0000943440-12-000551.txt : 20120515 0000943440-12-000551.hdr.sgml : 20120515 20120515172550 ACCESSION NUMBER: 0000943440-12-000551 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120515 DATE AS OF CHANGE: 20120515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PURADYN FILTER TECHNOLOGIES INC CENTRAL INDEX KEY: 0001019787 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 141708544 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11991 FILM NUMBER: 12846271 BUSINESS ADDRESS: STREET 1: 2017 HIGH RIDGE ROAD CITY: BOYNTON BEACH STATE: FL ZIP: 33426 BUSINESS PHONE: 5615479499 MAIL ADDRESS: STREET 1: 2017 HIGH RIDGE ROAD CITY: BOYNTON BEACH STATE: FL ZIP: 33426 FORMER COMPANY: FORMER CONFORMED NAME: T F PURIFINER INC DATE OF NAME CHANGE: 19960726 10-Q 1 pfti10q.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: March 31, 2012

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

(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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

þ

 Yes

¨

 No

 

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

 

 

Large accelerated filer

¨

 

 

Accelerated filer

¨

 

Non-accelerated filer

¨

 

 

Smaller reporting company

þ

 

 

 

 

 

 

 

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

¨

 Yes

þ

 No

 

 

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 47,181,973 shares of common stock are issued and outstanding as of May 14, 2012.

 

 





TABLE OF CONTENTS


Page No.

PART I. - FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS.

4


Condensed Consolidated Balance Sheets – As of March 31, 2012 (unaudited) and

December 31, 2011

4


Condensed Consolidated Statements of Operations – Three months ended March 31, 2012

and 2011 (unaudited)

5


Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2012

and 2011 (unaudited)

6


Condensed Consolidated Statements of Comprehensive Income – Three months ended

March 31, 2012 and 2011 (unaudited)

7


Condensed Consolidated Statements of Changes In Stockholders’ Deficit – Three months ended

March 31, 2012 (unaudited)

8


Notes to Condensed Consolidated Financial Statements (Unaudited)

9


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS.

15


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

22


ITEM 4.

CONTROLS AND PROCEDURES.

23


PART II. - OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.

24


ITEM 1A.

RISK FACTORS.

24


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

24


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

24


ITEM 4.

MINE SAFETY DISCLOSURE.

24


ITEM 5.

OTHER INFORMATION.

24


ITEM 6.

EXHIBITS.

25

 







2


OTHER PERTINENT INFORMATION


Our 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, and our subsidiaries.


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,

·

our ability to generate net sales in an amount to pay our operating expenses,

·

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

·

our ability to repay the outstanding debt of $7.6 million at March 31, 2012 due our Chairman and CEO,

·

our reliance on sales to a limited number of customers,

·

our dependence on a limited number of distributors,

·

our ability to compete,

·

our ability to protect our intellectual property,

·

market overhang issues, and

·

the application of penny stock rules to the trading in our 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, 2011, including the risks described in Part I. Item 1A. Risk Factors, together with 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.



3


PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

March 31,
2012

 

December 31
2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

     

 

                    

     

 

                    

 

Cash

 

$

44,866

 

$

51,152

 

Accounts receivable, net of allowance for uncollectible accounts of $25,039 and $24,355, respectively

 

 

315,869

 

 

309,962

 

Inventories, net

 

 

645,612

 

 

677,127

 

Prepaid expenses and other current assets

 

 

86,494

 

 

46,538

 

Total current assets

 

 

1,092,841

 

 

1,084,779

 

Property and equipment, net

 

 

106,375

 

 

97,013

 

Other noncurrent assets

 

 

111,244

 

 

111,244

 

Deferred financing costs, net

 

 

2,230

 

 

2,945

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,312,690

 

$

1,295,981

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

211,481

 

$

204,422

 

Accrued liabilities

 

 

1,473,759

 

 

1,414,279

 

Current portion of capital lease obligation

 

 

6,982

 

 

2,800

 

Notes Payable - stockholders

 

 

100,000

 

 

100,000

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

1,792,222

 

 

1,721,501

 

 

 

 

 

 

 

 

 

Capital lease obligation, less current portion

 

 

17,006

 

 

10,042

 

 

 

 

 

 

 

 

 

Notes Payable -  stockholder

 

 

7,649,017

 

 

7,429,017

 

 

 

 

 

 

 

 

 

Total Long Term Liabilities

 

 

7,666,023

 

 

7,439,059

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

9,458,245

 

 

9,160,560

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

—

 

 

—

 

 

 

 

 

 

 

 

 

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 – 47,148,639 and 46,830,504, respectively

 

 

47,148

 

 

46,830

 

Additional paid-in capital

 

 

46,521,779

 

 

46,459,374

 

Notes receivable from stockholders

 

 

(756,250

)

 

(790,785

)

Accumulated deficit

 

 

(53,958,232

)

 

(53,726,253

)

Accumulated other comprehensive income

 

 

—

 

 

146,255

 

 

 

 

 

 

 

 

 

Total stockholders’ deficit

 

 

(8,145,555

)

 

(7,864,579

)

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

$

1,312,690

 

$

1,295,981

 



See accompanying notes to unaudited condensed consolidated financial statements


4


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

 

 

For the

Three Months Ended

March 31

 

 

 

2012

 

2011

 

Net sales

 

$

751,502

 

$

883,392

 

 

 

 

 

 

 

 

 

Costs and expenses:

     

 

                    

     

 

                    

 

Cost of products sold

 

 

572,219

 

 

589,174

 

Salaries and wages

 

 

282,200

 

 

274,163

 

Selling and administrative

 

 

235,552

 

 

305,647

 

Total Operating Costs

 

 

1,089,971

 

 

1,168,984

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(338,469

)

 

(285,592

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Realized gain on foreign currency

 

 

146,255

 

 

—

 

Interest expense

 

 

(39,765

)

 

(40,845

)

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

106,490

 

 

(40,845

)

 

 

 

 

 

 

 

 

Net loss before income tax expense

 

 

(231,979

)

 

(326,437

)

 

 

 

 

 

 

 

 

Income tax expense

 

 

—

 

 

—

 

 

 

 

 

 

 

 

 

Net loss

 

$

(231,979

)

$

(326,437

)

 

 

 

 

 

 

 

 

Earnings per share – basic and diluted:

 

 

 

 

 

 

 

Net (loss) from operations

 

$

(0.01

)

$

(0.01

)

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding          

 

 

47,053,799

 

 

46,393,553

 




See accompanying notes to unaudited condensed consolidated financial statements


5


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

 

For the

Three Months Ended

March 31

 

 

 

2012

 

2011

 

Operating activities

   

 

                    

     

 

                    

 

Net loss

 

$

(231,979

)

$

(326,437

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,146

 

 

11,848

 

Realized gain on foreign currency adjustment

 

 

(146,255

)

 

—

 

Provision for bad debts

 

 

684

 

 

244

 

Amortization of deferred financing costs included in interest expense

 

 

125

 

 

252

 

Deferred compensation

 

 

46,797

 

 

47,431

 

Compensation expense on stock-based arrangements with employees, consultants, investors and vendors

 

 

57,915

 

 

61,902

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,591

)

 

(304,942

)

Inventories

 

 

31,515

 

 

(15,412

)

Prepaid expenses and other current assets

 

 

(39,956

)

 

29,876

 

Accounts payable

 

 

7,059

 

 

207,125

 

Accrued liabilities

 

 

12,683

 

 

40,531

 

Deferred revenues

 

 

—

 

 

(1,772

)

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(255,857

)

 

(249,354

)

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(21,508

)

 

(5,032

)

Net cash used in investing activities

 

 

(21,508

)

 

(5,032

)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Additions to deferred financing costs

 

 

590

 

 

—

 

Proceeds from sale of common stock

 

 

—

 

 

100,000

 

Proceeds from exercise of warrants

 

 

4,808

 

 

—

 

Proceeds from issuance of notes payable to stockholder

 

