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Puradyn Filter Technologies
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-14 Regulation FD, Exhibits
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2019-03-26 Regulation FD, Exhibits
8-K 2018-08-29 Regulation FD, Exhibits
8-K 2018-05-18 Officers, Regulation FD, Exhibits
8-K 2018-04-12 Exhibits
RIHC Rorine International Holding 109
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PTPRO All Marketing Solutions 0
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LNBI Lazuriton Nano Biotechnology 0
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PFTI 2019-09-30
Part I - Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II. Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
EX-10.1 pfti_ex10z1.htm
EX-10.2 pfti_ex10z2.htm
EX-31.1 pfti_ex31z1.htm
EX-31.2 pfti_ex31z2.htm
EX-32.1 pfti_ex32z1.htm

Puradyn Filter Technologies Earnings 2019-09-30

PFTI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pfti_10q.htm QUARTERLY REPORT Quarterly Report




 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


———————

FORM 10-Q

———————

(Mark One)

þ

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

 

 For the quarterly period ended: September 30, 2019

 

or

 

 

¨

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

 

 For the transition period from: _____________ to _____________

 


Commission File Number: 001-11991


PURADYN FILTER TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)


DELAWARE

14-1708544

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

2017 HIGH RIDGE ROAD, BOYNTON BEACH, FL

33426

(Address of principal executive offices)

(Zip Code)


(561) 547-9499

(Registrant's telephone number, including area code)


NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:


Title of each class

Trading Symbol(s)

Name of each exchange on which registered

COMMON STOCK,
PAR VALUE $.001 PER SHARE

PFTI

NONE


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. þ Yes   ¨ No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes   ¨ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer   ¨

Accelerated filer   ¨

Non-accelerated filer     þ

Smaller reporting company  þ

 

Emerging growth company  ¨


If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes   þ No


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  69,016,468 shares of common stock are issued and outstanding as of November 13, 2019.

 

 








TABLE OF CONTENTS

 


 

 

Page No.

                  

PART I. FINANCIAL INFORMATION

                  

 

 

 

ITEM 1.

FINANCIAL STATEMENTS.

1

 

 

 

 

Condensed Balance Sheets – As of September 30, 2019 (unaudited) and December 31, 2018

1

 

Condensed Statements of Operations – Three months and Nine months ended September 30, 2019 and 2018 (unaudited)

2

 

Condensed Statements of Cash Flows – Nine months ended September 30, 2019 and 2018 (unaudited)

3

 

Condensed Statements of Stockholders’ Deficit– Three and Nine months ended September 30, 2019 and 2018 (unaudited)

4

 

Notes to Condensed Financial Statements (Unaudited)

6

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

18

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

22

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

22

 

 

 

 

PART II.   OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS.

23

 

 

 

ITEM 1A.

RISK FACTORS.

23

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

23

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

23

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURE.

23

 

 

 

ITEM 5.

OTHER INFORMATION.

23

 

 

 

ITEM 6.

EXHIBITS.

24

 

OTHER PERTINENT INFORMATION


Our corporate web site is www.puradyn.com.  The information which appears on our web site is not part of this report.


When used in this report, the terms "Puradyn," the "Company," "we," "our," and "us" refers to Puradyn Filter Technologies Incorporated, a Delaware corporation.  In addition, when used in this report, “third quarter of 2019” refers to the three months ended September 30, 2019, "third quarter of 2018" refers to the three months ended September 30, 2018, “2019” or “fiscal 2019” refers to the year ending December 31, 2019 and “2018” or “fiscal 2018” refers to the year ending December 31, 2018.  




i





CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:


·

our history of losses and uncertainty that we will be able to continue as a going concern,

·

the significant decline in our net sales during 2019 and our ability to generate net sales in future periods in an amount sufficient to pay our operating expenses and satisfy our obligations as they become due;

·

our dependence on sales to a limited number of customers;

·

our need for additional financing and uncertainties related to our ability to obtain these funds,

·

our ability to repay the outstanding secured debt of approximately $8.3 million at September 30, 2019 due our Executive Chairman which matures on December 31, 2021, together with an additional $983,000 of unsecured advances which are payable upon demand;

·

the significant amount of deferred compensation owed to two of our executive officers and two former employees and our ability to pay these amounts,

·

our ability to protect our intellectual property, and the potential impact of expiring patents on our business in future periods,

·

potential dilution to our stockholders from the exercise of outstanding options and warrants, and

·

the lack of sufficient liquidity in the market for our common stock.



Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review our Annual Report on Form 10-K for the year ended December 31, 2018, including the risks described in Part I. Item 1A. Risk Factors and our subsequent filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.





ii



 


PART I - FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS.


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED BALANCE SHEETS


 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

72,549

 

 

$

112,769

 

Accounts receivable, net of allowance for uncollectible accounts of $17,000 and $17,000, respectively

 

 

15,434

 

 

 

293,994

 

Inventories, net

 

 

1,069,038

 

 

 

834,708

 

Prepaid expenses and other current assets

 

 

45,408

 

 

 

66,290

 

Total current assets

 

 

1,202,429

 

 

 

1,307,761

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

57,423

 

 

 

78,642

 

Operating Right of use asset

 

 

776,189

 

 

 

 

Other noncurrent assets

 

 

434,085

 

 

 

483,974

 

Total assets

 

$

2,470,126

 

 

$

1,870,377

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

454,975

 

 

$

416,790

 

Accrued liabilities

 

 

426,488

 

 

 

605,357

 

Operating lease liabilities

 

 

155,547

 

 

 

 

Deferred compensation

 

 

1,492,370

 

 

 

1,564,253

 

Notes Payable - stockholders

 

 

1,008,000

 

 

 

325,000

 

Total Current Liabilities

 

 

3,537,380

 

 

 

2,911,400

 

 

 

 

 

 

 

 

 

 

Long-term operating lease liabilities

 

 

697,568

 

 

 

 

Notes Payable - stockholders

 

 

8,385,132

 

 

 

7,989,622

 

Total Liabilities

 

 

12,620,080

 

 

 

10,901,022

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value:

 

 

 

 

 

 

 

 

Authorized shares – 500,000;

 

 

 

 

 

 

 

 

None issued and outstanding

 

 

 

 

 

 

Common stock, $.001 par value,

 

 

 

 

 

 

 

 

Authorized shares – 100,000,000;

 

 

 

 

 

