|                                   |                                                                                      
|---------------------------------- | -------------------------------------------------------------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549            
|                                  
|FORM 10-K                         
|                                  
|(Mark One)                        
|                                  
|x                                  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

|                           |                  
|-------------------------- | -----------------
|For the
 fiscal year ended | December 31, 2009
|                           |                  
|                           | 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) |  | (I.R.S. Employer 
 Identification No.)
|                                                                 |  |                                       
|7777 Bonhomme Avenue, Suite 1920 
 St. Louis, Missouri           |  | 63105                                 
|                                                                 |  |                                       
|(Address of principal executive offices)                         |  | (Zip Code)                            

|                                                                   |                
|------------------------------------------------------------------ | ---------------
|Registrants
 telephone number, including area code                | (314)
 727-3333
|                                                                   |                
|Securities
 registered pursuant to Section 12(b) of the Act: None.
|                                                                   |                
|Securities
 registered pursuant to Section 12(g) of the Act:      
|                                                                   |                
|Common Stock, $0.01 Par Value                                     
|                                                                  
|(Title of Class)                                                  

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes  
x No Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o Yes  x No 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. x Yes  o No Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).


o Yes  o No Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large
 accelerated filer o
 Accelerated
 filer oNon-accelerated
 filer o
 Smaller
 reporting company x(Do not
 check if a smaller reporting company) Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). o
Yes  x No The aggregate
market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of the last business
day of the registrants most recently completed second fiscal quarter was
$16,702,604. Indicate
the number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date. 101,292,284 as of March 25, 2010 DOCUMENTS INCORPORATED BY REFERENCE None.


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INTERNATIONAL FUEL TECHNOLOGY, INC.

FORM 10-K

For The Fiscal Year Ended December 31, 2009

INDEX

|              |             |                                                                                                               |  |   
|------------- | ----------- | ------------------------------------------------------------------------------------------------------------- |  | --
|Part I        |             |                                                                                                               |  |   
|              |             |                                                                                                               |  |   
|              | Item 1.     | Business                                                                                                      |  | 1 
|              | Item 1A.    | Risk Factors                                                                                                  |  | 11
|              | Item 1B.    | Unresolved Staff Comments                                                                                     |  | 16
|              | Item 2.     | Properties                                                                                                    |  | 16
|              | Item 3.     | Legal Proceedings                                                                                             |  | 16
|              | Item 4.     | (Removed and Reserved)                                                                                        |  | 17
|              |             |                                                                                                               |  |   
|Part II       |             |                                                                                                               |  |   
|              |             |                                                                                                               |  |   
|              | Item 5.     | Market for Registrants Common Equity,
 Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 18
|              | Item 6.     | Selected Financial Data                                                                                       |  | 18
|              | Item 7.     | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                        |  | 18
|              | Item 8.     | Financial Statements and Supplementary Data                                                                   |  | 25
|              | Item 9.     | Changes in and Disagreements with
 Accountants on Accounting and Financial Disclosure                         |  | 25
|              | Item 9A(T). | Controls and Procedures                                                                                       |  | 25
|              | Item 9B.    | Other Information                                                                                             |  | 26
|              |             |                                                                                                               |  |   
|Part III      |             |                                                                                                               |  |   
|              |             |                                                                                                               |  |   
|              | Item 10.    | Directors, Executive Officers and Corporate
 Governance                                                       |  | 27
|              | Item 11.    | Executive Compensation                                                                                        |  | 29
|              | Item 12.    | Security Ownership of Certain Beneficial
 Owners and Management and Related Stockholder Matters               |  | 35
|              | Item 13.    | Certain Relationships and Related
 Transactions, and Director Independence                                    |  | 37
|              | Item 14.    | Principal Accountant Fees and Services                                                                        |  | 38
|              |             |                                                                                                               |  |   
|Part IV       |             |                                                                                                               |  |   
|              |             |                                                                                                               |  |   
|              | Item 15.    | Exhibits and Financial Statement Schedules                                                                    |  | 39
|              |             |                                                                                                               |  |   
|Signatures    |             |                                                                                                              
|              |             |                                                                                                              
|Exhibit Index |             |                                                                                                              

---



PART I

FORWARD-LOOKING STATEMENTS

We have made
forward-looking statements in this document within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, that are based on managements
current reasonable expectations, estimates and projections. Words such as
expects, anticipates, intends, plans, believes, estimates,
variations of such words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties, many of which are difficult to predict and generally beyond our
control, that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements. Such risks include, but
are not limited to, risks relating to economic, competitive and other factors
affecting our operations, markets, products and services and marketing and
sales strategies, as well as the risks noted under the section in this report
entitled Risk Factors. We do not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.

|        |         
|------- | --------
|Item 1. | Business

INTRODUCTION

International
Fuel Technology, Inc. (IFT) was incorporated in Nevada on April 9, 1996 by a
team of individuals who sought to address the challenges of reducing harmful
emissions while at the same time improving the operating performance of
internal combustion engines, especially with respect to fuel economy and engine
cleanliness. After our incorporation, our initial focus was product research
and development, but since late 2005 and early 2006, our efforts have been
directed to commercializing our product slate, primarily DiesoLIFTTM,
for use with diesel fuel and bio-diesel fuel blends, by focusing on marketing,
sales and distribution efforts.

For
information regarding revenues from external customers attributed to our
domestic operations and to all foreign countries, see Note 1 to our financial
statements for the fiscal year ended December 31, 2009.

At December
31, 2009, we had six full-time employees. None of our employees are represented
by a labor union or is subject to a collective bargaining agreement. We believe
that our employee relations are good.

We are a technology
company that has developed a range of liquid fuel additive formulations that
enhance the performance of petroleum-based fuels and renewable liquid fuels. We
believe that use of our proprietary fuel additive formulations with a base
fuel: enhances the combustion process; improves fuel economy; reduces harmful
emissions; increases fuel lubricity; acts as a detergent to clean the fuel
system; co-solves free water in the fuel system; reduces corrosion and
microbial contamination in the fuel system; and when used in bio-fuels
increases fuel oxidation stability and reduces deposit formation.

We have
developed additive products for diesel, pure bio-diesel, bio-diesel fuel
blends, gasoline and kerosene (heating oil) fuels.

Unlike
traditional fuel additives, which are derived from petroleum, our products are
derived from a mixture of complex surfactant substances that utilize, in part,
naturally occurring fractions that are bio-degradable. Our additive products
are easily blended into motor fuels (usually through splash blending), or
combined with base motor fuels plus other fuel formulations, including
bio-diesel, synthetic diesel, ethanol and urea/water, creating
environmentally-friendly finished fuel blends.

1

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The
manufacture of our products is outsourced to Multisol France and Air Products,
Inc. pursuant to manufacturing and supply agreements (see Manufacturing
Partners).

We have funded
and completed several independent laboratory testing efforts conducted by
various well-regarded laboratories in the United States, Canada, Europe,
Brazil, South Africa, China and Thailand to confirm the efficacy of our
technology. We have completed customer-focused field-testing, which has
validated independent laboratory test results. Additional field demonstration and
various other laboratory testing efforts are currently underway to further our
product commercialization efforts.

With the
increasing public and private pressure to reduce the level of harmful engine
emissions, combined with the uncertain cost of base fuel, we believe our
technology and its further development is poised to become one of the leading
fuel performance enhancement technologies available to facilitate the worldwide
effort to address these issues.

TECHNOLOGY

Our
surfactant-based additive formulations are composed of a mixture of complex
chemical molecules which, when blended into a base fuel, lower that base fuels
overall surface tensions at liquid-air, liquid-liquid, and liquid-solid (pipe
wall) interfaces. This promotes lubricity and detergency and allows for
improved atomization of the fuel in the induction and combustion chambers,
resulting in a more complete and efficient burn, improving fuel economy and
reducing harmful emissions.

Once the
additive is blended with a base fuel, the blend forms into and remains a stable
solution. No additional mixing or agitation is required for the fuel blend to
remain perfectly mixed.

The following
summarizes the primary benefits of our technology:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fuel economy:
 The reduction in the fuels overall surface tension as it enters the
 combustion chamber allows for improved atomization, resulting in a more
 complete burn. The engine, therefore, is effectively maximizing the inherent
 energy in the fuel. Fuel economy is also enhanced by (i) increased lubricity
 which reduces friction in the fuel system, and (ii) the detergency effect
 which prevents the deterioration of engine performance caused by detrimental
 deposits.                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Lubricity: The
 inherent lubricity properties of our additive formulations increase the lubricity
 of the fuel. This occurs because the additive will adsorb to the sides of the
 engine fuel system. This has the effect of coating the fuel system and
 reducing the friction created as the fuel flows through it.                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Detergency:
 Because surfactants are detergents, they will act to constantly clean the
 fuel system and engine. The detrimental deposits, which might occur in
 ordinary use, are washed out and retained by fuel and lube oil filters.                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Emissions: The
 improved atomization of the fuel, resulting from the use of our additives,
 provides for a more complete combustion of the fuel. As a result, the amount
 of harmful carbon monoxide, unburned hydrocarbons and particulate matter
 (PM) emissions are reduced significantly. The increased fuel efficiency and
 economy resulting from the use of our additive means that less fuel has to be
 burned for the same power output. Therefore, for the same power output, less
 carbon dioxide and nitrogen oxides (NOx) (both green house gases) are
 released into the atmosphere.

2

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Co-solvency:
 An important benefit of our additive technology is the ability to hold
 limited amounts of ethanol and/or water in gasoline and diesel as a stable,
 homogeneous fuel. This is possible because our additives are based on surfactant
 physical chemistry. This enables the water and/or ethanol molecules to be
 distributed throughout the fuel in a stable and homogeneous single phase,
 preventing phase separation and enhancing uniform combustion.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Microbial contamination:
 If small amounts of water are present in the fuel, and phase separation
 occurs, aerobic and anaerobic bacterial and fungal growths may occur in the
 aqueous phase. The co-solving effect of our additives prevents phase
 separation from occurring and eliminates the environment for microbial
 growth. This reduces the need for bio-cides to treat the fuel, which can be
 expensive and difficult to handle.                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Corrosion inhibitors:
 Our fuel additives are natural corrosion inhibitors. When the additive
 surfactant molecules adsorb to the side of the fuel system, they provide a
 protective coating. Also, the ability to co-solve any free water in the fuel,
 and prevent phase separation, helps prevent any corrosion that may occur due
 to the aqueous phase.                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Reduced maintenance:
 The combined effects of improved lubricity, detergency, water co-solvency,
 corrosion inhibition, and cleaner burn resulting from the use of our additive
 technology extend the service life of the engine while reducing maintenance
 costs.                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Oxidation Stability:
Our DiesoLIFTTM BD-series products are powerful antioxidants which
provide superior oxidation stability to pure bio-diesel fuel and fuel
blends containing bio-diesel.                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Deposit Formation Control:
Our DiesoLIFTTM BD-series products excel at stabilizing
bio-diesels and fuel blends containing bio-diesel during long storage periods
and at preventing deposit formation.                                                                                                                                                                                                                                                                   

Research and
development costs are expensed as incurred. Research and development expense
from services received from external vendors for 2009 and 2008 was $115,151 and
$131,974, respectively.

INTELLECTUAL PROPERTY

We have filed
three patents resulting in five national applications pertaining to different
uses of our proprietary technology relating to our fuel additives and fuel blends.

A United
States patent application covering the chemical formulations for the additives
DiesoLIFTTM, GasoLIFTTM and KeroLIFTTMhas
been filed and is pending. We have also filed an international patent
application, under the Patent Cooperation Treaty, covering our technology in
certain foreign countries. In addition, we and Tomah Products, Inc. (Tomah),
an Air Products, Inc. subsidiary (see Manufacturing Partners), have filed a
joint patent pertaining to urea/water technology. These patent applications
protect our technology in many countries.

Additional
patent applications for extension of our technology are constantly evaluated as
additional scientific, technical data and laboratory testing results become
available.

INDEPENDENT TESTING

There are two primary methods of product testing: laboratory bench
tests and field trials. We utilize both testing methods to further develop the
body of test data necessary to support marketing and sales efforts. As IFT has
matured, we have become aware of the importance of developing and managing
specific testing protocols for field-based testing and adhering to already
developed, industry recognized testing standards when engaged in laboratory
bench tests. Numerous variables exist in any testing protocol and if not
carefully managed, one change in one variable can skew test results. To address this challenge,

3

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we use our best efforts to
ensure standardized testing and trial evaluation protocols, both industry
prescribed and custom developed, whenever laboratory or field-testing is
undertaken. The use of these protocols allows us to: (i) effectively analyze
and interpret test results; (ii) ensure testing is structured and conducted in
a controlled way; (iii) ensure we will have full access to all testing results conducted
by third parties; and (iv) assist our marketing and sales efforts through
potential client recognition of and attention to results generated from
industry adopted testing protocols.

In addition to
extensive field-based customer trials completed or under way, we have funded
extensive laboratory bench testing at numerous well-known independent testing
laboratories, including:

|  |                                                          
|- | ---------------------------------------------------------
| | M.I.
 Technologies, in the United Kingdom;               
|  |                                                          
| | Southwest
 Research Institute, in the United States;     
|  |                                                          
| | Forest
 Engineering Research Institute of Canada  FERIC;
|  |                                                          
| | Motive
 Power, in the United States;                     
|  |                                                          
| | Gerotek, in
 South Africa;                               
|  |                                                          
| | Prodrive
 Ltd, in the United Kingdom;                    
|  |                                                          
| | BfB
 Laboratories, in Belguim;                           
|  |                                                          
| | MTEC, in
 Thailand; and                                  
|  |                                                          
| | Tsinghua
 University, in China.                          

Test results
have confirmed the effectiveness of our additive formulations. In particular,
IFT fuel blends tested have achieved: (i) an increase in fuel economy; (ii) an
increase in lubricity; and (iii) a reduction in harmful emissions.

PRODUCTS

We have
introduced three trademarked product brands that are being marketed around the
world: DiesoLIFTTM, GasoLIFTTM, and KeroLIFTTM.

DiesoLIFTTM 10
DiesoLIFTTM 10 is IFTs proprietary fuel enhancing technology for
use with diesel fuel and bio-diesel fuel blends. DiesoLIFTTM 10 has
been scientifically proven to increase fuel economy and fuel lubricity while
reducing harmful fuel emissions.

DiesoLIFTTMBD-3
DiesoLIFTTMBD-3 is a unique formulation developed for the
stabilization of bio-diesel bases of various origins and corresponding
bio-diesel fuel blends (B5, B-10, B-20, etc.). DiesoLIFTTMBD-3
provides protection against premature and developing oxidation and can be
utilized for storage stability and deposit control.

DiesoLIFTTMEM-1DiesoLIFTTMEM-1 is engineered to deliver the same
improved lubricity, co-solvency of water, cleaning of fuel systems, improved
fuel economy and environmental benefits of DiesoLIFTTM 10. However,
DiesoLIFTTMEM-1 also provides oxidation stability and deposit
control benefits to bio-diesel and bio-diesel fuel blends.

GasoLIFTTMGasoLIFTTM is the range of products specifically designed
to apply our fuel enhancing technology to gasoline motor fuel and engines. Use
of GasoLIFTTM provides similar benefits to gasoline engines as DiesoLIFTTM10 provides to diesel engines.

KeroLIFTTMKeroLIFTTM has been specifically formulated to bring added
benefits to heating oils, kerosene fuel systems and oil burners for all
oil-fired equipment applications. KeroLIFTTM has a positive effect
on the environment by reducing harmful emissions and green house gases, and
by eliminating smoke.

4

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MANUFACTURING PARTNERS

In 2001, we
signed a manufacturing agreement with Tomah, a specialty chemical manufacturer.
The agreement covers existing and to-be-developed fuel performance enhancement
additive products utilizing our technology. The agreement allows us to consider
sourcing the supply of our products from others, but allows Tomah the right of
first refusal to meet the terms of other supplier proposals. If Tomah elects
not to meet the third party terms, we then have the right to contract with the third
party for the manufacture and supply of our products. The agreement also
provides for Tomah and us to cooperate and work together to optimize the
effectiveness of and reduce the manufacturing and supply costs of the additive
product formulations, as well as collaborate on product research and
development activities. The agreement has a 15-year term.

Tomah,
headquartered in Milton, Wisconsin, with production facilities in both
Wisconsin and Louisiana, was purchased by Air Products, Inc., a worldwide manufacturer
and supplier of chemical, industrial gases and other industrial products, in
2005. Tomah specializes in the manufacturing of specialty chemicals with an
emphasis on industrial surfactants. Tomah manufactures products for a variety
of industries, including fuel additives, mining and industrial and
institutional cleaning. Tomah markets and distributes its products to companies
around the world. Originally founded in 1967, Tomah was acquired by Exxon in
1984 and operated as a division of Exxon Chemical until 1994, when it was spun
off in a management buyout. Tomah excels at custom manufacturing and in
developing products designed to meet specific needs. We chose Tomah as our
manufacturing and supply partner because of its manufacturing capabilities, rapid
response times, service level, industry contacts and technical expertise. We
believe our relationship with Tomah and Air Products, Inc. to be excellent.

In addition,
in July 2008 we signed a manufacturing agreement and a marketing and
distribution agreement with Multisol France. Multisol France is part of the
Multisol Group, a prominent international chemical, additives and lubricants
manufacturer and distributor with operations in Europe, the Middle East and
Africa. The manufacturing agreement covers existing and
to-be-developed fuel performance enhancement additive products utilizing our
technology. The agreement also provides for Multisol and us to cooperate and
work together to optimize the effectiveness of and reduce the manufacturing and
supply costs of the additive product formulations, as well as collaborate on
product research and development activities. The manufacturing agreement has a
15-year term. Either party may terminate the manufacturing agreement by
providing the other party advance notice at least 180 days before desired
termination date. The marketing and distribution agreement has a term ending
December 31, 2012 and can be terminated by either party with cause after
providing at least 90 days notice of termination.

REGULATORY ISSUES

Government
regulations across the globe regarding motor fuels are continually changing.
Most regulation focuses on fuel emissions. However, there is also growing
concern about dependence on hydrocarbon-based fuels. This is driving
legislation and regulation toward mandating alternative fuels such as bio-fuels
and providing incentives for their development and use. Fuels regulation exists
at various levels of government and enforcement around the globe. However, we
believe the consistent pattern of regulations designed to reduce harmful
emissions and reduce dependence on oil for fuel needs will only become more
stringent. We believe this will be an advantage to us as many of our products
benefits reduce fuel consumption and improve performance of alternative fuel
blends. We believe that as fuels regulatory compliance becomes more burdensome
to fuel manufacturers, suppliers and users, demand for the benefits our
products deliver should increase. One of our strategies is to monitor
government fuel related regulatory activity in the countries strategic to our
business plan. This surveillance program is designed to support the product
development and intellectual property process to ensure our products respond to
the changing regulatory climate and are protected as quickly as possible to
maintain competitive advantage. The surveillance program also supports the
marketing of our products to accentuate their attributes in helping customers
meet the new regulatory compliance directives.

5

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As an example,
in January 2000, the Environmental Protection Agency in the United States
(EPA) enacted a stringent and far-reaching set of diesel emission standards
that requires the significant reduction in harmful emissions, especially PM and
NOx. These regulations were phased in beginning in 2004. PM in diesel emissions
is to be reduced by 90% and NOx is to be reduced by 95%. Of equal importance to
diesel fuel producers, the EPA also requires 97% of the sulfur currently in
diesel fuel be eliminated beginning in 2006. The elimination of sulfur in
diesel fuel will likely cause a decrease in diesel fuel lubricity. We believe
that our products are well-positioned to benefit from the more stringent
environmental rules, as tests have shown positive PM reduction effects and
increased lubricity attributes when our products are added to base diesel fuel.

Another
example is the regulation passed applicable to the European Union (EU)
regarding the use of bio-fuels (bio-diesel and ethanol). The EU is supporting
bio-fuels with the aim of reducing green house gas emissions, boosting the
de-carbonization of transport fuels, diversifying fuel supply sources, offering
new income opportunities in rural areas and developing long-term replacements
for fossil fuel. In May 2003, the European Parliament and the Council adopted
the Directive on the promotion of the use of bio-fuels or other renewable
fuels for transport. This Directive aims at promoting the use of bio-fuels or
other renewable fuels to replace diesel or petrol for transport purposes, with
a view to contribute to objectives such as improving the security of energy
supply, reducing green house gas emissions and creating new opportunities for
sustainable rural development. The Directive requires member states to ensure
that a minimum proportion of bio-fuels and other renewable fuels for
transport is placed on the market and, to that effect, set indicative targets.
Reference values for these targets are: 2% for the end of 2005 and 5.75% for
the end of 2010, on the basis of energy content of all petrol and diesel for
transport purposes. Member states may deviate from the reference values but if
they do, they should report their motivations for the deviation to the
Commission.

Current
efforts are being demonstrated in the United States to encourage the
development of alternative fuels and the required use of ethanol. In an effort
to reduce dependence on foreign oil and keep up with increasing demand for
petroleum products, the United States Department of Energy (DOE) has created
and sponsored programs that encourage the use of these alternative fuels. The
programs, such as the one derived from the Energy Policy and the ethanol and
bio-diesel subsidy programs implemented by the DOE and other government
agencies, in response to the 2005 energy legislation, provide significant
incentives for the adoption of targeted fuel blends, the performance of which
can be enhanced by the use of our products. We believe our products are
well-positioned to help fuel producers and consumers comply with current and
future fuels related regulatory standards and take advantage of existing
incentive programs in the United States and the rest of the world.

INDUSTRY AND COMPETITION

Our product
slate and business is a part of the hydrocarbon fuels and lubricants additive
industry. The industry is composed of a few relatively large companies and a
large number of smaller participants. We fall into the latter category. The
large firms capture their revenue through sales of proprietary, branded
products, or by sales to fuel refiners to meet state and federal fuel
specifications, or fuel wholesalers and retailers trying to differentiate their
own branded products. The common denominator is that all industry participants
produce products which are added to hydrocarbon fuels to allow the fuel, or the
overall fuel system, to perform better with the additive than without. Industry
participants do not make the fuel itself.

The main
thrust of industry participants products centers around improved engine
cleanliness and efficiency (e.g., detergency characteristics applicable to fuel
injector nozzles), improved fuel flow (e.g., mitigation of fuel problems caused
by low ambient temperature) and fuel system protection (e.g., improved
lubricity). These are common focus areas for the full range of gasoline and
distillate fuels. Additives designed to address specific problem areas in
specific fuel applications (e.g., Cetane improver in diesel fuel) and static
electricity dissipation in turbine engines are also significant.

6

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The primary
market for IFT is fuel economy improvement. Although many companies make claims
regarding the ability of their respective products to improve fuel economy, we
are not aware of any fuel additive formulation that has consistently
demonstrated the ability to achieve the fuel economy improvement achieved by
IFT products in independent laboratory testing and field trials. The potential
market for IFT products is virtually every gallon of diesel fuel and bio-diesel
fuel blend consumed in the world today.

