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, ~~2017,~~2018, including the risks described inPart I. Item 1A. Risk Factors and ~~this report 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.


	June 30,			December 31,			June 30,			December 31,
	2018			2017			2019			2018
	(Unaudited)							(Unaudited)
ASSETS
Current assets:
Cash	$	184,607		$	54,438		$	103,332		$	112,769
Accounts receivable, net of allowance for uncollectible accounts of $17,000 and $17,000, respectively		568,770			270,896			94,413			293,994
Inventories, net		512,923			400,764			1,160,836			834,708
Prepaid expenses and other current assets		147,575			69,355			92,695			66,290
Total current assets		1,413,875			795,453			1,451,276			1,307,761

Property and equipment, net		35,274			45,327			64,251			78,642
Operating Right of use asset							811,772			—
Other noncurrent assets		576,412			532,540			469,873			483,974
Total assets	$	2,025,561		$	1,373,320		$	2,797,172		$	1,870,377

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	332,609		$	186,696		$	554,195		$	416,790
Accrued liabilities		420,734			362,804			346,066			605,357
Sales incentives		—			99,128
Capital lease obligation		1,567			3,443
Operating lease liabilities							152,161			—
Deferred compensation		1,577,271			1,626,003			1,520,665			1,564,253
Notes Payable - stockholders		600,000			7,988,349			833,000			325,000
Total Current Liabilities		2,932,181			10,266,423			3,406,087			2,911,400

Long-term operating lease liabilities							737,708			—
Notes Payable - stockholders		7,989,622			—			8,385,132			7,989,622
Total Liabilities		10,921,803			10,266,423			12,528,927			10,901,022

Commitments and contingencies (Note 12)

Commitments and contingencies (Note 11)

Stockholders’ deficit:
Preferred stock, $.001 par value:
Authorized shares – 500,000;
None issued and outstanding		—			—			—			—
Common stock, $.001 par value,
Authorized shares – 100,000,000;
Issued and outstanding 69,016,468 and 69,016,468, respectively		69,016			69,016			69,016			69,016
Additional paid-in capital		53,623,892			53,599,160			53,705,558			53,678,000
Accumulated deficit		(62,589,150	)		(62,561,279	)		(63,506,329	)		(62,777,661	)
Total stockholders’ deficit		(8,896,242	)		(8,893,103	)		(9,731,755	)		(9,030,645	)
Total liabilities and stockholders’ deficit	$	2,025,561		$	1,373,320		$	2,797,172		$	1,870,377


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net sales	$	1,152,462		$	575,170		$	2,038,202		$	1,264,160		$	468,525		$	1,152,462		$	951,518		$	2,038,202
Cost of products sold		690,959			536,399			1,195,401			979,111			368,719			690,959			699,220			1,195,401
Gross Profit		461,503			38,771			842,801			285,049			99,806			461,503			252,298			842,801

Costs and expenses:
Salaries and wages		196,450			204,151			389,718			417,088			200,051			196,450			428,629			389,718
Selling and administrative		175,513			150,021			325,583			293,361			162,130			175,513			352,769			325,583
Loss on impairment of patents													—			—			11,417			—
Total operating costs		371,963			354,172			715,301			710,449			362,181			371,963			792,815			715,301

Income / (Loss) from operations		89,540			(315,401	)		127,500			(425,400	)		(262,375	)		89,540			(540,517	)		127,500

Other income (expense):
Interest expense		(80,668	)		(67,624	)		(155,371	)		(133,169	)		(99,153	)		(80,668	)		(188,151	)		(155,371	)
Total other expense, net		(80,668	)		(67,624	)		(155,371	)		(133,169	)		(99,153	)		(80,668	)		(188,151	)		(155,371	)
Net income / (loss) before income tax expense		8,872			(383,025	)		(27,871	)		(558,569	)		(361,528	)		8,872			(728,668	)		(27,871	)

Provision for income taxes		—			—			—			—			—			—			—			—

Net Income / (loss)	$	8,872		$	(383,025	)	$	(27,871	)	$	(558,569	)	$	(361,528	)	$	8,872		$	(728,668	)	$	(27,871	)

Basic income / (loss) per common share	$	0.00		$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	0.00		$	(0.01	)	$	(0.00	)

Diluted income / (loss) per common share	$	0.00		$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	0.00		$	(0.01	)	$	(0.00	)

Weighted average common shares outstanding (basic and diluted)		69,016,468			69,016,468			69,016,468			69,016,468
Weighted average common shares outstanding basic and diluted													69,016,468			69,016,468			69,016,468			69,016,468


	Six Months Ended							Six Months Ended
	June 30,							June 30,
	2018			2017				2019				2018
Operating activities
Net loss	$	(27,871	)	$	(558,569	)		$	(728,668	)		$	(27,871	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		20,611			15,887				25,210				20,611
Provision for slow moving inventory		13,610			121,998				(44,053	)			13,610
Compensation expense on stock-based arrangements with employees and consultants		24,733			21,397				27,558				24,733
Impairment of capitalized patent costs								11,417				—
Amortization of Operating right of use asset								75,237				—
Changes in operating assets and liabilities:
Accounts receivable		(297,874	)		(72,538	)			199,581				(297,874	)
Inventories		(125,769	)		86,629				(282,074	)			(125,769	)
Prepaid expenses and other current assets		(78,219	)		(1,798	)			(26,405	)			(78,219	)
Other assets		850			—				—				850
Sales incentives		(99,128	)		—				—				(99,128	)
Accounts payable		145,910			(4,527	)			137,405				145,910
Accrued liabilities								210,905				57,930
Deferred compensation		(48,732	)		7,819				(43,588	)			(48,732	)
Accrued liabilities		57,930			27,994
Operating lease liabilities								(71,827	)			—
Net cash used in operating activities		(413,949	)		(355,708	)			(509,302	)			(413,949	)

Investing activities
Capitalized patent costs		(55,279	)		(33,703	)			(8,135	)			(55,279	)
Purchases of property and equipment		—			(5,245	)
Net cash used in investing activities		(55,279	)		(38,948	)			(8,135	)			(55,279	)

