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 March 31, 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: April 30, 1999: 5,223,493 shares of Common Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Puradyn Filter Technologies Incorporated
Condensed Balance Sheet
<TABLE>
<CAPTION>
March 31, 1999 December 31,
(Unaudited) 1998
----------- ----
<S> <C> <C>
Assets
Current assets:
Cash $ 22,418 $ -
Trade accounts receivable, net 35,746 30,623
Inventories 306,077 342,439
Prepaid expenses and other current assets 2,950 207
------------ -----------
Total current assets 367,191 373,269
Property and equipment, net 265,038 289,317
Other assets 15,303 16,370
------------ -----------
Total assets $647,532 $678,956
============ ===========
Liabilities and Capital Deficiency
Current Liabilities:
Cash overdraft $ - $ 77,693
Accounts payable 407,522 422,252
Accrued expenses 157,734 167,661
Customer deposits and other 34,768 48,568
Current portion of capital lease obligations 20,960 20,960
Note payable to bank 525,000 250,000
Note payable to shareholder 150,000 150,000
Note payable to former shareholder 294,756 294,756
------------ -----------
Total current liabilities 1,590,740 1,431,890
Notes payable to QIP, a shareholder 2,907,342 2,821,396
Capital lease obligations 6,956 12,851
------------ -----------
Total liabilities 4,505,038 4,266,137
------------ -----------
Contingencies
Capital Deficiency:
Preferred Stock, $.001 par value,
500,000 shares authorized - -
Common Stock, $.001 par value,
20,000,000 shares authorized,
5,223,493 issued and outstanding 5,223 5,223
Additional paid-in-capital 7,309,201 7,309,201
Unearned compensatory options - (2,560)
Loans and subscriptions receivable, net (22,931) (22,931)
Accumulated deficit (11,148,999) (10,876,114)
------------ -----------
Total capital deficiency (3,857,506) (3,587,181)
------------ -----------
Total liabilities and capital deficiency $ 647,532 $ 678,956
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
Puradyn Filter Technologies Incorporated
Condensed Statements of Operations
For the Three Months Ended March 31, 1998 and 1999
(Unaudited)
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net sales $ 194,723 $ 129,814
Cost of sales 192,365 119,202
-------------- --------------
Gross profit 2,358 10,612
-------------- --------------
Operating expenses:
Selling 600,637 73,394
General and administrative 271,052 95,073
Engineering and development 76,232 14,121
-------------- --------------
Total operating expenses 947,921 182,588
-------------- --------------
Operating loss (945,563) (171,976)
-------------- --------------
Other income (expense):
Interest expense (75,999) (101,190)
Interest income 4,909 281
-------------- --------------
Total other income (expense) (71,090) (100,909)
-------------- --------------
Net loss $(1,016,653) $ (272,885)
============== ==============
Basic and diluted loss per common share $ (.20) $ ( .05)
============== ==============
Weighted average common shares outstanding 5,206,235 5,223,493
============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
Puradyn Filter Technologies Incorporated
Condensed Statements of Changes in Capital Deficiency
For The Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Unearned Total
------------------ Paid-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)
Amortization of unearned
Compensation 2,560 2,560
Net loss (272,885) (272,885)
---------- ------- ------------- -------- ----------- ------------- ------------
Balance at March 31, 1999 5, 223,493 $5,223 $7,309,201 - $(22,931) $(11,148,999) $(3,857,506)
========== ======= ============= ======== =========== ============= ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
Puradyn Filter Technologies Incorporated
Condensed Statements of Cash Flows
Three Months Ended March 31, 1998 and 1999
(Unaudited)
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Operating activities:
Net loss $(1,016,653) $ (272,885)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 33,899 24,279
Deferred interest on notes payable to QIP 71,000 85,946
Amortization of compensatory stock options 3,360 2,560
Changes in operating assets and liabilities:
Trade accounts receivable, net 15,270 (5,123)
Inventories 41,564 36,362
Prepaid expenses and other current assets 56,690 (2,743)
Other assets 5,651 (466)
Accounts payable 41,227 (14,730)
Accrued expenses 148,732 (9,927)
Customer deposits and other (2,496) (13,800)
Deferred rent (2,636) --
----------- -----------
Net cash used in operating activities (604,062) (170,528)
----------- -----------
Investing activities:
Purchases of property and equipment (29,906) --
----------- -----------
Financing activities:
Proceeds from exercise of stock options, net 1,000 --
Proceeds from note payable issued to QIP 500,000 --
Collection of loans receivable 10,000 --
Proceeds from bank loan payable -- 275,000
Increase in deferred issuance and financing costs (16,868) 1,533
Payment of notes payable and capital lease obligations (9,769) (5,895)
Payment of note payable to former shareholder (103,769) --
Borrowing from investee, net 3,138 --
----------- -----------
Net cash provided by financing activities 383,732 270,638
----------- -----------
Decrease in cash and cash equivalents (250,236) 100,111
Cash and cash equivalents at beginning of period 252,874 (77,693)
----------- -----------
Cash and cash equivalents at end of period $ 2,638 $ 22,418
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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 March 31, 1999 and for the
three month period ended March 31, 1998 and 1999 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 (formerly known as T/F
Purifiner, Inc.) ("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 ended March 31, 1999 is 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 have 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, and an additional $250,000 in August 1998 from its bank which
was secured by substantially all of the Company's assets 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 bank loan balance is due in August 1999.