The breadth of
existing technologies making claims to have solved engine emissions problems
runs the gamut from alternative fueled vehicles (e.g., 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 incentives coupled with
issues such as lack of appropriate infrastructure (e.g., compressed natural gas
storage and delivery systems) and technical limitations (e.g., keeping
alternative fuels emulsified, significant loss of power and fuel economy with
present alternative fuels), currently makes market acceptance of many
technologies not economically feasible 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 harmful engine
emissions problem. We believe the natural selection expected to take place
over the coming decade for new technologies may evolve on a market-by-market
basis and will be largely dependent upon local regulatory conditions. Signs of
the changing emissions regulatory environment can be seen in:

| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | EU where the
 bio-fuels directive imposes a minimum of 5.75% bio-fuel content in 2010
 (bio-diesel and bio-ethanol) on the basis of energy content of all petrol and
 diesel for transport purposes;                                                                                      
| |   |                                                                                                                                                                                                                                                                                           
| |  | Europe,
 where several countries, including the United Kingdom, France and Italy have
 enacted legislation providing tax breaks to companies that use fuel emulsions
 blending diesel and water;                                                                                          
| |   |                                                                                                                                                                                                                                                                                           
| |  | United
 States, where legislation has been enacted in Texas granting tax incentives
 to diesel  water-based emulsions and in California, where low-sulfur diesel
 is being phased in and agricultural lobbies are promoting the use of
 alternative fuels such as bio-diesel and ethanol;
| |   |                                                                                                                                                                                                                                                                                           
| |  | China, where
 the central government has supported fuel ethanol development in certain
 provinces which have responded by building and operating ethanol
 distilleries, including the largest corn-derived ethanol distillery in the
 world in Jilin province; and                        
| |   |                                                                                                                                                                                                                                                                                           
| |  | Brazil, with
 a long history of fuel ethanol, where regulations require a fuel blend with
 up to 25% ethanol; also, a new bio-diesel program has started that requires
 blends increasing from 2% to 5% bio-diesel in diesel.                                                             

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 bio-diesel, water and ethanol);                         
| |   |                                                                                 
| |  | Additive
 technologies (catalysts such as metallic or precious metal additives);
| |   |                                                                                 
| |  | Alternative
 fuels (compressed natural gas, bio-diesel, and others); and        
| |   |                                                                                 
| |  | After-market
 systems (catalytic converters).                                   

As a result of
the pursuit, primarily by governments around the world, to mandate cleaner
fuels and less dependence on hydrocarbon-based fuels through all the disparate
efforts currently underway, we believe no one competitor or technology will
come to dominate world market demand for additive technology. Rather, we
believe a combination of technologies

7

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that maximizes individual product and technology strengths,
limits their weaknesses, and delivers the highest cost/value relationship will
be used.

Our industry
and competitor product slate and technology is constantly evolving. Many
competitors make very similar product benefit claims; such as detergency,
lubricity and anti-corrosion, with a few now beginning to make fuel economy
claims as well. Our challenge is to increase our product visibility and to rise
above all the industry claims clutter by differentiating our products from
our competitors products. We believe the multi-functional nature of our
technology, focusing on fuel economy and providing all other traditional fuel
and fuel system benefits together with the capability to mitigate adverse
performance impacts of emerging alternative fuels and fuel blends, packaged
into one product, differentiates our products from those of our competitors.

MARKETING AND SALES

Our primary
marketing and sales focus is to identify and work with industry peers and
established in-country or global commercial distributors to partner with us to
secure an expanding and sustainable revenue stream. We continue to pursue
direct sales to end-users where we deem direct sales to be the most efficient
customer reach platform. However, where direct sale to end-users is not an
efficient model for us, we seek out industry distribution partners whose focus
is end-user sales. We believe established fuel and lubricant additive companies
will have an interest in using our products either as a line extension of their
existing products or as blend stock, either replacing existing raw materials
used to formulate existing blends or as an addition to existing product blends.

Our marketing
and sales efforts are primarily directed at commercial industrial users of
diesel fuels within specific market segments like rail, power generation and
road transport vehicles (trucks and buses). We have no current plans on
attempting to penetrate the retail market either on a branded or unbranded
basis. In North America, we believe direct sales to commercial industrial
customers and to industry distribution partners provide the best sales and
distribution model. Direct sales to end-users allow us to maximize the product
value chain benefits for the end-user and us. In other areas around the world,
sales to in-country distributors will likely provide the most cost-effective
and efficient marketing and sales model and allows us to leverage our marketing
and sales resources to the greatest benefit. This distribution model adds
tremendous value to us by reaching customers we could not efficiently sell to
directly, economically or politically. Utilization of distributors in these
circumstances extends our product reach and boosts sales. Several distribution
agreements are now in place.

We market our
products within identified targeted markets and industry segments. The
marketing efforts focus on those companies within the preferred industry
segments that will benefit the most from usage of our products. These efforts are
supplemented by sharing test data with targeted companies in order to generate
industry interest in our products. Marketing efforts include sponsorship of
field trials, communication through trade media with messages directed at both
technical and non-technical business professionals emphasizing fuel performance
enhancement through technical innovation, fuel efficiency, maintenance cost
savings, improved air quality and no harm to engine or environment evidence.
Communication openness, transparency and willingness to share trial and testing
data are the keys to the engagement process.

We have
assembled a marketing and technology team of experienced industry professionals
to pursue commercial opportunities for our fuel additive technology. We believe
significant gains are being achieved in product exposure to the targeted
markets and industry segments.

We believe an
expeditious means of achieving product awareness and market acceptance is
through field engagements with strategic commercial users of motor fuels. We
are always seeking companies recognized as leaders in their industry to try our
products in a field trial setting. Formal trials have been completed with
several such companies and the efficacy of our technology has been validated.
Additional field trials are currently underway, or have been committed to,
which upon completion should lead to additional commercial opportunities.

8

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Commercial Update

Our primary
commercial goal continues to be the bulk sale (by the ton) of DiesoLIFTTM
10 and DiesoLIFTTM BD-3 to major end-users of diesel fuel and
bio-diesel fuel blends, including: railroads; stationary power generation
operators; centrally-fueled truck/bus fleets; and marine vessel operators. Our
primary strategy to achieve this goal is to outsource marketing and
distribution by partnering with prominent fuel additive distribution companies
and oil companies with existing customers and distribution channels.

IFT has
emerged from the research and development phase and is in the early stages of
commercializing its technology. Through distribution partners, IFT has clients
that are purchasing and using DiesoLIFTTM 10, DiesoLIFTTM
BD-3, GasoLIFTTM, DiesoLIFTTM EM-1 and KeroLIFTTM.
IFT products are marketed to end-users either relabeled or under IFT brand
names.

Railroads

The
Association of Train Operating Companies in the U.K. (ATOC) and the Rail
Safety and Standards Board (RSSB) under the independent management of
world-renowned railroad consultant Interfleet Technology (Interfleet) has
been evaluating IFTs DiesoLIFTTM 10 fuel additive since 2005. Four
rounds of extensive laboratory testing, using strict industry protocol, clearly
demonstrated that use of DiesoLIFTTM 10 not only improves fuel
economy but also, and as important, has a measured effect improving engine
performance and reducing carbon particulates.

Three rounds
of limited (a small number of locomotives) field trials have also demonstrated
that use of DiesoLIFTTM 10 improves fuel economy. The final phase of
the evaluation was completed in January 2010 when an ATOC member company, in
agreement with all the major industry stakeholders including Porterbrook,
Angel, Cummins, Perkins, Network Rail and LH Group, completed one of the
largest ever field trials (89 engines), which again demonstrated that the use
of DiesoLIFTTM 10 significantly improved fuel economy.

Commercial
discussions with numerous ATOC members have commenced and will continue to take place in the second
quarter of 2010. IFT has been in discussions with one of the largest rail
operators in Brazil for a number of years. A major laboratory test to evaluate
DiesoLIFTTM 10 is set to take place in the second quarter of 2010.

Through the
efforts of one of its distribution partners, IFT has commenced field trials
with two European rail operators.

In addition,
success with the ATOC tests and trials has furthered IFTs progress with other
rail operators in Europe, India and the U.S.

Distribution Partners

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multisol
 France (Multisol): We signed a manufacturing, marketing and distribution
 agreement with Multisol in July 2008 providing Multisol with distribution
 rights to market and sell IFTs products in France, Spain, Portugal and
 Belgium. Multisol is selling our additive formulations to numerous accounts,
 including prominent fuel additive companies who are re-packaging the
 formulations for resale into retail markets.               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Nordmann
 Rassmann (Nordmann): We signed a marketing and distribution agreement with
 Nordmann in August 2008 providing Nordmann with the right to market and sell
 IFTs products in Germany, Austria, Switzerland, Sweden, Norway, Finland,
 Denmark, Poland, The Czech Republic, Slovakia, Slovenia, Hungary, Serbia,
 Romania and Bulgaria. Nordmann has introduced our products to numerous
 customers and made sales of DiesoLIFTTM BD-3 in 2009.

9

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Caldic U.K.
 (Caldic): We signed a marketing and distribution agreement with Caldic in
 May 2008 providing Caldic with distribution rights to IFTs products in the
 U.K. Caldic has introduced our products to numerous end-user customers and is
 currently in the process of running field trials with selected end-users.                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Tide Water
 Oil Co. India Ltd (Tidewater): Headquartered in India, Tidewater is a
 prominent manufacturer and distributor of additives and lubricants to the
 automotive and industrial markets. Tidewater purchases and then re-packages
 DiesoLIFTTM 10 for sale into these targeted markets in India:
 power generation set users; tractor operators; the agricultural industry; and
 retail distribution markets. Tidewater has indicated that they will make
 regular purchases of DiesoLIFTTM 10 in 2010.                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Nulon India
 (Nulon): We signed a marketing and distribution with Nulon in March 2007
 providing Nulon with the right to market and sell IFTs products in India.
 Nulon has conducted numerous field trials with DiesoLIFTTM 10,
 realizing positive results. Nulon had limited success selling our products in
 2009 but expects volumes to increase significantly in 2010.                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Pataki-Cahill
 Group (PCG): We signed a consulting agreement with PCG in February 2009.
 PCG is a leading consulting firm specializing in the area of clean and
 renewable fuels as well as alternative energy sources. PCG has been
 instrumental in generating a number of meaningful commercial opportunities
 for IFT with road transport, rail and stationary power generation operators.                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Vision Oil
 Services Ltd (VOS): We signed a distribution agreement with VOS in June
 2008 providing VOS with exclusive distribution rights to market and sell
 IFTs products to Libya Oil Holdings Limited (LOH) and to the continent of
 Africa and Jordan. VOS paid for the purchase 600 metric tons of DiesoLIFTTM
 10 in the first quarter of 2009 but has not yet taken delivery of the
 product. We have had no communication with VOS in over six (6) months and
 believe they have ceased all activities on behalf of IFT.

DiesoLIFTTMBD-3

Extensive
research, development, product validation testing and no harm testing has been
completed. DiesoLIFTTM BD-3 has clearly demonstrated that it is a
top performing technology in the market. The product is listed in Germany by
AGQM, the German Agency for Quality of Bio-diesel, as one of the few authorized
antioxidants to be used in bio-diesel after production. The product has already
been approved for use by a number of bio-diesel producers around the world. IFT
distribution partners have begun to market and sell the product in their
respective territories.

In Brazil, IFT
is one of four fuel additive companies that has been selected for an evaluation
process by one of the largest bio-fuel manufacturers in the world. The
evaluation process is expected to be completed in the first half of 2010.

In Europe, the
worldwide economic downturn has negatively impacted the rapid increase in
production and end-user demand for bio-diesel, and therefore, the demand for
new age antioxidant products like DiesoLIFTTM BD-3. We believe the
proliferation of bio-diesel in Europe will progressively return during 2010 and, through our distribution partner
network, most notably Nordmann, we are well-positioned to capitalize on current
demand and the imminent increase in demand.

Next to
DiesoLIFTTM BD-3, our DiesoLIFTTM BD-series now offers a
full range of stabilizers applicable to all types of feed stocks and
manufacturing processes.

U.S. Progress

Multiple
fleets with over the road tractors and fleets of heavy-duty equipment have been
purchasing and using DiesoLIFTTM 10 for many years. For example, a
large regional supermarket chain has been using DiesoLIFTTM 10 in their entire fleet of

10

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road tractor-trailers for approximately three years
and a regional construction and aggregate company has been using DiesoLIFTTM
10 in their fleet of heavy-duty off road equipment for approximately two years.

Other Opportunities

Efforts to
improve the performance of IFT fuel additive formulations are ongoing. IFT has
partnered with prominent independent test laboratories, chemical companies,
fuel additive distribution companies and oil companies to further the
development of and enhance the performance of its products on a stand-alone
basis, or as part of a fuel additive package.

Summary

We believe IFT
has two of the top performing fuel additive technologies in the world today,
DiesoLIFTTM 10 and the DiesoLIFTTM BD-series, that target
markets where consumption is massive and growing and environmental concerns and
pressures to reduce harmful emissions are real. A number of end-users and
distribution partners are buying our products. In addition, the time consuming
process of tests and trials has generated opportunities that should produce
additional revenue streams in 2010.

Available Information

Our website is
www.internationalfuel.com. We make available free of charge through our website
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC.

|         |             
|-------- | ------------
|Item 1A. | Risk Factors

Because we have transitioned from a
development stage to a commercialization phase for our products with a new
technology and little market and sales visibility, we may not be able to create
market demand for our products.

We are
currently engaged in extensive marketing and sales efforts including additional
laboratory testing and customer field trials to generate purchasing interest in
our products. We have only a limited marketing history. There is a substantial
risk of failure associated with development stage businesses attempting to make
the transition to self-sustaining commercial entities because of the lack of
established customer relationships and knowledge and acceptance of the new
products being marketed. We have experienced in the past, are continuing to
experience, and may experience in the future, some of the problems, delays and
expenses associated with this transition, many of which are beyond our control,
including but not limited to those depicted below:

|  |                                                                                                   
|- | --------------------------------------------------------------------------------------------------
| | substantial
 delays and expenses related to testing and further development of our
 products;     
|  |                                                                                                   
| | customer
 resistance relating to the marketing of a new product in the fuel additive
 marketplace;
|  |                                                                                                   
| | competition
 from larger and more established companies; and                                      
|  |                                                                                                   
| | lack of
 market acceptance of our new products and technologies.                                  

11

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We have a history of operating losses and due
to our current lack of sustainable sales and the possibility of not achieving
our sales goals, we may not become profitable or be able to sustain
profitability.

Since our
inception we have incurred significant net losses. We reported net losses of
$5,366,774 and $5,063,768 for the twelve months ended December 31, 2009 and December
31, 2008, respectively. Our accumulated deficit as of December 31, 2009 was
$63,011,645. We expect to continue to incur net losses in the near to mid-term
future. The magnitude of these losses will depend, in large part, on our
ability to realize product sales revenue from the marketing and sale of our
products. To date, we have not had any material operating revenue from the sale
of our products and there can be no assurance we will be able generate material
revenues. Our ability to generate revenues will be dependent upon, among other
things, being able to (1) overcome negative connotations on the part of
industrial fuel consumers regarding fuel additives in general; (2) convince
potential customers of the efficacy and economic and environmental benefits of
our products; and (3) generate the acceptance of our technology and products by
potential customers and thereby create the opportunity to sell our products at
a sufficient profit margin. Because we do not yet have a material, recurring
revenue stream resulting from the sale of our products, there can be no
assurance that we will be successful in these efforts. Should we achieve
profitability, there is no assurance we can maintain, or increase, our level of
profitability in the future.

In its March
31, 2010 report, our independent registered public accounting firm expressed
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

We have only a limited product sales history
upon which to base any projection of the likelihood we will prove successful;
therefore, we may not achieve profitable operations, or even generate
meaningful operating revenues.

Our fuel
performance enhancing technology is a relatively new approach to increasing
fuel performance in internal combustion engines and, therefore, may never prove
commercially viable on a wide-scale basis. It is possible that we may not be
able to reproduce, on a sustainable basis, the preliminary performance results
achieved in certain of our research and development and field trial efforts.

We are not
certain how many laboratory and customer field trial test programs will be
necessary to demonstrate to potential customers sufficient fuel economy and
other economic and environmental benefit from our products, nor is there any
assurance that such test programs, even if positive results are observed, will
convince potential customers of the efficacy of our products leading to subsequent
sales orders. The success of any given product in the marketplace is dependent
upon many factors, with one of the most important factors being the ability to
demonstrate a sustainable and meaningful economic benefit to product end-users.
If our products are unable to provide this sustainable economic benefit, or
potential customers do not recognize these economic benefits, our business
could fail.

If projected sales and revenues do not
materialize as planned, we will require additional financing to continue
operations.

During the
first quarter of 2009, we issued 8,650,000 restricted common shares (including
4,325,000 attachable warrants), receiving cash proceeds of $2,162,500.
Including these first quarter 2009 equity raise activities, the prepaid receipt
of approximately $2,900,000, net of selling expenses related to a February 2009
sales order and a remaining $1,000,000 equity commitment from one of our
Directors, we believe we have sufficient funds available to provide resources
for our operations through at least 2010. However, failure to achieve
significant, sustained sales and revenues by the end of this period would
require us to obtain additional financing. Our budget for the next twelve
months emphasizes continued field and laboratory testing and customer support
marketing of our products. Cash requirements during the next twelve-month
period are expected to average approximately $180,000 per month, plus
potentially approximately $1,500,000 to fulfill the prepaid sales order
discussed above. In addition, unexpected changes may occur in our current
operations that could exhaust available cash resources sooner than anticipated.
If anticipated product sales do not materialize, or are significantly less than anticipated,

12

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we may need to raise additional funds to continue operations. If
this future financing is not available, our business may fail. We currently
have no other firm commitments from third parties to provide any additional
financing. Consequently, we cannot assure investors that additional financing,
if necessary, will be available to us on acceptable terms, or at all.

Global economic conditions have created turmoil
in the credit and general industrial markets that could have a significant
adverse impact on our operations.

Current U.S.
and worldwide economic conditions have resulted in an extraordinary tightening
of credit markets coupled with higher interest rates. These economic conditions
have been characterized as a global economic crisis that has been marked by
dramatic shifts in market conditions and government responses, and have
resulted in unprecedented intervention in financial institutions and markets by
governments throughout the world. The current adverse conditions have spread to
markets other than the financial and credit markets, including the industrial
and labor markets.

Our financial
performance depends on varying conditions in the markets we are trying to
penetrate, particularly the general industrial markets. Demand in these markets
fluctuates in response to overall economic conditions. The weakened economy may
result in decreased demand for our products, and the current economic
uncertainties may cause our customers or prospective customers to continue to
defer or reduce spending on the products we provide, which could reduce future
earnings and cash flow.

Furthermore,
current economic conditions may cause some of our customers or vendors to reduce
or discontinue operations, which may adversely affect our operations. If, as a
result of adverse economic conditions, any of our customers enter bankruptcy or
liquidate their operations, our revenues and accounts receivable could be
materially adversely affected.

We are dependent on third parties for the
distribution of our products outside North America and they may experience the
same delays, customer acceptance problems or other product commercialization
issues we have experienced, which would negatively impact our commercialization
efforts in these regions.

We have
entered into distribution and sales agency agreements with certain third
parties to help us achieve rapid customer trialing and acceptance of our
products, and to oversee certain elements of our field-testing program. If
these third parties elect to discontinue their efforts, we may not be able to
commercialize our products in a timely manner, or to commercialize them at all.

Although
certain of these agreements contain progress milestones, we are not able to
control the amount of time and effort these third parties put forth on our
behalf. It is possible that any of these third parties may not perform as
expected, may not achieve the contractual milestones and may breach or
terminate their agreements with us before completing their work. Any failure of
a third party to provide the services for which we have contracted could
prevent or significantly delay us from commercializing our products.

As we currently purchase all of our product
supply requirements from outside sources and have no in-house product
manufacturing capability, any business complications arising with either our
suppliers or with our suppliers relationship could create adverse consequences
with our product supply chain.

We currently
contract with outside specialty chemical manufacturing companies for the
production and supply of 100% of our product needs. We have no in-house product
manufacturing capability and, therefore, are exposed to potential product
supply disruptions caused by adverse business circumstances with our suppliers
(for example, raw material shortages, plant breakdowns and other adverse
circumstances affecting the supply of our products from suppliers). There can
be no assurances that, in the event of a supply disruption, we would be able to
quickly contract with another manufacturer for the continued supply of our
products. We, therefore, could be without adequate supply of our products and could lose sales for an extended period of time as a
result.

13

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There is a risk that one or more of the raw
material suppliers currently supplying raw materials to our contract
manufacturer could stop making a building block raw material necessary for
production of our product and, therefore, cause a supply shortage until
substitution raw materials could be identified and located.

If the
supplier were no longer able to obtain building block raw materials necessary
for production of our product, suitable substitutes would have to be identified
and obtained. There can be no assurances that, in the event of a raw material
supply disruption, our manufacturers would be able to quickly identify and
obtain a suitable substitute component and, therefore, we could be without
product inventory and could lose sales for an extended period of time.

Products developed by our competitors could
severely impact our product commercialization and customer acceptance efforts,
thereby reducing the sales of our products and severely impacting our ability
to meet our sales goals or to continue operations.

We face
competition from companies who are developing and marketing products similar to
those we are developing and marketing. The petroleum/fossil fuels industry has
spawned a large number of efforts to create technologies that help improve the
performance of internal combustion engines and reduce harmful emissions. Some
of these companies have significantly greater marketing, financial and
managerial resources than us. We cannot provide any assurance that our
competitors will not succeed in developing and distributing products that will
render our products obsolete or non-competitive. Such competition could
potentially force us out of business.

Our products are designed for use in internal
combustion engines and the development of alternative engine design and
technology could severely reduce the market potential for our products.

Our products
are designed for, and marketed to, customers utilizing internal combustion
engines. Significant efforts now exist to develop alternatives to internal
combustion engines. In addition, the regulatory environment is becoming
increasingly restrictive with regard to the performance of internal combustion
engines and the harmful emissions they produce. If alternatives to internal
combustion engines become commercially viable, it is possible that the
potential market for our products could be reduced, if not eliminated.

If we are unable to protect our technology
and intellectual property from use by competitors, there is a risk that we will
sustain losses, or that our business could fail.

Our success
will depend, in part, on our ability to obtain and enforce intellectual
property protection for our technology in both the United States and other
countries. We have taken steps to protect our intellectual property through
patent applications in the United States Patent and Trademark Office and its
international counterparts under the Patent Cooperation Treaty. We cannot
provide any assurance that patents will be issued as a result of these
applications or that, with respect to any patents, issued or pending, the
claims allowed are, or will be, sufficiently broad enough to protect the key
aspects of our technology, or that the patent laws will provide effective legal
or injunctive remedies to stop any infringement of our patents. In addition, we
cannot provide assurance that any patent rights owned by us will not be
challenged, invalidated or circumvented, or that our competitors will not
independently develop or patent technologies that are substantially equivalent
or superior to our technology. If we are forced to defend our patents in court,
well-funded adversaries could use such actions as part of a strategy for
depleting the resources of a small company such as ours. We cannot provide
assurance that we will have sufficient resources to successfully prosecute our
interests in any litigation that may be brought.

Because of the nature of our products, we may
be subject to government approvals and regulations that reduce or prevent our
ability to commercialize our products, increase our costs of operations and
decrease our ability to generate income.

14

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We are subject
to United States and international laws and regulations regarding the products
we sell. There is no single regulatory authority to which we must apply for certification
or approval to sell our products in the United States, or outside its borders.
Any changes in policy or regulations by regulatory agencies in countries in
which we intend to do business may cause delays or rejections of our attempts
to obtain necessary approvals for the sale of our products.

