SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 0-29192
PURADYN FILTER TECHNOLOGIES INCORPORATED
(Exact name of small business issuer as specified in its charter)
DELAWARE 14-1708544
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3020 High Ridge Road, Suite 100, Boynton Beach, Florida 33426
(Address of principal executive offices) (Zip Code)
(561) 547-9499
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: August 4, 1999: 5,342,661
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Puradyn Filter Technologies Incorporated
Condensed Balance Sheet
<TABLE>
<CAPTION>
June 30, 1999 December 31,
(Unaudited) 1998
----------- ----
<S> <C> <C>
Assets
Current assets:
Trade accounts receivable, net $ 69,849 $ 30,623
Inventories 275,419 342,439
Prepaid expenses and other current assets 1,743 207
-------- -------------
Total current assets 347,011 373,269
Property and equipment, net 242,302 289,317
Other assets 13,769 16,370
-------------- -------------
Total assets $ 603,082 $678,956
============== =============
Liabilities and Capital Deficiency
Current Liabilities:
Cash overdraft $ 81,318 $ 77,693
Accounts payable 463,054 422,252
Accrued expenses 203,584 167,661
Customer deposits 48,735 48,568
Note payable to bank 525,000 250,000
Notes payable to shareholder 150,000 150,000
Current portion of capital lease obligations 18,550 20,960
Note payable to former shareholder 294,756 294,756
-------------- -------------
Total current liabilities 1,784,997 1,431,890
Notes payable and accrued interest to QIP, a shareholder 2,996,541 2,821,396
Capital lease obligations 5,062 12,851
-------------- -------------
Total liabilities 4,786,600 4.266,137
-------------- -------------
Capital Deficiency:
Preferred stock, $.001 par value,
500,000 shares authorized - -
Common stock, $.001 par value,
20,000,000 shares authorized, 5,291,479
and 5,223,493 shares issued and outstanding 5,291 5,223
Additional paid-in-capital 7,346,585 7,309,201
Unearned compensatory options - (2,560)
Loans receivable, net (22,931) (22,931)
Accumulated deficit (11,512,463) (10,876,114)
-------------- -------------
Total capital deficiency (4,183,518) (3,587,181)
-------------- -------------
Total liabilities and capital deficiency $ 603,082 $ 678,956
============== =============
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
Puradyn Filter Technologies Incorporated
Condensed Statements of Operations
For the Three Months and Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 135,469 $ 154,022 $ 265,284 $ 348,745
Cost of sales 143,137 148,597 262,339 340,962
---------- ---------- ---------- -----------
Gross profit (7,668) 5,425 2,945 7,783
---------- ---------- ---------- -----------
Operating expenses:
Selling 74,395 214,573 147,789 815,210
General and administrative 146,223 142,673 241,297 413,725
Engineering and development 32,556 33,584 46,677 109,816
---------- ---------- ---------- -----------
Total operating expenses 253,174 390,830 435,763 1,338,751
---------- ---------- ---------- -----------
Operating loss (260,842) (385,405) (432,818) (1,330,968)
---------- ---------- ---------- -----------
Other income (expense):
Interest expense (102,991) (83,932) (204,181) (159,931)
Interest income 369 866 650 5,775
---------- ---------- ---------- -----------
Total other income (expense) (102,622) (83,066) (203,531) (154,156)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Net loss $ (363.464) $(468,471) $ (636,349) $(1,485,124)
========== ========== ========== ===========
Basic loss per share $(.07) $(.09) $(.12) $(.29)
========== ========== ========== ===========
Basic number of weighted average
common shares outstanding 5,232,458 5,206,379 5,228,000 5,206,307
========== ========== ========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
Puradyn Filter Technologies Incorporated
Condensed Statements of Changes in Capital Deficiency
For The Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Addititonal Unearned Total
----------------- Pain-In- Compensatory Loans Accumulated Capital
Shares Amount Capital Options Receivable Deficit Deficiency
------ ------ ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 5,223,493 $5,223 $7,309,201 $(2,560) $(22,931) $(10,876,114) $(3,587,181)
Issuance of compensatory options 67,986 68 37,384 - - -
37,452
Amortization of unearned
compensation - - - 2,560 - - 2,560
Net loss - - - - - (636,349) (636,349)
--------- ------ ---------- -------- --------- ------------- ------------
Balance at June 30, 1999 5,291,479 $5,291 $7,346,585 $ - $(22,931) $(11,512,463) $(4,183,518)
========= ====== ========== ======== ========= ============= ============
See accompanying notes to condensed financial statements.