 

220,000

 

 

150,000

 

Proceeds from shareholder note receivable

 

 

34,535

 

 

—

 

Borrowings on capital lease

 

 

12,569

 

 

—

 

Payment of capital lease obligations

 

 

(1,423

)

 

(1,142

)

Net cash provided by financing activities

 

 

271,079

 

 

248,858

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

—

 

 

464

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(6,286

)

 

(5,064

)

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

51,152

 

 

49,813

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

44,866

 

$

44,749

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

35,339

 

$

39,067

 



See accompanying notes to unaudited condensed consolidated financial statements


6


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


 

 

Three Months Ended

March 31,

 

 

 

2012

 

 

2011

 

Net loss from operations

  

$

(231,979

)

  

$

(326,437

)

Other comprehensive income (loss):

   

 

                    

 

     

 

                    

 

Foreign currency translation adjustment

  

  

(146,255

)

  

  

464

  

Other comprehensive income

  

  

—

  

  

  

464

  

Total comprehensive income (loss)

  

$

(378,234

)

  

$

(325,973

)




See accompanying notes to unaudited condensed consolidated financial statements


7


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(UNAUDITED)

 

 

 

 

 

 

Additional

Paid-in

Capital

 

Notes

Receivable

From

Stockholder

 

Accumulated

Deficit

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Total

Stockholders'

Deficit

 

 

 

 

Common Stock

Shares

 

Amount

Balance at December 31, 2011

     

 

46,830,504

     

$

46,830

     

$

46,459,374

     

$

(790,785

)

$

(53,726,253

)     

$

146,255

     

$

(7,864,579

)

Foreign currency translation adjustment

 

 

—

 

 

—

 

 

—

 

 

—

     

 

—

     

 

(146,255

)

 

(146,255

)

Net loss

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(231,979

)

 

—

 

 

(231,979

)

Total comprehensive loss

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(378,234

)

Common stock issued for private placement, net of issuance costs

 

 

(361

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Issuance of shares and warrants to vendors

 

 

82,436

 

 

82

 

 

11,918

 

 

—

 

 

—

 

 

—

 

 

12,000

 

Exercise of stock warrants

 

 

236,060

 

 

236

 

 

4,572

 

 

—

 

 

—

 

 

—

 

 

4,808

 

Payment of notes receivable from stockholders

 

 

—

 

 

—

 

 

—

 

 

34,535

 

 

—

 

 

—

 

 

34,535

 

Compensation expense associated with unvested option awards

 

 

—

 

 

—

 

 

45,915

 

 

—

 

 

—

 

 

—

 

 

45,915

 

Balance at March 31, 2012

 

 

47,148,639

 

$

47,148

 

$

46,521,779

 

$

(756,250

)

$

(53,958,232

)

 

—

 

$

(8,145,555

)


.



See accompanying notes to unaudited condensed consolidated financial statements


8


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

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

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 period ended March 31, 2012 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2012.

For further information, refer to Puradyn Filter Technologies Incorporated’s (the “Company”) consolidated financial statements and footnotes thereto included in the Form 10-K for the year ended December 31, 2011.

Since its formation June 1, 2000, Puradyn Filter Technologies, Ltd. (“Ltd.”), the Company’s United Kingdom subsidiary, has been included in the Company’s condensed consolidated financial statements. In March, 2009, Ltd’s office in the UK was closed and all assets, except for bank cash accounts, were transferred to the United States. Effective January, 2012, Ltd., ceased as a legal entity and all cash accounts were closed.

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 condensed financial statements and accompanying notes. Actual results could differ from those estimates.

Basic and Diluted Loss Per Share

FASB ASC 260, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share totaled 6,925,507 and 6,750,842 for the three months ended March 31, 2012 and 2011, respectively.

Stock Compensation

The Company 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, 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 for the periods ended March 31, 2012 and March 31, 2011 have been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying Condensed Consolidated Financial Statements.

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 718 and FASB ASC 505 Equity, including related amendments and interpretations. The related expense is recognized over the period the services are provided.

Inventories

Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending inventories at a rate based on estimated production capacity and any 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.



9


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Inventories consisted of the following at March 31, 2012 and December 31, 2011, respectively:

 

 

March 31

2012

 

December 31,

2011

 

 

 

(unaudited)

 

 

 

Raw materials

 

$

821,525

 

$

885,781

 

Work In Progress

 

 

11,199

 

 

3,222

 

Finished goods

 

 

156,063

 

 

134,016

 

Valuation allowance

 

 

(343,175

)

 

(345,892

)

Inventory, net

 

$

645,612

 

$

677,127

 


Deferred Financing Costs

The Company capitalizes financing costs and amortizes them using the straight-line method, which approximates the effective interest method, over the term of the related debt. Amortization of deferred financing costs is included in interest expense and totaled $715 and $252 for the three-months ended March 31, 2012 and 2011, respectively.  Accumulated amortization of deferred financing costs as of March 31, 2012 and 2011 was $681,369 and $679,389, respectively.

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 in accordance with FASB ASC 605, Revenue Recognition, as amended and interpreted. 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 condensed consolidated 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.

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 consolidated financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the three months ended March 31, 2012, there was no change to the reserve for warranty liability as the reserve balance was 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 three-months ended March 31, 2012:

Balance as of December 31, 2011

     

$

20,000

 

Less: Payments made

 

 

—

 

Add:  Provision for current period warranties

 

 

—

 

Balance as of March 31, 2012 (unaudited)

 

$

20,000

 




10


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Comprehensive Income

FASB ASC 220, Comprehensive Income establishes rules for reporting and displaying of comprehensive income and its components. Comprehensive income is the sum of net loss as reported in the consolidated statements of operations and other comprehensive income transactions. Other comprehensive income transactions that currently apply to the Company result from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary, Puradyn Filter Technologies, Ltd. (“Ltd.”). Comprehensive loss as of March 31, 2011 is not shown net of taxes because the Company’s deferred tax asset has been fully offset by a valuation allowance. There was no comprehensive income or loss attributable to the three months ended March 31, 2012 as Ltd’s business license was surrendered with the British authorities in January, 2012 and all accounts were closed.

Comprehensive loss consisted of the following for the three-months ended March 31, 2012 and 2011:

 

 

Three Months Ended

March 31

 

  

 

2012

 

 

2011

 

 

 

(unaudited)

 

 

(unaudited)

 

Net loss

 

$

(231,979

)

 

$

(326,437

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(146,255

)

 

 

464

 

Comprehensive loss

 

$

(378,234

)

 

$

(325,973

)


New Accounting Pronouncements

During the three months ended March 31, 2012 there were no new accounting pronouncements that were deemed to have a material impact on the Company’s financial results.

Reclassifications

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

2.

Going Concern

The Company's 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 used net cash in operations of $255,857 and $249,354 during the three-months ended March 31, 2012 and 2011, respectively. As a result, the Company has had to rely principally on private equity investments, including the conversion of debt into stock, as well as stockholder loans to fund its activities to date.

These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from an institutional investor and current stockholder led the Company’s independent registered public accounting firm, Webb & Company, P.A., to include a statement in its audit report relating to the Company’s audited consolidated financial statements for the year ended December 31, 2011 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.

The Company has been addressing the liquidity and working capital issues and continues to attempt to raise additional capital with institutional and private investors and current stockholders. Cost reductions were and continue to be implemented by the Company, including acquiring alternative suppliers for raw materials and volume purchase discounts when appropriate. The Company expects to see results from these reductions, as well as other cost reduction plans through 2012.  





11


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


3.

Common Stock


As partial compensation per an agreement dated May 19, 2011 for consultant work, the Company issued to Monarch Communications, Inc. the following:

·

On January 12, 2012, 26,667 shares of its common stock valued at $0.15 per share

·

On February 27, 2012, 26,667 shares of its common stock valued at $0.15 per share.

·

On March 6, 2012, 30,769 shares of its common stock valued at $0.13 per share.