Financing activities
Proceeds from issuance of notes payable to stockholders		601,273			440,000				508,000				601,273
Repayment of note payable to stockholder		—			(50,000	)
Payment of capital lease obligations		(1,876	)		(1,878	)			—				(1,876	)
Net cash provided by financing activities		599,397			388,122				508,000				599,397


Net increase / (decrease) in cash		130,169			(6,534	)
Net (decrease) / increase in cash								(9,437	)			130,169
Cash at beginning of period		54,438			12,806				112,769				54,438
Cash at end of period	$	184,607		$	6,272			$	103,332			$	184,607

Supplemental cash flow information:
Cash paid for interest	$	109,167		$	120,669			$	—			$	109,167
Forgiveness of stockholder loan and accrued interest	$	—		$	26,373
Cash paid for taxes							$	—			$	—

Noncash investing and financing activities:
Conversion of accrued interest into note payable							$	395,510			$	—
Operating right of use assets obtained in exchange for operating lease liabilities							$	890,009			$	—

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

Puradyn Filter Technologies Incorporated (the “Company”), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn^® primarily to companies within targeted industries. The Company holds the exclusive worldwide manufacturing and marketing rights for the Puradyn products through direct ownership of various patents.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, ~~2018~~2019 may not necessarily be indicative of the results that may be expected for the year ending December 31, ~~2018.~~2019.

For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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

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

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

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

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company did not have any cash equivalents.

The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, because of their short-term natures.

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

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

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

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

Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are ~~17 to~~approximately 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations.

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

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

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

The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience. The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the six months ended June 30, ~~2018,~~2019, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.

The following table shows the changes in the aggregate product warranty liability for the six ~~-months~~months ended June 30, ~~2018:~~2019:


Balance as of December 31, 2017	$	20,000
Balance as of December 31, 2018			$	20,000
Less: Payments made		—			—
Add: Provision for current period warranties		—			—
Balance as of June 30, 2018 (unaudited)	$	20,000
Balance as of June 30, 2019 (unaudited)			$	20,000

Advertising costs are expensed as incurred. During the three and six months ended June ~~2018~~30, 2019 and ~~2017,~~2018, advertising costs incurred by the Company totaled approximately $3,256 and $11,917, $2,904 and $3,333, ~~$0 and $0,~~ respectively, and are included in selling and administrative expenses in the accompanying statements of operations.

~~Research~~Engineering and development costs are expensed as incurred. During the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, engineering and development costs incurred by the Company totaled $313 and $2,678, $1,384 and ~~$2,813, and $1,575 and $1,575,~~$2,814, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.

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

We adopted FASB ASC 718,Compensation-Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense ~~for the year ended December 31, 2017~~ has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and six months ended June 30, ~~2018.~~2019.

The Company leases its employees from a payroll leasing company. The Company’s leased employees meet the definition of employees as specified by FASB Interpretation No. 44 for purposes of applying FASB ASC 718.

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 ~~withFASB ASC 505,~~with~~Equity,~~,and FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is recognized over the period the services are provided.

The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations. Please refer to Note 1514 for further details.

The Company uses ASC 260-10, ~~"Earnings~~Earnings Per ~~Share"~~Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding. As of June 30, ~~2018~~2019 and ~~2017,~~2018, there were 12,018,336 and 13,276,412 ~~and 4,497,662~~ shares, respectively, issuable upon the exercise of options and warrants, respectively.

Common stock equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. The Company had net income for the three month period ended June 30, ~~2018.~~2019. A separate computation of diluted earnings per share is presented using the treasury stock method ~~andthe~~and the common stock equivalents did not have any effect on net income per share.

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

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

~~In May 2014, the FASB issued ASU No. 2014-09, "~~~~Revenue from Contracts with Customers (Topic 606)~~~~," which supersedes the revenue recognition requirements in Accounting Standards Codification 605, "~~~~Revenue Recognition~~." This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of the new revenue standard by one year, and allowed entities the option to early adopt the new revenue standard as of the original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective or modified retrospective transition method.

The Company adopted these standards at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards did not have a material impact on the Company's Condensed Statements of Operations during the six months ended June 30, 2018.

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

The Company's unaudited condensed financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception and does not have sufficient revenues and income to fully fund the operations. During the six months ended June 30, 2019 and 2018 the Company used net cash in operations of ~~$413,949~~$509,302 and ~~$355,708 during the six-months ended June 30, 2018 and 2017,~~$413,949, respectively. As a result, the Company has had to rely on stockholder loans and related parties to fund its activities to date.

These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from two stockholders led the Company’s independent registered public accounting firm, Liggett & Webb, P.A., to include a statement in its audit report relating to the Company’s audited financial statements for the year ended December 31, ~~2017~~2018 expressing substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Inventories consisted of the following at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively:


	June 30, 2018			December 31, 2017				June 30, 2019			December 31, 2018
	(Unaudited)							(Unaudited)
Raw materials	$	1,036,774		$	901,600			$	1,183,644		$	1,053,147
Work In Progress		—			125,932
Finished goods		133,375			16,848				409,201			257,623
Valuation allowance		(657,226	)		(643,616	)			(432,009	)		(476,062	)
Inventory, net	$	512,923		$	400,764
Total inventory, net							$	1,160,836		$	834,708

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, prepaid expenses and other current assets consisted of the following:

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, property and equipment consisted of the following:


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
Machinery and equipment	$	1,045,217		$	1,045,217		$	1,030,196		$	1,030,196
Furniture and fixtures		56,558			56,558			56,558			56,558
Leasehold improvements		152,322			152,322			188,012			188,012
Software and website development		88,842			88,842			88,842			88,842
Computer hardware and software		153,249			153,249			179,258			179,258
		1,496,188			1,496,188			1,542,866			1,542,866
Less accumulated depreciation and amortization		(1,460,914	)		(1,450,861	)		(1,478,615	)		(1,464,224	)
	$	35,274		$	45,327		$	64,251		$	78,642

Depreciation and amortization expense of property and equipment for the three and six months ended June 30, 2019 and 2018 are $6,950 and ~~2017 is~~$14,391, and $5,026 and $10,053 ~~and $4,420 and $9,097,~~ respectively.