 

 

 

Issued and outstanding 69,016,468 and 69,016,468, respectively

 

 

69,016

 

 

 

69,016

 

Additional paid-in capital

 

 

53,719,010

 

 

 

53,678,000

 

Accumulated deficit

 

 

(63,937,980

)

 

 

(62,777,661

)

Total stockholders’ deficit

 

 

(10,149,954

)

 

 

(9,030,645

)

Total liabilities and stockholders’ deficit

 

$

2,470,126

 

 

$

1,870,377

 



See accompanying notes to unaudited condensed financial statements




1



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)


 

 

Three Months Ended

 

 

For the six months

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

326,532

 

 

$

1,306,070

 

 

$

1,278,050

 

 

$

3,344,272

 

Cost of products sold

 

 

276,160

 

 

 

710,995

 

 

 

975,380

 

 

 

1,906,396

 

Gross Profit

 

 

50,372

 

 

 

595,075

 

 

 

302,670

 

 

 

1,437,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

192,968

 

 

 

247,363

 

 

 

621,597

 

 

 

637,081

 

Selling and administrative

 

 

147,763

 

 

 

172,194

 

 

 

500,532

 

 

 

497,777

 

Loss on impairment of patents

 

 

32,324

 

 

 

 

 

 

43,741

 

 

 

 

Total operating costs

 

 

373,055

 

 

 

419,557

 

 

 

1,165,870

 

 

 

1,134,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) / Income from operations

 

 

(322,683

)

 

 

175,518

 

 

 

(863,200

)

 

 

303,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(108,968

)

 

 

(85,763

)

 

 

(297,119

)

 

 

(241,134

)

Total other expense, net

 

 

(108,968

)

 

 

(85,763

)

 

 

(297,119

)

 

 

(241,134

)

Net (loss) / income before income tax expense

 

 

(431,651

)

 

 

89,755

 

 

 

(1,160,319

)

 

 

61,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss) / Income

 

$

(431,651

)

 

$

89,755

 

 

$

(1,160,319

)

 

$

61,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) / income per common share

 

$

(0.01

)

 

$

0.00

 

 

$

(0.02

)

 

$

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) / income  per common share

 

$

(0.01

)

 

$

0.00

 

 

$

(0.02

)

 

$

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

69,016,468

 

 

 

69,016,468

 

 

 

69,016,468

 

 

 

69,016,468

 

Weighted average common shares outstanding - diluted

 

 

69,016,468

 

 

 

74,684,484

 

 

 

69,016,468

 

 

 

77,116,732

 




See accompanying notes to unaudited condensed financial statements




2



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)


 

 

September 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net (loss) / income

 

$

(1,160,319

)

 

$

61,884

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

37,447

 

 

 

31,611

 

Provision for slow moving inventory

 

 

(44,053

)

 

 

13,611

 

Compensation expense on stock-based arrangements with employees and consultants

 

 

41,010

 

 

 

38,660

 

Impairment of capitalized patent costs

 

 

43,741

 

 

 

 

Amortization of Operating right of use asset

 

 

110,820

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

278,560

 

 

 

(406,059

)

Inventories

 

 

(190,276

)

 

 

(155,337

)

Prepaid expenses and other current assets

 

 

20,882

 

 

 

(45,075

)

Other assets

 

 

 

 

 

850

 

Sales incentives

 

 

 

 

 

(99,128

)

Accounts payable

 

 

38,184

 

 

 

159,053

 

Accrued liabilities

 

 

291,327

 

 

 

201,527

 

Deferred compensation

 

 

(108,580

)

 

 

(32,279

)

Operating lease liabilities

 

 

(71,883

)

 

 

 

Net cash used in operating activities

 

 

(713,140

)

 

 

(230,682

)

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(18,026

)

Capitalized patent costs

 

 

(10,080

)

 

 

(55,279

)

Net cash used in investing activities

 

 

(10,080

)

 

 

(73,305

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of notes payable to stockholders

 

 

683,000

 

 

 

601,273

 

Repayment of note payable to stockholder

 

 

 

 

 

(250,000

)

Payment of capital lease obligations

 

 

 

 

 

(2,814

)

Net cash provided by financing activities

 

 

683,000

 

 

 

348,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase / (decrease) in cash

 

 

(40,220

)

 

 

44,472

 

Cash at beginning of period

 

 

112,769

 

 

 

54,438

 

Cash at end of period

 

$

72,549

 

 

$

98,910

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

109,167

 

Cash paid for taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of accrued interest into note payable

 

$

395,510

 

 

$

 

Operating right of use assets obtained in exchange for operating lease liabilities

 

$

890,009

 

 

$

 

Addition to leasehold improvement as lease incentive

 

$

 

 

$

35,690

 


See accompanying notes to unaudited condensed financial statements





3



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 AND 2019

(UNAUDITED)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018 (unaudited)

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,623,892

 

 

$

(62,589,150

)

 

$

(8,896,242

)

Net income for the three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89,755

 

 

 

89,755

 

Compensation expense associated with unvested option awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,928

 

 

 

 

 

 

13,928

 

Balance at September 30, 2018 (unaudited)

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,637,820

 

 

$

(62,499,395

)

 

$

(8,792,559

)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019 (unaudited)

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,705,558

 

 

$

(63,506,329

)

 

$

(9,731,755

)

Net loss for the three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(431,651

)

 

 

(431,651

)

Compensation expense associated with unvested option awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,452

 

 

 

 

 

 

13,452

 

Balance at September 30, 2019 (unaudited)

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,719,010

 

 

$

(63,937,980

)

 

$

(10,149,954

)


See accompanying notes to unaudited condensed financial statements




4



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2019

(UNAUDITED)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,599,160

 

 

$

(62,561,279

)

 

$

(8,893,103

)

Net income for the nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61,884

 

 

 

61,884

 

Compensation expense associated with unvested option awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,660

 

 

 

 

 

 

38,660

 

Balance at September 30, 2018 (unaudited)

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,637,820

 

 

$

(62,499,395

)

 

$

(8,792,559

)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,678,000

 

 

$

(62,777,661

)

 

$

(9,030,645

)

Net loss for the nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,160,319

)

 

 

(1,160,319

)

Compensation expense associated with unvested option awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,010

 

 

 

 

 

 

41,010

 

Balance at September 30, 2019 (unaudited)

 

 

 

 

$

 

 

 

69,016,468

 

 

$

69,016

 

 

$

53,719,010

 

 

$

(63,937,980

)

 

$

(10,149,954

)



See accompanying notes to unaudited condensed financial statements







5



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)


1.

