-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8IV6j9UXVhXhMXbbaeOma4gw4hqrK+XZgj2q/dx1XqNCwfOvG18HQPVhBRb3Yha KRzZ/GdupZrkSdG4wJcIBQ== 0001042910-99-001483.txt : 19991115 0001042910-99-001483.hdr.sgml : 19991115 ACCESSION NUMBER: 0001042910-99-001483 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 10QSB SEC ACT: SEC FILE NUMBER: 001-11991 FILM NUMBER: 99748978 BUSINESS ADDRESS: STREET 1: 3020 HIGH RIDGE ROAD STE 100 CITY: BOYTON BEACH STATE: FL ZIP: 33426 BUSINESS PHONE: 4075479499 MAIL ADDRESS: STREET 1: 3020 HIGH RIDGE ROAD STE 100 CITY: BOYTON BEACH STATE: FL ZIP: 33426 FORMER COMPANY: FORMER CONFORMED NAME: T F PURIFINER INC DATE OF NAME CHANGE: 19960726 10QSB 1 QUARTERLY REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission File Number 0-29192 PURADYN FILTER TECHNOLOGIES INCORPORATED (Exact name of small business issuer as specified in its charter) DELAWARE 14-1708544 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 3020 High Ridge Road, Suite 100, Boynton Beach, Florida 33426 (Address of principal executive offices) (Zip Code) (561) 547-9499 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) ---------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by the court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: November 12, 1999: 5,389,903 ================================================================================ PART I - FINANCIAL INFORMATION Item 1. Financial Statements Puradyn Filter Technologies Incorporated Condensed Balance Sheet
September 30, 1999 December 31, (UNAUDITED) 1998 ----------- ---- Assets Current assets: Trade accounts receivable, net $ 67,950 $ 30,623 Inventories 230,995 342,439 Prepaid expenses and other current assets - 207 - --------- --------- Total current assets 298,945 373,269 Property and equipment, net 218,001 289,317 Other assets 11,770 16,370 -------- -------- Total assets $528,716 $678,956 ======== ======== Liabilities and Capital Deficiency Current Liabilities: Cash overdraft $ 102,423 $ 77,693 Accounts payable 446,801 422,252 Accrued expenses 264,052 167,661 Customer deposits 56,828 48,568 Note payable to bank 525,000 250,000 Notes payable to shareholder 150,000 150,000 Current portion of capital lease obligations 18,773 20,960 Note payable to former shareholder 294,756 294,756 --------- ----------- Total current liabilities 1,858,593 1,431,890 Notes payable and accrued interest to QIP, a shareholder 3,082,942 2,821,396 Capital lease obligations 870 12,851 --------- ----------- Total liabilities 4,942,405 4,266,137 --------- ----------- Capital Deficiency: Preferred stock, $.001 par value, 500,000 shares authorized - - Common stock, $.001 par value, 20,000,000 shares authorized, 5,389,903 and 5,223,493 shares issued and outstanding 5,411 5,223 Additional paid-in-capital 7,386,338 7,309,201 Unearned compensatory options - (2,560) Loans receivable, net (12,931) (22,931) Accumulated deficit (11,792,507) (10,876,114) ----------- ------------ Total capital deficiency (4,413,689) (3,587,181) ------------- ------------- Total liabilities and capital deficiency $ 528,716 $ 678,956 ============== ===============
See Accompanying Notes to Condensed Financial Statements. 2 Puradyn Filter Technologies Incorporated Condensed Statements of Operations For the Three Months and Nine Months Ended September 30, 1999 and 1998 (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales $ 147,621 $ 152,516 $ 412,904 $ 501,261 Cost of sales 135,820 142,530 398,159 483,492 ----------- ----------- ----------- ----------- Gross profit 11,801 9,986 14,745 17,769 ----------- ----------- ----------- ----------- Operating expenses: Selling 75,574 131,757 223,363 946,967 General and administrative 95,954 68,820 337,250 482,545 Engineering and development 9,429 18,513 56,105 128,329 ----------- ----------- ----------- ----------- Total operating expenses 180,957 219,090 616,718 1,557,841 ----------- ----------- ----------- ----------- Operating loss (169,156) (209,104) (601,973) (1,540,072) ----------- ----------- ----------- ----------- Other income (expense): Interest expense (110,896) (93,415) (315,076) (253,346) Interest income 7 248 656 6,023 ----------- ----------- ----------- ----------- Total other income (expense) (110,889) (93,167) (314,420) (247,323) ----------- ----------- ----------- ----------- Net loss $ (280,045) $ (302,271) $ (916,393) $(1,787,395) =========== =========== =========== =========== Basic loss per share $ (.05) $ (.06) $ (.17) $ (.34) =========== =========== =========== =========== Basic number of weighted average common shares outstanding 5,323,904 5,218,636 5,259,594 5,210,572 =========== =========== =========== ===========
See Accompanying Notes to Condensed Financial Statements. 3 Puradyn Filter Technologies Incorporated Condensed Statements of Changes in Capital Deficiency For The Nine Months Ended September 30, 1999 (Unaudited)
COMMON STOCK ADDITIONAL UNEARNED ------------------ PAID-IN- COMPENSATORY SHARES AMOUNT CAPITAL OPTIONS ------ ------ ------- ------- Balance at January 1, 1999 5,223,493 $ 5,223 $ 7,309,201 $ (2,560) Issuance of compensatory options 166,410 188 77,137 -- Amortization of unearned compensation -- -- -- 2,560 Net loss -- -- -- -- ------------ ------------ ------------ ------------ Balance at September 30, 1999 5,389,903 $ 5,411 $ 7,386,338 $ -- ============ ============ ============ ============