There can be
no assurance that we will obtain regulatory approvals and certifications for
our products in all of the markets we seek to conduct business. Even if we are
granted such regulatory approvals and certifications, we may be subject to
limitations imposed on the use of our products. In the future, we may be
required to comply with certain restrictive regulations, or potential future
regulations, rules, or directives that could adversely impact our ability to
sell our products. We cannot guarantee that restrictive regulations will not,
in the future, be imposed. Such potential regulatory conditions or compliance
with such regulations may increase our cost of operations or decrease our
ability to generate income.

We create products that may have harmful
effects on the environment if not stored and handled properly prior to use,
which could result in significant liability and compliance expense.

The blending
of base fuels with our current or future products involves the controlled use
of materials that could be hazardous to the environment. We cannot eliminate
the risk of accidental contamination or discharge to the environment of these
materials and any resulting problems that occur. Federal, state and local laws
and regulations govern the use, manufacture, storage, handling and disposal of
these materials. We may be named a defendant in any suit that arises from the
improper handling, storage or disposal of these products. We could be subject
to civil damages in the event of an improper or unauthorized release of, or
exposure of individuals to, these materials. Claimants may sue us for injury or
contamination that results from use by third parties of our products, and our
liability may exceed our total assets. Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations
may impair our research, development and sales and marketing efforts. Although
we carry product and general liability insurance with limits we deem
sufficient, there can be no assurance that an event, or series of events, will
not occur that will require, in the aggregate, resources in excess of these
limits.

If we lose any key personnel or are unable to
attract qualified personnel and consultants, we may lose business prospects and
sales, or be unable to otherwise fully operate our business.

We are
dependent on the principal members of our management staff, the loss of any of
whom could impair our product development and commercialization efforts
underway. Furthermore, we depend on our ability to attract and retain
additional qualified personnel to develop and manage our future business and
markets. We may have to recruit qualified personnel with competitive
compensation packages, equity participation and other benefits that may reduce
the working capital available for our operations. We cannot provide assurance
that we will be able to obtain qualified personnel on reasonable terms, or that
we will be able to retain our existing management staff.

We may have difficulties managing growth,
which could lead to lost sales opportunities.

While we have
not yet achieved any meaningful, sustained revenues through the sale of our
products, should certain events occur, such as a large recurring order from a
well-known company or endorsement of our products from a well-known commercial
entity, sales may escalate rapidly. Rapid growth could strain our human and
infrastructure resources, potentially leading to higher operating costs, lost
sales opportunities, or both. Our ability to manage operations and control
growth will be dependent upon our ability to improve our operational, financial
and management controls, reporting systems and procedures, and to attract and
retain adequate numbers of qualified employees. Should we be unable to
successfully provide the resources needed to manage growth, product sales and
customer satisfaction could suffer and higher costs and losses could occur.

15

---



Our shares are quoted on the Over-The-Counter
Bulletin Board and are subject to a high degree of volatility and liquidity
risk.

Our common
stock is currently quoted on the OTC Bulletin Board. As such, we believe our
stock price is more volatile and the share liquidity characteristics to be of
higher risk than if we were listed on one of the national exchanges. Also, if
our stock were no longer quoted on the OTC Bulletin Board, the ability to trade
our stock would become even more limited and investors may not be able to sell
their shares.

|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments

Not
applicable.

|        |           
|------- | ----------
|Item 2. | Properties

We maintain
our administrative offices at 7777 Bonhomme Avenue, Suite 1920, St. Louis,
Missouri 63105. On January 1, 2002, we entered into a five-year lease agreement
for office space and administrative services of $4,249 per month for
approximately 2,100 square feet. On July 21, 2006, this lease agreement was
extended an additional five years through December 31, 2011. The new base rent
beginning January 1, 2008 is $3,819 per month and increases annually.

We believe our
current facilities are adequate to meet current and near-term operating
requirements.

|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are 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 it is more likely than
not that the ultimate liabilities resulting from such lawsuits and claims will
not materially affect our financial position, results of operations or
liquidity.

In December
2005, a former employee of IFT and a former consultant to IFT filed a joint
lawsuit against us and certain of our Directors in the St. Louis County,
Missouri Circuit Court. The relief sought by the plaintiffs included payment of
compensation up to $120,000 per year under the former employees Employment
Agreement, issuance of up to 5,025,921 shares of IFT stock under a Share
Purchase Agreement entered into between each plaintiff and IFT in April 2001,
and release from the plaintiffs non-competition obligations. The plaintiffs
also alleged they were harmed by certain misrepresentations of IFT and were
seeking an undetermined amount of damages for such alleged misrepresentations.
We filed counter-claims against the plaintiffs, seeking monetary damages and
enforcement of the plaintiffs non-competition obligations. During the second
quarter of 2007, this case was dismissed by the Missouri Circuit Court with no
compensation paid to any party. In June 2008, the plaintiffs re-filed their
lawsuit and we re-filed our counter-claims. The plaintiffs again failed to
appear for depositions and to permit discovery and we re-filed our motion to
dismiss, this time with prejudice. The Court granted our motion to dismiss and
dismissed this action with prejudice on July 2, 2009.

On July 31,
2006, we received notice from the American Arbitration Association (AAA) of a
Demand for Arbitration dated July 27, 2006 received by the AAA naming IFT as
Respondent and TPG Capital Partners (TPG), the prior Blencathia Acquisition
Corporation (Blencathia) owner, as the Claimant. The arbitration had been
requested by TPG to resolve an alleged aggregate proceeds shortfall from the sale
of IFT securities issued in the Blencathia merger. TPG has claimed they sold
some or all of the 312,000 shares and the sales have not generated at least
$500,000 of proceeds, as guaranteed in the merger documents.

16

---



In an effort
to resolve this matter prior to submission to binding arbitration, both TPG and
IFT participated in a non-binding mediation conference on January 30, 2007,
which did not resolve the matter. Informal discussions are ongoing. It is not
expected that the ultimate settlement of this matter, considering we have
recorded a liability for the shortfall amount, will have an additional adverse
material effect on IFT. During the second half of 2009, IFT made payments
totaling $40,000 to reduce the recorded liability.

On October 2,
2008, Giant Trading, Inc., David R. Friedland, Magnum Select Fund, Ltd., Magnum
Growth Fund, Brett Friedland, Lara and Andrew Block, Cherise Metz and Charles
Stride (all of which are associates of Mr. Dion Friedland, a beneficial owner
of 5% of IFTs common stock) filed a lawsuit against us and certain of our
Directors (Messrs. Burst, Carr and Demetriou) in the United States District
Court, Southern District of Florida. On February 3, 2009, Mr. Demetriou was
dismissed without prejudice from the lawsuit because he was not served with
process within the statutory period.

The lawsuit
alleges federal securities fraud violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against all
defendants, and violations of Section 20(a) of the Securities Act of 1933
against the individual defendants. The plaintiffs are seeking a judgment for
damages of $5 million, interest, costs, and for such other relief the Court
deems just and proper. On May 19, 2009, the court issued an order granting our
motion to transfer venue to St. Louis, Missouri. IFT filed a motion to dismiss
and the plaintiffs withdrew their complaint prior to a ruling on said motion.

On August 7,
2009, Charles Stride voluntarily dismissed the complaint against all defendants.
On August 10, 2009, the remaining plaintiffs filed a first amended complaint
(FAC) against IFT, Jonathan R. Burst and Rex Carr in the State Court of
Missouri unlike the original complaint, which was filed in federal court. The
FAC, similar to the initial complaint, alleges that the defendants made
misrepresentations and omissions in public statements regarding its fuel
additive products that induced the plaintiffs to purchase IFT stock, but does
not allege any federal securities laws violations. Instead, the FAC alleges
violations of various state law claims under Missouris blue sky laws and state
common law, and seeks $5 million of compensatory damages, interest and costs.
On August 31, 2009, the defendants filed a motion to dismiss the FAC for failure
to meet the heightened pleading standards of Rule 9(b) of the Federal Rules of
Civil Procedures. The motion to dismiss is currently awaiting adjudication.

On December 4,
2009, the plaintiffs served discovery requests on all defendants. The plaintiffs
have agreed to provide the defendants with an extension to respond to the
discovery requests while the parties prepare for, and participate in, a
voluntary mediation. The parties are currently scheduling a mediation
conference. We do not believe the lawsuit has any merit and will vigorously
defend our position.

On February 6,
2009 we filed an action against Fuel Technologies Ltd, Mega Connections, Ltd.,
FT Marketing Ltd, and the AAA, Cause No. 09SL-CC00550, in the Circuit Court of
the County of St. Louis, Missouri. In this action, IFT sought injunctive relief
requiring the defendants to litigate the claims asserted before the AAA in the
Circuit Court of St. Louis County, Missouri. On or about February 17, 2009 the
Court entered an Order transferring these claims out of arbitration and into
the Circuit Court of the County of St. Louis. The claims initially filed before
the AAA, but since removed to the Circuit Court by IFT, are that IFT breached
various marketing and distribution agreements by misrepresenting the state of
IFTs product development. The plaintiffs recently filed an amended petition
adding Jonathan R. Burst and Rex Carr as additional defendants. No discovery
has been undertaken to-date and we are unable to predict any outcome. IFT
believes it has meritorious defenses and intends to vigorously defend this
action.

|        |                       
|------- | ----------------------
|Item 4. | (Removed and Reserved)

17

---



PART II

|        |                                                                                                              
|------- | -------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters
 and Issuer Purchases of Equity Securities

Our common
stock is traded on the OTC Bulletin Board system under the symbol IFUE.OB.
The range of reported high and low sales 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.

|                |  |      |      |      |   |      |  |     |      |  |   |      | 
|--------------- |  | ---- | ---- | ---- | - | ---- |  | --- | ---- |  | - | ---- | 
|                |  | 2009 |      | 2008 |  
|                |  |      |      |      |  
|                |  | High |      | Low  |   | High |  | Low |     
|                |  |      |      |      |   |      |  |     |     
|First
 quarter  |  | $    | 0.36 |      | $ | 0.16 |  | $   | 0.45 |  | $ | 0.16 | 
|Second
 quarter |  | $    | 0.36 |      | $ | 0.18 |  | $   | 0.89 |  | $ | 0.37 | 
|Third
 quarter  |  | $    | 0.29 |      | $ | 0.15 |  | $   | 0.72 |  | $ | 0.33 | 
|Fourth
 quarter |  | $    | 0.25 |      | $ | 0.15 |  | $   | 0.43 |  | $ | 0.17 | 

As of the
close of business on March 25, 2010, the last reported sales price per share of
our common stock was $0.15. As of March 25, 2010, we estimate there were 1,638
record holders of our 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.

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

|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Not
applicable.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial Condition and
 Results of Operations

The following
is managements discussion and analysis of certain significant factors that
have affected our financial condition, results of operations and cash flows
during the periods included in the accompanying financial statements. This
discussion should be read in conjunction with the financial statements and
notes included elsewhere in this Form 10-K.

Overview

We are a fuel
performance enhancement technology company transitioning to a commercial
enterprise. We believe the macro economic environment for our technology and
products is excellent now and will continue to be so for the foreseeable
future. We believe ever-increasing fuel environmental regulations will likely
result in increased demand for additive products to help offset adverse fuel
performance and engine impacts resulting from these regulations. Our products
and technology are uniquely positioned to benefit from this macro environment
by offering fuel performance enhancement solutions that specifically address
these macro developments and trends.

18

---



Results of Operations

Comparison of the Twelve Months Ended December 31, 2009 and the Twelve
Months Ended December 31, 2008

Revenues

Net revenue
for the twelve months ended December 31, 2009 was $184,851, as compared to
$149,480 for the twelve-month period ended December 31, 2008. This increase in
net revenue was primarily due to increased sales volume from our distributor
network ($50,302), partially offset by decreased sales volume to end-user
customers ($14,931). Sales revenue for 2009 was split between sales to our
distributor network (71% of sales revenue) and end-user customers (29% of sales
revenue).

Sales revenue
generated during 2009 and 2008 resulted primarily from the sale of DiesoLIFTTM10.

Operating Expenses

Total
operating expense was $5,105,516 for the twelve months ended December 31, 2009
(including non-cash stock-based compensation expense of $2,667,125), as
compared to $5,200,117 for the twelve-month period ended December 31, 2008
(including non-cash stock-based compensation expense of $2,896,229). This
represents a $94,601 decrease from the prior period, and was primarily
attributable to a decrease in non-cash stock-based compensation expense and
cost of operations, partially offset by increases in other selling, general and
administrative expense. These fluctuations are more fully described below.

Selling, General and Administrative Expense

Selling,
general and administrative expense for the twelve months ended December 31,
2009 was $5,035,115 (including non-cash stock-based compensation expense of
$2,667,125) as compared to $5,106,406 (including non-cash stock-based
compensation of $2,896,229) for the twelve-month period ended December 31,
2008, representing a $71,291 decrease from the prior period.

19

---



The non-cash
stock-based compensation expense decrease of $229,104 between 2009 and 2008 was
primarily due to:

|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | a decrease
 of approximately $2,600,000 due to the 2008 vesting and immediate expense
 recognition for options granted during the second quarter of 2008 relating to
 consulting services and commercial and equity capital activities;
|    |                                                                                                                                                                                                                                        
|(2) | an increase
 of $1,581,302 recorded during the third quarter of 2009 related to the
 modification of terms to options previously granted;                                                                                              
|    |                                                                                                                                                                                                                                        
|(3) | an increase
 of $535,050 recorded in 2009 versus 2008 for newly issued non-cash
 stock-based compensation (independent of 2008 grants explained in item (1)
 above) in the respective period; and                                      
|    |                                                                                                                                                                                                                                        
|(4) | an increase
 of $180,400 due to treasury stock repurchases made during 2009 at prices in
 excess of the then-market price.                                                                                                             

The $157,813
increase in other selling, general and administrative expense was primarily due
to:

|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | an increase
 of $85,441 in salary expense primarily due to salary increases subsequent to
 the second quarter of 2008; and                                                                                                             
|    |                                                                                                                                                                                                                                        
|(2) | an increase
 of $81,110 in consulting expense due to a one-time reimbursement payment to a
 former consultant during 2009 and increased commercialization assistance from
 a new consultant starting during the second quarter of 2009.

Depreciation and Amortization Expense

Depreciation
and amortization expense was $5,062 for the twelve months ended December 31,
2009, as compared to $7,808 for the twelve months ended December 31, 2008.
Depreciation and amortization has been relatively small since our intellectually
property became fully amortized during the second quarter of 2007.

Interest Income (Expense)

Net interest
income (expense) for the twelve months ended December 31, 2009 was $18,891,
compared to $(13,131) for the twelve-month period ended December 31, 2008. The
change in net interest income (expense) is primarily attributable to an increase
in invested funds during 2009 and to interest expense recorded in 2008 related
to debt that was converted to equity during the first quarter of 2008.

Provision for Income Taxes

We have
operated at a net loss since inception and have not recorded or paid any income
taxes, other than for non-cash deferred tax expense of $465,000 related to a basis
difference between financial reporting and tax reporting goodwill. We have
significant net operating loss carry-forwards that would be recognized at such
time as we demonstrate the ability to operate on a profitable basis for an
extended period of time. The deferred income tax asset resulting primarily from
the net operating loss carry-forwards has been fully reserved with a valuation
allowance.

Net Loss

Net loss for
the twelve months ended December 31, 2009 was $5,366,774, as compared to
$5,063,768 for the twelve months ended December 31, 2008. The increase in net
loss was primarily due to increases in other selling, general and
administrative (as described above) and income tax expense of $465,000. This
was partially offset by a decrease in non-cash stock-based compensation expense
and cost of operations. The basic and diluted net loss per common share for the
twelve months ended December 31, 2009 and 2008 was $(0.05) and $(0.06),
respectively.

20

---



New Accounting Pronouncements

New Accounting Pronouncements Adopted

ASC 105 - In
June 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Codification (ASC) 105-10-65,
Transition Related to FASB Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles.
The ASC will become the single source of authoritative non-governmental U.S.
generally accepted accounting principles, superseding existing accounting
literature. While not intended to change U.S. GAAP, the ASC significantly
changes the way in which accounting literature is organized. This guidance is
effective for interim or annual reporting periods ending after September 15,
2009. The adoption of this guidance did not have an impact on our financial
position, results of operations or cash flows. However, because the
Codification completely replaces existing standards, it affects the way U.S.
GAAP is disclosed in our financial statements.

ASC 805 - In
December 2007, the FASB issued transition guidance ASC 805-10-65-1, Transition Related to FASB Statement No. 141
(revised 2007), Business Combinations. This guidance defines the
acquirer in a business combination as the entity that obtains control of one or
more businesses, and establishes the acquisition date as the date the acquirer
achieves this control. This statement also refines the application of the
purchase method by requiring the acquirer to recognize assets acquired and
liabilities assumed at fair value and replacing the cost allocation process
previously required. Furthermore, acquisition-related costs and restructuring
costs that are expected, but not obligatory, are required to be recognized
separately from the business combination. This guidance became effective
prospectively for business combinations with acquisition dates on or after
January 1, 2009. There was no material impact to our financial position,
results of operations, or cash flows as a result of adoption of this guidance.

ASC 810 - In
December 2007, the FASB issued ASC 810, Non-Controlling
Interests in Consolidated Financial Statements - an amendment of ARB No. 51.
ASC 810 establishes new standards for the accounting for and reporting of
non-controlling interests (formerly minority interests) and for the loss of
control of partially owned and consolidated subsidiaries. ASC 810 does not
change the criteria for consolidating a partially owned entity. ASC 810 became
effective for fiscal years beginning after December 15, 2008. The provisions of
ASC 810 are applied prospectively upon adoption except for the presentation and
disclosure requirements, which are applied retrospectively. The provisions of
ASC 810 did not apply to us and therefore had no impact on our financial
position, results of operations or cash flows.

ASC 820 -
Effective January 1, 2008, we partially adopted ASC 820, Fair Value Measurements and Disclosures.
ASC 820 applies to most current accounting rules requiring or permitting fair
value measurements. ASC 820 provides a framework for measuring fair value and
requires expanded disclosures about fair value methods and inputs by
establishing a hierarchy for ranking the quality and reliability of the
information used by management to measure and report amounts at fair value.

We had only
partially applied the provisions of ASC 820 as management elected the deferral
provisions of ASC 820-10-65-1, Transition
Related to FASB Staff Position FAS 157-2, as it applies to
non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a non-recurring basis. ASC 820-10-65-1
delayed the effective date of ASC 820 for non-financial assets and liabilities
which are not measured at fair value on a recurring basis (at least annually)
until January 1, 2009 for us. The major categories of assets and liabilities
that are recognized or disclosed at fair value on a non-recurring basis include
certain amounts of property and equipment, intangible assets and goodwill
reported at fair value as a result of impairment testing, and certain other
assets, liabilities and equity instruments recognized as a result of prior
business combinations. There was no impact to our financial position, results
of operations, or cash flows as a result of the adoption of ASC 820 for
non-financial assets and liabilities.

21

---



ASC 820-10
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair
value measurements, ASC 820-10 establishes a fair value hierarchy that
distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs
that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entitys own assumptions about market participant assumptions (unobservable
inputs classified within Level 3 of the hierarchy). The fair value hierarchy,
as defined by ASC 820-10, contains three levels of inputs that may be used to
measure fair value as follows:

| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ▪ | Level 1
 inputs utilize quoted prices (unadjusted) in active markets for identical
 assets or liabilities that IFT has the ability to access;                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                
| | ▪ | Level 2
 inputs are inputs other than quoted prices included in Level 1 that are
 observable for the asset or liability, either directly or indirectly such as
 interest rates, foreign exchange rates, and yield curves that are observable
 at commonly quoted intervals; and
| |   |                                                                                                                                                                                                                                                                                
| | ▪ | Level 3
 inputs are unobservable inputs for the asset or liability which are typically
 based on an entitys own assumptions, as there is little, if any, related
 market activity.                                                                                            

In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. Our assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment and considers factors
specific to the asset or liability.

We have
determined that the inputs used to value our $1,000,000 of certificate of
deposits with maturities greater than 90 days as of December 31, 2009 fall
within Level 1 of the fair value hierarchy.

We do not have
any fair value measurements using significant unobservable inputs (Level 3) as
of December 31, 2009.

Recently Issued Accounting Pronouncements

ASC 605-25 - In October 2009, the FASB issued
Accounting Standards Update (ASU) No. 2009-13 for updated revenue recognition guidance under the
provisions of ASC 605-25, Multiple-Element Arrangements. The previous
guidance has been retained for criteria to determine when delivered items in a
multiple-deliverable arrangements should be considered separate units of
accounting, however the updated guidance removes the 48 previous separation
criterion that objective and reliable evidence of fair value of any undelivered
items must exist for the delivered items to be considered a separate unit or
separate units of accounting. This guidance is effective for fiscal years
beginning on or after June 15, 2010. We do not expect that the adoption of this
guidance will have a material effect on our financial position, results of
operations or cash flows.

ASC 820In January 2010, the FASB issued ASU No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures About Fair
Value Measurements. This guidance amends Subtopic 820-10 to require
new disclosures and clarify existing disclosures. This guidance requires new
disclosures of amounts and reasons for significant transfers between Level 1
and Level 2 fair value measurements. Additionally, in the reconciliation for
fair value measurements using significant unobservable inputs (Level 3),
separate presentation of information about purchases, sales, issuances and
settlements is required. The guidance clarifies that fair value measurement
disclosures for each class of assets and liabilities may constitute a subset of
assets and liabilities within a line item on a reporting entitys balance
sheet. The guidance also clarifies disclosure requirements about inputs and
valuation techniques for both recurring and nonrecurring fair value
measurements (Level 2 or Level 3). The ASU also amends guidance on employers
disclosures about postretirement benefit plan assets under ASC 715 to require
that disclosures be provided by classes of assets instead of by major
categories of assets. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances and settlements in the roll forward of activity for Level 3 fair
value measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010, including interim periods within those fiscal years.
We do not expect that the adoption of this guidance will have a material effect
on our financial position, results of operations or cash flows.

Critical Accounting Policies and Estimates

Revenue Recognition

We recognize
revenue from the sale of our products when the products are shipped, and title
and risk of loss has passed to the buyer. The majority of our revenues is from
sales to product distributors. Product distributors do not have the option to
return product that is not immediately sold to an end-user. Therefore, our
revenue recognition is not conditional on whether a distributor is able to sell
product to an ultimate product end-user. Our sales policies for end-users are
consistent with product distributor sales policies.

Valuation of goodwill

We test
goodwill for impairment at least annually in the fourth quarter. We will also
review goodwill for impairment throughout the year if any events or changes in
circumstances indicate the carrying value may not be recoverable.

22

---



Factors we
consider important, which could trigger an impairment review, include the
following:

|   |                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------
|1. | Significant
 under-performance relative to expected historical or projected future
 operating results;         
|   |                                                                                                                
|2. | Significant
 changes in the manner of our use of the acquired assets or the strategy for
 our overall business;
|   |                                                                                                                
|3. | Significant
 negative industry or economic trends;                                                             
|   |                                                                                                                
|4. | Significant
 decline in our stock price for a sustained period; and                                            
|   |                                                                                                                
|5. | Our market
 capitalization relative to net book value.                                                         

To test impairment,
we use 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, 2009 by $17,200,000. 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, 2009, our deferred income tax assets
consisted principally of net operating loss carry-forwards, and have been fully
offset with a valuation allowance because it is more likely than not that a tax
benefit will not be realized from the assets in the future.