Basis of Presentation, Going Concern and Summary of Significant Accounting Policies


Organization


Puradyn Filter Technologies Incorporated (the “Company”), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn® primarily to companies within targeted industries.


Basis of Presentation


The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2019 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2019.


For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018.


Revenue Recognition


The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance, and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements.


Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.


The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The adoption of these standards did not have a material impact on the Company's condensed statements of operations during the nine months ended September 30, 2019 and 2018.


Use of Estimates


The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.


Cash and Cash Equivalents


Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2019 and December 31, 2018, the Company did not have any cash equivalents.




6



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


Fair Value of Financial Instruments


The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of September 30, 2019 and December 31, 2018, respectively, because of their short-term natures.


Accounts Receivable


Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.


The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.


Inventories


Inventories are stated at the lower of cost or net realizable value using the first in, first out (FIFO) method. Net realizable value is defined as sales price less cost of completion, disposable and transportation and a normal profit margin. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.


Property and Equipment


Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, except for assets held under capital leases, for which the Company records depreciation and amortization based on the shorter of the asset’s useful life or the term of the lease. The estimated useful lives of property and equipment range from 3 to 5 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.


Patents


Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are approximately 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations.


Impairment of Long-Lived Assets


Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets’ net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows.




7



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


Sales Incentives and Consideration Paid to Customers


The Company accounts for certain promotional costs such as sales incentives and cooperative advertising as a reduction of sales.


Product Warranty Costs


As required by FASB ASC 460, Guarantor’s Guarantees, the Company is including the following disclosure applicable to its product warranties.


The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience. The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the nine months ended September 30, 2019, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.


The following table shows the changes in the aggregate product warranty liability for the nine months ended September 30, 2019:


Balance as of December 31, 2018

     

$

20,000

 

Less: Payments made

 

 

 

Add: Provision for current period warranties

 

 

 

Balance as of September 30, 2019 (unaudited)

 

$

20,000

 


Advertising Costs


Advertising costs are expensed as incurred. During the three and nine months ended September 30, 2019 and 2018, advertising costs incurred by the Company totaled approximately $3,742 and $15,659 and $4,117 and $7,450, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.


Engineering and Development


Engineering and development costs are expensed as incurred. During the three and nine months ended September 30, 2019 and 2018, engineering and development costs incurred by the Company totaled $1,986 and  $4,664 and , $1,582, and $4,395, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.


Income Taxes


The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.


Stock Option Plans


We adopted FASB ASC 718, Compensation-Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and nine months ended September 30, 2019.




8



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with, and FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is recognized over the period the services are provided.


Credit Risk


The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2019 and December 31, 2018, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations. Please refer to Note 14 for further details.


Basic and Diluted Income / (Loss) Per Share


The Company uses ASC 260-10, Earnings Per Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding. As of September 30, 2019 and 2018, there were 11,925,836 and 13,113,336 shares, respectively, issuable upon the exercise of options and warrants, respectively.


Common stock equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. The Company had net income for the three month and nine-month period ended September 30, 2018. A separate computation of diluted earnings per share is presented using the treasury stock method and the common stock equivalents did not have any effect on net income per share.


Leases


In connection with our lease agreement for our Office in Boynton Beach, Florida, the Company adopted the provisions of ASU 2016-02, Leases. As such, the Company recorded an operating right of use asset and an operating lease liability as of September 30, 2019.


Reclassifications


Certain prior year amounts have been reclassified to conform to the current year presentation.


Recent Accounting Pronouncements


All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.


2.

Going Concern


The Company's unaudited condensed financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception and does not have sufficient revenues and income to fully fund the operations. During the nine months ended September 30, 2019 and 2018 the Company used net cash in operations of $713,140 and $230,682, respectively. As a result, the Company has had to rely on stockholder loans and related parties to fund its activities to date.




9



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from two stockholders led the Company’s independent registered public accounting firm, Liggett & Webb, P.A., to include a statement in its audit report relating to the Company’s audited financial statements for the year ended December 31, 2018 expressing substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.


3.

Inventories


Inventories consisted of the following at September 30, 2019 and December 31, 2018, respectively:


 

 

September 30,

2019

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

Raw materials

 

$

383,473

 

$

1,053,147

 

Finished goods

 

 

1,117,574

 

 

257,623

 

Valuation allowance

 

 

(432,009

)

 

(476,062

)

Total inventory, net

 

$

1,069,038

 

$

834,708

 


4.

Prepaid Expenses and Other Current Assets


At September 30, 2019 and December 31, 2018, prepaid expenses and other current assets consisted of the following:


 

 

September 30,

2019

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

Prepaid expenses

 

$

45,408

 

$

27,854

 

Deposits

 

 

 

 

38,436

 

 

 

$

45,408

 

$

66,290

 


5.

Property and Equipment


At September 30, 2019 and December 31, 2018, property and equipment consisted of the following:


 

 

September 30,

2019

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

Machinery and equipment

 

$

1,030,196

 

$

1,030,196

 

Furniture and fixtures

 

 

56,558

 

 

56,558

 

Leasehold improvements

 

 

188,012

 

 

188,012

 

Software and website development

 

 

88,842

 

 

88,842

 

Computer hardware and software

 

 

179,258

 

 

179,258

 

 

 

 

1,542,866

 

 

1,542,866

 

Less accumulated depreciation and amortization

 

 

(1,485,443

)

 

(1,464,224

)

 

 

$

57,423

 

$

78,642

 


Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2019 and 2018 are $6,828 and $21,219, and $6,817 and $16,870, respectively.




10



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


6.

Patents


Included in other noncurrent assets at September 30, 2019 and December 31, 2018 are capitalized patent costs as follows:


 

 

September 30,

2019

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

Patent costs

 

$

499,835

 

$

533,496

 

Less accumulated amortization

 

 

(100,721

)

 

(84,429

)

 

 

$

399,114

 

$

449,067

 


Amortization expense for the three and nine months ended September 30, 2019 and 2018 are $5,409 and $16,228 and  $4,183 and $14,741, respectively. During the nine months ended September 30, 2019 the Company impaired $43,741 of patent costs as it was determined that it had no future economic value.