[RESTUBBED TABLE] TOTAL LOANS ACCUMULATED CAPITAL RECEIVABLE DEFICIT DEFICIENCY ---------- ------- ---------- Balance at January 1, 1999 $ (22,931) $(10,876,114) $ (3,587,181) Issuance of compensatory options -- -- 77,325 Amortization of unearned compensation -- -- 2,560 Net loss -- (916,393) (916,393) ------------ ------------ ------------ Balance at September 30, 1999 $ (22,931) $(11,792,507) $ (4,413,689) ============ ============ ============ See Accompanying Notes to Condensed Financial Statements. 4 Puradyn Filter Technologies Incorporated Condensed Statements of Cash Flows Nine Months Ended September 30, 1999 and 1998 (Unaudited)
1999 1998 ---- ---- Operating activities Net loss $(916,393) $(1,787,395) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 77,479 87,971 Provision for uncollectible accounts 10,000 - Deferred interest on notes payable to QIP 261,546 228,059 Issuances of compensatory options 79,884 - Changes in operating assets and liabilities: Trade accounts receivable, net (37,327) 31,035 Inventories 111,444 169,704 Prepaid expenses and other current assets 1,489 109,229 Other assets - 17,127 Accounts payable 24,549 16,779 Accrued expenses 95,110 222,160 Customer deposits and other 8,260 (53,112) --------- --------- Net cash used in operating activities (283,959) (958,443) --------- --------- Investing activities Purchases of property and equipment (1,564) (34,987) ------- -------- Net cash used in investing activities (1,564) (34,987) ------- -------- Financing activities Proceeds from issuances of common stock and exercise of stock options, net - 11,696 Proceeds from notes payable issued to QIP - 500,000 Proceeds from bank loan 275,000 250,000 Proceeds from issuance of notes payable to shareholder and other notes payable - 150,000 Increase in deferred issuance and financing costs - (17,891) Collection of loans receivable - 13,000 Payment of notes payable and capital lease obligations (14,207) (34,918) Payment of note payable to former shareholder - (103,769) Increase in bank overdraft 24,730 - --------- ---------- Net cash provided by financing activities 285,523 768,118 --------- ---------- Increase (decrease) in cash and cash equivalents -0- (225,312) Cash and cash equivalents at beginning of period -0- 252,874 ---------- ----------- Cash and cash equivalents at end of period $ -0- $ 27,562 ========== ===========
See Accompanying Notes to Condensed Financial Statements. 5 Puradyn Filter Technologies Incorporated Notes to Condensed Financial Statements (Unaudited) 1. BASIS OF PRESENTATION AND COMPANY The accompanying condensed financial statements as of September 30, 1999 and for the three month periods and nine month periods ended September 30, 1999 and 1998 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of financial position and results of operations for these interim periods. Such interim financial statements have been prepared on the basis of presentation as more fully described in the Puradyn Filter Technologies Incorporated ("the Company") annual financial statements and should be read in conjunction with the Company's audited financial statements which are included in the Company's Form 10-KSB. The results of operations for the three month period and six month period ended September 30, 1999 are not necessarily indicative of the results to be expected for the entire year. The Company has incurred recurring losses from operations since inception, which has resulted in net cash outflows to fund operations. Cash to fund these requirements has come from several private placements of its Common Stock in 1996, and debt financing in June 1997 for $2,000,000 and in January 1998 for $500,000. During May and June 1998, the Company borrowed $150,000 from the Company's co-founder, a significant shareholder and now Chief Executive Officer, Richard C. Ford. The Company also borrowed $250,000 in August 1998 from its bank which was secured by substantially all of the Company's assets and guaranteed by Mr. Ford. In January and March 1999, the Company borrowed from the bank an additional $100,000 and $175,000, respectively, under renegotiated loan agreements which now require the loan to be repaid in March 2000. Furthermore, Mr. Ford has advanced funds to the Company or paid on behalf of the Company approximately $61,000 in 1999 through September 30,1999. Also, from June 1999 through September 1999, the Company granted 187,410 options to purchase the Company's Common Stock for nominal consideration to certain employees in lieu of cash compensation. The reports of the Company's independent auditors as of December 31, 1998 and 1997 include an explanatory paragraph which states that, because the Company has sustained recurring operating losses and negative cash flows from operating activities, substantial doubt is raised about the Company's ability to continue as a going concern. In order to continue as a going concern, the Company must complete substantive additional financing in 1999. The inability to obtain additional financing will have a material adverse effect on the Company, including requiring the Company to curtail or cease its operations. The financial statements do not include any adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary as a result of the above uncertainty. 