·

On March 30, 2012, 25,000 shares of its common stock valued at $0.16 per share

On January 31, 2012, the Company issued 50,000 shares of its common stock valued at $0.175 per share to outside counsel as compensation for legal work throughout 2010-2011.

On March 20, 2012 the Company received payment of $4,808 in connection with the exercise of previously issued warrants.  In connection with this payment, the Company will issue 28,846 shares of its common stock valued at $0.17 per share.

4.

Stock Options


During the three-month periods ending March 31, 2012 and 2011, the Company recorded no direct stock-based compensation expense.


On March 30, 2012 an aggregate amount of 905,000 incentive stock options were awarded to certain employees as partial payment for their services to the Company.


For the three months ended March 31, 2012 and March 31, 2011, respectively, the Company recorded stock-based compensation expense of $45,915 and $43,902, relating to unvested employee stock options.   


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 March 31, 2012 and 2011 for the options is $308,812 and $354,750, respectively, and will be recognized through March 30, 2015.


A summary of the Company’s stock option plans as of March 31, 2012, and changes during the three month period then ended is presented below:  


 

 

Three Months Ended

March 31, 2012

 

  

 

Number of Options

 

 

Weighted Average

Exercise Price

 

Options outstanding at December 31, 2011

 

 

2,993,972

 

 

$

.37

 

Options granted

 

 

905,000

 

 

 

.14

 

Options exercised

 

 

—

 

 

 

—

 

Options cancelled

 

 

—

 

 

 

—

 

Options expired

 

 

10,000

 

 

 

.37

 

Options at end of period

 

 

3,888,972

 

 

 

.32

 

Options exercisable at March 31, 2012

 

 

1,720,528

 

 

 

.46

 




12


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Changes in the Company’s unvested options for the three months ended March 31, 2012 are summarized as follows:


 

 

Three Months Ended

March 31, 2012

 

  

 

Number of Options

 

 

Weighted Average

Exercise Price

 

Nonvested options at December 31, 2011

 

 

1,561,699

 

 

$

.25

 

Options granted

 

 

905,000

 

 

 

.14

 

Options vested

 

 

298,255

 

 

 

.26

 

Options forfeited

 

 

—

 

 

 

—

 

Nonvested options  at March 31, 2012

 

 

2,168,444

 

 

$

.14

 


 

 

 

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

 

$

0.11 – $1.70

 

 

 

3,844,972

 

 

 

4.07

 

 

$

.30

 

 

 

1,676,528

 

 

$

.26

 

$

1.99 – $2.60

 

 

 

44,000

 

 

 

1.08

 

 

 

2.31

 

 

 

44,000

 

 

 

2.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

3,888,972

 

 

 

5.87

 

 

$

.32

 

 

 

1,720,528

 

 

$

.46

 


A summary of the Company’s warrant activity as of March 31, 2012 and changed during the three month period then ended is presented below:


 

 

Three months ended

March 31, 2012

 

  

 

Weighted Average Exercise

 

  

 

Options

 

 

Price

 

Warrants outstanding at December 31, 2011

 

 

4,096,476

 

 

$

.97

 

Granted

 

 

 

 

 

 

 

 

Exercised

 

 

196,718

 

 

 

.20

 

Expired

 

 

 

 

 

 

 

 

Warrants outstanding at March 31, 2012

 

 

3,899,758

 

 

$

.77

 


 

 

 

Warrants Outstanding

 

Range of Exercise Price

 

 

Number Outstanding

 

 

Remaining Average Contractual Life (In Years)

 

 

Weighted Average Exercise Price

 

$

0.16 – $0.75

 

 

 

2,446,483

 

 

 

2.74

 

 

$

.48

 

$

1.25

 

 

 

1,453,275

 

 

 

1.20

 

 

 

1.25

 

Totals

 

 

 

3,899,758

 

 

 

2.32

 

 

$

.77

 


5.

Notes Payable to Stockholder


Beginning on March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and an executive officer, to fund up to $6.1 million. Under the terms of the agreements, 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 (1.696% per annum at December 31, 2011), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or 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, 2013.



13


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


At March 31, 2012 the Company had drawn the full funding amount under the agreement of $6.1 million plus an additional $1,299,017. Additionally, the stockholder has loaned the Company $250,000 directly, for a total amount due of $7,649,017.  At March 31, 2011, the Company had drawn the full funding amount of $6.1 million under the funding agreement plus an additional $1,299,017, plus a direct loan of $30,000.

Additionally, the Company has loans outstanding from one board member, who is also a significant stockholder, totaling $100,000 at March 31, 2012 and 2011. The outstanding debt obligation at March 31, 2012 matures January 1, 2013 and is included in Current Liabilities.

For the three-months ended March 31, 2012 and 2011, the Company recorded $38,495 and $40,421, respectively, of interest expense related to the notes payable to both the stockholder and the board member, as noted above, which is included in interest expense in the accompanying condensed consolidated statements of operations.


6.

Commitments and Contingencies


On October 20, 2009, we entered into a consulting agreement with Boxwood Associates, Inc., whereby we pay $2,000 monthly for management and strategic development services performed. The contract will remain in effect until terminated by either party providing 30 days’ written notice. Mr. Telesco, a member of our board of directors, is the President of Boxwood Associates, Inc.

On May 19, 2011, we entered into a consulting agreement with Monarch Communications, Inc. for services rendered as public relations firm and media relations consultants for the Company. The term of the agreement is for twelve months. As compensation for their services, Monarch will receive a fee of $6,000 per month, payable as $2,000 cash and $4,000 in shares of common stock. Either party may terminate the agreement with 30 days’ notice. The recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

7.

Subsequent Events


On April 5, 2012, the Company issued 28,846 shares of common stock valued at $0.17 per share to a warrant holder in connection with an exercise of previously issued warrants.  


On April 5, 2012, the Company issued 207,214 shares of common stock valued at $0.17 per share to a warrant holder in connection with an exercise of previously issued warrants.  


On April 19, 2012 the Company issued 33,334 shares of common stock valued at $0.12 per share to Monarch Communications, Inc. as partial compensation per an agreement dated May 19, 2011 for consultant work.


On April 6, 2012 the executive officer, director and stockholder advanced an additional $100,000 to the Company for working capital purposes.





14




ITEM 2.

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


Overview


Sales of the Company’s products, the puraDYN® bypass oil filtration system and replaceable filter elements will depend principally upon end user demand for such products and acceptance of the Company’s products by OEMs. 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 for the Company’s existing and proposed 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. As a result of our limited resources, we have not had adequate funds available to undertake these necessary marketing efforts.

To our knowledge, currently no bypass oil filtration system has captured a substantial share of the market. We believe we are in a unique position to capitalize on the growing acceptance of bypass oil filtration given that our product and our Company are positioned as, including, but not limited to:

·

A competitively priced, value-added product based on an advanced, patented technology;

·

An alternative solution to the rising costs and national concerns over dependence on foreign oil and the growing trend toward ‘greening’ of existing technologies.

·

Providing an operational maintenance solution to end users in recognition of existing and reasonably foreseeable federal environmental legislation such as new regulation affecting diesel engines and diesel fuels, mandating cleaner diesel engines which first went into effect January 1, 2007. Additional and more stringent legislation went into effect in 2010.  

·

Providing significant operational savings which will reduce engine life cycle costs

·

Providing potential fuel efficiency due to a reduction of friction in the engine components from continuously clean lubricating oil.

We focus our sales strategy on end user fleet sales and distribution efforts as well as on the development of a nationwide distribution network that will not only sell but also install and support our product. We currently have over 100 active distributors in the U.S. and internationally. The number of distributors will frequently change as we add new distributors as well as when OEMs come onboard with their distribution network.