7.

Leases


Operating right of use assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating right of use  assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. As we have outstanding secured debt, we used the rate based on loan of 4%.


Our office lease contains rent escalations over the lease term. We recognize expense for this office lease on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.


The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of September 30, 2019, a security deposit of $34,970 is included in noncurrent assets in the accompanying balance sheet. On September 27, 2012 the Company entered into a non-cancellable six-year lease agreement for the same facilities commencing August 1, 2013 and expiring July 31, 2019. The total minimum lease payments over the remaining term of the current lease amount to $853,116.


On June 29, 2018, the Company entered into a non-cancellable five-year lease for the same facilities commencing August 1, 2019 and expiring July 31, 2024. The lease will require an initial rent of $14,899 per month, beginning August 1, 2019 for the first year, increasing by 3% per year to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of December 31, 2018 the Company had received all of the reimbursement.


In September 2018, the Company entered into a new capital lease for office equipment in the amount of $559, which commenced in December 2018 for a term of 48 months.




11



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


Supplemental balance sheet information related to leases was as follows:


 

 

 

 

September 30,

 

Operating Leases

 

Classification

 

2019

 

Right-of-use assets

 

Operating right of use assets

 

$

776,189

 

 

 

 

 

 

 

 

Current lease liabilities

 

Current operating lease liabilities

 

 

155,547

 

Non-current lease liabilities

 

Long-term operating lease liabilities

 

 

697,568

 

Total lease liabilities

 

 

 

$

853,115

 




Lease term and discount rate were as follows:


 

September 30,

 

 

2019

 

Weighted average remaining lease term (years)

 

4.79

 

Weighted average discount rate

 

4

%


The component of lease costs were as follows:


 

 

 

Three months ended

September 30,

 

 

 

 

2019

 

Operating lease cost

 

 

$

46,663

 

Variable lease cost (1)

 

 

 

26,953

 

Total lease costs

 

 

$

73,616

 


 

 

 

Nine months ended

September 30,

 

 

 

 

2019

 

Operating lease cost

 

 

$

139,989

 

Variable lease cost (1)

 

 

 

84,827

 

Total lease costs

 

 

$

224,816

 


(1) Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate.


Supplemental disclosures of cash flow information related to leases were as follows:


 

 

 

September 30,

 

 

 

 

2019

 

Cash paid for operating lease liabilities

 

 

$

87,277

 

Operating right of use assets obtained in exchange for operating lease liabilities

 

 

$

890,009

 


Maturities of lease liabilities were as follows as of September 30, 2019:


 

 

Operating

 

 

 

Leases

 

Remainder of 2019

 

$

46,490

 

2020

 

 

188,196

 

2021

 

 

193,627

 

2022

 

 

197,427

 

2023

 

 

197,807

 

2024

 

 

117,383

 

Total

 

 

940,930

 

Less: Imputed interest

 

 

(87,815

)

Present value of lease liabilities

 

$

853,115

 




12



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


8.

Accrued Liabilities


At September 30, 2019 and December 31, 2018, accrued liabilities consisted of the following:


 

 

September 30,

2019

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

Accrued wages and benefits

 

$

48,724

 

$

52,753

 

Accrued expenses relating to vendors and others

 

 

150,731

 

 

128,114

 

Accrued warranty costs

 

 

20,000

 

 

20,000

 

Accrued interest payable relating to stockholder notes

 

 

207,033

 

 

329,801

 

Deferred rent

 

 

 

 

74,689

 

 

 

$

426,488

 

$

605,357

 


9.

Deferred Compensation


Deferred compensation represents amounts owed to two current employees and two former employees for salary. As there is no written agreement with these employees which memorializes the terms of salary deferral, only a voluntary election to do so, it is possible that the employees could demand payment in full at any time. As of September 30, 2019 and December 31, 2018, the Company recorded deferred compensation of $1,492,370 and $1,564,253, respectively.


10.

Notes Payable to Stockholders – Related Party


On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (4.046% and 3.89% % per annum at September 30, 2019 and 2018, respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.


On March 25, 2019 we entered into a note exchange agreement with our Executive Chairman pursuant to which he exchanged $7,989,622 of principal and $395,510 of accrued interest which would have been due on December 31, 2019 under an unsecured loan for a secured promissory note in the principal amount of $8,385,132. The secured note which matures on December 31, 2021, and bears interest at 4% per annum, payable monthly, is secured by a first position security interest in our assets.


From January 1, 2019 through September 30, 2019, the Company received additional loans in the amount of $658,000 from the Company’s Executive Chairman, as advances for working capital needs. The loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points. As of September 30, 2019 the total balance due was $9,368,132.


In January 7, 2019, the Company received an additional loan in the amount of $25,000 from a stockholder and former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due January 7, 2020.


During the three and nine months ended September 30, 2019 and 2018, the Company incurred interest expense of $94,483 and $271,827, and  $85,309 and  $240,028, respectively, on its loan from the Executive Chairman of the Board, which is included in interest expense in the accompanying condensed statements of operations, as well as interest expense of $315 and $915, and $139 and $935 for the three and nine months ended September 30, 2019 and 2018, respectively, related to the loan from a former Board member. These amounts, in addition to interest expense of $14,170 and $24,377, and $139 and $1,421, for the three and nine months ended September 30, 2019 and 2018, respectively, are related to financing and late fees.




13



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


Notes payable and operating lease liabilities consisted of the following at September 30, 2019 and December 31, 2018:


 

 

September 30,

2019

 

December 31, 2018

 

Notes payable to stockholders

 

$

9,393,132

 

$

8,314,622

 

Less: current maturities

 

 

(1,008,000

)

 

(325,000

)

Long-term maturities

 

$

8,385,132

 

$

7,989,622

 


11.

Commitments and Contingencies  


Agreements


On May 18, 2018 we entered into a letter agreement with Mr. Edward S. Vittoria pursuant to which he agreed to be employed by us as our Chief Executive Officer for an initial term ending May 31, 2019, which such term may be extended by mutual agreement upon terms and conditions to be mutually agreed upon prior to the expiration of such initial term.  Under the terms of the letter agreement we agreed to pay him: (i) an annual base salary of $200,000, payable in accordance with our normal payroll practices; (ii) an annual cash bonus to be awarded by our Board of Directors in January in a minimum amount of $50,000; and (iii) granted him options to purchase 6,500,000 shares of our common stock, vesting one-third in arrears, at an exercise price equal to fair market value on the date of grant pursuant to the terms and conditions of our 2018 Equity Compensation Plan.  He is also entitled to: (i) participate in all of our benefit programs currently existing or hereafter made available to executive and/or salaried; (ii) an amount of annual paid vacation consistent with his position and length of service to us; and (iii) reimbursement for all reasonable, out of-pocket expenses incurred by him.