2. INVENTORIES At September 30, 1999, inventories consist of the following: Raw materials $210,913 Finished goods 17,191 Supplies 1,000 -------- Total inventories $229,104 ======== 6 3. CONTINGENCIES TF Systems, Inc. ("Systems"), a related party (previously under common ownership with the Company), formerly owned the manufacturing and marketing rights to the Purifiner and transferred or sold such rights to the Company in 1995. In June 1997, the former law firm of Systems filed a complaint against the Company, Systems, Richard C. Ford (individually) and an inactive company controlled by Mr. Ford demanding payment of approximately $313,000 of legal fees plus interest and attorney fees, related primarily to services in obtaining the manufacturing and marketing rights to the Purifiner for Systems and the Company. Systems had been awaiting the judgment of an appellate court which, if adjudicated in Systems' favor, would have provided it with sufficient funds to pay such legal fees and other possible legal fee claims aggregating approximately $75,000. However, on February 26, 1997, the appellate court ruled against Systems and, accordingly, the funds discussed above are not currently available to Systems to satisfy such claims. Puradyn did not assume these obligations as part of its purchase of Systems in 1995 and management believes such amounts are not the responsibility of Puradyn. However, Systems is an inactive company whose only asset is the claim that was reversed on appeal and maybe retried by Systems. Accordingly, the ability to collect such funds from Systems is uncertain. The ultimate outcome of this litigation and other unasserted claims against the Company cannot be determined at this time; however, based upon the opinion of the Company's counsel, a favorable outcome is likely. No liability has been recorded for these claims in the accompanying balance sheet. 4. NOTES PAYABLE TO SHAREHOLDER During 1998, the Company borrowed $150,000 from Richard C. Ford, Chairman of the Board of Directors, Chief Executive Officer and significant shareholder of the Company and issued notes, secured by accounts receivable and inventories, with interest payable at 12%. No interest has been paid to date. The notes are due on demand. 5. NOTE PAYABLE TO BANK On August 21, 1998, the Company borrowed $250,000 from its bank under a one year revolving note payable with interest payable monthly at 8.75%. On January 21, 1999, the Company increased its loan with the bank to a $350,000 revolving line of credit with interest at the bank's prime rate (7.75% at inception) and borrowed an additional $100,000. On March 25, 1999, the company again renegotiated its revolving line of credit to increase the amount to $525,000 at the same rate of interest and extended the repayment date to March 25, 2000. The company borrowed an additional $175,000 at that date to increase the aggregate borrowing to $575,000. The note is secured by substantially all assets of the Company and guaranteed by Richard C. Ford. Interest is paid monthly. 6. NOTE PAYABLE TO FORMER SHAREHOLDER In 1996, the Company entered into an Agreement (the "Agreement") with the beneficiaries of the estate of a former 50% shareholder of the Company (the "Estate") under which the Company agreed to repay the Estate's loans of $502,206 based on a formula related to the amount of future equity financing by the Company. However, the Company did not make the required installment 7 payment of $105,512 on January 31, 1999 and the Estate has issued a letter to the Company to declare the Agreement in default and to demand immediate payment of the entire remaining balance. Accordingly, the entire balance of $294,756 is classified as current as of September 30, 1999. 7. NOTES PAYABLE TO QIP, A SHAREHOLDER On January 26, 1998, the Company and Quantum Industrial Partners LDC ("QIP") entered into a Note Exchange Agreement whereby the a $2,000,000 promissory note issued June 19, 1997 to QIP was exchanged for a $2,000,000 12% Senior Subordinated Convertible Note (the "Note") due 2003. Commencing April 1, 1998, interest is payable quarterly provided, that at the option of the Company, unpaid interest may be added to the principal balance of the Notes in lieu of a cash payment which the Company has elected to do each quarter through September 30, 1999. Such unpaid interest bears interest at 15% and is payable on demand. Such aggregate deferred interest at September 30, 1999 is $582,942. The Note is senior to all indebtedness of the Company, except bank or financial institution debt, and can be redeemable at the option of QIP on or after the earlier of January 1, 2001 or the date on which the Company raises cash proceeds aggregate $10 million involving the sale of debt, equity or assets. As long as these Notes are outstanding, the Company cannot, without the consent of QIP, declare or pay any dividends, purchase, redeem