We continue to focus our sales and marketing efforts to target industries open to innovative methods to reduce oil maintenance operating costs. These industries are searching for new and progressive ways to maintain their equipment, including bypass oil filtration. This strategy includes focus on:

·

The expansion of existing strategic relationships we have with John Deere, Avis, and others;

·

Continued development and expansion of our distribution network with distributors who have an established customer base;

·

Continued development of relationships with identified and targeted market segment OEMs;

·

Creating customer ‘pull-through’, a sustained level of request for our product on the OEM level; and

·

Initiating and monitoring customer evaluations for conversion into sales, both immediate and long term.

While this is a long-term and ongoing commitment, we believe we have achieved a limited amount of product acceptance based on recent accomplishments:

·

September 2011 announcement that the Company has named a supplier of its Puradyn system for engines to John Deere for Construction and Forestry products. The product was selected after over four years of evaluation and testing.

·

Increased activity in the open pit mining industry.

·

Increased activity in Europe, Asia, and South and Central America.



15




We believe that the renewed interest shown in our bypass oil filtration technology as an economic alternative to combat significantly rising oil prices, dependence upon foreign oil, coupled with the added benefits of being environmentally beneficial and a means to conserve oil, has timely and favorably positioned the Company as a manufacturer of a cost efficient “green” product.

Our customers have found that bypass oil filtration technology affords the same benefits of the claims made by alternative energy source providers – reduce significant oil consumption and minimize a company’s carbon footprint. The advantages our Company offers vs. alternative energy source providers to existing and potential customers include not having to invest in new equipment; continued use of existing fleet equipment; and offering a relatively low-cost aftermarket product, installation, training, and support.  

Recognizing that a level of oil consumption is not 100% avoidable, we promote our technology as environmentally-friendly in that it provides a practical and more intelligent use of oil as opposed to the accepted norm of oil as a disposable and infinite resource. By keeping engine and hydraulic oil continuously clean, equipment runs at optimum efficiency and the oil can be kept in use, possibly extending the life of the oil by numerous oil drain cycles.

We believe that industry acceptance resulting in sales will continue to grow in 2012; however, there can be no assurance that any of our sales efforts or strategic relationships will meet management’s expectations or result in actual revenues.

The Company’s sales effort not only involves educating the potential customer on the benefits of our product, but also allowing the end-user to test and evaluate the Puradyn system on its fleet equipment. While set for a specific period of time, typically ranging from three to twelve months, evaluations are often influenced by a number of variables including equipment applications downtime or servicing, which may extend the evaluation period. Consequently, the sales cycle can be relatively long; however, the addition of several large engine users and the naming of the Company as an official supplier to John Deere may help in achieving high end user confidence levels to reduce evaluation times.

We believe international sales are especially well suited to our product for a number of reasons, including the fact that lubricating oil products in foreign countries are usually more expensive than in the United States.

Our focus on specific industries several years earlier has continued to pay dividends through 2012, notwithstanding the general recessed economic environment.  These industries demonstrated early signs of recovery from the economy’s current situation, and we are beginning to benefit from their recovery.

Optimizing our limited resources and obtaining sufficient capital is pivotal to accomplishing our goals. We will need to remain focused on working with OEMs, continue developing the independent distributors we have onboard and maintain growth within the specific niche industries using our system. To accomplish these tasks, we may need to obtain capital funding and add appropriate sales and marketing support to be sure our distributors and customers are served. We anticipate the short term need for at least one more sales person plus one sales support person. Expansion into the OEM area is rewarding in that it provides a steady flow of material requirements for our manufacturing facility. Additionally, OEM business allows us more stability in retaining trained manufacturing personnel, a stronger supply chain with steady production, economies of scale, and the ability to better utilize our overhead with higher average material turn rates.

We continue to address our liquidity and working capital issues as we continue to seek to raise additional capital from institutional and private investors and current stockholders. Historically, we have faced difficulties in raising adequate capital and we anticipate that those efforts will continue given the uncertainties facing the capital markets in the U.S. We also continue to implement cost reductions in an effort to improve margins, including securing alternative suppliers for raw materials and manufacturing and we anticipate these cost reductions will impact our results of operations during the balance of 2012 and beyond. We also continue to review cost of material increases, some of which were passed through to our customers as product price increases in the past few years.  As a result of the declining economy, we elected not to implement a yearly price increase in January 2010 and January 2011; however, due to raw material cost increases we could no longer postpone an increase and accordingly issued a price increase in September 2011.



16




Going Concern


Our 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 each year since inception and have relied on the sale of our stock from time to time and loans from third parties and from related parties to fund our operations.  These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from an institutional investor and current stockholder have led our independent registered public accounting firm Webb & Company P.A. to include a statement in its audit report relating to audited consolidated financial statements for the years ended December 31, 2011 and 2010 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 generate profitable operations in the future.  We plan to continue to provide for our capital requirements through the sale of equity securities, however, we have no firm commitments from any third party to provide this financing and we cannot assure you we will be successful in raising working capital as needed.  We are also materially dependent upon loans from related parties to provide working capital. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due, or generate positive operating results.


Critical Accounting Policies and Estimates


Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, financing operations, warranty obligations and contingencies and litigation.  We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.


Allowance for doubtful accounts


We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.  We provide for potential uncollectible accounts receivable based on customer specific identification and historical collection experience. If market conditions continue to 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 is generally net 30 or net 60 days. Once collection efforts by us are exhausted, the determination for charging off uncollectible receivables is made.


Estimation of Product Warranty Cost


We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or costs or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.




17




Inventory and estimation of inventory obsolescence


Inventories are valued at the lower of cost or market using the first in, first out (FIFO) method. Valuation allowances for obsolete and excess inventory and shrinkage are also recorded. Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period. Such estimates are based on experience and the most recent physical inventory results. The valuation allowances for obsolete and excess inventory in multiple stages of processing, requires management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may affect the reported gross margin for the period.


We provide for estimated inventory obsolescence or unmarketable inventory in amounts equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.


Impairment of long-lived assets


We periodically evaluate the recoverability of the carrying amount of our long-lived assets under the guidelines of FASB ASC 360, Property, Plant and Equipment.  Factors that we consider in making this evaluation include estimating the undiscounted net cash flows estimated to result from the assets over their remaining useful life. Should our estimates of these factors change, our results of operations and financial condition could be adversely impacted.


Revenue recognition


Revenue is recognized when earned.  Our revenue recognition policies are in compliance with the provisions issued in FASB ASC 605, Revenue Recognition. Revenue from product sales to customers, distributors and resellers is recorded when products that do not require further services or installation by us are shipped, when there are no uncertainties surrounding customer acceptance and for which collectability is reasonably assured.  We provide for sales returns based on an historical analysis of returns. The estimate is updated for current return activity and the provision is adjusted accordingly. Should actual returns exceed management’s estimates, the provision may require further adjustment and accordingly, net sales may decrease.




18




Results of Operations for the Three-months Ended March 31, 2012 Compared to the Three-months Ended March 31, 2011


The following table sets forth the amount of increase or decrease represented by certain items reflected in the Company's condensed consolidated statements of operations in comparing the three-months ended March 31, 2012 to the three-months ended March 31, 2011:


 

 

Three Months Ended March 31,

 

  

 

2012

 

 

2011

 

 

Change

 

Net sales

 

$

751,502

 

 

$

883,392

 

 

$

(131,890

)

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

 

572,219

 

 

 

589,174

 

 

 

(16,955

)

Salaries and wages

 

 

282,200

 

 

 

274,163

 

 

 

8,037

 

Selling and administrative

 

 

235,552

 

 

 

305,647

 

 

 

(70,095

)

Total costs and expenses

 

 

1,089,971

 

 

 

1,168,984

 

 

 

(79,013

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain on foreign currency

 

 

146,255

 

 

 

—

 

 

 

146,255

 

Interest expense

 

 

(39,765

)

 

 

(40,845

)

 

 

1,080

 

Total other (expense) income

 

 

106,490

 

 

 

(40,845

)

 

 

147,335

 

Net loss

 

$

(231,979

)

 

$

(326,437

)

 

$

94,458

 


Net Sales


Net sales decreased 15% in the first quarter of 2012 as compared to the first quarter of 2011. This decrease resulted from a change in the product mix sold in the current period compared to the same period in the prior year. We experienced a 43% decline in unit sales for the period ended March 31, 2012 compared to March 31, 2011, however kit sales increased 28% during the same comparative periods. Approximately $48,900 of our net sales revenue for the three months ended March 31, 2012, was from the price increase effective September 15, 2011.