Included in other noncurrent assets at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 are capitalized patent costs as follows:


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
Patent costs	$	614,151		$	558,873		$	530,214		$	533,496
Less accumulated amortization		(72,709	)		(62,153	)		(95,311	)		(84,429	)
	$	541,442		$	496,720		$	434,903		$	449,067

Amortization expense for the three and six months ended June 30, 2019 and 2018 are $5,410 and ~~2017 amounted to~~$10,819, and $6,823 and $10,558, ~~and $3,395 and $6,790,~~ respectively. During the six months ended June 30, 2019 the Company impaired $11,417 of patent costs as it was determined that it had no future economic value.

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

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

The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of June 30, ~~2018,~~2019, a security deposit of $34,970 is included in noncurrent assets in the accompanying balance sheet. On September 27, 2012 the Company entered into a non-cancellable six-year lease agreement for the same facilities commencing August 1, 2013 and expiring July 31, 2019. The total minimum lease payments over the remaining term of the current lease amount to $180,826.

On June 29, 2018, the Company entered into a non-cancellable five-year lease for the same facilities commencing August 1, 2019 and expiring July 31, 2024. The lease will require an initial rent of $14,899 per month, beginning August 1, 2019 for the first year, increasing by 3% per year to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord ~~has~~ agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of ~~June 30,~~December 31, 2018 the Company ~~has not requested or~~had received ~~any~~all of the reimbursement.

In ~~January 2015~~September 2018, the Company entered into a new capital lease for office equipment in the amount of ~~$15,020. As~~$559, which commenced in December 2018 for a term of 48 months.

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

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

Maturities of lease liabilities were as follows as of June 30, ~~2018 and December 31, 2017 the balance under capital lease obligations was $1,567 and $3,443, respectively.~~2019:

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, accrued liabilities consisted of the following:


	June 30, 2018		December 31, 2017			June 30, 2019			December 31, 2018
	(Unaudited)					(Unaudited)
Accrued vacation and benefits	$	68,107	$	69,025
Accrued wages and benefits					$	43,819		$	52,753
Accrued expenses relating to vendors and others		156,309		136,681			170,612			128,114
Accrued warranty costs		20,000		20,000			20,000			20,000
Accrued interest payable relating to stockholder notes		160,591		115,039			111,635			329,801
Deferred rent		15,727		22,059			—			74,689
	$	420,734	$	362,804		$	346,066		$	605,357

Deferred compensation represents amounts owed to ~~three~~two current employees and two former employees for salary. As there is no written agreement with these employees which memorializes the terms of ~~the~~ salary deferral, only a voluntary election to do ~~so. It~~so, it is possible that the employees could demand payment in full at any time. As of June 30, ~~2018~~2019 and December 31, ~~2017~~2018, the Company recorded deferred compensation of ~~$1,577,271~~$1,520,665 and ~~$1,626,003,~~$1,564,253, respectively.

The Company entered into an exclusive distribution agreement for the worldwide rights to sell its product in the oil and gas industry effective September 7, 2017. The agreement included an incentive program that rewarded credits toward future product redeemable only if targeted quarterly goals are achieved. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018.

On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the ~~former Chief Executive Officer, now~~ Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points ~~(3.79%~~(4.02% and ~~3.61%~~3.678% per annum at June 30, ~~2018~~2019 and ~~2017~~2018, respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.

~~During the six months ended June 30, 2018~~On March 25, 2019 we ~~borrowed an additional $26,272 from~~entered into a note exchange agreement with our Executive Chairman ~~together with~~pursuant to which he exchanged $7,989,622 of principal and $395,510 of accrued interest which would have been due on December 31, 2019 under an ~~$325,000 under~~unsecured loan for a ~~demand~~secured promissory note ~~not covered by this line~~in the principal amount of ~~credit. This demand~~$8,385,132. The secured note which matures on December 31, 2021, and bears interest at 4% per ~~annum.~~annum, payable monthly, is secured by a first position security interest in our assets.

From January 1, 2019 through June 30, 2019, the Company received additional loans in the amount of $483,000 from the Company’s Executive Chairman, as advances for working capital needs. The loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points. As of June 30, ~~2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 75% and 78% of our~~2019 the total ~~liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the~~balance due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.was $808,000.

In ~~November 2017,~~January 7, 2019, the Company received an additional loan in the amount of $25,000 from a stockholder and former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due ~~December 31, 2018.~~

From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Company’s Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.January 7, 2020.

During the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company incurred interest expense of $92,405 and $177,344, and $80,354 and ~~$65,083, and~~ $154,719, ~~and $131,841,~~ respectively, on its loan from the Executive Chairman of the Board, which is included in interest expense in the accompanying condensed statements of operations, as well as interest expense of $312 and $600, and $310 and $620 for the three and six months ended June 30, 2019 and 2018, respectively, related to the loan from ~~one if its~~a former Board ~~members.~~member. These amounts, in addition to interest expense of $4$6,748 and ~~$481,~~$10,807, and ~~$32~~$314 and ~~$575~~$652 for the three and six months ended June 30, 2019 and 2018, ~~and 2017,~~ respectively, are related to ~~capital lease obligations,~~ financing and ~~loans from a stockholder.~~late fees.

Notes payable and ~~capital leases~~operating lease liabilities consisted of the following at June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Notes payable to stockholders	$	8,589,622		$	7,988,349		$	9,218,132		$	8,314,622
Capital lease obligation		1,567			3,443
Operating lease liabilities							889,869			—
		8,591,189			7,991,792			10,108,001			8,314,622
Less: current maturities		(601,567	)		(7,991,792	)		(985,161	)		(325,000	)
Long-term maturities	$	7,989,622		$	—		$	9,122,840		$	7,989,622

~~The minimum annual principal payments of notes payable and capital lease obligations at June 30, 2018 were:~~

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

On September 7, 2017 the Company entered into an exclusive distribution agreement with NOW, Inc. (“DNOW”) for the worldwide rights to sell its product in the oil and gas industry. As part of this agreement, the distributor could receive sales incentive credits toward future product, based upon the difference in current pricing and new pricing detailed in the agreement. The credits toward future product are only redeemable if targeted quarterly goals are achieved. If the goals are not achieved the credits will be carried forward and are redeemable when the quarterly goals are achieved. Refer to Note 10. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018.