or acquire any of its Common Stock, retire its existing indebtedness other than existing required periodic payments or enter into transactions with any affiliate. Prior to January 1, 2003, at the option of QIP, the principal amount can be converted into Common Stock of the Company at a conversion price of $2.75 per share. Under certain circumstances, the Note is subject to anti-dilution provisions and the Company will register the securities. Also on January 26, 1998, the Company and QIP entered into a Note Purchase Agreement whereby the Company issued QIP a 12% Senior Subordinated Convertible Note in the aggregate principal amount of $500,000. The terms and conditions of this $500,000 Note are identical to the $2,000,000 Note described above. As of September 30, 1999, the Company has reserved 1,123,111 shares of its Common Stock for issuance under the conversion provisions of the notes. 8. NET (LOSS) PER SHARE OF COMMON STOCK The Company has adopted Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" (FAS 128) which establishes new standards for computing and presenting earnings per share. FAS 128 requires dual presentation of basic and diluted earnings per share. Because of losses from operations, the effect of stock options, warrants and convertible debt is anti-dilutive. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-KSB. Other than historical and factual statements, the matters and items discussed in this Quarterly Report on Form 10-QSB are forward-looking statements that involve risks and uncertainties. Actual results of the Company may differ materially from the results discussed in the forward-looking statements. Certain factors that could contribute to such differences are discussed with the forward-looking statements throughout this report. GENERAL The Company was formed in 1987 and commenced operations in 1991 when it obtained worldwide manufacturing and marketing rights to the Purifiner(R) products. The marketplace has had a long-held conviction that oil must be changed regularly in accordance with manufacturers' recommended guidelines. Gradually, the concept of extended oil drain intervals has become more accepted. The Company believes that this change in acceptance is due to the results of third-party testing of the product, awards and other recognition the Purfiner has received, and to increasing awareness by consumers, vehicle and engine manufacturers and oil companies of the cost benefits and the environmental benefits of conserving oil and reducing disposal of waste oil. The Company has also found that potential customers require extended field testing to verify performance effects on engine wear and oil change savings for themselves. The Company is making a more concentrated effort to assist potential customers in the testing process and, in December 1998, documented certain performance results by a large fleet owner that showed minimal engine wear after 616,000 miles using the Company's Purifiner without an oil change. The company believes these results will not only help to validate the product's reliability, but also provide new sales leads. However, there can be no assurance it can experience any improvement. Sales of the Company's products depend primarily on end user demand for such products and acceptance of the Company's products by original equipment manufacturers ("OEM's"). The oil filtration industry has historically been competitive and, as is typically the case with innovative products, the ultimate level of demand for the Company's products is subject to a high degree of uncertainty. Developing market acceptance, particularly worldwide, for the Company's products will require substantial marketing and sales efforts and the expenditure of a significant amount of funds to inform customers of the perceived benefits and cost advantages of its products. Through 1997, the Company had been unsuccessful in reaching potential customers through its distribution network of independent resellers. During 1998, the Company refocused certain of its resources on the development of commercial relationships with OEMs and medium to large size fleets and, as mentioned, is attempting to be more involved in their testing process. While the Company believes these developments will lead to improvements in sales and operating results, there can be no assurance that such improvements will occur. As previously mentioned, the Company has incurred losses from operations since inception which has resulted in net cash outflows to fund operations. The Company found short-term sources of cash to fund operations in 1998 and through the first half of 1999, however, the 9 Company must complete additional substantive financing in 1999 to continue its operations and there can be no assurance it will be successful in finding sufficient sources of such financing. RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 The following table sets forth for the amount of increase or decrease represented by certain items reflected in the Company's statements of operations in comparing the three months and nine months ended September 30, 1999 to the three months and nine months ended September 30, 1998, in thousands.