Liquidity and Capital
Resources

A critical
component of our operating plan affecting our ability to execute the product
commercialization process is the cash resources needed to pursue our marketing
and sales objectives. Until we are able to generate positive and sustainable
operating cash flow, our ability to attract additional capital resources in the
future will be critical to continue the funding of our operations.

While we cannot make any assurances as to the accuracy of our projections of future
capital needs, we believe that, as a result of first quarter 2009 equity raise
activities ($2,162,500), cash received for a prepaid sales purchase order
during the first quarter of 2009 (net cash margin expected of approximately
$1,500,000), projected sales for 2010 and a remaining equity commitment of
$1,000,000 (entered into with a related party Board member of IFT and
significant shareholder during 2008), we have adequate cash and cash
equivalents balances and commitments to fund operations through at least
2010. However, if we are unable to meet our projections and generate positive and sustainable operating cash flows by this time,
we may need to raise additional capital to fund our future operations.

Cash provided
by operating activities was $816,397 for the twelve months ended December 31,
2009, compared to a use of $2,065,115 for the twelve months ended December 31,
2008. The increase in cash flow from operating activities was due primarily to
cash received from a prepaid sales order from VOS during the first quarter of
2009. IFT would need to expend approximately $1,500,000 to manufacture
inventory required to fulfill this sales order. We have had no communication
with VOS in over six (6) months and believe they have ceased all activities on
behalf of IFT.

Cash used in
investing activities was $1,000,000 and $0 for the twelve months ended December
31, 2009 and 2008, respectively. During the second quarter of 2009, we invested
$3,200,000 ($3,000,000 of which had maturities greater than 90 days) of the proceeds received from earlier 2009
equity

23

---



raise activities into a certificate of deposit program that is insured
100% by the FDIC. We redeemed $2,200,000 ($2,000,000 of which had maturities of greater than 90 days) of investments upon maturities during
2009. At December 31, 2009, $1,200,000 of certificates of deposit with
maturities less than 90 days are classified on our balance sheet in cash and
cash equivalents and $1,000,000 is invested in certificates of deposit having
maturities greater than 90 days.

Cash provided
by financing activities was $1,712,500 for the twelve months ended December 31,
2009, as compared to $2,000,000 for the twelve months ended December 31, 2008.
The decrease in financing cash flow was primarily due to slightly less cash
proceeds obtained from the issuance of equity, and increased levels of treasury
stock purchases during the twelve months ended December 31, 2009, compared to
the twelve months ended December 31, 2008. During 2009, we raised $2,162,500
upon the private placement of 8,650,000 restricted shares of our common stock
to accredited investors. During 2008, we raised $2,000,000 upon the private
placement of 4,160,000 shares of common stock to accredited investors and
$250,000 upon the issuance of 520,000 restricted shares of our common stock to
a related party. During 2009 and 2008, we also had treasury stock acquisitions
of $450,000 and $250,000, respectively, related to the repurchases of shares
previously owned by IFT Directors.

Net cash
increased by $1,528,897 for the twelve months ended December 31, 2009, as
compared to a decrease in net cash of $65,115 for the twelve months ended
December 31, 2008.

During the
twelve months ended December 31, 2009 and December 31, 2008, we did not make
significant investments in property and equipment and do not anticipate doing
so in the immediate future.

Working
capital at December 31, 2009 was $(490,640), as compared to $26,447 at December
31, 2008. This decrease was primarily attributable to funding cash operating
expenses for 2009. The negative working capital amount for 2009 is also impacted by the
approximate $3 million deferred revenue liability recorded on our balance sheet,
which is offset by an increase in cash of approximately $1.5 million at December 31, 2009.

On January 20,
2009, our Board of Directors declared a restricted stock dividend to
shareholders of record at the close of business on February 4, 2009 (the
Record Date) in the amount of 1 restricted share for every 25 common shares
owned. The distribution date was February 10, 2009. The restricted stock
dividend is subject to resale conditions pursuant to Rule 144 of the Securities
and Exchange Act. This stock dividend has been retroactively reflected in our
financial statements and notes to the financial statements.

Effective
October 27, 1999, we merged with Blencathia. Blencathia was a public shell
company with immaterial assets and liabilities and 312,000 shares outstanding
at the time of the merger, which it redeemed and cancelled upon the merger. In
exchange, we issued 312,000 of our common shares to the prior Blencathia owner
with the contractual understanding that such shares were to be sold by that
owner to achieve gross cash proceeds of $500,000. Any excess proceeds were to
be returned to us and any deficiency was to be made up by us issuing additional
shares or paying the difference in cash. As we believed that we controlled the
ultimate timing of the sale of these 312,000 shares by the prior Blencathia
owner, we did not consider these shares as issued or outstanding for purposes
of computing loss per share.

In 2006, we
learned that the prior Blencathia owner had, in fact, sold the 312,000 shares
for aggregate proceeds of approximately $150,000, without our consent.
Accordingly, in the fourth quarter of 2006, we recorded $500,000 of general
expenses (representing the cost of the 1999 merger) and the deemed issuance of
approximately $150,000 of common stock. During 2009, we made payments in the
aggregate of $40,000 reducing this obligation. The remaining $310,000 obligation has
been reflected as a current accrued expense. We are in negotiations with the
prior Blencathia owner to resolve this obligation and may ultimately settle the
obligation with either cash or equity securities with a lower market value.
Beginning in 2006, the 312,000 shares have been reflected as outstanding for
earnings per share computations.

24

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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Financial
statements specified by this Item, together with the report relating thereto of
BDO Seidman, LLP, are presented following Item 15 of this report.

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

None.

|            |                        
|----------- | -----------------------
|Item 9A(T). | Controls and Procedures

Disclosure Controls and Procedures

Our management
has evaluated, with the participation of its principal executive officer and
principal financial officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (Exchange Act)) as of December 31, 2009.
Based on this evaluation, the principal executive officer and principal
financial officer have identified a material weakness in our internal control
over financial reporting. Therefore, the principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures were not effective at December 31, 2009.

Managements Report on Internal Control Over
Financial Reporting

Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in
Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act. Under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting as of December
31, 2009, based on the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control-Integrated
Framework, we have identified a material weakness in our internal control over
financial reporting. As a result, our management has concluded that our
internal control over financial reporting was not effective as of December 31,
2009.

A material
weakness is a deficiency, or combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.

During our 2008
and 2007 review of internal controls, management identified the following
material weakness: IFT has limited accounting personnel with sufficient
expertise, accounting knowledge and training in generally accepted accounting
principles and financial reporting requirements. Specifically, IFT lacks
sufficient personnel to anticipate, identify, resolve and review complex
accounting issues and to complete a timely review of the financial statements.
This material weakness was not corrected during 2009.

This
deficiency resulted in adjustments to the financial statements for non-cash
stock-based compensation and also resulted in adjustments to financial
statement presentation in both 2008 and 2009. This control deficiency, which is pervasive in impact,
did result in material adjustments to the financial statements.
There is a reasonable possibility that a material misstatement of the annual or
interim financial statements would not be prevented or detected on a timely
basis.

Management
does consult with outside advisers, external SEC counsel and its independent
registered public accounting firm regarding certain reporting issues.

25

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Management has
discussed the material weakness and related corrective actions with the Audit
Committee and our independent registered public accounting firm. Other than as
described above, we are not aware of any other material weakness in our
internal control over financial reporting. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods
are subject to risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

This annual
report does not include an attestation report of IFTs registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by IFTs registered public
accounting firm pursuant to temporary rules of the SEC that permit IFT to
provide only managements report in this annual report.

The Remediation Plan

Although as of
December 31, 2009 we have not yet remediated the material weakness in our
internal control over financial reporting originally identified during our
2007, 2008 and 2009 reviews, we have made and will continue to make,
improvements to our policies, procedures, systems and staffing who have
significant roles in internal control to address the identified internal
control deficiencies. Consequently, management has initiated the following
remediation steps to address the material weakness described above:

|  |                                                                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will
 continue to focus on improving the skill sets of our accounting and finance
 function, through education and training;                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                
| | We will
 continue to consider the engagement of qualified professional consultants to
 assist us in cases where we do not have sufficient internal resources, with
 management reviewing both the inputs and outputs of the services;                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                
| | Upon the
 successful completion of a financing sufficient to support operations for at
 least two years, we will consider the hiring of additional accounting and
 finance staff with the commensurate knowledge, experience and training
 necessary to complement the current staff in the financial reporting
 functions; and
|  |                                                                                                                                                                                                                                                                                                                                
| | We will
 further develop our financial statement closing and reporting practices to
 include additional levels of checks and balances in our procedures and timely
 review.                                                                                                                                                    

Changes in Internal Control Over Financial
Reporting

There were no
changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
quarter ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. However, as discussed above, we have identified a material weakness
in our internal control over financial reporting.

|         |                  
|-------- | -----------------
|Item 9B. | Other Information

Not
applicable.

26

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PART III

|         |                                                        
|-------- | -------------------------------------------------------
|Item 10. | Directors, Executive Officers and Corporate
 Governance

The following
are the names of our current Directors and executive officers, their present
positions with IFT and biographical information.

| |                                             |  |     |  |                                              |  |                             
| | ------------------------------------------- |  | --- |  | -------------------------------------------- |  | ----------------------------
| | Name                                        |  | Age |  | Position(s)
 and offices held with IFT       |  | Dates in position
 or office
| |                                             |  |     |  |                                              |  |                             
|
| | Jonathan R.
 Burst                          |  | 51  |  | Chief
 Executive Officer,                    |  | 1999 -
 Present             
| |                                             |  |     |  | Director,
 Chairman                          |  | 2000 -
 Present             
| | Rex Carr                                    |  | 83  |  | Director                                     |  | 2002 -
 Present             
| | Fer Eren,
 M.D.                             |  | 47  |  | Director                                     |  | 2009 -
 Present             
| | Gary Kirk                                   |  | 49  |  | Director,
 Director of Sales and Marketing * |  | 2003 -
 Present             
| | David B.
 Norris                            |  | 61  |  | Director                                     |  | 2000 -
 Present             
| | Stuart D.
 Beath                            |  | 51  |  | Chief
 Financial Officer                     |  | 2007 -
 Present             
| |                                            
| | *This is a
 non-executive officer position.

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 nine directors. Currently, we have
five 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 our Chief Executive Officer since July 1999, and as the
President of IFT from July 1999 to February 2000 and January 2002 to April
2005. Mr. Burst has also served as a Director and Chairman of the Board since
2000. Mr. Burst founded Burcor International in 1998, primarily an insurance
brokerage firm, and has served as President since its inception. Mr. Burst
received a bachelor of arts degree in Economics from the University of Missouri
in 1981.

REX CARR has
served as a Director of IFT since August 2002. Mr. Carr has been the managing
partner of the Rex Carr Law Firm, a law firm with offices in East St. Louis,
Illinois, St. Louis, Missouri and Belleville, Illinois, since 2004. Until 2003,
Mr. Carr was the senior partner of a 36-person law firm, Carr, Korein, and
Tillery, with offices in Missouri and Illinois, for more than five years. He is
admitted to practice in the United States Supreme Court and the Illinois and
Missouri Supreme Courts.

FER EREN, M.D.
has served as a Director of IFT since August 2009. Dr. Eren is a member of and
a practicing physician in the medical practice of Eren and Atluri, M.D.s, LLC,
having served in such role since 2003. Previously, Dr. Eren founded and was the
Managing Director of Medcheck Diagnostic Center, Inc., a diagnostic clinic, and
an owner of Medplus, a medical equipment sales and distribution company.

GARY KIRK has
served as a Director of IFT since November 2003. Mr. Kirk has served as our
Director of Sales and Marketing since January 1, 2003. Mr. Kirk has extensive
experience (1980 to 2003) 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 remainder in
Petrochem Carless marketing department. From 1988 to 2003, Mr. Kirk reported
directly to the President of Petrochem Carless as the Marketing Manager for
Performance Fuels, covering accounts in Europe and the rest of the world.

27

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DAVID B.
NORRIS has served as a Director of IFT since April 1999. Mr. Norris founded and
owns Addicks Services, Inc., a construction company, and has served as its Vice
President since 1983.

STUART D.
BEATH has served as our Chief Financial Officer since July 2007. From 2001
until his appointment to Chief Financial Officer, Mr. Beath served as our
Director of Corporate Development. Prior to coming to IFT, Mr. Beath was a
First Vice President and served in the Corporate Finance Department of Stifel,
Nicolaus & Company, Incorporated, a brokerage and investment banking firm,
from 1993 to 1997. Mr. Beath was also a member of the Board of Directors of
Anchor Gaming from 1994 to 2001, serving on the Boards Audit Committee. From
1987 to 1993, Mr. Beath served in the Corporate Finance Department of A.G.
Edwards & Sons, Inc., a brokerage and investment banking firm, where he was
an Assistant Vice President of the Firm. Mr. Beath earned a bachelor of arts
degree from Williams College in 1981 and a masters in business administration
degree from the Darden School at the University of Virginia in 1987.

Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a)
of the Exchange Act, requires our executive officers and Directors, and persons
who beneficially own more than ten percent of our 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 us with copies of all
Section 16(a) forms they file.

Based solely
upon our review of copies of such forms received by us, we believe that, during
fiscal year ended December 31, 2009, the following persons did not timely file
Forms 3, Forms 4 and Forms 5 reporting transactions affecting their beneficial
ownership:

|                 |  |                                                  |  |                                      
|---------------- |  | ------------------------------------------------ |  | -------------------------------------
|Reporting Person |  | Number of Known
 Failures to File
 Required Form |  | Number of
 Transactions
 Not Reported
|                 |  |                                                  |  |                                      
|Mr. Burst        |  | 3                                                |  | 2                                    
|Mr. Carr         |  | 4                                                |  | 3                                    
|Mr. Kirk         |  | 3                                                |  | 2                                    
|Mr. Norris       |  | 3                                                |  | 2                                    
|Mr.
 Demetriou   |  | 5                                                |  | 4                                    
|Mr. Beath        |  | 2                                                |  | 2                                    

Code of Business Conduct and Ethics

We have
adopted a Code of Business Conduct and 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, Inc., 7777
Bonhomme Avenue, Suite 1920, St. Louis, Missouri 63105, attention Thomas M.
Powell.

Audit Committee

We have a
separately designated Audit Committee. From January 1, 2009 through May 26,
2009, our Audit Committee consisted of David B. Norris and Harry F. Demetriou.
Mr. Demetriou ceased to be an Audit Committee member after his death on May 26,
2009. Mr. Norris currently is the only member of our Audit Committee.

28

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The Board of
Directors has determined that Mr. Norris, an independent member of the Board,
satisfies all of the criteria to be an audit committee financial expert as
defined in Item 407(d)(5)(ii) of Regulation S-K.

Procedures for Nominating Directors

There have
been no material changes to the procedures by which security holders may
recommend nominees to the Board of Directors since the filing of our annual
report on Form 10-K for the fiscal year ended December 31, 2008.

|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

2009 Summary Compensation Table

The following
table sets forth information concerning all cash and non-cash compensation paid
or to be paid by us as well as certain other compensation awarded, earned by
and paid, during the indicated fiscal year, to the Chief Executive Officer and
Chief Financial Officer.

|                            |  |      |      |             |   |            |  |                     |        |                              |   |            |   |   |        |   |   |           | 
|--------------------------- |  | ---- | ---- | ----------- | - | ---------- |  | ------------------- | ------ | ---------------------------- | - | ---------- | - | - | ------ | - | - | --------- | 
|Name and Principal Position |  | Year |      | Salary
 ($) |   | Bonus
 ($) |  | Option
 Awards
 ($) |        | All Other
 Compensation
 ($) |   | Total
 ($) |  
|                            |  |     
|Jonathan R. Burst,          |  |      | 2009 |             | $ | 400,000    |  | $                   |       |                              | $ | 1,111,003  | 1 | $ | 52,512 | 2 | $ | 1,563,515 | 
|CEO                         |  |      | 2008 |             | $ | 334,615    |  | $                   |       |                              | $ |           |   | $ | 21,496 |   | $ | 356,111   | 
|                            |  |      |      |             |   |            |  |                     |        |                              |   |            |   |   |        |   |   |           | 
|Stuart D. Beath,            |  |      | 2009 |             | $ | 168,269    |  | $                   |       |                              | $ | 102,497    | 3 | $ | 21,981 | 4 | $ | 292,747   | 
|CFO                         |  |      | 2008 |             | $ | 135,885    |  | $                   | 10,000 |                              | $ |           |   | $ | 16,633 |   | $ | 162,518   | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) Represents 350,000 options to purchase shares of our common stock
 granted to Mr. Burst during 2009 for employment services that vest June 30,
 2010. The grant date fair value of these options was $91,700 based on the
 closing price of our stock on grant date ($0.36 on April 3, 2009).
 Assumptions used in determining the value of these options are disclosed in
 Note 4 to our financial statements. Also represents $1,019,303 of non-cash
 expense recorded during 2009 for the fair value differentiation related to
 the modification of terms for options previously granted.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 2) Represents $22,192 of health insurance coverage for
 Mr. Burst and his family, $2,320 of life insurance premiums paid by IFT,
 $26,200 for a discretionary grant of 100,000 options for Board services
 provided and $1,800 for the grant of 10,000 shares of our common stock for
 2009 Board services provided. These
 fully-vested shares were valued based on the closing price of our stock on
 grant date ($0.18 on December 31, 2009).                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 3) Represents the grant date fair value for a total of 450,000
 options to purchase shares of our common stock granted to Mr. Beath during
 2009. 250,000 of these options vest June 30, 2010 and were valued based on
 the closing price of our stock on the grant date ($0.36 on April 3, 2009).
 The remaining 200,000 options vested immediately upon grant and were valued
 based on the closing price of our stock on the grant date ($0.24 on August 3,
 2009). Assumptions used in determining the value of these options are
 disclosed in Note 4 to our financial statements.         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 4) Represents $21,981 of health insurance coverage for
 Mr. Beath and his family.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

29

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Executive Officer Employment Agreements

Jonathan R. Burst

2002 Burst Agreement

In January
2002, we entered into an employment agreement (the 2002 Burst Agreement) with
Mr. Burst to serve as our Chief Executive Officer with an initial annual base
salary of $250,000, options to purchase 780,000 shares of our common stock,
with 260,000 shares vesting on the first anniversary of his employment and the
remaining 520,000 shares vesting on the last day of the employment period and a
bonus award as deemed appropriate by the board. The initial three-year
agreement expired on December 31, 2004. With the exception of an increase in
salary effective July 1, 2008, Mr. Burst continued to serve as our Chief
Executive Officer under the terms of the 2002 Burst Agreement through May 15,
2009 (the effective date of the 2009 Burst Agreement).

Under the 2002
Burst Agreement, if Mr. Bursts employment was terminated by us for cause, or
if Mr. Burst terminated his employment other than for good reason, as defined
in the 2002 Burst Agreement, and which includes the occurrence of a change in
control, we would pay Mr. Burst the salary accrued for the pay period in which
the termination occurred and would issue the accrued stock compensation.
Cause is defined in the 2002 Burst Agreement as (i) any fraud, embezzlement
or other dishonesty of Mr. Burst that materially and adversely affects our
business or reputation, or (ii) Mr. Bursts felony conviction or entering into
a plea of nolo contendere with respect to a felony.

Pursuant to
the terms of the 2002 Burst Agreement, if we terminated Mr. Burst other than
for cause, death or disability, or if Mr. Burst terminated his employment for
good reason, IFT would (i) pay Mr. Bursts accrued but unpaid portion
of his annual base salary in a lump sum, (ii) continue to pay Mr. Bursts
annual base salary through the remainder of the term of the agreement, (iii)
issue the accrued stock compensation, and (iv) issue the stock compensation for
the remainder of the term of the agreement. In addition, if we did not extend
Mr. Bursts contract beyond the terms of the 2002 Burst Agreement, we would pay
Mr. Burst his current salary over the one-year period after the 2002 Burst
Agreement expired.

Under the 2002
Burst Agreement, if Mr. Bursts employment was terminated by us by reason of
his death or disability, we would pay Mr. Bursts accrued but unpaid portion of
his annual base salary in a lump sum and issue the accrued stock compensation.
In addition, if Mr. Bursts employment was terminated by reason of disability,
we would continue to pay Mr. Bursts annual base salary, less any amounts
received by Mr. Burst under any disability insurance coverage maintained by us,
until the earlier of (i) expiration of Mr. Bursts employment period under the
2002 Burst Agreement, or (ii) the date of Mr. Bursts death.

In addition,
Mr. Burst was entitled to receive additional compensation for serving on our
board of directors.

2009 Burst Agreement

On May 15,
2009, we entered into an employment agreement with Mr. Burst (the 2009 Burst
Agreement) to serve as our Chief Executive Officer. The 2009 Burst Agreement
has a term beginning May 15, 2009 through May 14, 2012.

Pursuant to
the terms of the 2009 Burst Agreement, Mr. Burst will received an annual base
salary of $400,000. Mr. Burst is also eligible to receive a cash bonus and
stock options at the discretion of our Board.

Under the 2009
Burst Agreement, if Mr. Bursts employment is terminated by us for cause, or
if Mr. Burst terminates his employment other than for good cause shown, as
defined in the 2009 Burst Agreement, and which includes the occurrence of a
change in control, we will pay Mr. Burst the salary accrued for the pay period
in which the termination occurred, unless

30

---



termination was for cause and the cause involved
fraud, embezzlement or disclosure of confidential information, in which case,
IFT would not be liable for any payments to Mr. Burst. Cause is
defined in the 2009 Burst Agreement as (i) any fraud, embezzlement or other dishonesty
of Mr. Burst that materially and adversely affects our business or reputation,
(ii) disclosure of confidential information to any third party, (iii) Mr.
Bursts refusal to perform his material duties and obligations under the 2009
Burst Agreement, or (iv) Mr. Bursts willful and intentional misconduct in the
performance of his material duties and obligations.

Pursuant to
the terms of the 2009 Burst Agreement, if we terminate Mr. Burst other than for
cause, death or disability, or if Mr. Burst terminates his employment for good
cause shown, IFT must pay Mr. Bursts accrued but unpaid portion of his
annual base salary in a lump sum, and will continue to pay Mr. Bursts annual
base salary through May 14, 2012. In addition, if we do not extend Mr. Bursts
contract beyond the terms of the 2009 Burst Agreement, we will pay Mr. Burst
his current salary over the one-year period after the 2009 Burst Agreement
expires.

Under the 2009
Burst Agreement, if Mr. Bursts employment is terminated by us by reason of his
death or disability, we will pay Mr. Bursts accrued but unpaid portion of his
annual base salary in a lump sum. In addition, if Mr. Bursts employment is
terminated by reason of disability, we will continue to pay Mr. Bursts annual
base salary, less any amounts received by Mr. Burst under any disability
insurance coverage maintained by us, until the earlier of (i) May 14, 2012,
(ii) six months after a determination of disability has been made, or (iii) the
date of Mr. Bursts death.

Pursuant to
the 2009 Burst Agreement, during Mr. Bursts employment, and for a period of
five years following termination of Mr. Bursts employment (i) by Mr. Burst
other than for good cause shown, or (ii) by us for cause, Mr. Burst is bound by
a non-competition clause. The 2009 Burst Agreement also provides for a
non-solicitation period ending one year following Mr. Bursts termination for
any reason.

In addition,
Mr. Burst is entitled to receive additional compensation for serving on our
board of directors.