On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. On June 29, 2018, the lease was extended an additional 5 years. The renewed lease commences August 1, 2019 and expiring on July 31, 2024 and requires an initial rent of $14,899 per month beginning in the second month of the first year, increasing in varying amounts to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord has agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of June 30, 2018 the Company has not requested or received any of the reimbursement.him.

On October 20, 2009, the Company entered into a consulting agreement for management and strategic development services with Boxwood Associates, Inc., pursuant to which the Company pays a $2,000 monthly service fee. The contract remains in effect until terminated by either party providing 30 days written notice. A former member of our ~~board~~Board of ~~directors~~Directors and a significant stockholder is President of Boxwood Associates, Inc. Refer to Note ~~14.~~13.

For the three and six months ended June 30, ~~2018~~2019 and ~~June 30, 2017,~~2018, respectively, the Company recorded non-cash stock-based compensation expense of ~~$14,392~~$13,628 and ~~$24,733,~~$14,391, and ~~$10,517~~$27,558 and ~~$21,397,~~$24,732, respectively, relating to employee stock options and warrants issued for consulting services.

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505,Equity,and FASB ASC 718, Compensation – Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at June 30, ~~2018~~2019 and ~~2017~~2018 for the options is ~~$180,427~~$97,034 and ~~$34,596,~~$180,427, respectively, and will be recognized through June 30, ~~2019.~~2021.

On April 12, 2018 the Board of Directors approved the adoption of a 2018 Equity Compensation Plan. The Company has reserved ~~10,000,000~~20,000,000 shares of our common stock for grants under this plan.

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

On ~~April 12, 2018,~~March 28, 2019, the Company ~~granted employees~~filed a definitive information statement on Schedule 14C with the Securities and ~~directors options~~Exchange Commission to ~~purchase 4,475,000~~notify our common shareholders that effective March 27, 2019, the holders of 35,713,727 shares of ~~the Company’s~~our common stock, ~~at exercise prices ranging from $0.0189 to $0.208 per share. The options vest over a three-year period and expire April 12, 2028. The fair value~~representing 51.7% of the options totaled $69,989 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000outstanding shares of ~~the common stock.~~

On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the board of directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Company’sour common stock, ~~at an exercise price~~executed a written consent in lieu of ~~$0.017 per share. The options vest over~~ a ~~three-year period and expire May 18, 2028. The fair value~~special meeting of shareholders ratifying the ~~options totaled $101,437 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate~~adoption of ~~2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%.~~our 2018 Equity Compensation Plan, as amended.

A summary of the Company’s stock option plans as of June 30, ~~2018,~~2019, and changes during the ~~six month~~six-month period then ended is presented below:


	Six Months Ended June 30, 2018					Six Months Ended June 30, 2019
	Number of Options			Weighted Average Exercise Price		Number of Options				Weighted Average Exercise Price
Options outstanding at December 31, 2017		3,180,000		$	0.20
Options outstanding at December 31, 2018						11,785,000			$	0.05
Options granted		10,975,000		$	0.02		—				—
Options exercised		—			—		—				—
Options forfeited		(1,408,334	)	$	0.02		(200,000	)			0.02
Options expired		(291,666	)	$	0.25		(340,000	)			0.14
Options at end of period		12,455,000		$	0.06		11,245,000			$	0.05
Options exercisable at June 30, 2018		2,860,000		$	0.19
Options exercisable at June 30, 2019						5,046,672			$	0.09

Changes in the Company’s non-vested options for the six months ended June 30, ~~2018~~2019 are summarized as follows:


	Six Months Ended June 30, 2018					Three Months Ended June 30, 2019
	Number of Options			Weighted Average Exercise Price		Number of Options				Weighted Average Exercise Price
Nonvested options at December 31, 2017		270,840		$	0.15
Nonvested options at December 31, 2018						9,595,000			$	0.02
Granted		10,975,000		$	0.02		—				—
Vested		(242,506	)	$	0.16		(3,196,672	)			0.02
Forfeited		(1,408,334	)	$	0.22		(200,000	)			0.02
Nonvested options at June 30, 2018		9,595,000		$	0.18
Nonvested options at June 30, 2019						6,198,328			$	0.02


	Options Outstanding						Options Exercisable				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		Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.017- $0.30		12,445,000		8.36	$	0.06		2,860,000	$	0.19		11,245,000		7.86		$0.05		5,045,672		$0.09
Totals		12,445,000		8.36	$	0.06		2,860,000	$	0.19		11,245,000		7.86		$0.05		5,046,672		$0.09

A summary of the Company’s warrant activity as of June 30, ~~2018~~2019 and changes during the six-month period then ended is presented below:


	Six months ended June 30, 2018					Six months ended June 30, 2019
	Warrants			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Warrants outstanding at December 31, 2017		990,162		$	0.24
Warrants outstanding at December 31, 2018						773,336		$	0.16
Granted		—			—		—			—
Expired		(168,750	)	$	0.35		—			—
Warrants outstanding at June 30, 2018		821,412		$	0.17
Warrants outstanding and exercisable at June 30, 2019						773,336		$	0.16


	Warrants Outstanding						Warrants Outstanding and Exercisable
Range of Exercise Price	Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price		Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price
		821,412		1.80	$	0.17
$0.05 - $0.25								773,336		0.90	$	0.16
Totals		821,412		1.80	$	0.17		773,336		0.90	$	0.16