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- Incr. Incr. 1999 1998 (Decr) 1999 1998 (Decr) ---- ---- ------ ---- ----- ------ (in thousands) (in thousands) -------------- -------------- Net sales $ 147 $ 153 $ (6) $ 412 $ 501 $ (89) ------- ------- ------- ------- ------- ------- Operating costs and expenses: Cost of sales 135 143 (8) 398 483 (85) Selling expenses 76 132 (56) 223 947 (724) General and administrative expenses 96 69 27 337 483 (146) Engineering and development 9 18 (9) 56 128 (72) ------- ------- ------- ------- ------- ------- Total operating costs and expenses 316 362 (46) 1,014 2,041 (1,027) ------- ------- ------- ------- ------- ------- Operating loss (169) (209) (40) (602) (1,540) (938) Interest (expense) income (111) (93) 18 (314) (247) 67 ------- ------- ------- ------- ------- ------- Net loss $ (280) $ (302) $ (22) $ (916) $(1,787) $ (871) ======= ======= ======= ======= ======= =======
NET SALES. Net sales decreased by approximately $6,000 and $89,000, respectively, in the third fiscal quarter and the nine months ended September 30, 1999 compared to the corresponding periods in the prior year. The Company experienced declining sales during 1998 resulting from an unsuccessful change in marketing strategy in 1997 when the Company increased its product prices and made product design changes that caused some performance problems. To correct the problems encountered, the Company decreased product prices in April 1998, market focus was changed toward OEMs and middle and large fleet companies in mid-1998, and product quality problems were corrected in early 1998. These changes, together with turnover in key personnel in late March 1998, resulted in the Company having to re-establish certain customer relationships. Sales continued to decline through the 1998 year into the first fiscal quarter of 1999. Sales have increased somewhat in the second and third fiscal quarters of 1999. Management feels it now has a good base of potential customers with very satisfactory product performance results, however there can be no assurance these will produce improved results in sales. 10 COST OF SALES. Cost of sales decreased by approximately $8,000 in the second fiscal quarter and decreased by $85,000 in the nine months ended September 30, 1998 compared to the corresponding periods in the prior year. The low gross margin is due to several factors including increases in inventory costs from vendors due to low purchase volumes, a mix of sales to customers that qualified for lower prices, and due to an increase in rent expense. Unless the Company can increase its revenues, its gross margins will continue to be adversely affected by factors such as these. SELLING EXPENSES. Selling expenses decreased by approximately $56,000 and $724,000, respectively, in the third fiscal quarter and the nine months ended September 30, 1998 compared to the corresponding periods in the prior year. Beginning in late March 1998, the Company reduced many key sales personnel and other sales and marketing expenses such as advertising, shows and consultants in connection with the reductions in general operating expenses to reduce cash required to fund operation. The reductions in Selling Expenses in the third fiscal quarter and the nine months ended September 30, 1999 are the result of these expense reduction efforts. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased by approximately $27,000 in the third fiscal quarter and decreased by approximately $146,000 the nine months ended September 30, 1999 compared to the corresponding periods in the prior year. As noted with Selling Expenses above, the Company began a concerted effort to reduce operating expense beginning in late March 1998 which reduced general and administrative expenses in the areas of salaries, communication expenses, travel, professional fees and certain other office expenses. In the aggregate, these reductions amounted to $146,000 in the nine month period. The third fiscal quarter in 1998 contained a credit for the reduction of the provision for doubtful accounts of $15,000 and the third fiscal quarter of 1999 contained a provision for doubtful accounts of $10,000. These two items resulted in an increase in expenses in the third fiscal quarter from 1998 to1999 of $25,000. ENGINEERING AND DEVELOPMENT EXPENSES. Engineering and development expenses decreased by approximately $9,000 and $72,000, respectively, in the third fiscal quarter and the nine months ended September 30, 1998 compared to the corresponding periods in the prior year. This decrease was primarily the result of decreased personnel costs related to the general operating expense reductions referred to above. INTEREST EXPENSE AND INCOME. Interest expense increased by approximately $18,000 and $67,000, respectively, in the third fiscal quarter and the nine months ended September 30, 1999 compared to the corresponding periods in the prior year. This increase resulted primarily from the short term loans of $150,000 obtained in 1998 from Richard C. Ford, a shareholder