We are dependent upon sales to a limited number of customers. Sales to three customers accounted for approximately 24%, 13% and 12%, respectively, of the consolidated net sales for the three-months ended March 31, 2012. For the three-months ended March 31, 2011, sales to two customers accounted for 23% and 22%, respectively, of the consolidated net sales.


Cost of Products Sold


Gross profit, as a percentage of sales, decreased from 33% in the first quarter of 2011 to 24% in the first quarter of 2012.  The increase in cost of goods sold as a percentage of sales is primarily attributable to the price of raw materials, specifically cotton, purchased during the period. We have obtained alternative sources for some of these raw materials and anticipate experiencing improved margins in future periods.


Salaries and Wages


Salaries and wages were 2.9% higher for the quarter ended March 31, 2012 compared to March 31, 2011. On March 30, 2012 we issued stock options to the employees which impacted the expense in 2012. We do not anticipate any further material impact on our salary expense in future periods.




19




Selling and Administrative Expenses


Selling and administrative expenses decreased by 22.9% for the three months ended March 31, 2012 from the comparable period in 2011. This decrease was due to a decrease in investor relations expense and patent costs. The decreases were partially offset by increases in travel and marketing. The decrease in patent costs resulted from lower patent application activity during the three months ended March 31, 2012 compared to 2011. As we increase our reach to international customers and develop more specialized products for niche industries, we anticipate that selling, travel and research and development costs will increase, but all other expenses will remain stable for the balance of the year. The following table lists the major categories of expenses included in Selling and Administrative expenses:


 

 

Three Months Ended March 31,

 

  

 

2012

 

 

2011

 

 

Change

 

Employee Benefits & Payroll

 

$

65,449

 

 

$

64,248

 

 

$

1,201

 

Travel & Marketing

 

 

44,287

 

 

 

36,993

 

 

 

7,294

 

Depreciation & Amortization

 

 

9,424

 

 

 

9,193

 

 

 

231

 

Engineering

 

 

681

 

 

 

2,651

 

 

 

(1,970

)

Professional Fees

 

 

52,060

 

 

 

54,836

 

 

 

(2,776

)

Investor Relations

 

 

314

 

 

 

18,013

 

 

 

(17,699

)

Occupancy Expense

 

 

26,482

 

 

 

27,623

 

 

 

(1,141

)

Patent Expense

 

 

17,036

 

 

 

76,384

 

 

 

(59,348

)

Stock Compensation

 

 

1,423

 

 

 

1,700

 

 

 

(277

)

Bad Debts

 

 

477

 

 

 

—

 

 

 

477

 

Other Expenses

 

 

17,919

 

 

 

14,006

 

 

 

3,913

 

 

     

 

                   

  

     

 

                   

  

     

 

                   

  

Total

 

 

235,552

 

 

$

305,647

 

 

$

(70,095

)


Interest Expense


Interest expense remained relatively constant for the period ending March 31, 2012 as compared to the period ending March 31, 2011 and was incurred primarily on the outstanding balance of the stockholder notes payable. The slight decrease was due to a lower interest rate even though we incurred higher borrowings. The Company pays interest monthly on the notes payable to the stockholder at the LIBOR Daily Floating Rate plus 1.4%, which was a weighted average of 1.97% as of March 31, 2012 as compared to 2.54% as of March 31, 2011.  


Liquidity and Capital Resources


As of March 31, 2012, the Company had cash of $44,866, as compared to $51,152 at December 31, 2011. At March 31, 2012, we had negative working capital of ($699,381) and our current ratio (current assets to current liabilities) was 0.61 to 1.  At December 31, 2011 we had negative working capital of ($636,722) and our current ratio was 0.63 to 1.  The increase in working capital deficit and decrease in current ratio is primarily attributable to the decrease in inventories and increase in accrued liabilities.


We have incurred net losses each year since inception and at March 31, 2012 we had an accumulated deficit of $53,958,232. Our net sales are not sufficient to fund our operating expenses. Historically, we have relied on the sale of our stock from time to time and loans from third parties and from related parties to fund our operations. During the first quarter of 2012 we raised an additional $220,000 from stockholder loans, together with $39,335 from the exercise of options and collection on notes receivable for options and $11,146, net, from a capital lease.  During 2011, we raised a total of $100,000 in capital from an institutional investor and current stockholders. As of March 31, 2012, we owe our principal stockholder who is also an executive officer and director of the Company $7.6 million for funds he has advanced to us from time to time for working capital, and we owe another member of our Board $100,000 for a working capital advance.  Interest expense on these loans was $38,495 for the three months ended March 31, 2012.




20




We do not currently have any commitments for capital expenditures.  Our current cash position is insufficient to cover our current operating needs for the next twelve months, and we do not have any external sources of working capital.  While we anticipate cash flows from 2012 sales activity, additional cash will still be needed to support operations, meet our working capital needs and satisfy our obligations as they become due.  Although we are actively seeking additional equity investments, we have no firm commitments from any third parties and there are no assurances we will be successful in attracting additional capital.  In addition, as set forth above, we owe our stockholder $7.6 million which is due on December 31, 2013 or (i) at such time as we have raised an additional $7 million over the $3.5 million raised in prior offerings, or (ii) at such time as we are operating within sufficient cash flow parameters to sustain operations, or (iii) until a disposition of our company, such as an acquisition or merger, occurs. During the first quarter of 2012 the due date of this note was extended from December 31, 2012 to the current due date of December 31, 2013.  Additionally, we owe one of our board members, who is also a significant stockholder, $100,000 at March 31, 2012 which is due on January 1, 2013.  We do not have sufficient funds to pay these loans when they become due and there are no assurances the note holders will extend the due dates.


We have implemented measures to preserve our ability to operate, including organizational changes, a reduction and/or deferral of salaries, reduction in personnel and renegotiating creditor and collection arrangements. If we are not successful in raising additional capital in the near future, it is possible we will be required to accelerate our contingent plans to more aggressively reduce spending, including drastic reductions in our work force, severe cutbacks in our production facilities and elimination of overhead costs that do not contribute to our level of sales activity. If budgeted sales levels are not achieved and/or significant unanticipated expenditures occur, or if we are not able to raise additional investment capital, we may have to modify our business plan, reduce or discontinue some of our operations or seek a buyer for part of its assets to continue as a going concern through 2012. There can be no assurance that we will be able to raise additional capital or that sales will increase to the level required to generate profitable operations to provide positive cash flow from operations. In that event, it is possible that stockholders could lose their entire investment in our company.  These factors raise substantial doubt about our ability to continue as a going concern.


Cash Flows


Operating activities


For the three-month period ended March 31, 2012 net cash used in operating activities was $255,857, which primarily resulted from the net loss of $231,979.  In addition to the cash used in funding the operating loss, the utilization of cash in operations is also attributable to the increase in prepaid expenses and other current assets in the amount of $39,956.  


For the three-month period ended March 31, 2011 net cash used in operating activities was $249,354, which primarily resulted from the net loss of $326,437.  The utilization of cash in operations is primarily attributable to the increase in accounts receivable in the amount of $304,942 offset by an increase in accounts payable of $207,125.


Investing activities


For the three months ending March 31, 2012, $21,508 was used in investing activities for the purchase of equipment.


For the three months ending March 31, 2011, $5,032 was used in investing activities for the purchase of equipment.