On October 20, 2009, the Company entered into a consulting agreement for management and strategic development services with Boxwood Associates, Inc., pursuant to which the Company pays a $2,000 monthly service fee. The contract remains in effect until terminated by either party providing 30 days written notice. A former member of our Board of Directors and a significant stockholder is President of Boxwood Associates, Inc. Refer to Note 13.


12.

Stock Options and Warrants


For the three and nine months ended September 30, 2019 and 2018, respectively, the Company recorded non-cash stock-based compensation expense of $13,452 and $41,010, and $13,928 and $38,660, respectively, relating to employee stock options and warrants issued for consulting services.


Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation – Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at September 30, 2019 and 2018 for the options is $83,239 and $180,650, respectively, and will be recognized through September 30, 2021.


On April 12, 2018 the Board of Directors approved the adoption of a 2018 Equity Compensation Plan. The Company has reserved 20,000,000 shares of our common stock for grants under this plan.


The 2018 Plan provides for the granting of both incentive and non-qualified stock options to key personnel, including officers, directors, consultants and advisors to the Company, at the discretion of the Board of Directors. Each plan limits the exercise price of the options at no less than the quoted market price of the common stock on the date of grant. The option term is determined by the Board of the Directors, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the Company’s common stock, no more than five years after the date of the grant. Generally, under both plans, options to employees vest over three years at 33.33% per annum unless the Board of Directors designates a different vesting schedule.




14



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


On March 28, 2019, the Company filed a definitive information statement on Schedule 14C with the Securities and Exchange Commission to notify our common shareholders that effective March 27, 2019, the holders of 35,713,727 shares of our common stock, representing 51.7% of the outstanding shares of our common stock, executed a written consent in lieu of a special meeting of shareholders ratifying the adoption of our 2018 Equity Compensation Plan, as amended.


On August 26, 2019, the Company granted one director options to purchase 5,000 shares of the Company’s common stock, at an exercise price of $0.030 per share. The options vest over a two year period and expire August 25, 2024. The quoted market price of the common stock at the time of issuance of the options was $0.030 per share. The fair value of the options totaled $164 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.43%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 255%.


A summary of the Company’s stock option plans as of September 30, 2019, and changes during the nine-month period then ended is presented below:


 

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

Options outstanding at December 31, 2018

 

 

11,785,000

 

 

$

0.05

 

Options granted

 

 

5,000

 

 

 

0.03

 

Options exercised

 

 

 

 

 

 

Options forfeited

 

 

(233,333

)

 

 

0.02

 

Options expired

 

 

(404,167

)

 

 

0.14

 

Options at end of period

 

 

11,152,500

 

 

$

0.05

 

Options exercisable at September 30, 2019

 

 

4,987,505

 

 

$

0.08

 


Changes in the Company’s non-vested options for the nine months ended September 30, 2019 are summarized as follows:


 

 

Six Months Ended

September 30, 2019

 

  

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

Nonvested options at December 31, 2018

 

 

9,595,000

 

 

$

0.02

 

Granted

 

 

5,000

 

 

 

0.03

 

Vested

 

 

(3,201,672

)

 

 

0.02

 

Forfeited

 

 

(233,333

)

 

 

0.02

 

Nonvested options at September 30, 2019

 

 

6,164,995

 

 

$

0.02

 


 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of Exercise Price

 

 

Number Outstanding

 

 

Remaining Average Contractual Life (In Years)

 

 

Weighted Average Exercise Price

 

 

Number Exercisable

 

 

Weighted Average Exercise Price

 

$0.017- $0.30

 

 

 

11,152,500

 

 

 

7.63

 

 

 

$0.05

 

 

 

4,987,505

 

 

 

$0.08

 

Totals

 

 

 

11,152,500

 

 

 

7.63

 

 

 

$0.05

 

 

 

4,987,505

 

 

 

$0.08

 




15



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


A summary of the Company’s warrant activity as of September 30, 2019 and changes during the nine-month period then ended is presented below:


 

 

Nine months ended

September 30, 2019

 

  

 

Warrants

 

 

Weighted
Average
Exercise Price

 

Warrants outstanding at December 31, 2018

 

 

773,336

 

 

$

0.16

 

Granted

 

 

 

 

 

 

Expired

 

 

 

 

 

 

Warrants outstanding and exercisable at September 30, 2019

 

 

773,336

 

 

$

0.16

 


 

 

 

Warrants Outstanding and Exercisable

 

Range of
Exercise Price

 

 

Number
Outstanding

 

 

Remaining Average Contractual Life (In Years)

 

 

Weighted Average

Exercise Price

 

$0.05 - $0.25

 

 

 

773,336

 

 

 

0.65

 

 

$

0.16

 

Totals

 

 

 

773,336

 

 

 

0.65

 

 

$

0.16

 


13.

Related Party Transactions



On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (4.046% and 3.89% % per annum at September 30, 2019 and 2018, respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.


On March 25, 2019 we entered into a note exchange agreement with our Executive Chairman pursuant to which he exchanged $7,989,622 of principal and $395,510 of accrued interest which would have been due on December 31, 2019 under an unsecured loan for a secured promissory note in the principal amount of $8,385,132. The secured note which matures on December 31, 2021, and bears interest at 4% per annum, payable monthly, is secured by a first position security interest in our assets.


From January 1, 2019 through September 30, 2019, the Company received additional loans in the amount of $658,000 from the Company’s Executive Chairman, as advances for working capital needs. The loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points. As of September 30, 2019 the total balance due was $9,368,132.


In January 7, 2019, the Company received an additional loan in the amount of $25,000 from a stockholder and former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due January 7, 2020.


On October 20, 2009, the Company entered into a consulting agreement with Boxwood Associates, Inc., whereby the Company pays $2,000 monthly for management and strategic development services performed. The contract remains in effect until terminated by either party providing 30 days written notice. During each of the three- and nine-month periods ended September 30, 2019 and 2018, we paid Boxwood Associates, Inc. $6,000 and $18,000, respectively, under this agreement. A former member of our Board of Directors is President of Boxwood Associates, Inc.