</TABLE>
4
<PAGE>
Puradyn Filter Technologies Incorporated
Condensed Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net loss $(636,349) $(1,485,124)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 48,579 67,380
Deferred interest on notes payable to QIP 175,146 148,370
Issuances of compensatory options 40,012 -
Changes in operating assets and liabilities:
Trade accounts receivable, net (39,226) 47,317
Inventories 67,019 100,855
Prepaid expenses and other current assets (1,536) 101,003
Other assets 2,601 10,247
Accounts payable 40,802 41,299
Accrued expenses 35,923 196,076
Customer deposits and other 167 5,758
--------- ---------
Net cash used in operating activities (266,862) (766,819)
--------- ---------
Investing activities
Purchases of property and equipment (1,564) (31,360)
--------- ---------
Net cash used in investing activities (1,564) (31,360)
--------- ---------
Financing activities
Proceeds from issuances of Common Stock and
exercise of stock options, net - 1,000
Proceeds from notes payable issued to QIP - 500,000
Proceeds from bank loan 275,000 -
Proceeds from issuance of notes payable to shareholder
and other notes payable - 150,000
Increase in deferred issuance and financing costs - (17,891)
Collection of loans receivable - 13,000
Payment of notes payable and capital lease obligations (10,199) (20,083)
Payment of note payable to former shareholder - (103,769)
Increase in bank overdraft 3,625 23,048
--------- ---------
Net cash provided by financing activities 268,426 545,305
--------- ---------
Increase (decrease) in cash and cash equivalents -0- (252,874)
Cash and cash equivalents at beginning of period -0- 252,874
----------- -------
Cash and cash equivalents at end of period $ -0- $ -0-
=========== =========
See accompanying notes to condensed financial statements.
</TABLE>
5
<PAGE>
Puradyn Filter Technologies Incorporated
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation and Company
The accompanying condensed financial statements as of June 30, 1999 and for the
three month periods and six month periods ended June 30, 1999 and 1998 are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal and recurring adjustments) necessary for a fair presentation of
financial position and results of operations for these interim periods. Such
interim financial statements have been prepared on the basis of presentation as
more fully described in the Puradyn Filter Technologies Incorporated ("the
Company") annual financial statements and should be read in conjunction with the
Company's audited financial statements which are included in the Company's Form
10-KSB. The results of operations for the three month period and six month
period ended June 30, 1999 are not necessarily indicative of the results to be
expected for the entire year.
The Company has incurred recurring losses from operations since inception, which
has resulted in net cash outflows to fund operations. Cash to fund these
requirements has come from several private placements of its Common Stock in
1996, and debt financing in June 1997 for $2,000,000 and in January 1998 for
$500,000. During May and June 1998, the Company borrowed $150,000 from the
Company's co-founder, a significant shareholder and now Chief Executive Officer,
Richard C. Ford. The Company also borrowed $250,000 in August 1998 from its bank
which was secured by substantially all of the Company's assets and guaranteed by
Mr. Ford. In January and March 1999, the Company borrowed from the bank an
additional $175,000 and $100,000, respectively, under renegotiated loan
agreements which now require the loan to be repaid in March 2000. Furthermore,
Mr. Ford has advanced funds to the Company or paid on behalf of the Company
approximately $25,000 in the period from March 1999 through June 30,1999 and
approximately $14,000, subsequent to that date in July 1999. Also, beginning in
June 1999, the Company granted options with a zero exercise price to certain
individuals in lieu of cash compensation.
The reports of the Company's independent auditors as of December 31, 1998 and
1997 include an explanatory paragraph which states that, because the Company has
sustained recurring operating losses and negative cash flows from operating
activities, substantial doubt is raised about the Company's ability to continue
as a going concern. In order to continue as a going concern, the Company must
complete substantive additional financing in 1999. The inability to obtain
additional financing will have a material adverse effect on the Company,
including requiring the Company to curtail or cease its operations. The
financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts or the amounts or classification of
liabilities that might be necessary as a result of the above uncertainty.