On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the ~~former Chief Executive Officer, now~~ Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the ~~agreements,~~agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points ~~(3.78%~~(4.02% and 3.678% per annum at June 30, ~~2018)~~2019 and 2018, respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity ~~date~~rate to December 31, 2019. If

On March 25, 2019 we ~~are unable to meet our obligation to~~entered into a note exchange agreement with our Executive Chairman ~~prior~~pursuant to ~~maturity,~~which he ~~has advised us that he may forgive all, or substantially all,~~exchanged $7,989,622 of ~~this obligation.~~

~~During~~principal and $395,510 of accrued interest which would have been due on December 31, 2019 under an unsecured loan for a secured promissory note in the ~~six months ended June 30, 2018 we borrowed an additional $26,272 from our Executive Chairman, together with an $325,000 under a demand~~principal amount of $8,385,132. The secured note ~~not covered by this line of credit. This demand note~~which matures on December 31, 2021, and bears interest at 4% per ~~annum. As of June 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 75% and 78% of~~annum, payable monthly, is secured by a first position security interest in our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.assets.

From ~~April~~January 1, ~~2018~~2019 through ~~May 15, 2018,~~June 30, 2019, the Company received additional loans in the amount of ~~$250,000~~$483,000 from ~~a related party to both~~ the Company’s Executive Chairman, ~~and its Chief Executive Officer,~~ as advances for working capital needs. The ~~amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000~~loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points. As of June 30, 2019 the total balance due was ~~repaid.~~

On April 12, 2018, the Company granted our Chairman and Former CEO options to purchase 1,400,000 shares of the Company’s common stock, at exercise price of $0.208 per share. The options vest over a three-year period and expire April 12, 2028. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.

On May 18, 2018 Mr. Edward S. Vittoria was appointed Chief Executive Officer of Puradyn Filter Technologies Incorporated and as a member of its Board of Directors. Immediately prior to such appointment, Mr. Joseph V. Vittoria resigned from his position as Chief Executive Officer, and has been appointed Executive Chairman of the Board of Directors.

~~Since December 2017 Mr. Edward Vittoria has been providing advisory services to our company. He is the son of Mr. Joseph V. Vittoria.~~$808,000.

In ~~November 2017,~~January 7, 2019, the Company received an additional loan in the amount of $25,000 from a stockholder and former member of the Board of ~~Directors and a significant stockholder.~~Directors. The loan bears interest at a rate of 5% per annum and is due ~~December 31, 2018.~~January 7, 2020.

On October 20, 2009, the Company entered into a consulting agreement with Boxwood Associates, Inc., whereby the Company pays $2,000 monthly for management and strategic development services performed. The contract remains in effect until terminated by either party providing 30 days written notice. During each of ~~three~~the three- and ~~six months~~six-month periods ended June 30, ~~2018~~2019 and ~~2017,~~2018, we paid Boxwood Associates, Inc. ~~$12,000~~$6,000 and ~~$6,000,~~$12,000, respectively, under this agreement. A former member of our ~~board~~Board of ~~directors~~Directors is President of Boxwood Associates, Inc.

There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by ~~two~~three customers at June 30, ~~2018~~2019 whose balances each represented approximately ~~65%~~34%, 28% and ~~22%~~13%, for a total of ~~87%~~75% of total accounts receivables. Comparatively, there are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, ~~2017~~2018 whose balances each represented approximately 53%, and 30%, for a total of 83% of total accounts receivables. Sales to ~~two~~three customers for the six months ended June 30, 2019 were 41%, 25% and 10% for total of 76% of sales. During the six months ended June 30, 2018 sales from two customers represented 40% and ~~2017 were 66% and 32%~~25% for a total of ~~total~~65% of sales. The loss of business from one or a combination of the Company’s significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.

~~Only July 15, 2018~~Subsequent to June 30, 2019, the Company ~~repaid a loan~~received additional loans in the amount of ~~$250,000~~$175,000 from ~~a related party to both~~ the Company’s Executive Chairman, ~~and its CEO.~~as advances for working capital needs. The loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points.

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

The following discussion of our unaudited condensed ~~consolidated~~ financial condition and results of operations for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 should be read in conjunction with the unaudited condensed ~~consolidated~~ financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 as filed with the Securities and Exchange Commission on April 10, 2018 (the ~~“2017~~“2018 10-K”)., and our subsequent filings with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All information in this section for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is unaudited and derived from the unaudited condensed ~~consolidated~~ financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, ~~2017~~2018 is derived from our audited ~~consolidated~~ financial statements appearing in the ~~2017~~2018 10-K.

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

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

During the balance of ~~2018~~2019 we ~~are focusing~~will continue to focus our sales and marketing efforts on:

~~In addition, from an operating standpoint we are placing additional emphasis on:~~

We attribute the ~~increase~~decrease in sales in the second quarter of ~~2018 and~~2019 compared to the ~~six months then ended over the comparable periods in 2017~~second quarter of 2018 to a ~~number~~few customers delaying orders due to the rapid decline of customers in targeted markets experiencing revived business outlook with apparent stability in the economy and oil pricing. We are also encouraged that the revenue growth derives from multiple customer segments, including continued growth in the sales to end usersmarket certainty, especially in the oil and gas ~~industry, renewed interest by OEMs,~~segment, that began in December 2018 and continued ~~growth in~~through the ~~commercial marine segment. We~~second quarter. Nevertheless, we continue to engage more prospective customers than we have ~~also seen increased demand for installations~~had traditionally and across multiple categories to help diversify our business. Evaluations continue to increase; however, these can run between 3 and 12 months. Our focus on the pressure pumping ~~fleets,~~and midstream segments, both of which we ~~estimate could represent a market for Puradyn that is two to three times~~believe may provide more than double the ~~size~~opportunity of ~~the traditional~~our existing onshore rig ~~market.~~

~~The recent rebound in oil prices has driven both increased utilization~~business, will be supported by ~~existing customers in the oil~~expanded sales and ~~gas industry as more rigs come back on line as well as new installations by companies who are once again able to make capital investments. We believe~~~~Puradyn~~ ~~systems are now active on at least 35% of all U.S. onshore rigs.~~marketing efforts through our DNOW relationship. We continue to ~~work on closing a few remaining industry leaders,~~grow within commercial marine as more prospective customers are made aware of our proven results at like companies. Our success with smaller installations by government contractors is starting to gain positive attention, and we ~~benefit from existing customers that advocate for us by sharing the results they~~ are experiencing. Nabors Industries reaffirmed that because of their use of Puradyn filtration systems they not only are reducing oil changes by 80%, they are also skipping mid-cycle top-end engine overhauls, which can cost upwell positioned to $85,000 per engine. Scandrill, Inc. has also standardized Puradyn on their entire fleet and credit our systems with enabling them to safely extend oil drain intervals to 5,000 hours from their previous practice of 1,000 hours.grow market share in this segment.