Stuart D. Beath

2007 Beath Agreement

In connection
with Mr. Beaths appointment as Chief Financial Officer, we entered into an
employment agreement (the 2007 Beath Agreement) with Mr. Beath dated July 2,
2007. Pursuant to the 2007 Beath Agreement, Mr. Beath was employed as our Chief
Financial Officer from June 30, 2007 until June 30, 2009.

Pursuant to
the terms of the 2007 Beath Agreement, we agreed to pay Mr. Beath an initial
annual base salary of $100,000, to be reviewed annually. Pursuant to the terms
of the 2007 Beath Agreement and the non-statutory stock option agreement dated
July 2, 2007, Mr. Beath received options to purchase 208,000 shares of our
common stock with an exercise price of $0.75 per share in accordance with the
terms of the Amended and Restated LTIP. Pursuant to the terms of the option
agreement, Mr. Beaths options vested twenty-four (24) months from the date of
grant and expire on June 30, 2012.

Under the 2007
Beath Agreement, if Mr. Beaths employment was terminated by us for cause, or
if Mr. Beath terminated his employment other than for good cause shown, as
defined in the 2007 Beath Agreement, and which includes the occurrence of a
change in control, we would pay Mr. Beath the salary accrued for the pay period
in which the termination occurred, unless termination was for cause and the
cause involved fraud, embezzlement or disclosure of confidential information,
in which case, IFT would not be liable for any payments to Mr. Beath.
Cause is defined in the 2007 Beath Agreement as (i) any fraud, embezzlement
or other dishonesty of Mr. Beath that materially and adversely affects our
business or reputation, (ii) Mr. Beaths felony conviction or entering into a
plea of nolo contendere with respect to a felony,

31

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(iii) disclosure of confidential information to any third party, (iv) any actions
taken by Mr. Beath deemed by our Chief Executive Officer to be detrimental to
our well-being, (v) Mr. Beaths refusal to perform his material duties and
obligations under the 2007 Beath Agreement, or (vi) Mr. Beaths willful and
intentional misconduct in the performance of his material duties and
obligations.

Pursuant to
the terms of the 2007 Beath Agreement, if we terminated Mr. Beath other than
for cause, death or disability, or if Mr. Beath terminated his employment for
good cause shown, IFT would pay Mr. Beaths accrued but unpaid portion
of his annual base salary in a lump sum, and would continue to pay Mr. Beaths
annual base salary through June 30, 2009.

Under the 2007
Beath Agreement, if Mr. Beaths employment was terminated by us by reason of
his death or disability, we would pay Mr. Beaths accrued but unpaid portion of
his annual base salary in a lump sum. In addition, if Mr. Beaths employment
was terminated by reason of disability, we would continue to pay Mr. Beaths
annual base salary, less any amounts received by Mr. Beath under any disability
insurance coverage maintained by us, until the earlier of (i) June 30, 2009,
(ii) six months after a determination of disability has been made, or (iii) the
date of Mr. Beaths death.

Pursuant to
the 2007 Beath Agreement, during Mr. Beaths employment, and for a period of
two years following termination of Mr. Beaths employment (i) by Mr. Beath
other than for good cause shown, or (ii) by us for cause, Mr. Beath was bound
by a non-competition clause. The 2007 Beath Agreement also provided for a
non-solicitation period ending one year following Mr. Beaths termination for
any reason.

Mr. Beath
received increases in his annual base salary to $150,000 effective July 1, 2008
and to $175,000 effective April 1, 2009.

2009 Beath Agreement

On May 15,
2009, we entered into an employment agreement with Mr. Beath that replaced the
2007 Beath Agreement (the 2009 Beath Agreement). Pursuant to the 2009 Beath
Agreement, Mr. Beath is to serve as our Chief Financial Officer. The term of
the 2009 Beath Agreement begins May 15, 2009 and extends to May 14, 2012.

Pursuant to
the terms of the 2009 Beath Agreement, Mr. Beath will receive an annual base
salary of $175,000. Mr. Beath is also eligible to receive a cash bonus and
stock option grants at the discretion of our Board.

Under the 2009
Beath Agreement, if Mr. Beaths employment is terminated by us for cause, or
if Mr. Beath terminates his employment other than for good cause shown, as
defined in the 2009 Beath Agreement, and which includes the occurrence of a
change in control, we will pay Mr. Beath the salary accrued for the pay period
in which the termination occurred, unless termination was for cause and the
cause involved fraud, embezzlement or disclosure of confidential information,
in which case, IFT would not be liable for any payments to Mr. Beath.
Cause is defined in the 2009 Beath Agreement as (i) any fraud, embezzlement
or other dishonesty of Mr. Beath that materially and adversely affects our
business or reputation, (ii) disclosure of confidential information to any
third party, (iii) Mr. Beaths refusal to perform his material duties and
obligations under the 2009 Beath Agreement, or (iv) Mr. Beaths willful and
intentional misconduct in the performance of his material duties and
obligations.

Pursuant to
the terms of the 2009 Beath Agreement, if we terminate Mr. Beath other than for
cause, death or disability, or if Mr. Beath terminates his employment for good
cause shown, IFT must pay Mr. Beaths accrued but unpaid portion of his
annual base salary in a lump sum, and will continue to pay Mr. Beaths annual
base salary through May 14, 2012.

32

---



Under the 2009
Beath Agreement, if Mr. Beaths employment is terminated by us by reason of his
death or disability, we will pay Mr. Beaths accrued but unpaid portion of his
annual base salary in a lump sum. In addition, if Mr. Beaths employment is
terminated by reason of disability, we will continue to pay Mr. Beaths annual
base salary, less any amounts received by Mr. Beath under any disability
insurance coverage maintained by us, until the earlier of (i) May 14, 2012,
(ii) six months after a determination of disability has been made, or (iii) the
date of Mr. Beaths death.

Pursuant to
the 2009 Beath Agreement, during Mr. Beaths employment, and for a period of
five years following termination of Mr. Beaths employment (i) by Mr. Beath
other than for good cause shown, or (ii) by us for cause, Mr. Beath is bound by
a non-competition clause. The 2009 Beath Agreement also provides for a
non-solicitation period ending one year following Mr. Beaths termination for
any reason.

Outstanding
Equity Awards at 2009 Fiscal Year-End

The following
table provides information on all restricted stock, stock options and SAR
awards (if any) held by our named executive officers (NEOs) as of December 31, 2009.

|                  |  |                                                                     |           |                                                                    |  |                            |  |                       |      |  |  |            | 
|----------------- |  | ------------------------------------------------------------------- | --------- | ------------------------------------------------------------------ |  | -------------------------- |  | --------------------- | ---- |  |  | ---------- | 
|                  |  | Option Awards                                                       |          
|                  |  |                                                                     |          
|Name              |  | No. of Securities 
Underlying Unexercised 
Options Exercisable 
(#) |           | No. of Securities Underlying
Unexercised OptionsUnexercisable 
(#) |  | Option Exercise 
Price ($) |  | Option ExpirationDate |     
|                  |  |                                                                     |           |                                                                    |  |                            |  |                       |     
|Jonathan R. Burst |  |                                                                     | 10,400    |                                                                    |  |                           |  | $                     | 0.49 |  |  | 12/28/2011 | 
|                  |  |                                                                     | 10,400    |                                                                    |  |                           |  | $                     | 0.15 |  |  | 12/31/2012 | 
|                  |  |                                                                     | 10,400    |                                                                    |  |                           |  | $                     | 0.21 |  |  | 12/31/2013 | 
|                  |  |                                                                     |          |                                                                    |  | 450,000                    |  | $                     | 0.50 |  |  | 12/31/2013 | 
|                  |  |                                                                     | 780,000   |                                                                    |  |                           |  | $                     | 0.13 |  |  | 12/31/2014 | 
|                  |  |                                                                     | 1,040,000 |                                                                    |  |                           |  | $                     | 0.24 |  |  | 12/31/2014 | 
|                  |  |                                                                     | 5,200,000 |                                                                    |  |                           |  | $                     | 0.48 |  |  | 12/31/2014 | 
|                  |  |                                                                     |           |                                                                    |  |                            |  |                       |      |  |  |            | 
|Stuart D. Beath   |  |                                                                     | 208,000   |                                                                    |  |                           |  | $                     | 0.72 |  |  | 6/30/2012  | 
|                  |  |                                                                     |          |                                                                    |  | 250,000                    |  | $                     | 0.50 |  |  | 12/31/2013 | 
|                  |  |                                                                     | 200,000   |                                                                    |  |                           |  | $                     | 0.25 |  |  | 8/2/2014   | 
|                  |  |                                                                     | 1,352,000 |                                                                    |  |                           |  | $                     | 0.48 |  |  | 12/31/2014 | 

2009
Director Compensation

Directors do
not receive any cash compensation for their services as members of the Board,
although they are reimbursed for certain expenses incurred in connection with
attendance at Board and Committee meetings.

Each
non-employee and employee Director is entitled to an annual award of 10,000
restricted shares or immediately vesting options of our common stock for
membership on the Board. In addition, each Board member is entitled to receive
1,000 shares of restricted stock or options for every three telephonic Board
meetings attended. For 2009 Board services, Messrs. Burst and Carr elected
restricted shares and Messrs. Norris, Kirk and Eren elected options as
compensation for their services.

Board members
are also eligible to receive discretionary grants of common stock under the
Consultant and Employee Stock Compensation Plan and grants of stock options,
stock appreciation rights and restricted stock pursuant to the Amended and

33

---



Restated LTIP. We did not make discretionary equity grants
pursuant to our Amended and Restated Long Term Incentive Plan to any Directors
in their capacity as Directors during the fiscal year ended December 31, 2009. We did however make discretionary grants (not pursuant to our Amended and Restated LTIP) in the
aggregate total of 500,000 options to purchase shares of our common stock to Directors in their
capacity as Directors during the fiscal year ended December 31, 2009. We also granted 30,000
options to purchase shares of our common stock to Directors in their capacity as Directors during the fiscal year ended
December 31, 2009 for required annual board service compensation obligations.

The following
table provides information related to the compensation of our non-NEO Directors
for fiscal 2009. For information regarding our Chairman and Chief Executive Officers
2009 compensation, see the 2009 Summary Compensation table.

|                 |      |   |  |   |       |                    |   |                     |  |                              |         |  |           |   |         |  |  | 
|---------------- | ---- | - |  | - | ----- | ------------------ | - | ------------------- |  | ---------------------------- | ------- |  | --------- | - | ------- |  |  | 
|                 | Name |   |  |   |       | Stock
 Awards
 ($) |   | Option
 Awards
 ($) |  | All Other
 Compensation
 ($) |         |  | Total ($) |  
|                 |      |   |  |   |       |                    |   |                     |  |                              |         |  |           |  
|                 |      |   |  |   |       |                    |   |                     |  |                              |         |  |           |   |         | 
|Rex Carr         |      | 1 |  | $ | 7,400 |                    | $ | 26,200              |  | $                            | 22,000  |  |           | $ | 55,600  | 
|Fer Eren,
 M.D.  |      | 2 |  | $ |      |                    | $ | 13,625              |  | $                            |        |  |           | $ | 13,625  | 
|David B.
 Norris |      | 3 |  | $ |      |                    | $ | 27,441              |  | $                            |        |  |           | $ | 27,441  | 
|Gary Kirk        |      | 4 |  | $ |      |                    | $ | 27,441              |  | $                            | 189,467 |  | 5         | $ | 216,908 | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Mr. Carrs
 IFT equity holdings as of December 31, 2009 include 14,820,298 shares of
 restricted common stock owned by R.C. Holding Company, of which Mr. Carr is a
 Director, President and 41% stockholder. Mr. Carr is deemed to be the
 beneficial owner of these shares. Mr. Carr also owns 130,000 shares of common
 stock, 4,319,901 shares of restricted common stock and 100,000 unvested
 options to purchase shares of IFT common stock. Mr. Carr also has 76,960
 vested options to purchase shares of IFT common stock and 10,000 restricted
 common shares obtained from Board services provided from 2002 to date.                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (2) | Dr. Erens
 IFT equity holdings as of December 31, 2009 include 642,899 shares of common
 stock. Dr. Eren also holds 110,000 vested options to purchase shares of IFT
 common stock, obtained from Board services provided from 2009 to date.                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (3) | Mr. Norris
 IFT equity holdings as of December 31, 2009 include 1,244,425 shares of
 restricted common stock. Mr. Norris also holds 208,000 vested options to
 purchase shares of IFT common stock and 100,000 non-vested options to
 purchase shares of IFT common stock for non-director related services
 provided. Mr. Norris also holds 109,840 vested options to purchase shares of
 IFT common stock obtained from Board services provided from 2000 to date.                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (4) | Mr. Kirks
 IFT equity holdings as of December 31, 2009 include 2,080,000 vested options
 to purchase shares of IFT common stock and 250,000 unvested options to
 purchase shares of IFT common stock, granted for employee services. Mr. Kirk
 also holds 75,520 vested options to purchase shares of IFT common stock,
 obtained from Board services provided from 2003 to date. Mr. Kirk received a
 discretionary grant of 100,000 options to purchase shares of our common stock
 for Board services (fair value of $26,200 at grant date) and 10,000 options
 to purchase shares of our common stock for 2009 Board services provided (fair
 value of $1,241 at grant date).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (5) | Pursuant to
 his employment agreement in effect during 2009, Mr. Kirk was to receive an
 annual salary of 75,000 British Pounds, receive 3,750 British Pounds for
 retirement contributions, receive a health insurance stipend of 3,000 British
 Pounds and receive an annual auto allowance of $9,600. Effective April 2009, Mr. Kirk received                                                                                                                                                                                                                                                                                                                                  

34

---



|         |                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------- | ------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                  | an incremental annual salary increase of 5,000 British Pounds and 250 British Pounds for
 retirement contributions. Effective November 2009, Mr. Kirk received another
 incremental annual salary increase of $10,000. Amount represents $150,167 for
 Mr. Kirks employment salary considering foreign currency conversion to U.S.
 Dollars based on when payments were made to Mr. Kirk throughout the year and
 $39,300 (grant date fair value) for 150,000 options granted for employment
 services during 2009.
|         |                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters.

The following
table sets forth information regarding the ownership of our common stock as of
March 25, 2010 by (i) each person known by IFT to own beneficially more than
five percent of our 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.

|                                                               |  |                                              |            |                          |  |       |  
|-------------------------------------------------------------- |  | -------------------------------------------- | ---------- | ------------------------ |  | ----- | -
|                                                               |  |                                              |            |                          |  |       |  
|Name and
 Address of Beneficial Owner                          |  | Amount and Nature of
 Beneficial Ownership 1 |            | Percent of Common
 Stock | 
|                                                               |  |                                              |            |                          |  |       |  
|Jonathan
 R. Burst 2                                           |  |                                              | 9,428,344  |                          |  | 8.70  | %
|David
 B. Norris 3                                             |  |                                              | 1,562,265  |                          |  | 1.54  | %
|Fer
 Eren, M.D. 4                                              |  |                                              | 752,899    |                          |  | 0.74  | %
|Gary
Kirk 5                                                    |  |                                              | 2,155,520  |                          |  | 2.08  | %
|Rex
 Carr 6                                                    |  |                                              | 19,357,159 |                          |  | 19.10 | %
|Stuart
 D. Beath 7                                             |  |                                              | 2,109,024  |                          |  | 2.05  | %
|                                                               |  |                                              |            |                          |  |       |  
|All
 Directors and executive officers as a group (6 persons) 8 |  |                                              | 35,365,211 |                          |  | 31.37 | %
|                                                               |  |                                              |            |                          |  |       |  
|Dion
 Friedland 9                                              |  |                                              | 6,580,183  |                          |  | 6.32  | %
|Esam
 Bin Hashim Hakeem 10                                     |  |                                              | 11,960,000 |                          |  | 10.97 | %
|John
 M. Hennessy11                                            |  |                                              | 6,000,000  |                          |  | 5.81  | %
|Observor
 Acceptances, Ltd. 12                                 |  |                                              | 5,259,840  |                          |  | 5.14  | %

1This table is based upon information
supplied by officers, Directors and principal stockholders. Unless otherwise
indicated in the footnotes to this table and subject to community property laws
where applicable, we believe that each of the stockholders named in this table
has sole voting and investment power with respect to the shares indicated as
beneficially owned. Unless otherwise indicated, the principal address of each
of the stockholders named in this table is: c/o International Fuel Technology,
Inc., 7777 Bonhomme Avenue, Suite 1920, St. Louis, Missouri 63105. The number
of shares beneficially owned includes shares of common stock that the owner or
owners had the right to acquire on or within 60 days of March 25, 2010,
including through the exercise of options or warrants. Also included are
restricted shares of common stock, over which the owner or owners have voting
power, but no investment power.

2Includes 52,000 restricted shares of common
stock owned by Burcor Capital, LLC, of which Mr. Burst is an executive officer.
Mr. Burst is deemed to be the beneficial owner of such shares. It also includes
7,051,200 shares issuable upon the exercise of options.

3Includes 317,840 shares issuable upon
exercise of options.

4Amount includes 110,000 shares issuable
upon exercise of options.

35

---



5Represents 2,155,520 shares issuable upon
exercise of options.

6Includes 14,820,298 shares of restricted
common stock owned by R.C. Holding Company, of which Mr. Carr is a Director,
President and 41% stockholder. Mr. Carr is deemed to be the beneficial owner of
these shares. Also includes 130,000 shares of common stock and 4,329,901 shares
of restricted common stock owned by Mr. Carr. Amount also includes 76,960
shares issuable upon exercise of options.

7Represents 349,024 shares of common stock
and 1,760,000 shares issuable upon exercise of options.

8Includes 11,471,520 shares issuable upon
exercise of options.

9Includes 3,677,254 shares of common stock,
2,080,000 shares issuable upon exercise of vested options and 822,929 shares
issuable upon exercise of warrants owned by Magnum Select Fund, FT Marketing,
Ltd. and Giant Trading of which Mr. Friedland is a Director and/or President.
Mr. Friedland is deemed to be the beneficial owner of these shares. Mr.
Friedland is Chairman of Fuel Technologies Ltd., one of our former
distributors. Mr. Friedlands principal address is Fuel Technologies LLP,
Berkshire House, 168-173 High, Holborn, United Kingdom, WC1V 7AA.

10Includes 7,800,000 shares issuable upon
exercise of options. Also includes 2,080,000 shares of restricted common stock
owned by Libya Africa Investment Portfolio and 2,080,000 shares of restricted
common stock owned by Vision Oil Services Limited. To IFTs knowledge, Esam Bin
Hashim Hakeem, Libya Africa Investment Portfolio and Vision Oil Services
Limited are affiliates and are acting as a group for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended. The principal
address for this group is Vision Oil Services Limited, 15 Rue de
Jeu-de-lArc, Case postale 6105, CH 1211 Geneva, Switzerland.

11Includes 2,000,000 shares issuable upon
exercise of warrants. Mr. Hennessys principal address is 47 West Lake Road,
Tuxedo Park, NY 10987.

12Includes 4,160,000 shares of restricted
common stock owned by Observor Acceptances, Ltd. Amount also includes 1,099,840
shares issuable upon exercise of options. Observor Acceptances, Ltd.s
principal address is C/O Rob Douglas, Sir Walter Raleigh House, 48/50
Esplanade, St. Helier, Jersey JE1 4HH, Channel Islands.

36

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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             |  |                                                                                                 |           |                                                                                | $ |                                                                                                                                                 |  |  |          | 
|Equity compensation plans not approved by
 security holders (1) (2) |  |                                                                                                 | 32,751,392 |                                                                                | $ | 0.61                                                                                                                                             |  |  | 5,597,255 | 
|                                                                    |  |                                                                                                 |            |                                                                                |   |                                                                                                                                                  | 
|Total                                                               |  |                                                                                                 | 32,751,392 |                                                                                | $ | 0.61                                                                                                                                             |  |  | 5,597,255 | 

|         |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | -------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | (1)                                                                        | Includes
 options granted to employees, Directors and non-employees under our original
 Long Term Incentive Plan, our Amended and Restated LTIP and under other
 arrangements, and options and warrants issued to non-employees under other
 arrangements. Other arrangements include warrants issued to non-employees in
 relation to certain equity raise activities and option grants to certain
 employees and non-employees whose underlying common shares are not registered
 under the Securities Act of 1933, as amended, or any state securities laws.
|         |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | (2)                                                                        | See Notes 3
 and 4 to our financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Item 13. | Certain Relationships and Related Transactions, and Director
 Independence

During the
fourth quarter of 2007, we obtained a $500,000 loan from Harry F. Demetriou, a
Director of IFT and the holder of over five (5%) percent of IFTs common stock.
Pursuant to the terms of the loan, a promissory note was executed by IFT in
favor of Mr. Demetriou in connection with the loan. The loan was to accrue
interest at the rate of 15% per year in arrears, was to become due and payable
on January 1, 2009, and was guaranteed by Rex Carr, a Director of IFT and the
holder of over five (5%) percent of IFTs common stock. IFT also was obligated
to pay any related loan fees incurred by Mr. Demetriou. On March 31, 2008, Mr.
Demetriou agreed to accept 1,040,000 shares of IFT common stock in settlement
of the $500,000 note. The trading price of the common stock was $0.41 per share
as of March 31, 2008. As such, the settlement represented a 22% premium
compared to the current stock price. The premium was incentive for the
settlement in shares rather than in cash and was based on negotiations between
IFT and Mr. Demetriou. On June 18, 2008, IFT repurchased 520,000 of the
shares granted for the debt settlement described above for $250,000. During the
first quarter of 2009, IFT repurchased the remaining 520,000 shares granted for
the debt settlement for $250,000. In conjunction with these transactions, IFT
reimbursed Mr. Demetriou $56,000 in 2009 for accumulated loan and bank fees.

On December
11, 2007, we obtained an investment commitment from Mr. Carr for up to
$1,000,000 of equity purchases from time to time commencing after March 1,
2008. During the first quarter of 2008, IFT sold 416,000 shares to Mr. Carr
under this arrangement for $200,000. 400,000 of these shares were subsequently
repurchased by IFT for $200,000 during 2009.

From January
1, 2009 to May 26, 2009, Messrs. Demetriou and Norris served on our Audit
Committee and our Compensation Committee. Mr. Demetriou ceased to be a Director
upon his death on May 26, 2009. Mr. Norris is an

37

---



independent Director, as such term is defined in the listing standards of The Nasdaq Stock Market,
Inc. Mr. Demetriou was not an independent Director, as such term is defined in
the listing standards of The Nasdaq Stock Market, Inc.

IFT does not have a separately designated
nominating committee for its Board. Each of the following directors is not
deemed to be independent, as such term is defined in the listing standards of
The Nasdaq Stock Market: Mr. Burst, Mr. Carr and Mr. Kirk.

|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services

Services
Provided by our Independent Registered Public Accountants

BDO Seidman, LLP served as our independent
registered public accountants for the fiscal years ended December 31, 2009 and
2008. Aggregate fees for professional services rendered for IFT by BDO Seidman,
LLP for the fiscal years ended December 31, 2009 and 2008 were as follows:

|                   |  |                                    |         |                                    |   |         | 
|------------------ |  | ---------------------------------- | ------- | ---------------------------------- | - | ------- | 
|                   |  | Fiscal year endedDecember 31, 2009 |         | Fiscal year endedDecember 31, 2008 |  
|                   |  |                                    |         |                                    |  
|Audit fees         |  | $                                  | 117,054 |                                    | $ | 127,268 | 
|Audit-related fees |  |                                    |        |                                    |   |        | 
|Tax fees           |  |                                    |        |                                    |   |        | 
|All other fees     |  |                                    |        |                                    |   |        | 
|                   |  |                                    |         |                                    |   |         | 
|                   |  | $                                  | 117,054 |                                    | $ | 127,268 | 

Audit
Fees

Audit fees were for professional services
rendered for the audits of our financial statements and for review of the financial
statements included in our quarterly reports on Form 10-Q for the quarterly
periods during the 2009 and 2008 fiscal years.