21




Financing activities


Net cash provided by financing activities was $271,079 for the three months ended March 31, 2012, composed of $34,535 in proceeds received from a shareholder note receivable that was issued in connection with an exercise of stock warrants, $4,808 as proceeds from the exercise of stock options, $11,736 from additions to deferred financing and capital lease borrowings and payments and $220,000 in loans from our stockholder as described above. Net cash provided by financing activities was $248,858 for the three months ended March 31, 2011, composed of $100,000 in proceeds received from stock issued for cash and $150,000 in loans from our stockholder as described above, less $1,142 in payment of capital lease obligations.


Critical Accounting Policy

General

The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 1 to the condensed financial statements included elsewhere.

Impact of Inflation and Foreign Currency Translation

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. Effective March, 2012, we no longer have operations or bank accounts in any foreign country and are therefore not impacted by foreign currency translations. The impact of fluctuations in foreign currency has not been significant during the three month period ended March 31, 2011.

Off Balance Sheet Financing

None. The Company has not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties, nor has it entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing or hedging services with us.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not applicable for a smaller reporting company.




22




ITEM 4.

CONTROLS AND PROCEDURES.


Evaluation of Disclosure Controls and Procedures

Our management, which includes our CEO and our Vice President who serves as our principal financial 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 a date (the "Evaluation Date") as of the end of the period covered by this report. 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 Vice President who also serves as our principal financial 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 Vice President who serves as our principal financial officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal controls over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control 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 control over financial reporting.

 





23




PART II.   OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


Not applicable.


ITEM 1A.

RISK FACTORS.


Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2011. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


On April 5, 2012, the Company issued 28,846 shares of common stock valued at $0.17 per share to a warrant holder in connection with an exercise of previously issued warrants.  The recipient was an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters that he was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.


On April 5, 2012, the Company issued 207,214 shares of common stock valued at $0.17 per share to a warrant holder in connection with an exercise of previously issued warrants.  The recipient was an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters that he was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.


On April 19, 2012 the Company issued 33,334 shares of common stock valued at $0.12 per share to Monarch Communications, Inc. as partial compensation per an agreement dated May 19, 2011 for consultant work. The recipient was an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters that it was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

               

None.


ITEM 4.

MINE SAFETY DISCLOSURE.


Not Applicable


ITEM 5.

OTHER INFORMATION.


Between January 12, 2012 and April 6, 2012, the Company received loans in various amounts totaling $320,000, from the Company’s Chairman and CEO, as advances for working capital needs. The loans bear interest at the same rate of interest as the credit facility provided by the stockholder under the note dated March 28, 2002. These advances do not have a specific due date but are to be paid based on management’s determination of the Company’s ability to pay and cash flow. We are using the proceeds for working capital.


On February 9, 2012, the repayment date of the stockholder loan was extended from December 31, 2012 to December 31, 2013.




24




ITEM 6.

EXHIBITS.

     

31.1

     

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

31.2

 

Rule 13a-14(a)/15d-14(a) certificate of principal financial officer

32.1

 

Section 1350 certification of Chief Executive Officer

32.2

 

Section 1350 certification of principal financial officer

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document




25




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:  May 15, 2012

By:

/s/ Joseph V. Vittoria

 

 

Joseph V. Vittoria, Chairman and Chief Executive Officer, principal executive officer

  

 

 


Date:  May 15, 2012

By:

/s/ Alan J. Sandler

 

 

Alan J. Sandler, Secretary to the Board,
Vice President and principal financial officer and principal accounting officer




26


 EX-31.1 2 pftiex31z1.htm CERTIFICATION Certification

Exhibit 31.1


Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



I, Joseph V. Vittoria, certify that:


1.

I have reviewed this quarterly report on Form 10-Q for the three months ended March 31, 2012 of Puradyn Filter Technologies Incorporated;


2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) an 15d-15(f)) for the registrant and have:


(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):


(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: May 15, 2012


                                                                                          

By:

/s/ Joseph V. Vittoria

 

 

Joseph V. Vittoria

 

 

Chairman and Chief Executive Officer,

principal executive officer




EX-31.2 3 pftiex31z2.htm CERTIFICATION Certification



Exhibit 31.2


Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


I, Alan J. Sandler, certify that:


1.

I have reviewed this quarterly report on Form 10-Q for the three months ended March 31, 2012 of Puradyn Filter Technologies Incorporated;


2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) an 15d-15(f)) for the registrant and have:


(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):


(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 15, 2012


                                                                                   

By:

/s/ Alan J. Sandler

 

 

Alan J. Sandler, Secretary to the Board,

 

 

Vice President and principal financial officer and principal accounting officer




 EX-32.1 4 pftiex32z1.htm CERTIFICATION Certification



Exhibit 32.1


Section 1350 certification of Chief Executive Officer



In connection with the quarterly report of Puradyn Filter Technologies Incorporated (the "Company") on Form 10-Q for the quarter ended March, 31, 2012 as filed with the Securities and Exchange Commission (the "Report"), I, Joseph V. Vittoria, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



Dated:  May 15, 2012


                                                                                   

By:

/s/ Joseph V Vittoria

 

 

Joseph V. Vittoria

 

 

Chairman and Chief Executive Officer,

 

 

principal executive officer




A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.




 EX-32.2 5 pftiex32z2.htm CERTIFICATION Certification



Exhibit 32.2


Section 1350 certification of Chief Financial Officer



In connection with the quarterly report of Puradyn Filter Technologies Incorporated (the "Company") on Form 10-Q for the three-month period ended March 31, 2012 as filed with the Securities and Exchange Commission (the "Report"), I, Alan J. Sandler, Secretary to the Board, Vice President and principal financial officer, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


Dated:  May 15, 2012


                                                                                      

By:

/s/ Alan J. Sandler

 

 

Alan J. Sandler

 

 

Secretary to the Board, Vice President

 

 

and principal financial officer and principal accounting officer




A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



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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 period ended March 31, 2012 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2012.</p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: justify">For further information, refer to Puradyn Filter Technologies Incorporated&#146;s (the &#147;Company&#148;) consolidated financial statements and footnotes thereto included in the Form 10-K for the year ended December 31, 2011.</p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: justify">Since its formation June 1, 2000, Puradyn Filter Technologies, Ltd. (&#147;Ltd.&#148;), the Company&#146;s United Kingdom subsidiary, has been included in the Company&#146;s condensed consolidated financial statements. In March, 2009, Ltd&#146;s office in the UK was closed and all assets, except for bank cash accounts, were transferred to the United States. Effective January, 2012, Ltd., ceased as a legal entity and all cash accounts were closed.</p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt"><b>Use of Estimates</b></p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: justify">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 condensed financial statements and accompanying notes. Actual results could differ from those estimates.</p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: justify"><b>Basic and Diluted Loss Per Share</b></p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: justify">FASB ASC 260, <i>Earnings Per Share</i>, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share totaled 6,925,507 and 6,750,842 for the three months ended March 31, 2012 and 2011, respectively.</p> <p style="font: italic bold 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt"><font style="font-style: normal">Stock Compensation</font></p> <p style="font: 10pt/11pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: justify">The Company adopted FASB ASC 718, C<i>ompensation &#150; Stock Compensation,</i> 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, 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. 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Going Concern
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Going Concern

 

2. Going Concern

The Company's 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 used net cash in operations of $255,857 and $249,354 during the three-months ended March 31, 2012 and 2011, respectively. As a result, the Company has had to rely principally on private equity investments, including the conversion of debt into stock, as well as stockholder loans to fund its activities to date.

These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from an institutional investor and current stockholder led the Company’s independent registered public accounting firm, Webb & Company, P.A., to include a statement in its audit report relating to the Company’s audited consolidated financial statements for the year ended December 31, 2011 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.

The Company has been addressing the liquidity and working capital issues and continues to attempt to raise additional capital with institutional and private investors and current stockholders. Cost reductions were and continue to be implemented by the Company, including acquiring alternative suppliers for raw materials and volume purchase discounts when appropriate. The Company expects to see results from these reductions, as well as other cost reduction plans through 2012.
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Basis of Presentation, Significant Accounting Policies
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies

 

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

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 period ended March 31, 2012 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2012.