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


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2018			2017			% change		2018			2017			% change		2019			2018			% change		2019			2018			% change
	(unaudited)								(unaudited)								(unaudited)								(unaudited)

Net sales	$	1,152,462		$	575,170			100%	$	2,038,202		$	1,264,160			61%	$	468,525		$	1,152,462			-59%	$	951,518		$	2,038,202			-53%
Gross profit		461,503			38,771			1,090%		842,801			285,049			196%	$	99,806		$	461,503			-78%		252,298			842,801			-70%
Total operating costs		371,963			354,174			5%		715,301			710,449			1%	$	362,181		$	371,963			-3%		792,815			715,301			11%
Income (loss) from operations	$	89,540		$	(315,401	)		(128)%	$	127,500		$	(425,400	)		(130)%	$	(262,375	)	$	89,540			-393%	$	(540,517	)	$	127,500			-524%
Total other expense, net		(80,668	)		(67,624)			19%		(155,372	)		(133,169	)		17%	$	(99,153	)	$	(80,668	)		23%		(188,151	)		(155,371	)		21%
Net income (loss)	$	8,872		$	(383,025	)		(102)%	$	(27,871	)	$	(558,569	)		(95)%	$	(361,528	)	$	8,872			4,175%	$	(728,668	)	$	(27,871	)		2514%
Basic and diluted earnings (loss) per share	$	0.00		$	(0.01	)			$	(0.00	)	$	(0.01	)			$	(0.01	)	$	0.00			-2%	$	(0.01	)	$	(0.00	)		-2%

~~Net sales in the 2018 periods includes reversal during the second quarter of 2018 of a previous sales credit of $99,128 recorded for a distributor.~~

Our gross profit margins for the ~~second quarter of 2018 increased 33.3%, from 6.7% in the second quarter of 2017 to 40% in the second quarter of 2018,~~three and ~~by 18.8% for the first~~ six months ~~of 2018, from 22.5% for~~ended June 30, 2019 decreased by 70% and 78% as compared to the ~~first~~three and six months ~~of 2017 to 41.4% for the first six months of~~ended June 30, 2018. The ~~increase~~decrease in our gross profit margins infor the ~~2018 periods~~three and six months ended June 30, 2019 is attributable to ~~operating efficiencies~~reduced facility utilization due to ~~increased~~decreased sales ~~in the first quarter of 2018 and~~which was partial offset by a ~~significant~~ decrease in the ~~expense~~reserve for slow moving inventory ~~from amounts recorded in 2017. Subsequent~~of $(44,053) during the six months ended June 30, 2019 compared to $13,610 for the ~~end of the second quarter 2018 we~~six months ended June 30, 2018. We have been advised by several of our suppliers that prices for various raw materials are being increased ~~both~~ as a result of the loss of some of their primary suppliers and higher prices with their secondary suppliers and the ~~secondary suppliers. We also expect to be impacted by~~unknown impact of recently enacted tariffs by the ~~Trump Administration, however, at this time~~current administration. However, we are ~~unable~~exploring and implementing measures to ~~quantify this~~help mitigate the impact on our costs. We notified our customers of pricing increases effective October 1, 2018 which varied by product, and we will continue to review cost of materials increases ~~some of which may be passed through to our customers as product price increases~~and adopt further pricing action in the ~~future.~~future as warranted.

Our total operating costs which include salaries and wages and selling and administrative ~~expenses.~~expenses increased during the six months ended June 30, 2019 and 2018 due to primarily to the hiring of our new CEO in May 2018. The ~~reduction salaries and wages in each of~~additional expense was offset by the ~~2018 periods from the comparable 2017 periods reflects lower staffing levels from a reallocation of internal resources in an effort~~decision to ~~increase operating efficiencies,~~not fill two positions vacated voluntarily and the impact of ~~one employee~~two employees who ~~has lowered his salary in lieu of~~are now being paid only from deferred compensation. ~~We anticipate that our salaries and wages will increase during the balance of 2018.~~ The ~~increases~~decrease in selling and administrative expenses during the second quarter of ~~2018 and the six months then ended~~2019 from the comparable ~~periods~~period in ~~2017~~2018 is attributable to ~~increases~~cost-cutting measures, including staff reductions and an approximately 20% reduction in ~~non-cash expenses associated with stock compensation to employees. We~~factory hours and office salaries, which we anticipate ~~that our selling and administration expenses~~ will ~~increase slightly throughout 2018, inclusive~~have cost saving of ~~communication costs, office supplies, and other components of administrative expenses.~~approximately $7,000 per week.

Total other expense, net represents interest we pay to related parties on amounts advanced to us for working capital.

We had cash on hand of ~~$184,607~~$103,332 and a working capital deficit of ~~$1,518,306~~$1,954,811 at June 30, ~~2018~~2019 as compared to cash on hand of ~~$54,438~~$112,769 and a working capital deficit ~~of $9,470,970~~$1,603,639 at December 31, ~~2017.~~2018. Our current ratio (current assets to current liabilities) was ~~.48~~.43 to 1 at June 30, ~~2018~~2019 as compared to ~~.08~~.45 to 1 at December 31, ~~2017.~~2018. The ~~decrease~~increase in negative working capital is primarily attributable to our Executive Chairman extending the maturity date of his working capital loans to December 31, 2019, thereby reclassifying these amounts from current liabilities to long-term liabilities, together with increasesa decrease in ~~inventory and~~ accounts receivable and an increase in accounts payable and operating lease liabilities which were offset by decreases in accrued liabilities and deferred compensation and ~~sales incentives which were offset by decrease in cash and~~ increase in ~~accounts payable.~~inventory. We do not currently have any commitments for capital expenditures.