Audit-related
Fees

During the 2009 and 2008 fiscal years, BDO
Seidman, LLP did not provide any assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements that are not reported under the caption Audit Fees above.
Therefore, there were no audit-related fees billed or paid during the 2009 and
2008 fiscal years.

Tax Fees

As BDO Seidman, LLP did not provide any
services to us for tax compliance, tax advice and tax planning during the
fiscal years ended December 31, 2009 and 2008, no tax fees were billed or paid
during those fiscal years.

All Other
Fees

BDO Seidman, LLP did not provide any products
and services not disclosed in the table above during the 2009 and 2008 fiscal
years. As a result, there were no other fees billed or paid during those fiscal
years.

38

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Audit
Committee Pre-approval Policies and Procedures

The Audit Committee has certain policies and
procedures in place requiring the pre-approval of audit and non-audit services
to be performed by our independent registered public accountants. Such
pre-approval can be given as part of the Audit Committees approval of the
scope of the engagement of the independent public registered accountants or on
an individual basis. The approved non-audit services must be disclosed in our
periodic reports filed with the SEC. The Audit 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 Audit Committee at the next scheduled meeting. The
charter prohibits us 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. All work performed by BDO Seidman, LLP for us in 2009 and 2008 was
pre-approved by the Audit Committee.

PART IV

|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

(a) The following documents are filed as part
of this report

| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  | -- | ----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 1. | Financial statements         
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | See index to financial statements and
 supporting schedules on page F-1 of this annual report on Form 10-K.                                                                                                                                           
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  | 2. | Financial statement schedules
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | All schedules for which provision is made
 in the applicable accounting regulations of the SEC are not required under
 the related instructions or are inapplicable and therefore have been omitted.                                                  
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  | 3. | Exhibits                     
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | The following exhibits are filed
 as part of the report or are incorporated by reference: EXHIBITS                                                                                                                                                    
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | 3.1 Certificate of Incorporation of
 International Fuel Technology, Inc. and all amendments. (Filed as Exhibit 3.1
 to the registrants annual report on Form 10-K for the fiscal year ended
 December 31, 1999 and incorporated herein by reference).
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | 3.2 By-laws of International Fuel
 Technology, Inc. (Filed as Exhibit 3.2 to the registrants annual report on
 Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein
 by reference).                                         
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | 10.1 Consultant and Employee Stock Option
 Plan (Filed as Exhibit 10 to the registrants registration statement on Form
 S-8 filed on February 7, 2000 and incorporated herein by reference). *                                                       
| |  |  |    |                               |                                                                                                                                                                                                                                                       
| |  |  |    |                               | 10.2 Long Term Incentive Plan (Filed as
 Exhibit 10.2 to the registrants annual report on Form 10-K for the fiscal
 year ended December 31, 2005 and incorporated herein by reference). *                                                            

39

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| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  | --------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  |                                                                             | 10.3 Amended and Restated Long Term
 Incentive Plan (Filed as Exhibit 10.3 to the registrants annual report on
 Form 10-K for the fiscal year ended December 31, 2006 and incorporated herein
 by reference). *                                                              
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.4 Form of Amended and Restated Long Term
 Incentive Plan Stock Option Agreement. *                                                                                                                                                                                         
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.5 Form of Stock Option Agreement. *                                                                                                                                                                                                                                        
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.6 Jonathan R. Burst employment agreement
 (Filed as Exhibit 10.4 to the registrants annual report on Form 10-K for the
 fiscal year ended December 31, 2006 and incorporated herein by reference). *                                                                      
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.7 Jonathan R. Burst employment agreement
 (Filed as Exhibit 10.1 to the registrants current report on Form 8-K filed
 on November 13, 2009 and incorporated herein by reference). *                                                                                       
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.8 Stuart D. Beath employment agreement
 (Filed as Exhibit 10.1 to the registrants current report on Form 8-K filed
 on July 3, 2007 and incorporated herein by reference). *                                                                                              
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.9 Stuart D. Beath employment agreement
 (Filed as Exhibit 10.2 to the registrants current report on Form 8-K filed
 on November 13, 2009 and incorporated herein by reference). *                                                                                         
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.10 Non-Statutory Stock Option Agreement
 between International Fuel Technology, Inc. and Stuart D. Beath, dated July
 2, 2007 (Filed as Exhibit 10.2 to the registrants current report on Form 8-K
 filed on July 3, 2007 and incorporated herein by reference). *        
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 10.11 Equity Investment Commitment between
 Rex Carr and International Fuel Technology, Inc., dated December 11, 2007
 (Filed as Exhibit 10.12 to the registrants annual report on Form 10-K for
 the fiscal year ended December 31, 2007, incorporated herein by reference).
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 14 Code of Business Conduct and Ethics
 (Filed as Exhibit 14 to the registrants annual report on Form 10-K for the
 fiscal year ended December 31, 2005, incorporated herein by reference).                                                                                  
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 21 Subsidiaries                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 23.1 Consent of BDO Seidman, LLP                                                                                                                                                                                                                                              
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 31.1 Certification of
 Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities
 Exchange Act of 1934, as amended.                                                                                                                                           
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 31.2 Certification of
 Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities
 Exchange Act of 1934, as amended.                                                                                                                                           
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 32.1 Certification of
 Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                     
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  |                                                                             | 32.2 Certification of
 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                     
| |  |  |  |                                                                             |                                                                                                                                                                                                                                                                               
| |  |  |  | * Management contract or other compensatory
 plan, contract or arrangement.

(b) The exhibits filed with this annual
report are listed under Item 15(a)(3), immediately above.

(c) None.

40

---



SIGNATURES

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

|                                                                                                                                                                                                                 |                          |  |      |  |                
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ |  | ---- |  | ---------------
|INTERNATIONAL
 FUEL TECHNOLOGY, INC.                                                                                                                                                                            
|(Registrant)                                                                                                                                                                                                    
|                                                                                                                                                                                                                 |                          |  |      |  |                
|By:                                                                                                                                                                                                              | /s/ Jonathan
 R. Burst   |  | Date |  | March 31,
 2010
|                                                                                                                                                                                                                 |                          |  |      |  |                
|                                                                                                                                                                                                                 | Jonathan R.
 Burst       |  |      |  |                
|                                                                                                                                                                                                                 | Chief
 Executive Officer |  |      |  |                
|                                                                                                                                                                                                                 |                          |  |      |  |                
|Pursuant to
 the requirements of the Securities Exchange Act of 1934, this report has been
 signed below by the following persons on behalf of the registrant and in the
 capacities and on the dates indicated.

|    |                                                                                  |  |      |  |                
|--- | -------------------------------------------------------------------------------- |  | ---- |  | ---------------
|By: | /s/ Jonathan
 R. Burst                                                           |  | Date |  | March 31,
 2010
|    |                                                                                  |  |      |  |                
|    | Jonathan R.
 Burst                                                               |  |      |  |                
|    | Chairman of
 the Board and Chief Executive Officer (Principal executive officer)
|    |                                                                                  |  |      |  |                
|By: | /s/ Stuart D.
 Beath                                                             |  | Date |  | March 31,
 2010
|    |                                                                                  |  |      |  |                
|    | Stuart D.
 Beath                                                                 |  |      |  |                
|    | Chief
 Financial Officer (Principal financial and accounting officer)           
|    |                                                                                  |  |      |  |                
|By: | /s/ Rex Carr                                                                     |  | Date |  | March 31,
 2010
|    |                                                                                  |  |      |  |                
|    | Rex Carr                                                                         |  |      |  |                
|    | Director                                                                         |  |      |  |                
|    |                                                                                  |  |      |  |                
|By: | /s/ Fer Eren,
 M.D.                                                              |  | Date |  | March 31,
 2010
|    |                                                                                  |  |      |  |                
|    | Fer Eren,
 M.D.                                                                  |  |      |  |                
|    | Director                                                                         |  |      |  |                
|    |                                                                                  |  |      |  |                
|By: | /s/ Gary Kirk                                                                    |  | Date |  | March 31,
 2010
|    |                                                                                  |  |      |  |                
|    | Gary Kirk                                                                        |  |      |  |                
|    | Director                                                                         |  |      |  |                
|    |                                                                                  |  |      |  |                
|By  | /s/ David B.
 Norris                                                             |  | Date |  | March 31,
 2010
|    |                                                                                  |  |      |  |                
|    | David B.
 Norris                                                                 |  |      |  |                
|    | Director                                                                         |  |      |  |                

---



|                                                        |    
|------------------------------------------------------- | ---
|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-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, 2009 and 2008, and the related statements of operations,
stockholders equity, and cash flows for the years then ended. 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 audit 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 audits 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. Accordingly, 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of International Fuel Technology,
Inc. as of December 31, 2009 and 2008 and the results of its operations and its
cash flows for the years then ended 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
described in Note 2 to the financial statements, International Fuel Technology,
Inc. has suffered recurring losses from operations, has a working capital deficit at December 31, 2009 and has cash obligations and outflows from
operating activities that raise substantial doubt about its 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.

|                     
|---------------------
|/s/ BDO
 Seidman, LLP
|Chicago,
 Illinois   
|                     
|March 31,
 2010      

F-2

---



INTERNATIONAL FUEL TECHNOLOGY, INC.

BALANCE SHEETS

|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ----------------- | - | ----------- | -
|ASSETS                                                                                                                                                                                                                                                                          |  | December 31,
2009 |             | December 31,
2008 |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |  
|Current assets                                                                                                                                                                                                                                                                  |  |                   |             |                   |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                                                       |  | $                 | 1,828,024   |                   | $ | 299,127     |  
|Investments in certificates of deposit                                                                                                                                                                                                                                          |  |                   | 1,000,000   |                   |   |            |  
|Accounts receivable                                                                                                                                                                                                                                                             |  |                   | 2,440       |                   |   | 94,318      |  
|Accrued interest receivable                                                                                                                                                                                                                                                     |  |                   | 8,210       |                   |   |            |  
|Inventory                                                                                                                                                                                                                                                                       |  |                   | 157,465     |                   |   | 221,770     |  
|Prepaid expenses and other assets                                                                                                                                                                                                                                               |  |                   | 28,681      |                   |   | 19,152      |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Total current assets                                                                                                                                                                                                                                                            |  |                   | 3,024,820   |                   |   | 634,367     |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Property and equipment                                                                                                                                                                                                                                                          |  |                   |             |                   |   |             |  
|Machinery, equipment and office furniture                                                                                                                                                                                                                                       |  |                   | 63,706      |                   |   | 63,706      |  
|Accumulated depreciation                                                                                                                                                                                                                                                        |  |                   | (57,690     | )                 |   | (52,628     | )
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Net property and equipment                                                                                                                                                                                                                                                      |  |                   | 6,016       |                   |   | 11,078      |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Goodwill (Note 1)                                                                                                                                                                                                                                                               |  |                   | 2,211,805   |                   |   | 2,211,805   |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Total assets                                                                                                                                                                                                                                                                    |  | $                 | 5,242,641   |                   | $ | 2,857,250   |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                            |  |                   |             |                   |   |             |  
|Current liabilities                                                                                                                                                                                                                                                             |  |                   |             |                   |   |             |  
|Accounts payable                                                                                                                                                                                                                                                                |  | $                 | 193,074     |                   | $ | 252,872     |  
|Accrued compensation                                                                                                                                                                                                                                                            |  |                   | 14,144      |                   |   | 5,048       |  
|Deferred revenue (Note 9)                                                                                                                                                                                                                                                       |  |                   | 2,998,242   |                   |   |            |  
|Other accrued expenses (Note 3)                                                                                                                                                                                                                                                 |  |                   | 310,000     |                   |   | 350,000     |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Total current liabilities                                                                                                                                                                                                                                                       |  |                   | 3,515,460   |                   |   | 607,920     |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Deferred income taxes (Note 5)                                                                                                                                                                                                                                                  |  |                   | 465,000     |                   |   |            |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Total liabilities                                                                                                                                                                                                                                                               |  |                   | 3,980,460   |                   |   | 607,920     |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Commitments and contingencies (Notes 6 and
7)                                                                                                                                                                                                                                   |  |                   |             |                   |   |             |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Stockholders equity (Notes 3 and 4)                                                                                                                                                                                                                                            |  |                   |             |                   |   |             |  
|Common stock, $0.01 par value; 150,000,000
shares authorized; 101,292,284 (net of 1,440,000 shares held in treasury
stock) and 93,542,284 (net of 520,000 shares held in treasury stock) shares
issued and outstanding at December 31, 2009 and December 31, 2008, respectively |  |                   | 1,027,323   |                   |   | 940,623     |  
|Treasury Stock (Note 8)                                                                                                                                                                                                                                                         |  |                   | (664,600    | )                 |   | (395,000    | )
|Discount on common stock (Note 3)                                                                                                                                                                                                                                               |  |                   | (819,923    | )                 |   | (819,923    | )
|Additional paid-in capital                                                                                                                                                                                                                                                      |  |                   | 64,731,026  |                   |   | 60,168,501  |  
|Accumulated deficit                                                                                                                                                                                                                                                             |  |                   | (63,011,645 | )                 |   | (57,644,871 | )
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Total stockholders equity                                                                                                                                                                                                                                                      |  |                   | 1,262,181   |                   |   | 2,249,330   |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                      |  | $                 | 5,242,641   |                   | $ | 2,857,250   |  
|                                                                                                                                                                                                                                                                                |  |                   |             |                   |   |             |  

See
accompanying Notes to Financial Statements.

F-3

---



INTERNATIONAL FUEL TECHNOLOGY, INC.

STATEMENTS OF
OPERATIONS

|                                                                                                                                                               |  |                              |            |                              |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---------------------------- | - | ---------- | -
|                                                                                                                                                               |  | Year
Ended
December 31,
2009 |            | Year
Ended
December 31,
2008 |  
|                                                                                                                                                               |  |                              |            |                              |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Revenues                                                                                                                                                       |  | $                            | 184,851    |                              | $ | 149,480    |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Operating
expenses:                                                                                                                                            |  |                              |            |                              |   |            |  
|                                                                                                                                                              
|Cost of operations (exclusive of
depreciation and amortization)                                                                                                |  |                              | 65,339     |                              |   | 85,903     |  
|                                                                                                                                                              
|Selling, general and administrative
expenses, including non-cash stock-based compensation expense of $2,667,125
and $2,896,229 for 2009 and 2008, respectively |  |                              | 5,035,115  |                              |   | 5,106,406  |  
|                                                                                                                                                              
|Depreciation and amortization                                                                                                                                  |  |                              | 5,062      |                              |   | 7,808      |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Total operating expenses                                                                                                                                       |  |                              | 5,105,516  |                              |   | 5,200,117  |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Net loss from operations                                                                                                                                       |  |                              | (4,920,665 | )                            |   | (5,050,637 | )
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Interest income, net of (interest expense)                                                                                                                     |  |                              | 18,891     |                              |   | (13,131    | )
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Net loss before income taxes                                                                                                                                   |  |                              | (4,901,774 | )                            | $ | (5,063,768 | )
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Income tax provision (Note 5)                                                                                                                                  |  |                              | 465,000    |                              |   |           |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Net loss                                                                                                                                                       |  | $                            | (5,366,774 | )                            | $ | (5,063,768 | )
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Basic and diluted net loss per common share                                                                                                                    |  | $                            | (0.05      | )                            | $ | (0.06      | )
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|                                                                                                                                                               |  |                              |            |                              |   |            |  
|Weighted-average
common shares outstanding, basic and diluted                                                                                                  |  |                              | 99,747,994 |                              |   | 91,623,385 |  

See
accompanying Notes to Financial Statements.

F-4

---



INTERNATIONAL
FUEL TECHNOLOGY, INC.

STATEMENTS
OF STOCKHOLDERS EQUITY

|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  
|------------------------------------------------------- |  | -------------------- | ----------- | ------------------- | - | ------------- |  | ------------------------------- | -------- | ------------------------------- | - | -------------------- | - | ----- | ---------- |  | - | ----------- | - | - | ---------- | -
|                                                        |  | Common
 Stock Shares |             | Common
 StockAmount |   | TreasuryStock |  | Discount
 
 on 
 Common 
 Stock |          | Additional
 
 Paid-In 
 Capital |   | Accumulated
 Deficit |   | Total |           
|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  
|Balance, December 31, 2007                              |  |                      | 88,290,284  |                     |   | 882,903       |  |                                 |         |                                 |   | (819,923             | ) |       | 54,411,156 |  |   | (52,581,103 | ) |   | 1,893,033  |  
|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  
|Issuances of stock                                      |  |                      | 4,680,000   |                     |   | 46,800        |  |                                 |         |                                 |   |                     |   |       | 2,203,200  |  |   |            |   |   | 2,250,000  |  
|Issuance of stock for services                          |  |                      | 52,000      |                     |   | 520           |  |                                 |         |                                 |   |                     |   |       | 7,480      |  |   |            |   |   | 8,000      |  
|Extinguishment of note payable (Notes 4 and 8)          |  |                      | 1,040,000   |                     |   | 10,400        |  |                                 |         |                                 |   |                     |   |       | 513,436    |  |   |            |   |   | 523,836    |  
|Shares repurchased from Director (Note 8)               |  |                      |            |                     |   |              |  |                                 | (395,000 | )                               |   |                     |   |       | 145,000    |  |   |            |   |   | (250,000   | )
|Options granted for Directors services (Notes 4 and 5) |  |                      |            |                     |   |              |  |                                 |         |                                 |   |                     |   |       | 8,516      |  |   |            |   |   | 8,516      |  
|Expense relating to stock option grants (Note 4)        |  |                      |            |                     |   |              |  |                                 |         |                                 |   |                     |   |       | 2,879,713  |  |   |            |   |   | 2,879,713  |  
|Net loss                                                |  |                      |            |                     |   |              |  |                                 |         |                                 |   |                     |   |       |           |  |   | (5,063,768  | ) |   | (5,063,768 | )
|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  
|Balance, December 31, 2008                              |  |                      | 94,062,284  |                     | $ | 940,623       |  | $                               | (395,000 | )                               | $ | (819,923             | ) | $     | 60,168,501 |  | $ | (57,644,871 | ) | $ | 2,249,330  |  
|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  
|Issuances of stock                                      |  |                      | 8,650,000   |                     |   | 86,500        |  |                                 |         |                                 |   |                     |   |       | 2,076,000  |  |   |            |   |   | 2,162,500  |  
|Shares repurchased from Directors (Notes 4 and 8)       |  |                      |            |                     |   |              |  |                                 | (269,600 | )                               |   |                     |   |       |           |  |   |            |   |   | (269,600   | )
|Shares issued for Directors services (Note 3)          |  |                      | 20,000      |                     |   | 200           |  |                                 |         |                                 |   |                     |   |       | 9,000      |  |   |            |   |   | 9,200      |  
|Options granted for Directors services (Notes 4 and 5) |  |                      |            |                     |   |              |  |                                 |         |                                 |   |                     |   |       | 3,724      |  |   |            |   |   | 3,724      |  
|Expense relating to stock option grants (Note 4)        |  |                      |            |                     |   |              |  |                                 |         |                                 |   |                     |   |       | 2,473,801  |  |   |            |   |   | 2,473,801  |  
|Net loss                                                |  |                      |            |                     |   |              |  |                                 |         |                                 |   |                     |   |       |           |  |   | (5,366,774  | ) |   | (5,366,774 | )
|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  
|Balance, December 31, 2009                              |  |                      | 102,732,284 |                     | $ | 1,027,323     |  | $                               | (664,600 | )                               | $ | (819,923             | ) | $     | 64,731,026 |  | $ | (63,011,645 | ) | $ | 1,262,181  |  
|                                                        |  |                      |             |                     |   |               |  |                                 |          |                                 |   |                      |   |       |            |  |   |             |   |   |            |  

See accompanying Notes to Financial Statements.

F-5

---



INTERNATIONAL
FUEL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS

|                                                                                                           |  |                                |            |                                |   |            |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | ------------------------------ | - | ---------- | -
|                                                                                                           |  | Year Ended
 December 31,
 2009 |            | Year Ended
 December 31,
 2008 |  
|                                                                                                           |  |                                |            |                                |  
|Cash
 flows from operating activities                                                                      |  |                                |            |                                |   |            |  
|Net loss                                                                                                   |  | $                              | (5,366,774 | )                              | $ | (5,063,768 | )
|Adjustments
 to reconcile net loss to net cash (used in) provided by operating activities:                 |  |                                |            |                                |   |            |  
|Depreciation
 and amortization                                                                             |  |                                | 5,062      |                                |   | 7,808      |  
|Non-cash
 stock-based compensation                                                                         |  |                                | 2,667,125  |                                |   | 2,896,229  |  
|Deferred
 income tax provision                                                                             |  |                                | 465,000    |                                |   |           |  
|Change
 in assets and liabilities:                                                                         |  |                                |            |                                |   |            |  
|Accounts
 receivable                                                                                       |  |                                | 91,878     |                                |   | (31,855    | )
|Accrued
 interest receivable                                                                               |  |                                | (8,210     | )                              |   |           |  
|Inventory                                                                                                  |  |                                | 64,305     |                                |   | 93,783     |  
|Prepaid
 expense and other assets                                                                          |  |                                | (9,529     | )                              |   | 1,641      |  
|Accounts
 payable                                                                                          |  |                                | (59,798    | )                              |   | 37,201     |  
|Accrued
 interest payable                                                                                  |  |                                |           |                                |   | 18,699     |  
|Accrued
 compensation                                                                                      |  |                                | 9,096      |                                |   | (24,853    | )
|Deferred
 revenue                                                                                          |  |                                | 2,998,242  |                                |   |           |  
|Other
 accrued expenses                                                                                    |  |                                | (40,000    | )                              |   |           |  
|                                                                                                           |  |                                |            |                                |   |            |  
|Net cash provided by (used in) operating activities                                                        |  |                                | 816,397    |                                |   | (2,065,115 | )
|                                                                                                           |  |                                |            |                                |   |            |  
|Cash
 flows from investing activities                                                                      |  |                                |            |                                |   |            |  
|Purchases
 of long term certificates of deposit                                                            |  |                                | (3,000,000 | )                              |   |           |  
|Redemptions
 of long tem certificates of deposit                                                           |  |                                | 2,000,000  |                                |   |           |  
|                                                                                                           |  |                                |            |                                |   |            |  
|Net cash used in investing activities                                                                      |  |                                | (1,000,000 | )                              |   |           |  
|                                                                                                           |  |                                |            |                                |   |            |  
|Cash
 flows from financing activities                                                                      |  |                                |            |                                |   |            |  
|Proceeds
 from issuance of common stock                                                                    |  |                                | 2,162,500  |                                |   | 2,250,000  |  
|Purchase
 of treasury stock (Note 8)                                                                       |  |                                | (450,000   | )                              |   | (250,000   | )
|                                                                                                           |  |                                |            |                                |   |            |  
|Net cash provided by financing activities                                                                  |  |                                | 1,712,500  |                                |   | 2,000,000  |  
|                                                                                                           |  |                                |            |                                |   |            |  
|Net increase (decrease) in cash and cash equivalents                                                       |  |                                | 1,528,897  |                                |   | (65,115    | )
|Cash and cash equivalents,
 beginning                                                                      |  |                                | 299,127    |                                |   | 364,242    |  
|                                                                                                           |  |                                |            |                                |   |            |  
|Cash and cash equivalents,
 ending                                                                         |  | $                              | 1,828,024  |                                | $ | 299,127    |  
|                                                                                                           |  |                                |            |                                |   |            |  
|Schedule
 of non-cash investing and financing activities                                                   |  |                                |            |                                |   |            |  
|Extinguishment
 of note payable to related party (including accrued interest) by issuance of
 common stock |  | $                              |           |                                | $ | 523,836    |  

See accompanying 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 or the Company) is a company that was
incorporated under the laws of the State of Nevada on April 9, 1996. We have
developed a family of fuel additive product formulations. These unique fuel
blends have been created to 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 fuels. We began transitioning from a development
stage technology company to a commercial entity during 2002 and have been
increasing our product marketing and sales efforts since. We are now focused on
continuing to develop the body of evidence of the efficacy of our products
applicable to a wide range of markets and industries within these markets
through additional industry specific laboratory testing and customer field
trials. In addition, we are continuing to strengthen our distributor and
customer contact base. Marketing and sales efforts, in conjunction with the
additional industry specific testing, will complete our transition to a commercial
enterprise.