16



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

 


14.

Major Customers


There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by three customers at September 30, 2019 whose balances each represented approximately 22%, 11% and 10%, for a total of 42% of total accounts receivables. Comparatively, there are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, 2018 whose balances each represented approximately 53%, and 30%, for a total of 83% of total accounts receivables. Sales to two customers for the nine months ended September 30, 2019 were 33%, and 29% for total of 53% of sales. During the nine months ended September 30, 2018 sales from three customers represented 32%, 27% and 14% of total sales for total of 73% of sales. The loss of business from one or a combination of the Company’s significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.


15.

Subsequent Events


On October 24, 2019 we entered into a Business Loan Agreement with Kabbage® pursuant to which we borrowed $43,100 under the terms of a one year secured loan.  The terms of the loan provided for a loan fee of $7,111.50 which results in an effective annual interest rate of 26.56%.  We utilized these proceeds for working capital.  We granted Kabbage® a security interest in our assets as collateral for this loan. The loan, which provides for monthly payments, may be prepaid by us at any time without penalty.  The loan agreement includes customary events of default, as well as a cross default against any other loan and/or security agreement to which we are a party or if a judgment is entered against us in excess of $250, subject to a 30 day cure period.  This loan has been personally guaranteed by Mr. Edward S. Vittoria, our Chief Executive Officer.









17



 


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


The following discussion of our unaudited condensed financial condition and results of operations for the three and nine months ended September 30, 2019 and 2018 should be read in conjunction with the unaudited condensed financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on April 10, 2018 (the “2018 10-K”), and our subsequent filings with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.  All information in this section for the three and nine months ended September 30, 2019 and 2018 is unaudited and derived from the unaudited condensed financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, 2018 is derived from our audited financial statements appearing in the 2018 10-K.


OVERVIEW


Our company


We design, manufacture, market and distribute worldwide the Puradyn® bypass oil filtration system for use with substantially all internal combustion engines and hydraulic equipment that use lubricating oil. Working in conjunction with the equipment’s primary oil filter, the Puradyn system cleans oil by providing a second circuit of oil filtration and treatment to continually remove solid and liquid contaminants from the oil through a sophisticated and unique filtration and absorption process. The Puradyn system consists of a base filtration unit or housing that is connected via hoses or steel tubing to the engine or hydraulic system, along with filter elements that reside inside the filtration unit and are replaced periodically to maintain top performance. We believe that our filter is unique in that it incorporates an additive package to replenish depleted base additive levels in engine lubricating oil. Because Puradyn-filtered lubricating oil is kept in a continually clean state and within engine manufacturers’ specification, our system has been used effectively to safely and significantly extend oil-drain intervals and to extend the time between engine overhauls.


Our core product, the patented Puradyn bypass oil filtration system, is offered in two primary applications, MTS engine systems and custom-engineered MTS hydraulic systems, which can be attached to almost any engine or hydraulic application. All Puradyn systems are compatible with virtually all standard and synthetic oils on the market, and they work with engines using gasoline, diesel, propane or natural gas. We are also the sole manufacturer and provider of Puradyn replacement filter elements for the Puradyn system. Our products are marketed to numerous industries that include hydraulic applications, and other users of engines or equipment that utilize up to 50 weight oil for lubrication. We focus our sales strategy on individual sales and distribution efforts as well as on the development of a global distribution network that will not only sell, but also install and support our product. DistributionNow (DNOW) joined the Puradyn distributor network in 2016 and became exclusive distributor for the oil and gas industry in September 2017. With 300 locations worldwide, DNOW provides the potential to reach to new markets and customers which we would otherwise not be able to effectively reach, and consistently support our product on a global basis. MNI Diesel, LLC (MNI) joined the Puradyn distributor network in 2012, and in August 2018, they became the exclusive distributor of Puradyn products to the commercial marine industry for the Ohio and Mississippi River Valleys and the U.S. Gulf Coast of Texas, Louisiana, Mississippi and Alabama. In addition to the DNOW network and MNI, we currently have approximately 45 distributors and dealers and manufacturer representatives that sell and/or service the Puradyn system in the U.S. and internationally. Today our products are found around the world in a number of industries, including oil and gas, power generation, construction and forestry, commercial marine, mining, and transportation.




18



 


Third quarter of 2019 business highlights


 

·

Revenues in the quarter were negatively impacted by the continued delays in expected orders, especially from new customers in the Oil & Gas category. Our sales in Oil & Gas were down 93% in the third quarter of 2019 compared to the third quarter of 2018 and are down 78% through the first nine months of 2019 vs the same period in 2018. Customers within the drilling and pressure pumping segments are reducing active equipment, which has a combined effect of reduced demand of replacement filters among existing customers and the pausing or extension of evaluation periods by prospective customers. While we believe these orders may eventually be received, it has become difficult to predict the timing.


Our exclusive distributor for the Oil & Gas segment, DNOW, has expanded the number of active salespeople supporting the promotion and sale of our product line by over 300%, and they share our belief that many customers will find even greater value in Puradyn products given their need to implement new cost savings measures.

 

 

 

 

·

Our efforts to diversify our customer base continue to show promise as our Commercial Marine business grew 35% in the third quarter of 2019 compared to the third quarter of 2018 and is up 34% through nine months of 2019 versus the same period in 2018.  In this quarter, we secured new business from industry leader, Campbell Transportation, who is equipping their entire fleet with Puradyn systems.


Key strategies:


During the balance of 2019 and into 2020 we will continue to focus our sales and marketing efforts on:


 

o

Diversifying our new customer sales efforts to counter weakness in the Oil & Gas segment

 

o

Continuing to build on our sales momentum in commercial marine and power generation

 

o

Re-opening efforts with operators of transit buses and other fleets


Outlook


We attribute the decrease in sales in the third quarter of 2019 compared to the third quarter of 2018 to a virtual halt of new system orders from customers within the Oil & Gas industry. While volumes have slowed since the fourth quarter of 2018, the reduced sales activity in the current quarter reflected the continued anxiety and short-term actions to reduce capacity and expenses by Oil & Gas customers. Evaluations continue to increase, and while the results of these evaluations continue to prove our product performance, final decisions to proceed with roll-outs may be delayed due to CapEx freezes across the industry. Our focus on developing new business from within the pressure pumping and midstream segments, both of which we believe may provide more than double the opportunity of our existing onshore rig business, is now being further supported by a threefold expansion in DNOW salespeople actively promoting our product line. Our commercial marine business is growing as more prospective customers are made aware of our proven results at like companies, and we continue to explore new opportunities with bus and truck fleets and remote power generation.