Historically, we have been materially reliant on working capital advances from our Executive Chairman ~~toaddress~~to address our liquidity and working capital issues through the utilization of the borrowing agreement with him. On March 25, 2019 we entered into a note exchange agreement with our Executive Chairman pursuant to which he exchanged $7,989,622 of principal and $395,510 of accrued interest, which was due on December 31, 2019 under an unsecured loan, for a secured promissory note in the principal amount of $8,385,132. The note, which matures on December 31, 2021, bears interest at 4% per annum, payable monthly, and is secured by a first position security interest in our assets. In ~~2018~~addition, we ~~have borrowed an additional $325,000 from~~owe him under short term demand notes, and at June 30, 2018 we owed him an aggregate of $8,314,622. We do not have the funds necessary to satisfy these obligations. While he has continued to fund our working capital needs and extend the due date of the obligation, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide$983,000 for other working capital advances ~~to us at historic amounts. If we~~which are ~~unable to meet our obligation to Mr. Vittoria prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation. However, he is under no obligation to do so.~~due on demand.

We also owe certain of our employees ~~$1,577,271~~$1,520,665 and ~~$1,626,003,~~$1,564,253, respectively, in deferred cash compensation at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, which represents ~~54%~~45% and ~~16%~~54%, respectively, of our current liabilities on that date. ~~Since 2005, Mr. Kroger, our President~~These current and ~~COO, and two other~~former employees ~~have deferred~~agreed to defer a portion of ~~the~~their compensation ~~due them~~ to assist us in managing our cash flow and working capital needs. As there is no written agreement with these current and former employees which memorializes the terms of salary deferral, only an election to do so, it is possible ~~the employees~~these individuals could demand payment in full at any time or elect to no longer defer their salaries, or reduce the amount they currently defer. We do not have sufficient funds to satisfy these obligations.

Our net sales are not sufficient to pay our operating expenses. Our capital requirements depend on a number of factors, including our ability to internally grow our revenues, manage our business and control our expenses. We do not have any external sources of liquidity at this time, and our discussions over the past few years with third parties for potential investments have not been successful. We historically have encountered resistance from potential investors on a variety of fronts, including our operating losses, and the amount of debt due ~~Mr. Vittoria. In an effort~~ to ~~improve~~our Executive Chairman. He is not obligated to lend us any additional funds and the amounts we owe him, which are secured by our assets, mature in December 2021. He has advised us that he does not expect to continue to provide working capital advances to the Company at historic levels. Given our history of losses and debt levels, we face a number of challenges in our ability to raise capital. If we do not significantly increase our net sales or raise funds as needed, our ability to provide for current working capital ~~on November 11, 2016 he converted $6,100,000 of principal and interest~~needs, pay our obligations as they become due, him into shares of our common stock at a conversion price which was a premium to the market value of our common stock. However, following such conversion, the hoped for change in our potential financing sources looked atgrow our company, and ~~risks associated with it have not changed. There can be~~continue our existing business and operations is in jeopardy. In this event, we would no ~~assurance we will~~longer be able to ~~raise additional capital or generate enough to repay our debt holders,~~continue as a going concern and ~~it is possible that stockholders~~you could lose ~~their entire~~all of your investment in our company.


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net cash (used) by operating activities	$	(413,949	)	$	(355,708	)	$	(509,302	)	$	(413,949	)
Net cash (used) by investing activities	$	(55,729	)	$	(38,948	)	$	(8,135	)	$	(55,279	)
Net cash provided by financing activities	$	599,397		$	388,122		$	508,000		$	599,397

During the first six months of ~~2018~~2019 net cash used by our operating activities was principally related to ~~funding our net loss, together with~~ increases in inventory, which were offset by reduced accounts receivable, and ~~prepaid expenses offset by~~an increase in accounts ~~payable and accrued liabilities.~~payable. The ~~increases in accounts receivable as well as the corresponding~~ increases in inventory and accounts payable were a result of the Company’s expected increase in sales and timing of receiving raw materials. During the first six months of ~~2017,~~2018, cash used by operating activities was primarily used to fund our net loss together with ~~increase~~increases in accounts receivable and inventories and decreases in sales incentives and deferred compensation were partially offset by ~~decrease in inventory as well a provision for slow moving inventory and~~an increase in ~~accrued liabilities.~~accounts payable.

During the first six months of 2019 and 2018, net cash used by investing activities represented capitalized patent costs. ~~For the six months of 2017, net cash was used in investing activities for the purchase of equipment and capitalized patent costs.~~

During the first six months of 2019, net cash provided by financing activities represented loans from related parties. During the first six months of 2018, ~~and 2017,~~ net cash provided by financing activities represented loans from related parties, net of capital lease payments.

Our unaudited condensed financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred net losses ~~each year~~ since inception and have relied on loans from related parties to fund our operations. The Company does not have sufficient revenues and income to fund the operations. These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from our principal stockholder, as set forth above, have led our independent registered public accounting firm Liggett & Webb, P.A. to include a statement in its audit report relating to our audited financial statements for the years ended December 31, ~~2017~~2018 and ~~2016~~2017 expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to continue to generate profitable operations in the future. ~~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.~~

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

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

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

Our management, which includes our CEO and our principal financial and accounting officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended) as of ~~June 30, 2018~~the end of the period covered by this report (the "Evaluation Date"). Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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

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

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our ~~Annual Report on Form~~2018 10-K ~~for the year ended December 31, 2017~~ and our subsequent filings with the SEC, which could materially affect our business, financial condition or future results, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC.results.