6
<PAGE>
2. Inventories
At June 30, 1999, inventories consist of the following:
Raw materials $255,528
Finished goods 18,891
Supplies 1,000
--------
Total inventories $275,419
========
3. Contingencies
TF Systems, Inc. ("Systems"), a related party (previously under common ownership
with the Company), formerly owned the manufacturing and marketing rights to the
Purifiner and transferred or sold such rights to the Company in 1995. In June
1997, the former law firm of Systems filed a complaint against the Company,
Systems, Richard C. Ford (individually) and an inactive company controlled by
Mr. Ford demanding payment of approximately $313,000 of legal fees plus interest
and attorney fees, related primarily to services in obtaining the manufacturing
and marketing rights to the Purifiner for Systems and the Company. Systems had
been awaiting the judgment of an appellate court which, if adjudicated in
Systems' favor, would have provided it with sufficient funds to pay such legal
fees and other possible legal fee claims aggregating approximately $75,000.
However, on February 26, 1997, the appellate court ruled against Systems and,
accordingly, the funds discussed above are not currently available to Systems to
satisfy such claims. Puradyn did not assume these obligations as part of its
purchase of Systems in 1995 and management believes such amounts are not the
responsibility of Puradyn. However, Systems is an inactive company whose only
asset is the claim that was reversed on appeal and maybe retried by Systems.
Accordingly, the ability to collect such funds from Systems is uncertain. The
ultimate outcome of this litigation and other unasserted claims against the
Company cannot be determined at this time; however, based upon the opinion of
the Company's counsel, a favorable outcome is likely. No liability has been
recorded for these claims in the accompanying balance sheet.
4. Notes Payable to Shareholder
During 1998, the Company borrowed $150,000 from Richard C. Ford, Chairman of the
Board of Directors, Chief Executive Officer and significant shareholder of the
Company and issued notes, secured by accounts receivable and inventories, with
interest payable at 12%. The notes are due on demand.
5. Note Payable to Bank
On August 21, 1998, the Company borrowed $250,000 from its bank under a one year
revolving note payable with interest payable monthly at 8.75%. On January 21,
1999, the Company increased its loan with the bank to a $350,000 revolving line
of credit with interest at the bank's prime rate (7.75% at inception) and
borrowed an additional $100,000. On March 25, 1999, the company again
renegotiated its revolving line of credit to increase the amount to $525,000 at
the same rate of interest and extend the repayment date to March 25, 2000. The
company borrowed an additional $175,000 at that date to increase the aggregate
borrowing to $525,000. The note is secured by substantially all assets of the
Company and guaranteed by Richard C. Ford.
7
<PAGE>
6. Note Payable to Former Shareholder
In 1996, the Company entered into an Agreement (the "Agreement") with the
beneficiaries of the estate of a former 50% shareholder of the Company (the
"Estate") under which the Company agreed to repay the Estate's loans of $502,206
based on a formula related to the amount of future equity financing by the
Company. However, the Company did not make the required installment payment of
$105,512 on January 31, 1999 and the Estate has issued a letter to the Company
to declare the Agreement in default and to demand immediate payment of the
entire remaining balance. Accordingly, the entire balance of $294,756 is
classified as current as of June 30, 1999.
7. Notes Payable to QIP, a Shareholder
On January 26, 1998, the Company and Quantum Industrial Partners LDC ("QIP")
entered into a Note Exchange Agreement whereby the a $2,000,000 promissory note
issued June 19, 1997 to QIP was exchanged for a $2,000,000 12% Senior
Subordinated Convertible Note (the "Note") due 2003.
Commencing April 1, 1998, interest is payable quarterly provided, that at the
option of the Company, unpaid interest may be added to the principal balance of
the Notes in lieu of a cash payment which the Company has elected to do each
quarter through June 30, 1999. Such unpaid interest bears interest at 15% and is
payable on demand. Such aggregate deferred interest at June 30, 1999 is
$496,542. The Note is senior to all indebtedness of the Company, except bank or
financial institution debt, and can be redeemable at the option of QIP on or
after the earlier of January 1, 2001 or the date on which the Company raises
cash proceeds aggregate $10 million involving the sale of debt, equity or
assets. As long as these Notes are outstanding, the Company cannot, without the
consent of QIP, declare or pay any dividends, purchase, redeem or acquire any of
its Common Stock, retire its existing indebtedness other than existing required
periodic payments or enter into transactions with any affiliate.