On January 20,
2009, our Board of Directors declared a restricted stock dividend to
shareholders of record at the close of business on February 4, 2009 (the
Record Date) in the amount of 1 restricted share for every 25 common shares
owned. The distribution date was February 10, 2009. The restricted stock
dividend is subject to resale conditions pursuant to Rule 144 of the Securities
and Exchange Act. This stock dividend has been retroactively reflected in our
financial statements and notes to the financial statements, including a 34,504
share positive adjustment made in the 2009 presentation to accurately reflect
the restricted shares actually issued in the stock dividend, as compared to the
estimate used in the 2008 presentation.

During 2009,
our net revenues were split in the following manner: 29% to U.S. end-user
customers and 71% to international distributors and end-user customers. 87% of
our net revenues for 2009 was concentrated between two customers.

During 2008,
our net revenues were split in the following manner: 46% to U.S. end-user
customers and 54% to international distributors. 88% of our net revenues for
2008 was concentrated between two customers.

Our product
line revenues for 2009 and 2008 have not been significant. For 2009 and 2008,
DiesoLIFTTM 10 represented 93% and 82% of our net revenues,
respectively.

Net revenues
related to shipments into various foreign countries were $131,679 and $81,376
during 2009 and 2008, respectively. The following table breaks out net revenues
by foreign country:

|        |  |      |         |      |   |        | 
|------- |  | ---- | ------- | ---- | - | ------ | 
|Country |  | 2009 |         | 2008 |  
|        |  |      |         |      |  
|France  |  | $    | 1,695   |      | $ | 81,376 | 
|India   |  |      | 123,227 |      |   |       | 
|Germany |  |      | 6,757   |      |   |       | 
|        |  |      |         |      |   |        | 
|        |  | $    | 131,679 |      | $ | 81,376 | 

F-7

---



We currently utilize Tomah Products, Inc. and Multisol
France as our contracted product manufacturers. Both entities
independently purchase required raw materials to manufacture our product.

Summaries of
our significant accounting policies follow:

Use of Estimates in the Preparation of Financial Statements

The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (GAAP) 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

We recognize
revenue from the sale of our products when the products are shipped, and title
and risk of loss has passed to the buyer. The majority of our revenues is from
sales to product distributors. Product distributors do not have the option to
return product that is not immediately sold to an end-user. Therefore, our revenue
recognition is not conditional on whether a distributor is able to sell product
to an ultimate product end-user. Our sales policies for end-users are
consistent with product distributor sales policies.

Cash and Cash Equivalents

We maintain
cash in a bank account, which, at times, exceeds federally insured limits. We
have experienced no losses relating to these excess amounts of cash in a bank.

We utilize a
cash management program that assesses daily cash requirements. Excess funds are
invested in overnight repurchase agreements backed by U.S. Treasury securities.
Repurchase agreements are not deposits, are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation or any other
government agency, and involve investment risk including possible loss of
principal.

Beginning June
18, 2009, we purchased $3,000,000 of certificates of deposit with maturities
greater than 90 days. As of December 31, 2009, we have $1,000,000 of
certificates of deposit with maturities greater than 90 days. Certificates of
deposit with maturities less than 90 days are classified on our balance sheet
as cash and cash equivalents.

Accounts Receivable

An allowance
for doubtful accounts is maintained at a level we believe sufficient to cover
potential losses based on historical trends and known current factors impacting
our customers. We have determined that an allowance for doubtful accounts was
not necessary as of December 31, 2009 and 2008.

Inventory

Inventory,
which consists of finished product, is valued at the lower of cost or market,
based on the first-in, first-out (FIFO) method, or market, and represents
purchased cost from vendors.

F-8

---



Machinery, Equipment and Office Furniture

Machinery,
equipment and office furniture is stated at cost. Depreciation is calculated
using the straight-line method over an assets appropriate estimated useful
life, generally 3 to 5 years.

We review the
carrying values of our machinery, equipment and office furniture 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, 2009, there has been no
impairment of our long-lived assets.

Goodwill

At a minimum,
goodwill is tested for impairment annually in the fourth quarter of each year.
Goodwill would also be reviewed if any events occur during the year that might
indicate impairment. We calculate the fair value of the Company on a per share
basis using the market capitalization value of our common stock and compare
that to the carrying value of the Company. As of December 31, 2009, no
impairment of goodwill has been recorded. For tax purposes, goodwill is
deductible and is being amortized over 15 years.

Deferred Income Taxes

Deferred
income taxes are provided on a liability method whereby deferred income tax
assets are recognized for deductible temporary differences, operating losses
and tax credit carry-forwards, and deferred income tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred 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 as incurred. Expense for services received from
external vendors for 2009 and 2008 was $115,151 and $131,974, respectively.

Advertising Expenses

Advertising
costs are expensed as incurred and amounted to $30,447 and $44,875 in 2009 and
2008, respectively.

Basic and Diluted Net Earnings (Loss) Per Common Share

Basic earnings
(loss) per share are based upon the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share are based upon
the weighted-average number of common and potentially dilutive common shares
outstanding for the period. For the fiscal years ended December 31, 2009 and
2008, 32,751,392 and 28,140,556 shares, respectively, of common stock
equivalents were excluded from the computation of diluted net loss per share
since their effect would be anti-dilutive.

F-9

---



Fair Value of Financial Instruments

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

Accounting for Stock-based Compensation

We estimate
the fair value of share-based awards on the grant date using an option-pricing
model. We use the Black-Scholes option-pricing model. The model requires the
use of various assumptions. The key assumptions are summarized as follows:

Expected volatility
 we estimate the volatility of our common stock at the date of grant based on
the historical volatility of our common stock for the expected term of our
stock options.

Dividend yield we
estimate the dividend yield assumption based on our historical and projected
dividend payouts.

Risk-free interest rate we
base the risk-free interest rate on the observed interest rates appropriate for
the expected term of our stock options.

Expected option life we
base the expected option life on historical experience.

Forfeiture rate assumption
- we have assumed a 0% forfeiture rate based on historical experience.

The benefits
of tax deductions in excess of recognized compensation cost would be reported
as cash flow from financing activities rather than as cash flow from
operations. However, there has been no net income tax impact related to stock
compensation expense or exercising of stock options primarily due to our
maintaining a full valuation allowance against our net deferred income tax
assets.

The value of
options and warrants issued to non-employees upon date of issuance are expensed
over the related service periods. For non-employee options that are not subject
to a performance criteria, we re-compute the value of the unvested options each
quarter-end and adjust the related compensation expense for the new value. That
new value is based on various assumptions (similar to those listed above) using
end-of-quarter information.

New Accounting Pronouncements Adopted

ASC 105 -
In June 2009, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Codification (ASC) 105-10-65, Transition Related to FASB Statement
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles. The ASC will become the
single source of authoritative non-governmental U.S. generally accepted
accounting principles, superseding existing accounting literature. While not
intended to change U.S. GAAP, the ASC significantly changes the way in which
accounting literature is organized. This guidance is effective for interim or
annual reporting periods ending after September 15, 2009. The adoption of
this guidance did not have an impact on our financial position, results of
operations or cash flows. However, because the Codification completely replaces
existing standards, it affects the way U.S. GAAP is disclosed in our financial
statements.

ASC 805 -
In December 2007, the FASB issued transition guidance ASC 805-10-65-1, Transition
Related to FASB Statement No. 141 (revised 2007), Business Combinations.
This guidance defines the acquirer in a business combination as the entity that
obtains control of one or more businesses, and establishes the acquisition date
as the date the acquirer achieves this control. This statement also refines the application of the purchase method by requiring the acquirer to recognize assets acquired and liabilities assumed at fair value and replacing the cost
allocation process previously required. Furthermore, acquisition-related costs
and restructuring costs that are expected, but not obligatory, are required to
be recognized separately from the business combination. This guidance became
effective prospectively for business combinations with acquisition dates on or
after January 1, 2009. There was no material impact to our financial
position, results of operations, or cash flows as a result of adoption of this
guidance.

F-10

---



ASC 810 - In
December 2007, the FASB issued ASC 810, Non-Controlling Interests in Consolidated Financial
Statements - an amendment of ARB No. 51. ASC 810 establishes new
standards for the accounting for and reporting of non-controlling interests
(formerly minority interests) and for the loss of control of partially owned
and consolidated subsidiaries. ASC 810 does not change the criteria for consolidating
a partially owned entity. ASC 810 became effective for fiscal years beginning
after December 15, 2008. The provisions of ASC 810 are applied prospectively
upon adoption except for the presentation and disclosure requirements, which
are applied retrospectively. The provisions of ASC 810 did not apply to us and
therefore had no impact on our financial position, results of operations or
cash flows.

ASC 820 -
Effective January 1, 2008, we partially adopted ASC 820, Fair
Value Measurements and Disclosures. ASC 820 applies to most current
accounting rules requiring or permitting fair value measurements. ASC 820
provides a framework for measuring fair value and requires expanded disclosures
about fair value methods and inputs by establishing a hierarchy for ranking the
quality and reliability of the information used by management to measure and
report amounts at fair value.

We had only
partially applied the provisions of ASC 820 as management elected the deferral
provisions of ASC 820-10-65-1, Transition Related to FASB Staff Position FAS 157-2,
as it applies to non-financial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a non-recurring basis.
ASC 820-10-65-1 delayed the effective date of ASC 820 for non-financial assets
and liabilities which are not measured at fair value on a recurring basis (at
least annually) until January 1, 2009 for us. The major categories of
assets and liabilities that are recognized or disclosed at fair value on a
non-recurring basis include certain amounts of property and equipment,
intangible assets and goodwill reported at fair value as a result of impairment
testing, and certain other assets, liabilities and equity instruments
recognized as a result of prior business combinations. There was no impact to
our financial position, results of operations, or cash flows as a result of the
adoption of ASC 820 for non-financial assets and liabilities.

ASC 820-10
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair
value measurements, ASC 820-10 establishes a fair value hierarchy that
distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs
that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entitys own assumptions about market participant assumptions (unobservable
inputs classified within Level 3 of the hierarchy). The fair value hierarchy,
as defined by ASC 820-10, contains three levels of inputs that may be used to
measure fair value as follows:

|  |                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|§ | Level 1
 inputs utilize quoted prices (unadjusted) in active markets for identical
 assets or liabilities that IFT has the ability to access;                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                
|§ | Level 2
 inputs are inputs other than quoted prices included in Level 1 that are
 observable for the asset or liability, either directly or indirectly such as
 interest rates, foreign exchange rates, and yield curves that are observable
 at commonly quoted intervals; and

F-11

---



|  |                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|§ | Level 3
 inputs are unobservable inputs for the asset or liability which are typically
 based on an entitys own assumptions, as there is little, if any, related
 market activity.

In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. Our assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment and considers factors
specific to the asset or liability.

We have
determined that the inputs used to value our $1,000,000 of certificate of
deposits with maturities greater than 90 days as of December 31, 2009 fall
within Level 1 of the fair value hierarchy.

We do not have
any fair value measurements using significant unobservable inputs (Level 3) as
of December 31, 2009.

Recently Issued Accounting Pronouncements

ASC 605-25 - In October 2009, the FASB issued
Accounting Standards Update (ASU) No. 2009-13 for updated revenue recognition guidance under the
provisions of ASC 605-25, Multiple-Element Arrangements. The previous
guidance has been retained for criteria to determine when delivered items in a
multiple-deliverable arrangements should be considered separate units of
accounting, however the updated guidance removes the 48 previous separation
criterion that objective and reliable evidence of fair value of any undelivered
items must exist for the delivered items to be considered a separate unit or
separate units of accounting. This guidance is effective for fiscal years
beginning on or after June 15, 2010. We do not expect that the adoption of this
guidance will have a material effect on our financial position, results of
operations or cash flows.

ASC 820In January 2010, the FASB issued ASU No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures About Fair
Value Measurements. This guidance amends Subtopic 820-10 to require
new disclosures and clarify existing disclosures. This guidance requires new
disclosures of amounts and reasons for significant transfers between Level 1
and Level 2 fair value measurements. Additionally, in the reconciliation for
fair value measurements using significant unobservable inputs (Level 3),
separate presentation of information about purchases, sales, issuances and
settlements is required. The guidance clarifies that fair value measurement
disclosures for each class of assets and liabilities may constitute a subset of
assets and liabilities within a line item on a reporting entitys balance
sheet. The guidance also clarifies disclosure requirements about inputs and
valuation techniques for both recurring and nonrecurring fair value
measurements (Level 2 or Level 3). The ASU also amends guidance on employers
disclosures about postretirement benefit plan assets under ASC 715 to require
that disclosures be provided by classes of assets instead of by major
categories of assets. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances and settlements in the roll forward of activity for Level 3 fair
value measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010, including interim periods within those fiscal years.
We do not expect that the adoption of this guidance will have a material effect
on our financial position, results of operations or cash flows.

Note 2. Ability to
Continue as a Going Concern

Our 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. We have incurred significant losses since inception and currently
have and previously from time to time have had limited funds with which to
operate. Management is in the process of executing a strategy based upon
marketing technologies that offer enhanced engine performance and greater fuel
economy along with pollution control benefits. We have several technologies in
the commercialization phase and in development. We have received necessary
regulatory and commercial acceptance for our products currently in the
commercialization phase. During the first quarter of 2002, we began selling our
products directly to the commercial marketplace. We expect to increase our
direct sales to the marketplace, eventually generating a level of revenues
sufficient to meet our cash flow and earnings requirements. While we cannot make any assurances as to the accuracy of our projections of future
capital needs, we believe that, as a result of first quarter 2009 equity raise activities
($2,162,500), cash received for a prepaid sales purchase order during the first quarter of 2009
(net cash margin expected of approximately $1,500,000), projected sales for 2010 and a remaining
equity commitment of $1,000,000 (entered into with a related party Board member of IFT and significant
shareholder during 2008), we have adequate cash and cash equivalents balances and commitments to fund
operations through at least 2010. However, if we are unable to meet our 2010 forecast and we are unable to generate positive and sustainable operating cash
flows by this time, we may need to raise additional capital to fund our future operations.

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. Stockholders
Equity

Effective
October 27, 1999, we merged with Blencathia Acquisition Corporation
(Blencathia). Blencathia was a public shell company with immaterial assets
and liabilities and 312,000 shares outstanding at the time of the merger, which
it redeemed and cancelled upon the merger. In exchange, we issued 312,000 of
our common shares to the prior Blencathia owner with the contractual
understanding that such shares were to be sold by that owner to achieve gross
cash proceeds of $500,000. Any excess proceeds were to be returned to us and
any deficiency was to be made up by us issuing additional shares or paying the
difference in cash. As we believed that we controlled the ultimate timing of the sale of these 312,000 shares by the prior Blencathia owner, we did not
consider these shares as issued or outstanding for purposes of computing
earnings per share.

F-12

---



In 2006, we
learned that the prior Blencathia owner had, in fact, sold the 312,000 shares
for aggregate proceeds of approximately $150,000, without our consent.
Accordingly, in the fourth quarter of 2006, we recorded $500,000 of general
expenses (representing the cost of the 1999 merger) and the deemed issuance of
approximately $150,000 of common stock. The remaining $350,000 obligation was
reflected as a current accrued expense. We are in negotiations with the prior
Blencathia owner to resolve this obligation and may ultimately settle the
obligation with either cash or equity securities with a lower market value.
Beginning in 2006, the 312,000 shares have been reflected as outstanding for
earnings per share computations. During 2009, we made payments totaling $40,000
to the prior Blencathia owner, bringing the related current accrued expense
balance to $310,000 at the end of 2009.

During 2009,
we sold a total of 8,650,000 shares of common stock to accredited investors for
$0.25 per share, aggregating to proceeds of $2,162,500. A detachable warrant to
purchase a share of our common stock accompanied every two shares purchased in
this offering. The 4,325,000 aggregate warrants each have an exercise price of
$0.25 and were exercisable immediately and for up to 5 years.

During 2008,
we sold a total of 4,680,000 shares of common stock. Of this amount, 520,000
shares were sold to two Directors, representing proceeds of $250,000, and
4,160,000 shares were sold to accredited investors, representing proceeds of $2,000,000.

Late in the
first quarter of 2008, we began negotiations with third parties that ultimately
culminated in a successful equity raise during the second quarter of 2008.
Specifically, IFT sold 4,000,000 (unadjusted for the subsequent stock dividend)
shares of common stock for $2,000,000, or $0.50 per share. This transaction was
agreed to on April 22, 2008 at which time the closing price of IFTs common
stock was $0.42 per share. Pursuant to an agreement, the entire $2,000,000 was
received by June 9, 2008. In accordance with the accounting standards, since
the agreement entitled the third party to purchase these shares of common stock
over a period of time, the agreement was valued based on the fair value of the
purchase option resulting in $999,000 of non-cash stock-based compensation
expense.

During 2008,
we also issued 52,000 common shares, valued at the settlement dates quoted
market price of $8,000 for services provided by a consulting entity. During
2008, we also issued 1,040,000 common shares to a Director in settlement of a
$523,836 note payable plus unpaid accrued interest, which resulted in a deemed
contribution from that Director of $145,000 representing the excess of the
aggregate liabilities over the fair value of the shares. During 2008, we
repurchased 520,000 of these shares for $250,000, which resulted in a $145,000
deemed contribution representing the excess of the value of the 520,000 over
their repurchase price. During the first quarter of 2009, we repurchased the
remaining 520,000 shares for $250,000, and recognized $126,000 of stock based
compensation expense associated with this treasury stock repurchase
representing the excess of the payment over the fair value of the shares. In
2009, 20,000 shares were issued to Directors which resulted in stock
compensation expense of $9,200.

Discount on
common stock primarily represents the fair value of shares issued in 1997 and
1998 in exchange for membership interests in, and intangible assets of,
entities under common control. Neither the entity nor the intangible assets had
any previous carrying value. As such transactions are required to be recorded
at historical carryover basis, we did not record any related assets or
liabilities upon these transactions but did need to reflect the issuance of the
shares in our Statements of Stockholders Equity.

F-13

---



The following
table summarizes the warrants outstanding at December 31, 2009.

|              |  |                 |     
|------------- |  | --------------- | ----
|# of Warrants |  | Exercise
 Price
|              |  |                
|101,010       |  | $               | 0.99
|11,927        |  | $               | 1.05
|161,571       |  | $               | 1.35
|558,958       |  | $               | 1.39
|13,967        |  | $               | 1.43
|39,000        |  | $               | 1.49
|40,626        |  | $               | 1.54
|229,414       |  | $               | 1.63
|4,325,000     |  | $               | 0.25
|              |  |                 |     
|5,481,473     |  |                 |     

No warrants
were exercised or expired during 2009 or 2008. All warrants expire in 2010,
other than the 4,325,000 warrants issued in 2009, which expire in 2014.

Equity Commitment

Effective
December 11, 2007, we received an investment commitment from Rex Carr, a
Director of IFT and a holder of over five (5%) of our common stock. Pursuant to
the terms of the commitment, Mr. Carr has agreed to invest up to an aggregate
of $1,000,000 in IFT, at such time or times as we may request, in the form of a
purchase or purchases of restricted common stock of IFT. IFT may elect to draw
from the commitment at one time or from time to time; provided, however, that
the aggregate of such draws may not exceed $1,000,000. If and when we elect to
utilize available commitment funds, we will issue to Mr. Carr that number of
shares of restricted common stock of IFT equal to the value of the investment
then provided to IFT. The number of shares to be issued will be calculated
based on the closing price of our common stock as quoted on The OTC Bulletin
Board on the date of the sale. There is no stipulation regarding the duration
of this commitment. During 2008, we received $200,000 (a portion of the
$250,000 of 2008 equity issuances to Directors described above) from Mr. Carr
for the sale of common stock. We repurchased these shares from Mr. Carr during
2009, bringing the total available under this commitment back up to $1,000,000
as of December 31, 2009. During 2009, we recognized $54,400 of stock-based
compensation expense associated with this treasury stock repurchase,
representing the excess of the payment over the fair values of the shares.

Long-Term Incentive Plan

On October 23,
2001, the Board of Directors adopted our Long Term Incentive Plan (LTIP). The
Board of Directors is responsible for the administration of this LTIP, and is
the approval authority for all option grant awards under this plan. Subject to
the express provisions of the LTIP, the Board of Directors shall have full
authority and sole and absolute discretion to interpret and amend this LTIP, 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 LTIP.

On October 22,
2006, our Board of Directors adopted the Amended and Restated LTIP. This plan
expires on October 21, 2016.

F-14

---



The maximum
number of shares of common stock as to which awards may be granted under this
plan, subject to subsequent amendments, is 18,200,000 shares (updated to
reflect the 4 percent dividend issued during the first quarter of 2009). The
common stock issued upon exercise of options or on grant of stock awards may be
shares previously authorized but not yet issued or shares which have been
issued and reacquired by IFT as treasury stock. 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.