For further information, refer to Puradyn Filter Technologies Incorporated’s (the “Company”) consolidated financial statements and footnotes thereto included in the Form 10-K for the year ended December 31, 2011.

Since its formation June 1, 2000, Puradyn Filter Technologies, Ltd. (“Ltd.”), the Company’s United Kingdom subsidiary, has been included in the Company’s condensed consolidated financial statements. In March, 2009, Ltd’s office in the UK was closed and all assets, except for bank cash accounts, were transferred to the United States. Effective January, 2012, Ltd., ceased as a legal entity and all cash accounts were closed.

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 condensed financial statements and accompanying notes. Actual results could differ from those estimates.

Basic and Diluted Loss Per Share

FASB ASC 260, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share totaled 6,925,507 and 6,750,842 for the three months ended March 31, 2012 and 2011, respectively.

Stock Compensation

The Company 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, 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 for the periods ended March 31, 2012 and March 31, 2011 have been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying Condensed Consolidated Financial Statements.

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 718 and FASB ASC 505 Equity, including related amendments and interpretations. The related expense is recognized over the period the services are provided.

Inventories

Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending inventories at a rate based on estimated production capacity and any 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.

Inventories consisted of the following at March 31, 2012 and December 31, 2011, respectively:

   

March 31

2012

  

December 31,

2011

  
    (unaudited)      
Raw materials   $ 821,525   $ 885,781  
Work In Progress     11,199     3,222  
Finished goods     156,063     134,016  
Valuation allowance     (343,175 )   (345,892 )
Inventory, net   $ 645,612   $ 677,127  

 

Deferred Financing Costs

The Company capitalizes financing costs and amortizes them using the straight-line method, which approximates the effective interest method, over the term of the related debt. Amortization of deferred financing costs is included in interest expense and totaled $715 and $252 for the three-months ended March 31, 2012 and 2011, respectively. Accumulated amortization of deferred financing costs as of March 31, 2012 and 2011 was $681,369 and $679,389, respectively.

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 in accordance with FASB ASC 605, Revenue Recognition, as amended and interpreted. 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 condensed consolidated 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.

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 consolidated financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the three months ended March 31, 2012, there was no change to the reserve for warranty liability as the reserve balance was 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 three-months ended March 31, 2012:

Balance as of December 31, 2011   $ 20,000  
Less: Payments made     —  
Add:  Provision for current period warranties     —  
Balance as of March 31, 2012 (unaudited)   $ 20,000  

 

Comprehensive Income

FASB ASC 220, Comprehensive Income establishes rules for reporting and displaying of comprehensive income and its components. Comprehensive income is the sum of net loss as reported in the consolidated statements of operations and other comprehensive income transactions. Other comprehensive income transactions that currently apply to the Company result from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary, Puradyn Filter Technologies, Ltd. (“Ltd.”). Comprehensive loss as of March 31, 2012 and 2011 is not shown net of taxes because the Company’s deferred tax asset has been fully offset by a valuation allowance.

Comprehensive loss consisted of the following for the three-months ended March 31, 2012 and 2011:

 

   

Three Months Ended

March 31

  
    2012     2011  
    (unaudited)     (unaudited)   
Net loss   $ (231,979 )   $ (326,437 )
Other comprehensive loss:                
Foreign currency translation adjustment     (146,255 )      464  
Comprehensive loss   $ (378,234 )   $ (325,973 )

 

New Accounting Pronouncements

During the three months ended March 31, 2012 there were no new accounting pronouncements that were deemed to have a material impact on the Company’s financial results.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.
XML 16 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
Mar. 31, 2012
Dec. 31, 2011
Assets:    
Cash $ 44,866 $ 51,152
Accounts receivable, net of allowance for uncollectible accounts of $25,039 and $24,355, respectively 315,869 309,962
Inventories, net 645,612 677,127
Prepaid expenses and other current assets 86,494 46,538
Total current assets 1,092,841 1,084,779
Property and equipment, net 106,375 97,013
Other noncurrent assets 111,244 111,244
Deferred financing costs, net 2,230 2,945
Total assets 1,312,690 1,295,981
Liabilities and stockholders' deficit    
Accounts payable 211,481 204,422
Accrued liabilities 1,473,759 1,414,279
Current portion of capital lease obligation 6,982 2,800
Notes payable - stockholders 100,000 100,000
Total current liabilities 1,792,222 1,721,501
Capital lease obligation, less current portion 17,006 10,042
Notes Payable - stockholders 7,649,017 7,429,017
Total Long Term Liabilities 7,666,023 7,439,059
Total Liabilities 9,458,245 9,160,560
Commitments and contingencies      
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 - 47,148,639 and 46,830,504, respectively 47,148 46,830
Additional paid-in capital 46,521,779 46,459,374
Notes receivable from stockholders (756,250) (790,785)
Accumulated deficit (53,958,232) (53,726,253)
Accumulated other comprehensive income    146,255
Total stockholders' deficit (8,145,555) (7,864,579)
Total liabilities and stockholders' deficit $ 1,312,690 $ 1,295,981
XML 17 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
 3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Statement of Other Comprehensive Income [Abstract]    
Net loss from continuing operations $ (231,979) $ (326,437)
Other comprehensive income (loss):    
Foreign currency translation adjustment 146,255 464
Other comprehensive income    464
Total comprehensive income (loss) $ (378,234) $ (325,973)
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CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (USD $)
Common Stock
Additional Paid-In Capital
Notes Receivable From Stockholder
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Total
Beginning Balance, amount at Dec. 31, 2011 $ 46,830 $ 46,459,374 $ (790,785) $ (53,726,253) $ 146,255 $ (7,864,579)
Beginning Balance, shares at Dec. 31, 2011 46,830,504          
Foreign currency translation adjustment         (146,255) (146,255)
Net loss       (231,979)   (231,979)
Total comprehensive loss           (378,234)
Issuance of common stock in private placement, net of issuance costs, shares (361)          
Exercise of Stock Options, shares 236,060          
Exercise of Stock Options, amount 236 4,572       4,808
Issuance of shares and warrants to vendors, shares 82,436          
Issuance of shares and warrants to vendors, amount 92 11,918       12,000
Payment of notes receivable from stockholders     34,535     34,535
Compensation expense associated with unvested option awards   45,915       45,915
Ending Balance, amount at Mar. 31, 2012 $ 47,148 $ 46,521,779 $ (756,250) $ (53,958,232)    $ (8,145,555)
Ending Balance, shares at Mar. 31, 2012 47,148,639          
XML 20 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 31, 2012
Dec. 31, 2011
Statement of Financial Position [Abstract]    
Allowance for uncollectible accounts of accounts receivable $ 25,039 $ 24,355
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, authorized 500,000 500,000
Preferred stock, issued      
Preferred stock, outstanding      
Common stock, par value $ 0.001 $ 0.001
Common stock, authorized 100,000,000 100,000,000
Common stock, issued 47,148,639 46,830,504
Common stock, outstanding 47,148,639 46,830,504
XML 21 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
 3 Months Ended
Mar. 31, 2012
May 14, 2012
Document And Entity Information    
Entity Registrant Name PURADYN FILTER TECHNOLOGIES INC  
Entity Central Index Key 0001019787  
Document Type 10-Q  
Document Period End Date Mar. 31, 2012  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   47,181,973
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2012  
XML 22 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
 3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Income Statement [Abstract]    
Net sales $ 751,502 $ 883,392
Costs and expenses:    
Cost of products sold 572,219 589,174
Salaries and wages 282,200 274,163
Selling and administrative 235,552 305,647
Total Operating Costs 1,089,971 1,168,984
Loss from operations (338,469) (285,592)
Other income (expense):    
Realized gain on foreign currency 146,255   
Interest expense (39,765) (40,845)
Total other income (expense) 106,490 (40,845)
Net loss before income tax expense (231,979) (326,437)
Income tax expense      
Net loss $ (231,979) $ (326,437)
Earnings per share - basic and diluted:    
Net (loss) from operations $ (0.01) $ (0.01)
Basic and diluted weighted average common shares outstanding 47,053,799 46,393,553
XML 23 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
Notes Payable to Stockholder
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Notes Payable to Stockholder

 

5. Notes Payable to Stockholder

 

Beginning on March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and an executive officer, to fund up to $6.1 million. Under the terms of the agreements, 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 (1.696% per annum at December 31, 2011), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or 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, 2013.