Prior to January 1, 2003, at the option of QIP, the principal amount can be
converted into Common Stock of the Company at a conversion price of $2.75 per
share. Under certain circumstances, the Note is subject to anti-dilution
provisions and the Company will register the securities.
Also on January 26, 1998, the Company and QIP entered into a Note Purchase
Agreement whereby the Company issued QIP a 12% Senior Subordinated Convertible
Note in the aggregate principal amount of $500,000. The terms and conditions of
this $500,000 Note are identical to the $2,000,000 Note described above. As of
June 30, 1999, the Company has reserved 1,089,651 shares of its Common Stock for
issuance under the conversion provisions of the notes.
8. Net (Loss) Per Share of Common Stock
The Company has adopted Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (FAS 128) which establishes new standards for
computing and presenting earnings per share. FAS requires dual presentation of
basic and diluted earnings per share. Because of losses from operations, the
effect of stock options, warrants and convertible debt is anti-dilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Form 10-KSB.
Other than historical and factual statements, the matters and items discussed in
this Quarterly Report on Form 10-QSB are forward-looking statements that involve
risks and uncertainties. Actual results of the Company may differ materially
from the results discussed in the forward-looking statements. Certain factors
that could contribute to such differences are discussed with the forward-looking
statements throughout this report.
General
The Company was formed in 1987 and commenced operations in 1991 when it obtained
worldwide manufacturing and marketing rights to the Purifiner(R) products. The
marketplace has had a long-held conviction that oil must be changed regularly in
accordance with manufacturers' recommended guidelines. Gradually, the concept of
extended oil drain intervals has become more readily accepted. The Company
believes that this change in acceptance is due to the results of third-party
testing of the product, awards and other recognition the Purfiner has received,
and to increasing awareness by consumers, vehicle and engine manufacturers and
oil companies of the cost benefits and the environmental benefits of conserving
oil and reducing disposal of waste oil.
The Company has also found that potential customers require extended field
testing to verify performance effects on engine wear and oil change savings for
themselves. The Company is making a more concentrated effort to assist potential
customers in the testing process and, in December 1998, documented certain
performance results by a large fleet owner that showed minimal engine wear after
616,000 miles using the Company's Purifiner without an oil change. The company
believes these results will not only help to validate the product's reliability,
but also provide new sales leads. However, there can be no assurance it can
experience any improvement.
Sales of the Company's products depend primarily on end user demand for such
products and acceptance of the Company's products by original equipment
manufacturers ("OEM's"). The oil filtration industry has historically been
competitive and, as is typically the case with innovative products, the ultimate
level of demand for the Company's products is subject to a high degree of
uncertainty. Developing market acceptance, particularly worldwide, for the
Company's products will require substantial marketing and sales efforts and the
expenditure of a significant amount of funds to inform customers of the
perceived benefits and cost advantages of its products.
Through 1997, the Company had been unsuccessful in reaching potential customers
through its distribution network of independent resellers. During 1998, the
Company refocused certain of its resources on the development of commercial
relationships with OEMs and medium to large size fleets and, as mentioned, is
attempting to be more involved in their testing process. While the Company
believes these developments will lead to improvements in sales and operating
results, there can be no assurance that such improvements will occur.
9
<PAGE>
As previously mentioned, the Company has incurred losses from operations since
inception which has resulted in net cash outflows to fund operations. The
Company found short-term sources of cash to fund operations in 1998 and through
the first half of 1999, however, the Company must complete additional
substantive financing in 1999 to continue its operations and there can be no
assurance it will be successful in finding sufficient sources of such financing.
Results of Operations for the Three Months and Six Months Ended June 30, 1999,
Compared to the Three Months and Six Months Ended June 30, 1998 The following
table sets forth for the amount of increase or decrease represented by certain
items reflected in the Company's statements of operations in comparing the three
months and six months ended June 30, 1999 to the
three months and six months ended June 30, 1998, in thousands.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
Incr. Incr.