and now Chief Executive Officer of the Company, and from its bank that increased from $250,000 in August 1998 to $350,000 in January 1999 and to $525,000 in March 1999. Interest income is insignificant in each of the periods. LIQUIDITY AND CAPITAL RESOURCES. The Company has incurred recurring losses from operations since inception, which has resulted in net cash outflows to fund operations. Cash to fund these requirements has come from several private placements of its Common Stock in 1996, and debt financing in June 1997 for $2,000,000 and in January 1998 for $500,000. In addition, during mid-1998, the Company 11 borrowed $150,000 from Richard C. Ford and in August 1998 borrowed $150,000 from its bank which was collateralized by assets of the Company and guaranteed by Mr. Ford. The Company borrowed from the bank an additional $100,000 in January 1999 and $175,000 in late March 1999. The aggregate bank loan of $575,000 is due in March 2000. In addition in 1999, Mr. Ford has personally advanced approximately $61,000 to the Company through September 30, 1999. The Company must complete additional substantive financing in 1999 to continue its operations, and there is no assurance that the Company can complete this financing or that Mr. Ford or the bank will loan additional funds to the Company. During 1998, the Company significantly reduced personnel and operating expenses and intensified its efforts to increase sales of its products to potential customers with medium and large fleets of vehicles and original equipment manufacturers. The Company continues to closely monitor its operating expenses and cash flow. However, there is no assurance that these efforts will result in profitable operations or reduce the amount of cash required to sustain operations. At September 30, 1999, the Company had negative working capital of $1,559,648 and its current ratio (current assets to current liabilities) was .16 to 1.00. At September 30, 1999, the Company owed approximately $576,000 in current liabilities to various trade and unrelated creditors. Most of these creditors continue to provide services to the Company or defer payment of these obligations for the current time. There can be no assurances that creditors will continue to provide service to the Company or that other creditors will refrain from initiating lawsuits against the Company in the future. The Company continues to pursue substantive long-term investment commitments from various institutions and investor groups in the form of either a loan or equity investment. Management believes it will need additional financing to continue operations in 1999. There can be no assurances that the Company will be able to obtain such additional financing. In the absence of sufficient revenues or financing, the Company may be unable to sustain its operations. IMPACT OF INFLATION Inflation has not had a significant impact on the Company's operations. However, any significant decrease in the price for oil or labor, environmental compliance costs, and engine replacement costs could adversely impact the Company's end users cost/benefit analysis as to the use of the Company's products. QUARTERLY FLUCTUATIONS The Company's operating results may fluctuate significantly from period to period as a result of a variety of factors including product returns, purchasing patterns of consumers, the length of the Company's sales cycle to key customers and distributors, the timing of the introduction of new products and product enhancements by the Company and its competitors, technological factors, variations in sales by product and distribution channel, and competitive pricing and general economic conditions throughout the industrialized world. Consequently, the Company's product revenues may vary significantly by quarter and the Company's operating results may experience significant fluctuations. 12 IMPACT OF YEAR 2000 ISSUE The Company is continuing to assess the possible effects on its operations of the impact through its own systems and the systems of its key suppliers and subcontractors of the Year 2000 issue. The Company has no interactive or linked computer systems to any of its suppliers or subcontractors, and does not have extensive reliance on internal computer systems for its manufacturing, marketing or sales operations. While the impact of the Year 2000 issue could have a material effect on the Company's operations and financial results, the Company at this time believes the potential impact and related costs are not significant. 13 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PURADYN FILTER TECHNOLOGIES INCORPORATED (Registrant) November 12, 1999 By: /s/ Alan J. Sandler ---------------------------- Alan J. Sandler President 14 EX-27 2 FDS --
5 3-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 0 0 102,950 (35,000) 230,945 298,945 603,556 (385,555) 528,716 1,858,593 0 0 0 5,411 (4,419,100) 528,716 412,904 412,904 398,159 1,014,877 0 0 314,420 (916,393) 0 (916,393) 0 0 0 (916,393) (.17) (.17)
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