   |                                    | 
|Granted                                    |  |        | 5,360,000  |                              | $ | 0.14-0.75                           | 
|                                           |  |        |            |                              |   |                                     | 
|Outstanding at December   31, 2002         |  |        | 5,360,000  |                              |   |                                     | 
|Granted                                    |  |        | 1,500,000  |                              | $ | 0.5                                 | 
|Exercised                                  |  |        |           |                              |   |                                    | 
|Forfeited                                  |  |        | (100,000   | )                            | $ | 0.5                                 | 
|                                           |  |        |            |                              |   |                                     | 
|Outstanding at December   31, 2003         |  |        | 6,760,000  |                              | $ | 0.14-0.75                           | 
|Granted (1)                                |  |        | 3,950,000  |                              | $ | 0.14-2.00                           | 
|Exercised                                  |  |        |           |                              |   |                                    | 
|Forfeited                                  |  |        | (250,000   | )                            | $ | 0.5                                 | 
|                                           |  |        |            |                              |   |                                     | 
|Outstanding at December   31, 2004         |  |        | 10,460,000 |                              | $ | 0.14-2.00                           | 
|                                           |  |        |            |                              |   |                                     | 
|Options exercisable at   December 31, 2004 |  |        | 8,810,000  |                              | $ | 0.14-1.00                           | 
|                                           |  |        |            |                              |   |                                     | 
|Options exercisable at   December 31, 2003 |  |        | 4,385,000  |                              | $ | 0.14-0.75                           | 
|                                           |  |        |            |                              |   |                                     | 
|Options exercisable at   December 31, 2002 |  |        | 3,510,000  |                              | $ | 0.14-0.75                           | 
|                                           |  |        |            |                              |   |                                     | 

|                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) Includes 500,000 options granted at less than   market price with a weighted average exercise price of $0.14 and 3,450,000   options granted at
greater than market price with a weighted average exercise   price of $1.48.

F - 17



INTERNATIONAL FUEL TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

|               |  | Options   Outstanding                         |            | Options   Exercisable                                          | 
|-------------- |  | --------------------------------------------- | ---------- | -------------------------------------------------------------- | 
|               |  |                                               |            |                                                               
|Exercise Price |  | Number   Outstanding at   December 31,   2004 |            | Weighted   Average   Remaining   Contractual   Life (in years) | 
|               |  |                                               |            |                                                                | 
|$0.14 - $0.25  |  |                                               | 2,010,000  |                                                                | 
|$0.50 - $0.75  |  |                                               | 5,000,000  |                                                                | 
|$1.00 - $2.00  |  |                                               | 3,450,000  |                                                                | 
|               |  |                                               |            |                                                                | 
|               |  |                                               | 10,460,000 |                                                                | 
|               |  |                                               |            |                                                                | 

In 2002 and 2003, IFT granted 3,000,000 and 500,000 stock options to non-employees.  1,000,000 of the options granted in 2002 vested immediately and were recorded as consulting expense at that time.  The remaining 2002 options and all the 2003 options vest over 12 or 24 months and the fair value of the options are being recorded as consulting expense ratably over the vesting period.  In 2003, 1,500,000 options granted in 2002 that had not yet vested were forfeited. IFT cancelled these options and reversed previously recognized consulting expense relating to these options.  In 2004, IFT granted 7,480,000 stock options to non-employees. 1,230,000 of the options granted in 2004 vested immediately and were recorded as consulting expense at that time. Some of the 2004 options will vest over 10 or 12 months and the fair value of the options are being recorded as consultant expense ratably over the vesting period. The majority of the 2004 options will

vest based on the occurrence of certain events and therefore consulting expense will not be recorded until the triggering event occurs. Total consulting expense recognized in connection with these options was $174,167 in 2002, $779 in 2003, and $516,695 in 2004.

Options outstanding to non-employees at December 31, 2004, 2003 and 2002 are 9,480,000, 2,000,000 and 3,000,000, respectively. Options exercisable by non-employees at December 31, 2004, 2003 and 2002 are 3,380,000, 1,500,000 and 1,000,000, respectively. The weighted average exercisable prices by non-employees at December 31, 2004, 2003 and 2002, for options outstanding and exercisable was $0.74 and $0.65, $0.50 and $0.50, and $0.50 and $0.50, respectively.

Services performed by non-employees who were granted options include product/distribution consulting and legal.  The fair value for these options ($0.37 for 2004, $0.07 for 2003 and $0.04 for 2002) was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 3.40% for 2004, 1.66% for 2003 and 1.54% for 2002; volatility factor of 1.52 for 2004, 1.36 for 2003 and 1.28 for 2002; and a weighted average expected life of the option of 4.75 years for 2004, 2003 and 2002.

F - 18



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:                                  
|                                     
|                                     
|                                     
|                                     
|By:                                  
|                                     
|                                     
|                                     



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 24, 2005
|--- | ----------------------- |  | -----------------------
|    |                         |  |                        
|    | Jonathan   R. Burst     |  |                        
|    | Chairman   of the Board |  |                        
|    |                         |  |                        
|By: | /s/ REX CARR            |  | Date     March 24, 2005
|    |                         |  |                        
|    | Rex Carr                |  |                        
|    | Director                |  |                        
|    |                         |  |                        
|By: | /s/ GARY KIRK           |  | Date     March 24, 2005
|    |                         |  |                        
|    | Gary Kirk               |  |                        
|    | Director                |  |                        
|    |                         |  |                        
|By  | /s/ DAVID B. NORRIS     |  | Date     March 24, 2005
|    |                         |  |                        
|    | David B.   Norris       |  |                        
|    | Director                |  |                        
|    |                         |  |                        
|By: | /s/ HARRY DEMETRIOU     |  | Date     March 24, 2005
|    |                         |  |                        
|    | Harry   Demetriou       |  |                        
|    | Director                |  |                        
|    |                         |  |                        
|By: | /s/ TONY CROSS          |  | Date     March 24, 2005
|    |                         |  |                        
|    | Tony Cross              |  |                        
|    | Director                |  |                        

F - 19