1999 1998 (Decr) 1999 1998 (Decr)
---- ---- ------ ---- ----- ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 135 $ 154 $ (19) $ 265 $ 349 $ (84)
------ ------ ------ ----- ------- -----
Operating costs and expenses:
Cost of sales 143 148 (5) 262 341 (79)
Selling expenses 74 215 (141) 148 815 (667)
General and administrative expenses 146 142 4 241 414 (173)
Engineering and development 33 34 (1) 47 110 (63)
------ ------ ------ ----- ------- -----
Total operating costs and expenses 396 539 (143) 698 1,680 (982)
------ ------ ------ ----- ------- -----
Operating loss (261) (385) (124) (433) (1,331) (898)
Interest (expense) income (103) (83) (20) (203) (154) (49)
------- ------ ------ ----- ------- -----
Net loss $ (363) $ (468) $ (104) $(636) $(1,485) $(849)
======= ====== ====== ===== ======= =====
</TABLE>
Net Sales. Net sales decreased by approximately $19,000 and $84,000,
respectively, in the second fiscal quarter and the six months ended June 30,
1999 compared to the corresponding periods in the prior year. The Company
experienced declining sales during 1998 resulting from an unsuccessful change in
marketing strategy which began in 1997 through a change in sales market focus
with product price changes, and product design changes that caused some
performance problems. Pricing was decreased in April 1998, market focus was
changed toward OEMs and middle and large fleet companies in mid-1998, and
product quality problems were corrected in early 1998. These changes, together
with turnover in key personnel in late March 1998, resulted in the Company
having to re-establish certain customer relationships. Management feels it now
has a good base of potential customers with very satisfactory product
performance results, however there can be no assurance these will produce
improved results in sales.
10
<PAGE>
Cost of Sales. Cost of sales decreased by approximately $5,000 in the second
fiscal quarter and decreased by $79,000 in the six months ended June 30, 1998
compared to the corresponding periods in the prior year. In the three months
ended June 30, 1999 cost of sales exceeded sales resulting in negative gross
margin of $8,000. The excess was due to several factors including increases in
inventory costs from vendors due to low purchase volumes, a mix of sales to
customers that qualified for lower prices, and due to an increase in rent
expense. Unless the Company can increase its revenues, its gross margins will
continue to be adversely affected by factors such as these.
Selling Expenses. Selling expenses decreased by approximately $141,000 and
$667,000, respectively, in the second fiscal quarter and the six months ended
June 30, 1998 compared to the corresponding periods in the prior year. In
connection with the change in key personnel and the reductions in operating
expenses to reduce cash required to fund operations that began in late March
1998, the Company made significant reductions in various selling expenses such
as salaries, related travel and communication expenses, consulting expenses and
advertising expenses in 1999 versus 1998.
General and Administrative Expenses. General and administrative expenses
increased by approximately $4,000 in the second fiscal quarter and decreased by
approximately $173,000 the six months ended June 30, 1999 compared to the
corresponding periods in the prior year. As noted with Selling Expenses above,
the Company began a concerted effort to reduce operating expense beginning in
late March 1998 which reduced general and administrative expenses in the areas
of salaries, communication expenses, travel, and professional fees and certain
other office expenses.
Engineering and Development Expenses. Engineering and development expenses
decreased by approximately $1,000 and $63,000, respectively, in the second
fiscal quarter and the six months ended June 30, 1998 compared to the
corresponding periods in the prior year. This decrease was primarily the result
of decreased personnel costs.
Interest Expense and Income. Interest expense increased by approximately $19,000
and $44,000, respectively, in the second fiscal quarter and the six months ended
June 30, 1999 compared to the corresponding periods in the prior year. This
increase resulted primarily from the short term loans of $150,000 obtained in
1998 from Richard C. Ford, a shareholder and now Chief Executive Officer of the
Company, and from its bank that increased from $250,000 in August, 1998 to
$350,000 in January 1999 and to $525,000 in March 1999. Interest income
decreased by approximately a small amount in the second fiscal quarter and by
$5,000 in the six months ended June 30, 1999 compared to the prior year as a
result of decreased cash balances in 1999.
Liquidity and Capital Resources.