The Company needs to complete additional financing in 1999 to continue its
operations, however 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, a number of events occurred. In late March 1998, several key
employees were either terminated or resigned from their positions with the
Company, and one of the Company's co-founders, Richard C. Ford, returned to the
Company. In late June 1998 the company hired a new president who, with Mr. Ford,
also serves on the Company's Board of Directors. At the same time in 1998, the
Company curtailed its operations and reduced its workforce to key personnel in
order to reduce expenses and reduce the amount of cash required to maintain
operations of the Company while it began to seek to arrange additional
financing. The report of the Company's independent auditors as of December 31,
1997 and 1998 includes 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 obtain additional
financing. The inability to obtain additional financing when needed would 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 March 31, 1999, inventories consist of the following:
Raw materials $276,766
Finished goods 28,311
Supplies 1,000
-----------
Total inventories $306,077
===========
3. Contingencies
In February 1997, a patent holder filed an action against the Company for non
payment of approximately $21,000 of unpaid royalties claimed by him and seeking
a permanent injunction against the Company's manufacturing and selling of the
covered Purifiner products. On March 2, 1999, the trial court ruled that the
patent owner was not entitled to any injunctive relief and was entitled to
$20,000 in past royalties.
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 obtaining the manufacturing and
marketing rights to the Purifiner for Systems and the Company. Systems was
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. 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. Joint Venture
Effective January 1, 1996, the Company entered into a joint venture agreement
whereby such venture, TF Purifiner Ltd. ("Ltd"), will sell and distribute the
Company's product in Europe, the Middle East and certain African countries. The
Company has an approximate 45% interest in Ltd's operations (50% voting
interest) and is accounting for Ltd using the equity method. The Company is not
required to fund Ltd which was initially capitalized with approximately $88,000
provided by one of its shareholders. The Company is commencing to negotiate with
Ltd's other 45% shareholder (Centrax Ltd) relating to the ownership/licensing of
various pending patents filed by Centrax, as well as other matters, including
the possible discontinuation of the joint venture with Centrax. The ultimate
outcome of these negotiations cannot be determined at this time. For the three
months ended March 31, 1998 and 1999, the Company sales to Ltd were
insignificant.
7
<PAGE>
5. Notes Payable to Shareholder
On May 21, 1998 and on June 24, 1998, Richard C. Ford, Chairman of the Board of
Directors, Chief Executive Officer and significant shareholder of the Company,
loaned the Company $110,000 and $40,000, respectively. For each loan, the
Company issued notes payable due one year from the date of issuance at 12%
interest and secured by accounts receivable and inventories.
6. Note Payable to Bank
On August 21, 1998, the Company borrowed $250,000 from its bank under a
revolving note payable due one year from the date of issuance with interest at
8.75%, payable monthly. The note is secured by substantially all assets of the
Company and guaranteed by Richard C. Ford. On January 21, 1999, the Company
converted is loan with the bank to a $350,000 revolving line of credit with
interest at the bank's prime rate (7.75% at inception). The collateral and
guarantee remained the same. On January 21, 1999, the Company borrowed an
additional $100,000 under the new revolving line of credit. On March 25, 1999,
the company renegotiated its revolving line of credit to increase the amount to
$575,000 and extend the repayment date to March 25, 2000. The interest rate,
collateral and guarantee remained the same. The company borrowed an additional
$175,000 to increase the aggregate borrowing to $575,000.
7. 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. As of December 31, 1998 future payments due January 31 each year were:
1999-$105,512, 2000-$104,328 and 2001-$84,916. However, the Company did not make
the required payment 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 has
been classified as current as of March 31, 1999.
8. 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.
Interest is payable quarterly commencing April 1, 1998, provided however 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 March 31, 1999. Such unpaid interest bears interest at 15% and
is payable on demand. Such aggregate deferred interest at March 31, 1999 is
$407,342. The Note is senior to all indebtedness of the Company, except bank or
financial institution debt. The Note 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
8
<PAGE>
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 March 31, 1998, the Company has reserved 1,057,342 shares of its Common
Stock for issuance under the conversion provisions of the notes.