RESULTS OF OPERATIONS


The following table provides certain selected financial information for the periods presented:


 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

% change

 

 

2019

 

 

2018

 

 

% change

 

 

 

(unaudited)

 

 

 

 

 

(unaudited)    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

326,532

 

 

$

1,306,070

 

 

 

(75%)

 

 

$

1,278,050

 

 

$

3,344,272

 

 

 

(62%)

 

Gross profit

 

$

50,372

 

 

$

595,075

 

 

 

(92%)

 

 

$

302,670

 

 

$

1,437,876

 

 

 

(79%)

 

Total operating costs

 

$

373,055

 

 

$

419,557

 

 

 

(11%)

 

 

$

1,165,870

 

 

$

1,134,858

 

 

 

3%

 

(Loss) / income from operations

 

$

(322,683

)

 

$

175,518

 

 

 

(284%)

 

 

$

(863,200

)

 

$

303,018

 

 

 

(385%)

 

Total other expense, net

 

$

(108,968

)

 

$

(85,763

)

 

 

27%

 

 

$

(297,119

)

 

$

(241,134

)

 

 

23%

 

Net (loss) / income

 

$

(431,651

)

 

$

89,755

 

 

 

(581%)

 

 

$

(1,160,319

)

 

$

61,884

 

 

 

(1,975%)

 

Basic and diluted earnings (loss) per share

 

$

(0.01

)

 

$

0.00

 

 

 

 

 

$

(0.02)

 

 

$

(0.00

)

 

 

 




19



 


Gross profit


Our gross profit margins for the three and nine months ended September 30, 2019 decreased by 92% and 79% as compared to the three and nine months ended September 30, 2018. The decrease in our gross profit margins for the three and nine months ended September 30, 2019 is attributable to reduced facility utilization due to decreased sales which was partial offset by a decrease in the reserve for slow moving inventory of $(44,053) during the nine months ended September 30, 2019 compared to $13,611 for the nine months ended September 30, 2018. We have been advised by several of our suppliers that prices for various raw materials are being increased as a result of the loss of some of their primary suppliers and higher prices with their secondary suppliers and the unknown impact of recently enacted tariffs by the current administration. However, we are exploring and implementing measures to help mitigate the impact on our costs. We notified our customers of pricing increases effective October 1, 2018 which varied by product, and we will continue to review cost of materials increases and adopt further pricing action in the future as warranted.


Total operating costs

 

Our total operating costs, which include salaries and wages and selling and administrative expenses, increased slightly during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 due to increases in early 2019 of salary and advertising expenses which were then offset by cost-cutting measures, including staff reductions and an approximately 20% reduction in factory hours and office salaries that began late in the second quarter of 2019. The decrease in selling and administrative expenses during the third quarter of 2019 from the comparable period in 2018 is attributable to cost-cutting measures, including staff reductions and an approximately 20% reduction in factory hours and office salaries.


Total other expense, net


Total other expense, net represents interest we pay to related parties on amounts advanced to us for working capital. The increase in the 2019 periods from the comparable periods in 2018 reflects our increased borrowings.


LIQUIDITY AND CAPITAL RESOURCES  


We had cash on hand of $72,549 and a working capital deficit of $2,334,951 at September 30, 2019 as compared to cash on hand of $112,769 and a working capital deficit $1,603,639 at December 31, 2018. Our current ratio (current assets to current liabilities) was .34 to 1 at September 30, 2019 as compared to .45 to 1 at December 31, 2018. The increase in negative working capital is primarily attributable to a decrease in accounts receivable and an increase in accounts payable and operating lease liabilities which were offset by decreases in accrued liabilities and deferred compensation and increase in inventory. We do not currently have any commitments for capital expenditures.


Historically, we have been materially reliant on working capital advances from our Executive Chairman to address our liquidity and working capital issues through the utilization of the borrowing agreement with him. On March 25, 2019 we entered into a note exchange agreement with our Executive Chairman pursuant to which he exchanged $7,989,622 of principal and $395,510 of accrued interest, which was due on December 31, 2019 under an unsecured loan, for a secured promissory note in the principal amount of $8,385,132. The note, which matures on December 31, 2021, bears interest at 4% per annum, payable monthly, and is secured by a first position security interest in our assets. In addition, we owe him $983,000 for other working capital advances which are due on demand.


In October 2019 we borrowed $43,100 from a third party commercial lender under the terms of a 12 month secured loan agreement which is described later in this report under Part II, Item 5. We utilized these funds for working capital.


We also owe certain of our employees $1,492,370 and $1,564,253, respectively, in deferred cash compensation at September 30, 2019 and December 31, 2018, which represents 42% and 54%, respectively, of our current liabilities on that date. These current and former employees agreed to defer a portion of their compensation to assist us in managing our cash flow and working capital needs. As there is no written agreement with these current and former employees which memorializes the terms of salary deferral, only an election to do so, it is possible these individuals could demand payment in full at any time or elect to no longer defer their salaries, or reduce the amount they currently defer. We do not have sufficient funds to satisfy these obligations.




20



 


Our net sales are not sufficient to pay our operating expenses. Our capital requirements depend on a number of factors, including our ability to increase revenues, increase gross profit margins and control our expenses. Over the past few years we have not had any external sources of liquidity, and our discussions with third parties for potential investments have not been successful. We historically have encountered resistance from potential investors on a variety of fronts, including our revenue levels, operating losses, and the amount of debt due to our Executive Chairman. At September 30, 2019 we owe him in excess of $9 million. He is not obligated to lend us any additional funds and a substantial amount of what we owe him is secured by our assets under the terms of a secured note which matures in December 2021. He has advised us that he does not expect to continue to provide working capital advances to the Company at historic levels, if at all Accordingly, during October 2019 we obtained a one year $43,100 principal amount high interest secured loan from a third party commercial lender to provide operating capital. While our Executive Chairman subordinated his first position security interest in our assets to accommodate our need to take out this loan, there are no assurances we will do so in the future should we be forced to seek additional third party loans. Given our declining revenues, history of losses and debt levels, we face a number of challenges in our ability to raise capital from third parties. Our ability to provide for our current working capital needs, pay our obligations as they become due, grow our company, and continue our existing business and operations is in jeopardy. If we are unsuccessful in our efforts to significantly increase our net sales over sustained quarters and/or raise significant outside capital, we will no longer be able to continue as a going concern. In that event, you would lose all of your investment in our company.