At March 31, 2012 the Company had drawn the full funding amount under the agreement of $6.1 million plus an additional $1,299,017. Additionally, the stockholder has loaned the Company $250,000 directly, for a total amount due of $7,649,017. At March 31, 2011, the Company had drawn the full funding amount of $6.1 million under the funding agreement plus an additional $1,299,017, plus a direct loan of $30,000.

Additionally, the Company has loans outstanding from one board member, who is also a significant stockholder, totaling $100,000 at March 31, 2012 and 2011. The outstanding debt obligation at March 31, 2012 matures January 1, 2013 and is included in Current Liabilities.

For the three-months ended March 31, 2012 and 2011, the Company recorded $38,495 and $40,421, respectively, of interest expense related to the notes payable to both the stockholder and the board member, as noted above, which is included in interest expense in the accompanying condensed consolidated statements of operations.
XML 24 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
Stock Options
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Stock Options

 

4. Stock Options

 

During the three-month periods ending March 31, 2012 and 2011, the Company recorded no direct stock-based compensation expense.

 

On March 30, 2012 an aggregate amount of 905,000 incentive stock options were awarded to certain employees as partial payment for their services to the Company.

 

For the three months ended March 31, 2012 and March 31, 2011, respectively, the Company recorded stock-based compensation expense of $45,915 and $43,902, relating to unvested employee stock options.  

 

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 March 31, 2012 and 2011 for the options is $308,812 and $354,750, respectively, and will be recognized through March 30, 2015.

 

A summary of the Company’s stock option plans as of March 31, 2012, and changes during the three month period then ended is presented below:

 

   

Three Months Ended

March 31, 2012

  
    Number of Options    

Weighted Average

Exercise Price

  
Options outstanding at December 31, 2011     2,993,972     $ .37  
Options granted     905,000       .14  
Options exercised     —       —  
Options cancelled     —       —  
Options expired     10,000       .37  
Options at end of period     3,888,972       .32  
Options exercisable at March 31, 2012     1,720,528       .46  

 

Changes in the Company’s unvested options for the three months ended March 31, 2012 are summarized as follows:

 

   

Three Months Ended

March 31, 2012

  
    Number of Options    

Weighted Average

Exercise Price

  
Nonvested options at December 31, 2011     1,561,699     $ .25  
Options granted     905,000       .14  
Options vested     298,255       .26  
Options forfeited     —       —  
Nonvested options  at March 31, 2012     2,168,444     $ .14  

 

      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  
$ 0.11 – $1.70       3,844,972       4.07     $ .30       1,676,528     $ .26  
$ 1.99 – $2.60       44,000       1.08       2.31       44,000       2.31  
                                             
Totals       3,888,972       5.87     $ .32       1,720,528     $ .46  

 

A summary of the Company’s warrant activity as of March 31, 2012 and changed during the three month period then ended is presented below:

 

   

Three months ended

March 31, 2012

  
    Weighted Average Exercise  
    Options     Price  
Warrants outstanding at December 31, 2011     4,096,476     $ .97  
Granted                
Exercised     196,718       .20  
Expired                
Warrants outstanding at March 31, 2012     3,899,758     $ .77  

 

      Warrants Outstanding  
Range of Exercise Price     Number Outstanding     Remaining Average Contractual Life (In Years)     Weighted Average Exercise Price  
$ 0.16 – $0.75       2,446,483       2.74     $ .48  
$ 1.25       1,453,275       1.20       1.25  
Totals       3,899,758       2.32     $ .77  

 
XML 25 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Commitments and Contingencies
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Commitments and Contingencies

 

6. Commitments and Contingencies

 

On October 20, 2009, we entered into a consulting agreement with Boxwood Associates, Inc., whereby we pay $2,000 monthly for management and strategic development services performed. The contract will remain in effect until terminated by either party providing 30 days’ written notice. Mr. Telesco, a member of our board of directors, is the President of Boxwood Associates, Inc.

On May 19, 2011, we entered into a consulting agreement with Monarch Communications, Inc. for services rendered as public relations firm and media relations consultants for the Company. The term of the agreement is for twelve months. As compensation for their services, Monarch will receive a fee of $6,000 per month, payable as $2,000 cash and $4,000 in shares of common stock. Either party may terminate the agreement with 30 days’ notice. The recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
XML 26 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Subsequent Events
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Subsequent Events

 

7. Subsequent Events

 

On April 5, 2012, the Company issued 28,846 shares of common stock valued at $0.17 per share to a warrant holder in connection with an exercise of previously issued warrants.

 

On April 5, 2012, the Company issued 207,214 shares of common stock valued at $0.17 per share to a warrant holder in connection with an exercise of previously issued warrants.

 

On April 19, 2012 the Company issued 33,334 shares of common stock valued at $0.12 per share to Monarch Communications, Inc. as partial compensation per an agreement dated May 19, 2011 for consultant work.

 

On April 6, 2012 the executive officer, director and stockholder advanced an additional $100,000 to the Company for working capital purposes.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
 3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Operating activities    
Net loss $ (231,979) $ (326,437)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 12,146 11,848
Provision for bad debts 684 244
Amortization of deferred financing costs included in interest expense 125 252
Deferred compensation 46,797 47,431
Compensation expense on stock-based arrangements with employees, consultants, investors and vendors 57,915 61,902
Realized gain on foreign currency adjustment (146,255)   
Changes in operating assets and liabilities:    
Accounts receivable (6,591) (304,942)
Inventories 31,515 (15,412)
Prepaid expenses and other current assets (39,956) 29,876
Accounts payable 7,059 207,125
Accrued liabilities 12,683 40,531
Deferred revenues    (1,772)
Net cash used in operating activities (255,857) (249,354)
Investing activities    
Purchases of property and equipment (21,508) (5,032)
Net cash used in investing activities (21,508) (5,032)
Financing activities    
Additions to deferred financing costs 590   
Proceeds from sale of common stock    100,000
Proceeds from exercise of stock warrants 4,808   
Proceeds from issuance of notes payable to stockholders 220,000 150,000
Proceeds from shareholder note receivable 34,535   
Borrowings on capital lease 12,569   
Payment of capital lease obligations (1,423) (1,142)
Net cash provided by financing activities 271,079 248,858
Effect of exchange rate changes on cash and cash equivalents    464
Net decrease in cash and cash equivalents (6,286) (5,064)
Cash and cash equivalents at beginning of period 51,152 49,813
Cash and cash equivalents at end of period 44,866 44,749
Supplemental cash flow information:    
Cash paid for interest $ 35,339 $ 39,067
XML 29 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
Common Stock
 3 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Common Stock

 

3. Common Stock

 

As partial compensation per an agreement dated May 19, 2011 for consultant work, the Company issued to Monarch Communications, Inc. the following:

·On January 12, 2012, 26,667 shares of its common stock valued at $0.15 per share
·On February 27, 2012, 26,667 shares of its common stock valued at $0.15 per share.
·On March 6, 2012, 30,769 shares of its common stock valued at $0.13 per share.
·On March 30, 2012, 25,000 shares of its common stock valued at $0.16 per share

On January 31, 2012, the Company issued 50,000 shares of its common stock valued at $0.175 per share to outside counsel as compensation for legal work throughout 2010-2011.

On March 20, 2012 the Company received payment of $4,808 in connection with the exercise of previously issued warrants. In connection with this payment, the Company will issue 28,846 shares of its common stock valued at $0.17 per share.
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