9. 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.
Accordingly, the Company's presentation of diluted earnings per share is the
same as that of basic earnings per share in both periods presented.
9
<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 limited 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.
In terms of marketing 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.
10
<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 has found short-term sources of cash to fund operations in 1998 and
early in 1999, however, the Company needs to complete additional 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 Ended March 31, 1999 Compared to the
Three Months Ended March 31, 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 ended March 31, 1999
("1999") to the three months ended March 31, 1998 ("1998"), in thousands.
Three Months Ended March 31,
(in thousands)
-------------------------------
Increase
1998 1999 (Decrease)
---- ---- ----------
Net sales $ 195 $ 130 $ (65)
------- ------- -------
Operating costs and expenses:
Cost of sales 192 119 (73)
Selling expenses 601 74 (527)
General and administrative expenses 271 95 (176)
Engineering and development 76 14 (62)
------- ------- -------
Total operating costs and expenses 1,140 302 (838)
------- ------- -------
Operating loss (945) (172) (773)
Interest (expense) and income (71) (101) 30
------- ------- -------
Net loss $(1,016) $ (273) $ (743)
======= ======= =======
Net Sales. Net sales decreased by approximately $65,000 from $194,723 in 1998 to
$129,814 in 1999. 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.
Cost of Sales. Cost of sales decreased by approximately $73,000 from $192,365 in
1998 to $119,202 in 1999. The Company's gross margin increased slightly from
1.2% to 8.2% in 1999. The gross margin increase was due to decreases in certain
of the costs associated with excess manufacturing capacity. Unless the Company
can increase its revenues, its gross margins will continue to be adversely
affected by its excess fixed cost manufacturing capacity.
11
<PAGE>
Selling Expenses. Selling expenses decreased by approximately $527,000 from
$600,637 in 1998 to $73,394 in 1999. 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
decreased by approximately $176,000 from $271,052 in 1998 to $95,073 in 1999. 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 $62,000 from $73,232 in 1997 to $14,121 in 1999. This
decrease was primarily the result of decreased personnel costs.
Interest Expense and Income. Interest expense increased by approximately $25,000
from $75,999 in 1998 to $101,190 in 1999. 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 in
the amount of $250,000. Interest income decreased by approximately $4,600 from
$4,909 in 1998 to $281 in 1999 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 May and June 1998, the Company borrowed $150,000
from Richard C. Ford and an additional $250,000 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 $575,000 is due in March 2000. The
Company needs to complete additional financing in 1999 to continue its
operations, however 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.
12
<PAGE>
At March 31, 1999, the Company had negative working capital of $1,380,000 and
its current ratio (current assets to current liabilities) was .21 to 1.00. At
March 31, 1999, the Company owed approximately $472,000 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. One creditor, who claims to be owed approximately $75,000,
initiated suit against the Company in early 1998 which the Company is seeking to
defend based, in part, on what is believed to be excessive charges alleged by
this creditor. There can be no assurances that creditors will continue to
provide service to the Company or that other creditors will continue to refrain
from initiating lawsuits against the Company in the future.
The Company continues to seek both short-term and long-term investment
commitments from various institutions and investor groups. On March 25, 1999,
the Company renegotiated the Revolving Note Agreement with its bank to increase
it to $525,000 with interest at 7.75%. The Note is secured by substantially all
of the Company's assets, guaranteed by Richard C. Ford and is due August 21,
1999. 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 additional financing from either members of management, its bank or other
investors. 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.
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.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 3, 1998, the Company obtained the written consent of the holders of
a majority in interest of the Common Stock of the Company approving that the
Certificate of Incorporation of T/F Purifiner, Inc. be amended to change the
name of the Company to Puradyn Filter Technologies Incorporated. Such consent
was obtained in lieu of a special meeting of stockholders in accordance with
Section 228 of the Delaware General Corporation Law. A total of 2,904,948 shares
voting for the name change were obtained or 55.8% of the Common Stock
outstanding on the record date of December 22, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
Exhibit 27 - Financial Data Schedule (Electronic filing only)
b) Reports on Form 8-K.
On January 6, 1999 and February 9, 1999, the Company filed reports on
Form 8-K and Form 8-K/A reporting a change in its certifying
accountant from Richard A. Eisner & Company, LLP to Durland &
Company.
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)
Date: May , 1999
By /s/ Alan J. Sandler
--------------------------------------
Alan J. Sandler
President and Chief Accounting Officer
14
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0
0
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