Summary cash flows


 

 

Nine Months Ended
September 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

 

 

 

 

 

 

 

Net cash (used) by operating activities

 

$

(713,140

)

 

$

(230,682

)

Net cash (used) by investing activities

 

$

(10,080

)

 

$

(73,305

)

Net cash provided by financing activities

 

$

683,000

 

 

$

348,459

 


During the first nine months of 2019 net cash used by our operating activities was principally related to increases in inventory, which were offset by reduced accounts receivable, and an increase in accounts payable. The increases in inventory and accounts payable were a result of the Company’s expected increase in sales and timing of receiving raw materials. During the first nine months of 2018 net cash used by our operating activities was principally related to increases in inventory, accounts receivable and prepaid expenses offset by increase in accounts payable and accrued liabilities. The increases in accounts receivable as well as the corresponding increases in inventory and accounts payable were a result of the Company’s expected increase in sales and timing of receiving raw materials.


During the first nine months of 2019 and 2018, net cash used by investing activities represented capitalized patent costs.


During the first nine months of 2019, net cash provided by financing activities represented loans from related parties. During the first nine months of 2018, net cash provided by financing activities represented loans from related parties, net of capital lease payments.


Going concern


Our unaudited condensed financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred net losses since inception and have relied on loans from related parties to fund our operations. The Company does not have sufficient revenues and income to fund the operations. These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from our principal stockholder, as set forth above, have led our independent registered public accounting firm Liggett & Webb, P.A. to include a statement in its audit report relating to our audited financial statements for the years ended December 31, 2018 and 2017 expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to continue to generate profitable operations in the future.




21



 


Critical accounting policies and estimates


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our unaudited condensed financial statements appearing elsewhere in this report.


Recent accounting pronouncements


Information concerning recently issued accounting pronouncements is set forth in Note 1 of our notes to our unaudited condensed financial statements appearing elsewhere in this report.


Off balance sheet arrangements


As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not applicable for a smaller reporting company.


ITEM 4.

CONTROLS AND PROCEDURES.


Evaluation of Disclosure Controls and Procedures


Our management, which includes our CEO and our principal financial and accounting officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended) as of the end of the period covered by this report (the "Evaluation Date"). Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.


Based on their evaluation as of the end of the period covered by this report, our CEO and our principal financial and accounting officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our principal financial and accounting officer, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


There have been no changes in our internal controls over financial reporting identified in connection with the evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.




22



 


PART II.   OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


None.


ITEM 1A.

RISK FACTORS.


In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our 2018 10-K and our subsequent filings with the SEC, which could materially affect our business, financial condition or future results.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


None.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURE.


Not Applicable.


ITEM 5.

OTHER INFORMATION.


On October 24, 2019 we entered into a Business Loan Agreement with Kabbage® pursuant to which we borrowed $43,100 under the terms of a one year secured loan. The terms of the loan provided for a loan fee of $7,111.50 which results in an effective annual interest rate of 26.56%. We utilized these proceeds for working capital. We granted Kabbage® a security interest in our assets as collateral for this loan. The loan, which provides for monthly payments, may be prepaid by us at any time without penalty. The loan agreement includes customary events of default, as well as a cross default against any other loan and/or security agreement to which we are a party or if a judgment is entered against us in excess of $250, subject to a 30 day cure period. This loan has been personally guaranteed by Mr. Edward S. Vittoria, our Chief Executive Officer.


In order to permit us to take out this loan, we have entered into a Subordination Agreement (Affiliated Creditor) with Mr. Joseph V. Vittoria pursuant to which he subordinated to Kabbage® his first position security interest in our assets which serves as collateral under the Secured Note we issued him in the principal amount of $9,129,430.15.


The foregoing descriptions of the terms and conditions of the Business Loan Agreement with Kabbage® and the Subordination Agreement (Affiliated Creditor) with Mr. Vittoria are qualified in their entirety by reference to these agreements which are filed as Exhibits 10.1 and 10.2, respectively, to this report.




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ITEM 6. 

EXHIBITS.


 

 

 

 

Incorporated by Reference

 

Filed

or Furnished

No.

   

Exhibit Description

   

Form

   

Date Filed

   

Number

   

Herewith

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation dated July 24, 1996

 

10-SB

 

7/30/96

 

3.1

 

 

3.2

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation dated December 13, 1996

 

8-K

 

1/9/97

 

3.(I)

 

 

3.3

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation dated February 3, 1998

 

8-K/A

 

2/12/98

 

3.1

 

 

3.4

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation dated March 5, 2009

 

8-K

 

3/16/09

 

3.4

 

 

3.5

 

Certificate of Amendment to the Certificate of Incorporation dated July 7, 2011

 

10-Q

 

8/15/11

 

3.4

 

 

3.6

 

Bylaws

 

10-SB

 

7/30/96

 

3.2

 

 

10.1

 

Business Loan Agreement

 

 

 

 

 

 

 

Filed

10.2

 

Subordination Agreement (Affiliated Creditor)

 

 

 

 

 

 

 

Filed

31.1

 

Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer

 

 

 

 

 

 

 

Filed

31.2

 

Rule 13a-14(a)/15d-14(a) certification of principal financial and accounting officer

 

 

 

 

 

 

 

Filed

32.1

 

Section 1350 certification of Chief Executive Officer and principal financial and accounting officer

 

 

 

 

 

 

 

Filed

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

Filed

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

Filed

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

Filed

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

Filed

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

Filed

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

Filed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 












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SIGNATURES


Pursuant to the requirements 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.





 

PURADYN FILTER TECHNOLOGIES INCORPORATED

 

 

 

 

 

 

Date:  November 13, 2019

By:

/s/ Edward S. Vittoria

 

 

Edward S. Vittoria, Chief Executive Officer, principal executive officer

  

 

 

Date:  November 13, 2019

By:

/s/ Martin Scott

 

 

CFO Consultant, principal financial and accounting officer











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