The Company has incurred recurring losses from operations since inception, which
has resulted in net cash outflows to fund operations. Cash to fund these
requirements has come from several private placements of its Common Stock in
1996, and debt financing in June 1997 for $2,000,000 and in January 1998 for
$500,000. In addition, during mid-1998, the Company borrowed $150,000 from
11
<PAGE>
Richard C. Ford and in August 1998 borrowed $150,000 from its bank which was
collateralized by assets of the Company and guaranteed by Mr. Ford. The Company
borrowed from the bank an additional $100,000 in January 1999 and $175,000 in
late March 1999. The aggregate bank loan of $525,000 is due in March 2000. In
addition, Mr. Ford has personally advanced approximately $25,000 to the Company
through June 30, 1999 and an additional $14,000 subsequent to that date. The
Company must complete additional substantive financing in 1999 to continue its
operations, and there is no assurance that the Company can complete this
financing or that Mr. Ford or the bank will loan additional funds to the
Company.
During 1998, the Company significantly reduced personnel and operating expenses
and intensified its efforts to increase sales of its products to potential
customers with large fleets of vehicles and original equipment manufacturers.
The Company continues to closely monitor its operating expenses and cash flow.
However, there is no assurance that these efforts will result in profitable
operations or reduce the amount of cash required to sustain operations.
At June 30, 1999, the Company had negative working capital of $1,438,000 and its
current ratio (current assets to current liabilities) was .19 to 1.00. At June
30, 1999, the Company owed approximately $500,000 in current liabilities to
various trade and unrelated creditors. Most of these creditors continue to
provide services to the Company or defer payment of these obligations for the
current time. There can be no assurances that creditors will continue to provide
service to the Company or that other creditors will refrain from initiating
lawsuits against the Company in the future.
The Company continues to pursue substantive long-term investment commitments
from various institutions and investor groups in the form of either a loan or
equity investment. Management believes it will need additional financing to
continue operations in 1999. There can be no assurances that the Company will be
able to obtain such additional financing. In the absence of sufficient revenues
or financing, the Company may be unable to sustain its operations.
Impact of Inflation
Inflation has not had a significant impact on the Company's operations. However,
any significant decrease in the price for oil or labor, environmental compliance
costs, and engine replacement costs could adversely impact the Company's end
users cost/benefit analysis as to the use of the Company's products.
Quarterly Fluctuations
The Company's operating results may fluctuate significantly from period to
period as a result of a variety of factors including product returns, purchasing
patterns of consumers, the length of the Company's sales cycle to key customers
and distributors, the timing of the introduction of new products and product
enhancements by the Company and its competitors, technological factors,
variations in sales by product and distribution channel, and competitive pricing
and general economic conditions throughout the industrialized world.
Consequently, the Company's product revenues may vary significantly by quarter
and the Company's operating results may experience significant fluctuations.
12
<PAGE>
Impact of Year 2000 Issue
The Company is continuing to assess the possible effects on its operations of
the impact through its own systems and the systems of its key suppliers and
subcontractors of the Year 2000 issue. The Company has no interactive or linked
computer systems to any of its suppliers or subcontractors, and does not have
extensive reliance on internal computer systems for its manufacturing, marketing
or sales operations. While the impact of the Year 2000 issue could have a
material effect on the Company's operations and financial results, the Company
at this time believes the potential impact and related costs are not
significant.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PURADYN FILTER TECHNOLOGIES INCORPORATED
(Registrant)
August 9, 1999 By /s/ Alan J. Sandler
-------------------------------
Alan J. Sandler
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> (81,318)
<SECURITIES> 0
<RECEIVABLES> 104,849
<ALLOWANCES> (35,000)
<INVENTORY> 275,419
<CURRENT-ASSETS> 347,011
<PP&E> 603,557
<DEPRECIATION> (361,255)
<TOTAL-ASSETS> 603,082
<CURRENT-LIABILITIES> 1,784,997
<BONDS> 0
0
0
<COMMON> 5,291
<OTHER-SE> (4,188,809)
<TOTAL-LIABILITY-AND-EQUITY> 603,082
<SALES> 135,469
<TOTAL-REVENUES> 135,469
<CGS> 143,137
<TOTAL-COSTS> 253,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,622
<INCOME-PRETAX> (363,464)
<INCOME-TAX> 0
<INCOME-CONTINUING> (363,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (363,464)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