The following
tables summarize information about stock options issued to employees and
Directors during the two years ended December 31, 2009:

|                                         |  |  |            |   |                           |           |                                    |   |      | 
|---------------------------------------- |  |  | ---------- | - | ------------------------- | --------- | ---------------------------------- | - | ---- | 
|                                         |  |  | Shares     |   | Exercise price per
 share |           | Weighted-
 average exercise
 price |  
|                                         |  |  |            |   |                           |           |                                   
|Outstanding at December 31, 2007         |  |  | 12,252,482 |   | $                         | 0.10-2.14 |                                    | $ | 1.03 | 
|                                         |  |  |            |   |                           |           |                                    |   |      | 
|Granted                                  |  |  | 390,000    |   | $                         | 0.21-0.96 |                                    | $ | 0.55 | 
|Forfeited                                |  |  | (104,000   | ) | $                         | 0.72      |                                    | $ | 0.72 | 
|                                         |  |  |            |   |                           |           |                                    |   |      | 
|Outstanding at December 31, 2008         |  |  | 12,538,482 |   | $                         | 0.10-2.14 |                                    | $ | 1.04 | 
|                                         |  |  |            |   |                           |           |                                    |   |      | 
|Granted                                  |  |  | 1,900,000  |   | $                         | 0.18-0.50 |                                    | $ | 0.45 | 
|Expired                                  |  |  | (2,104,162 | ) | $                         | 0.48-2.14 |                                    | $ | 1.63 | 
|                                         |  |  |            |   |                           |           |                                    |   |      | 
|Outstanding at December 31, 2009         |  |  | 12,334,320 |   | $                         | 0.10-1.89 |                                    | $ | 0.47 | 
|                                         |  |  |            |   |                           |           |                                    |   |      | 
|                                         |  |  |            |   |                           |           |                                    |   |      | 
|Options exercisable at December 31, 2009 |  |  | 10,784,320 |   | $                         | 0.10-1.89 |                                    | $ | 0.47 | 
|Options exercisable at December 31, 2008 |  |  | 11,888,482 |   | $                         | 0.10-2.14 |                                    | $ | 1.02 | 

The following
table summarizes information about employee stock outstanding at December 31,
2009:

|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 
|--------------------- |  | ------------------------------------------ |  | -------------------------------------------------------- |  | ----------------------------------- | ---- | ------------------------------------------ | ---------- | ----------------------------------- | - | ---- | 
|                      |  | Options outstanding                        |  | Options exercisable                                      | 
|                      |  |                                            |  |                                                          | 
|Exercise price
 range |  | Number
 outstanding at
 December 31,
 2009 |  | Weighted-
 average
 remaining
 contractual
 life (years) |  | Weighted-
 average
 exercise
 price |      | Number
 exercisable at
 December 31,
 2009 |            | Weighted-
 average
 exercise
 price |  
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |  
|$0.10 - $0.50         |  | 11,446,160                                 |  | 5                                                        |  | $                                   | 0.42 |                                            | 9,896,160  |                                     | $ | 0.42 | 
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 
|$0.51 - $1.00         |  | 520,000                                    |  | 3                                                        |  | $                                   | 0.77 |                                            | 520,000    |                                     | $ | 0.77 | 
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 
|$1.01 - $1.50         |  | 109,200                                    |  | 2                                                        |  | $                                   | 1.20 |                                            | 109,200    |                                     | $ | 1.20 | 
|$1.51 - $2.00         |  | 258,960                                    |  | 1                                                        |  | $                                   | 1.76 |                                            | 258,960    |                                     | $ | 1.76 | 
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 
|                      |  | 12,334,320                                 |  | 5                                                        |  | $                                   | 0.47 |                                            | 10,784,320 |                                     | $ | 0.47 | 
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 
|                      |  |                                            |  |                                                          |  |                                     |      |                                            |            |                                     |   |      | 

F-15

---



The following
table summarizes information about stock options issued to non-employees during
the two years ended December 31, 2009:

|                                               |  |        |            |                            |   |                                     |  |   |      | 
|---------------------------------------------- |  | ------ | ---------- | -------------------------- | - | ----------------------------------- |  | - | ---- | 
|                                               |  | Shares |            | Exercise
 price per
 share |   | Weighted-
 average
 exercise
 price | 
|                                               |  |        |            |                            |   |                                     | 
|Outstanding
 at December 31, 2007              |  |        | 3,967,599  |                            | $ | 0.48-2.26                           |  | $ | 1.56 | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|Granted                                        |  |        | 11,518,000 |                            | $ | 0.29-0.96                           |  |   | 0.54 | 
|Expired
 (Restated from prior year disclosure) |  |        |           |                            | $ | NA                                  |  | $ | NA   | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|Outstanding
 at December 31, 2008              |  |        | 15,485,599 |                            | $ | 0.29-2.26                           |  | $ | 0.80 | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|Granted                                        |  |        | 2,050,000  |                            | $ | 0.25-0.50                           |  | $ | 0.46 | 
|Expired                                        |  |        | (2,600,000 | )                          | $ | 0.58                                |  | $ | 0.58 | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|Outstanding
 at December 31, 2009              |  |        | 14,935,599 |                            | $ | 0.25-2.26                           |  | $ | 0.77 | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|                                               |  |        |            |                            |   |                                     |  |   |      | 
|Options
 excercisable at December 31, 2009     |  |        | 14,618,399 |                            | $ | 0.25-2.26                           |  | $ | 0.77 | 
|Options
 excercisable at December 31, 2008     |  |        | 12,256,399 |                            | $ | 0.48-2.26                           |  | $ | 0.85 | 

In addition to
the non-employee option activity presented above, IFTs Board has authorized
750,000 options to non-employees during 2009, which have not yet been granted.

Note 4. Stock-based Compensation

Non-cash
stock-based compensation expense recorded in 2009 and 2008 is as follows:

|                                                |  |                                |           |                                |   |           | 
|----------------------------------------------- |  | ------------------------------ | --------- | ------------------------------ | - | --------- | 
|                                                |  | Year
 Ended December 31,
 2009 |           | Year
 Ended December 31,
 2008 |  
|                                                |  |                                |           |                                |  
|                                               
|Awards to
 employees/Directors                  |  | $                              | 418,896   |                                | $ | 112,916   | 
|Awards to non-employees                         |  |                                | 486,527   |                                |   | 2,783,313 | 
|Treasury stock purchases                        |  |                                | 180,400   |                                |   |          | 
|Stock option modifications                      |  |                                | 1,581,302 |                                |   |          | 
|                                                |  |                                |           |                                |  
|Total non-cash stock-based compensation expense |  | $                              | 2,667,125 |                                | $ | 2,896,229 | 
|                                                |  |                                |           |                                |  

Employee and Director awards

In 2009, we
granted 1,370,000 options to employees and 530,000 to Directors in their
capacity as Directors, totaling 1,900,000 options. 350,000 of these options
vested immediately, with the remaining options vesting on June 30, 2010 and
expiring in 2013 and 2014. In addition, we modified the terms of 9,100,000
options previously granted to employees, resulting in $1,352,810 of non-cash
stock-based compensation expense as a result of extending the expiration date
of certain options from December 2009 to December 2014, and reducing the
exercise price of certain options previously granted to $0.50. During 2009,
2,104,162 fully-vested employee options expired.

In 2008, we
granted 390,000 stock options to employees and Directors. 52,000 of these
options vested immediately, with the remaining options vesting on December 31,
2009 and expiring in 2012 and 2013.

F-16

---



During 2008,
104,000 non-vested employee options were forfeited resulting in the reversal of
$17,733 of previously recorded non-cash stock-based compensation expense,
including $6,333 from 2007.

The following
table provides the primary assumptions used to value employee and Director
non-cash stock-based compensation for the years indicated:

|                                                |  |                                |      |                                |   |      |  
|----------------------------------------------- |  | ------------------------------ | ---- | ------------------------------ | - | ---- | -
|                                                |  | Year
 Ended December 31,
 2009 |      | Year
 Ended December 31,
 2008 |  
|                                                |  |                                |      |                                |  
|                                               
|Weighted-average fair value
 of options granted |  | $                              | 0.24 |                                | $ | 0.38 |  
|Weighted-average
 assumptions:                  |  |                                |      |                                |   |      |  
|Risk-free interest rate                         |  |                                | 1.98 | %                              |   | 2.72 | %
|Dividend yield                                  |  |                                |     |                                |   |     |  
|Expected volatility                             |  |                                | 1.1  |                                |   | 1.2  |  
|Expected option life
 (years)                   |  |                                | 5    |                                |   | 5    |  

As of December
31, 2009, there was $162,423 of total unrecognized compensation cost related to
outstanding options granted to employees and Directors. The cost is expected to
be recognized through June 30, 2010.

Non-employee awards

During 2009,
we granted 2,050,000 stock options to non-employees. All of these options
vested immediately during 2009 and expire in 2012 and 2014. We also modified
the terms of 1,456,000 options previously granted to non-employees, resulting
in $228,492 of non-cash stock-based compensation expense as a result of
extending the expiration date of certain options from December 2009 to December
2014, and reducing the exercise price of certain options previously granted to $0.50.
In addition, we modified the terms (accelerated the vesting period) for 104,000
previously granted options to a non-employee for services performed for product
and technology consulting. These options previously had been subject to
quarterly revaluation since they did not include a measurable performance
commitment to determine vesting. We recognized full expense ($2,984) upon the
modification of terms to these options during 2009 and they are no longer
subject to quarterly revaluation assessment. During 2009, 2,600,000
non-employee options expired due to triggering events related to prior
commercial and equity raise activities not being achieved within the stipulated
time period.

During 2008,
we granted 11,518,000 stock options to non-employees. 5,694,000 of these
options vested immediately during 2008 and expire in 2010 and 2013. 5,616,000
of these options had vesting contingent upon certain triggering events based on
exercising of other related options and investor relations milestones not yet
achieved (the expiration dates of these options were/are dependent on vesting
and therefore could not be determined). 208,000 of these non-employee options
granted during 2008 were subsequently vested based on the achievement of
certain triggering investor relations milestones. The expiration dates of these
options are in 2010 and 2011. In addition, 208,000 options granted to
non-employees during 2008 subsequently vested on December 31, 2009 and expire
in 2012 and 2013.

Services
performed by non-employees who were granted options include
product/distribution consulting, technology consulting, investor relations and
legal services. The weighted-average fair value for such options that have had
a fair value calculation applied ($0.20 for 2009 and $0.21 for 2008) 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 2.14%
for 2009 and 2.50% for 2008; volatility factors of 1.06 for 2009 and 0.91 for
2008; and a weighted-average expected life of the option of approximately 4.95
and 2 years for 2009 and 2008, respectively.

F-17

---



As of December
31, 2009, there was an immaterial amount of unrecognized compensation cost
related to outstanding options granted to non-employees, excluding potential
expense if certain triggering events are met.

The
weighted-average remaining contractual term (in years) of the non-employee
options outstanding at December 31, 2009 and 2008 is 1.43 and 1.51,
respectively. The weighted-average remaining contractual term (in years) for
non-employee options outstanding at December 31, 2009 and 2008 calculation
excludes 317,200 and 5,621,200 options, respectively, that did not yet have
established expiration dates due to expirations being dependent on contingent
vesting triggering events. 312,000 of these remaining options expire
twenty-four months from the date (contingent) vesting occurs. The remaining
5,200 options expire on May 5, 2014.

The aggregate
intrinsic value (defined as the excess of the market price of our common stock
as of the end of the period over the exercise price of the related stock
options) for all stock options (employee, Director and non-employee)
outstanding and exercisable as of December 31, 2009 was $40,597.

We did not
receive proceeds for stock options exercised during 2009 or 2008, as no options
were exercised.

Note 5. Income Taxes

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

|                                               |  |                         |             |      |   |             |  
|---------------------------------------------- |  | ----------------------- | ----------- | ---- | - | ----------- | -
|                                               |  | Year ended December 31,
|                                               |  | 2009                    |             | 2008 |  
|                                               |  |                         |             |      |  
|Net operating loss carry-forwards              |  | $                       | 15,809,000  |      | $ | 14,749,000  |  
|Book basis in goodwill in excess of tax
 basis |  |                         | (465,000    | )    |   |            |  
|Other intangible assets                        |  |                         | 736,000     |      |   | 450,000     |  
|Stock-based compensation expense               |  |                         | 4,298,000   |      |   | 3,231,000   |  
|Non-deductible accruals                        |  |                         | 175,000     |      |   | 162,000     |  
|Less: Valuation allowance                      |  |                         | (21,018,000 | )    |   | (18,592,000 | )
|                                               |  |                         |             |      |   |             |  
|Net deferred tax liability                     |  | $                       | (465,000    | )    | $ |            |  
|                                               |  |                         |             |      |   |             |  

F-18

---



A valuation
allowance must be established for a deferred income tax asset if it is more
likely than not that a tax benefit may not be realized from the asset in the future.
We have established a valuation allowance to the extent of our deferred income
tax assets since it is not yet certain that absorption of the asset through
future earnings will occur. In 2009, we recognized that the goodwill basis
difference has an indefinite life and therefore should not have been treated as
an offset when establishing our valuation allowance. Accordingly, at the end of
2009, we recorded a $465,000 increase of our valuation allowance and a
corresponding non-cash deferred income tax expense. The impact of this revised
accounting was not material to any prior periods.

Net operating
loss carry-forwards available to us for Federal tax purposes are as follows:

|        |            |            |  |      | 
|------- | ---------- | ---------- |  | ---- | 
|Balance |            | Expiration | 
|        |            |            |  |     
|$       | 172,302    |            |  | 2012 | 
|        | 729,807    |            |  | 2013 | 
|        | 7,023,805  |            |  | 2019 | 
|        | 4,563,340  |            |  | 2020 | 
|        | 3,334,234  |            |  | 2021 | 
|        | 3,107,920  |            |  | 2022 | 
|        | 2,659,824  |            |  | 2023 | 
|        | 2,348,545  |            |  | 2024 | 
|        | 3,825,956  |            |  | 2025 | 
|        | 3,566,224  |            |  | 2026 | 
|        | 2,891,533  |            |  | 2027 | 
|        | 2,593,814  |            |  | 2028 | 
|        | 2,705,897  |            |  | 2029 | 
|        |            |            |  |      | 
|$       | 39,523,201 |            |  |      | 
|        |            |            |  |      | 

The net
operating loss carry-forwards presented above may be limited or lost due to
past or future changes in ownership of IFT pursuant to current income tax
regulations.

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

|                                           |  |                         |            |      |   |            |  
|------------------------------------------ |  | ----------------------- | ---------- | ---- | - | ---------- | -
|                                           |  | Year ended December 31, |           
|                                           |  | 2009                    |            | 2008 |  
|                                           |  |                         |            |      |  
|                                           |  |                         |            |      |   |            |  
|Tax benefit at federal statutory rate      |  | $                       | (1,667,000 | )    | $ | (1,722,000 | )
|State taxes, net of federal income tax     |  |                         | (294,000   | )    |   | (304,000   | )
|Change in deferred tax valuation allowance |  |                         | 2,426,000  |      |   | 2,027,000  |  
|Other                                      |  |                         |           |      |   | (1,000     | )
|                                           |  |                         |            |      |   |            |  
|Income tax expense                         |  | $                       | 465,000    |      | $ |           |  
|                                           |  |                         |            |      |   |            |  

The effects of
a tax position taken or expected to be taken in a tax return are to be
recognized in the financial statements when it is more likely than not, based
on the technical merits, that the position will be sustained upon examination.
No uncertain tax positions have been identified through December 31, 2009. If
we did identify any uncertain tax positions, any accrued interest related to
unrecognized tax expenses and penalties would be recorded in income tax
expense. Tax years going back to 2000 could remain open depending on how we
utilize net operating loss carry-forwards in the future.

F-19

---



Note 6. Lease Commitment

We entered
into a five-year operating lease for office space on January 1, 2002 that was
scheduled to expire December 31, 2006. During 2006, we amended this lease,
extending the term through December 31, 2011. Rent expense was $47,693 and
$46,028 during the fiscal years ended December 31, 2009 and 2008, respectively.
We also entered into a five-year office equipment lease on October 4, 2005.
Future minimum lease payments as of December 31, 2009 are displayed below:

|                              |  |      |  |   |        | 
|----------------------------- |  | ---- |  | - | ------ | 
|Year Ending
 December 31,     |  |      |  |   |        | 
|                              |  | 2010 |  | $ | 50,306 | 
|                              |  | 2011 |  |   | 48,988 | 
|                              |  |      |  |   |        | 
|Total
 Minimum Lease Payments |  |      |  | $ | 99,294 | 
|                              |  |      |  |   |        | 

Note 7. Legal Proceedings

We are 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 it is more likely than
not that the ultimate liabilities resulting from such lawsuits and claims will
not materially affect our financial position, results of operations or
liquidity.

In December
2005, a former employee of IFT and a former consultant to IFT filed a joint
lawsuit against us and certain of our Directors in the St. Louis County,
Missouri Circuit Court. The relief sought by the plaintiffs included payment of
compensation up to $120,000 per year under the former employees Employment
Agreement, issuance of up to 5,025,921 shares of IFT stock under a Share Purchase
Agreement entered into between each plaintiff and IFT in April 2001, and
release from the plaintiffs non-competition obligations. The plaintiffs also
alleged they were harmed by certain misrepresentations of IFT and were seeking
an undetermined amount of damages for such alleged misrepresentations. We filed
counter-claims against the plaintiffs, seeking monetary damages and enforcement
of the plaintiffs non-competition obligations. During the second quarter of
2007, this case was dismissed by the Missouri Circuit Court with no
compensation paid to any party. In June 2008, the plaintiffs re-filed their
lawsuit and we re-filed our counter-claims. The plaintiffs again failed to
appear for depositions and to permit discovery and we re-filed our motion to
dismiss, this time with prejudice. The Court granted our motion to dismiss and
dismissed this action with prejudice on July 2, 2009.

On July 31,
2006, we received notice from the American Arbitration Association (AAA) of a
Demand for Arbitration dated July 27, 2006 received by the AAA naming IFT as
Respondent and TPG Capital Partners (TPG), the prior Blencathia owner, as the Claimant. The arbitration had been
requested by TPG to resolve an alleged aggregate proceeds shortfall from the
sale of IFT securities issued in the Blencathia merger. TPG has claimed they
sold some or all of the 312,000 shares and the sales have not generated at
least $500,000 of proceeds, as guaranteed in the merger documents.

In an effort
to resolve this matter prior to submission to binding arbitration, both TPG and
IFT participated in a non-binding mediation conference on January 30, 2007,
which did not resolve the matter. Informal discussions are ongoing. It is not
expected that the ultimate settlement of this matter, considering we have
recorded a liability for the shortfall amount, will have an additional adverse
material effect on IFT. During the second half of 2009, IFT made payments
totaling $40,000 to reduce the recorded liability.

F-20

---



On October 2,
2008, Giant Trading, Inc., David R. Friedland, Magnum Select Fund, Ltd., Magnum
Growth Fund, Brett Friedland, Lara and Andrew Block, Cherise Metz and Charles
Stride (all of which are associates of Mr. Dion Friedland, a beneficial owner of 5%
of IFTs common stock) filed a lawsuit against us and certain of our Directors
(Messrs. Burst, Carr and Demetriou) in the United States District Court,
Southern District of Florida. On February 3, 2009, Mr. Demetriou was dismissed
without prejudice from the lawsuit because he was not served with process
within the statutory period.

The lawsuit
alleges federal securities fraud violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against all defendants,
and violations of Section 20(a) of the Securities Act of 1933 against the
individual defendants. The plaintiffs are seeking a judgment for damages of $5
million, interest, costs, and for such other relief the Court deems just and
proper. On May 19, 2009, the court issued an order granting our motion to transfer
venue to St. Louis, Missouri. IFT filed a motion to dismiss and the plaintiffs
withdrew their complaint prior to a ruling on said motion.

On August 7,
2009, Charles Stride voluntarily dismissed the complaint against all
defendants. On August 10, 2009, the remaining plaintiffs filed a first amended
complaint (FAC) against IFT, Jonathan R. Burst and Rex Carr in the State Court of
Missouri unlike the original complaint, which was filed in federal court. The
FAC, similar to the initial complaint, alleges that the defendants made
misrepresentations and omissions in public statements regarding its fuel additive
products that induced the plaintiffs to purchase IFT stock, but does not allege
any federal securities laws violations. Instead, the FAC alleges violations of
various state law claims under Missouris blue sky laws and state common law,
and seeks $5 million of compensatory damages, interest and costs. On August 31,
2009, the defendants filed a motion to dismiss the FAC for failure to meet the
heightened pleading standards of Rule 9(b) of the Federal Rules of Civil
Procedures. The motion to dismiss is currently awaiting adjudication.

On December 4,
2009, the plaintiffs served discovery requests on all defendants. The
plaintiffs have agreed to provide the defendants with an extension to respond
to the discovery requests while the parties prepare for, and participate in, a
voluntary mediation. The parties are currently scheduling a mediation
conference. We do not believe the lawsuit has any merit and will vigorously
defend our position.

On February 6,
2009 we filed an action against Fuel Technologies Ltd, Mega Connections, Ltd.,
FT Marketing Ltd, and the AAA, Cause No. 09SL-CC00550, in the Circuit Court of
the County of St. Louis, Missouri. In this action, IFT sought injunctive relief
requiring the defendants to litigate the claims asserted before the AAA in the
Circuit Court of St. Louis County, Missouri. On or about February 17, 2009 the
Court entered an Order transferring these claims out of arbitration and into
the Circuit Court of the County of St. Louis. The claims initially filed before
the AAA, but since removed to the Circuit Court by IFT, are that IFT breached various
marketing and distribution agreements by misrepresenting the state of IFTs product
development. The plaintiffs recently filed an amended petition adding Jonathan
R. Burst and Rex Carr as additional defendants. No discovery has been
undertaken to-date and we are unable to predict any outcome. IFT believes it
has meritorious defenses and intends to vigorously defend this action.

Note 8. Note payable to a Related Party

During the
fourth quarter of 2007, we obtained an unsecured $500,000 loan from Harry F.
Demetriou, a Director of IFT and the holder of over 5% of our common stock.
Pursuant to the terms of the loan, a promissory note was executed by IFT in
favor of Mr. Demetriou in connection with the loan. Terms of the loan included
interest to be accrued at a rate of 15% per year in arrears with principal and
interest due and payable on January 1, 2009. The loan was guaranteed by Rex Carr, a
Director of IFT and the holder of over 5% percent of our common stock. All IFT
obligations related to this note were extinguished effective March 31, 2008 with the
issuance of 1,040,000 restricted common shares of IFT stock to Mr. Demetriou.

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The shares
issued were valued at $400,000 (based on a $0.40/share previous day closing)
and extinguished the $500,000 of principal balance and $23,836 of accrued
interest. The difference was deemed a contribution from Mr. Demetriou
representing the excess of the aggregate liabilities over the fair value of the
shares.

During the
second quarter of 2008, IFT purchased 520,000 shares of its common stock from
Mr. Demetriou for $250,000. We have applied the cost method to account for this
treasury stock transaction in our financial statements. Because the amount paid
by IFT was less than the fair market value of the stock on the date of purchase
(the closing price of our stock was $0.79 on June 18, 2008), the difference was
recorded to additional paid-in capital as Mr. Demetriou was considered a holder
of economic interest in IFT in accordance with ASC 718-10. During the first
quarter of 2009, IFT repurchased the remaining 520,000 shares granted for the
debt settlement for $250,000. In conjunction with these transactions, IFT
reimbursed Mr. Demetriou $56,000 in 2009 for accumulated loan and bank fees.

Note 9. Deferred Revenue

On February
26, 2009, we received the first purchase order pursuant to a Memorandum of
Understanding (MOU) with Libya Oil Holdings Limited, Tamoil, Libya Africa
Investment Portfolio and Vision Oil Services Ltd (VOS). Pursuant to the MOU,
VOS paid for the purchase of 600 metric tons of DiesoLIFTTM 10 at a
price of 6,000 Euros (approximately $7,600) per metric ton from IFT. We
received cash proceeds of approximately $3 million from VOS in February 2009,
net of the related selling expenses, for this purchase order and expect a net
cash margin of approximately $1.5 million once the product is manufactured and
delivered. We will recognize gross revenues of approximately $4.5 million after
all of the DiesoLIFTTM 10 has been delivered. No such revenues were
recorded during 2009. We have had no communication with VOS in over six (6) months and
believe they have ceased all activities on behalf of IFT.

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