WE NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY TO FUND OUR ONGOING OPERATIONS WILL BE IN JEOPARDY AND WE WILL BE UNABLE TO CONTINUE AS A GOING CONCERN.

As described elsewhere herein, our net sales are not sufficient to pay our operating expenses. Our capital requirements depend on a number of factors, including our ability to internally grow our revenues, manage our business and control our expenses. Historically, our operations have been financed primarily through loans from our Chief Executive Officer, as well as other affiliates. Our Chief Executive Officer recently advised us that he does not expect to continue to provide working capital advances to the Company at historic levels. Given our history of losses and debt levels, we face a number of challenges in our ability to raise capital. If we do not significantly increase our net sales or raise funds as needed, our ability to provide for current working capital needs, pay our obligations as they become due, grow our company, and continue our existing business and operations is in jeopardy. In this event, we would no longer be able to continue as a going concern and you could lose all of your investment in our company.

~~WE OWE APPROXIMATELY $8.3 MILLION, THE MAJORITY OF WHICH IS DUE BY DECEMBER 31, 2019.~~

At June 30, 2018, we owed our Executive Chairman approximately $8.3 million. This obligation is unsecured. Substantially all of this amount is due on December 31, 2019, however, $325,000 of which is due on demand. We do not have sufficient funds to repay these obligations. If our Executive Chairman does not consent to further extensions of the due date of these amount, we will be unable to repay these obligations when due.

Incorporated by Reference

Filed

Incorporated by Reference

Filed

or Furnished

No.

Exhibit Description

Form

Date Filed

Number

Herewith

Exhibit Description

Form

Date Filed

Number

Herewith

3.1

Amended and Restated Certificate of Incorporation dated July 24, 1996

10-SB

7/30/96

3.1

Amended and Restated Certificate of Incorporation dated July 24, 1996

10-SB

7/30/96

3.1

3.2

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

8-K

1/9/97

3.(I)

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

8-K

1/9/97

3.(I)

3.3

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

8-K/A

2/12/98

3.1

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

8-K/A

2/12/98

3.1

3.4

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

8-K

3/16/09

3.4

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

8-K

3/16/09

3.4

3.5

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

10-Q

8/15/11

3.4

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

10-Q

8/15/11

3.4

3.6

Bylaws

10-SB

7/30/96

3.2

Bylaws

10-SB

7/30/96

3.2

10.1

Letter agreement dated May 18, 2018 by and between Puradyn Filter Technologies Incorporated and Edward S. Vittoria

8-K

5/21/18

10.1

10.2

Lease agreement between Puradyn and Duke Realty

Filed

10.3

Promissory Note Forgiveness Agreement dated January 9, 2019

10-K

3/26/19

10.26

10.4

Note Exchange Agreement dated March 25, 2019 by and between Puradyn Filter Technologies Incorporated and Joseph V. Vittoria

10-K

3/26/19

10.27

10.5

Senior Secured Promissory Note dated March 25, 2019 to Joseph V. Vittoria

10-K

3/26/19

10.28

10.6

Security Agreement dated March 25, 2019

10-K

3/26/19

10.29

10.7

Amendment No. 1 to the 2018 Equity Compensation Plan

10-K

3/26/19

10.30

31.1

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

Filed

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

Filed

31.2

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

Filed

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

Filed

32.1

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

Filed

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

Filed

101.INS

XBRL Instance Document

Filed

XBRL Instance Document

Filed

101.SCH

XBRL Taxonomy Extension Schema Document

Filed

XBRL Taxonomy Extension Schema Document

��

Filed

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Filed

XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Filed

XBRL Taxonomy Extension Definition Linkbase Document

Filed

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Filed

XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed

XBRL Taxonomy Extension Presentation Linkbase Document

Filed

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.


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended:June 30, ~~2018~~2019

or

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from: _____________ to _____________


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)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.001 PER SHARE	PFTI	NONE


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨þ	Smaller reporting company þ
	Emerging growth company ¨


		Page No.
	PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS.	1

	Condensed Balance Sheets – As of June 30, ~~2018~~2019 (unaudited) and December 31, 20178	1
	Condensed Statements of Operations ~~–Three~~– Three months and Six months ended June 30, ~~2018and 2017~~2019 and 2018 (unaudited)	2
	Condensed Statements of Cash Flows – Six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	3
	Condensed Statements of Stockholders’ Deficit– Three and Six months ended June 30, 2019 and 2018 (unaudited)	4
	Notes to Condensed Financial Statements (Unaudited)	46

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1618

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	2022

ITEM 4.	CONTROLS AND PROCEDURES.	2122

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	2223

ITEM 1A.	RISK FACTORS.	2223

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	2223

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	2223

ITEM 4.	MINE SAFETY DISCLOSURE.	2223

ITEM 5.	OTHER INFORMATION.	2223

ITEM 6.	EXHIBITS.	2324


									Additional					Total
	Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit

Balance at March 31, 2018 (unaudited)		—	$	—		69,016,468	$	69,016	$	53,609,501	$	(62,598,022	)	$	(8,919,505	)
Net income for the three months ended June 30, 2018		—		—		—		—		—		8,872			8,872
Compensation expense associated with unvested option awards		—		—		—		—		14,391		—			14,391
Balance at June 30, 2018 (unaudited)		—	$	—		69,016,468	$	69,016	$	53,623,892	$	(62,589,150	)	$	(8,896,242	)


		June 30,
Operating Leases	Classification	2019
Right-of-use assets	Operating right of use assets	$	811,772

Current lease liabilities	Current operating lease liabilities		152,161
Non-current lease liabilities	Long-term operating lease liabilities		737,708
Total lease liabilities		$	889,869


	June 30,
	2019
Weighted average remaining lease term (years)		5.05
Weighted average discount rate		4	%


	Three months ended June 30,
	2019
Operating lease cost	$	46,663
Variable lease cost (1)		34,771
Total lease costs	$	81,434


	Six months ended June 30,
	2019
Operating lease cost	$	93,332
Variable lease cost (1)		61,686
Total lease costs	$	155,018


	June 30,
	2019
Cash paid for operating lease liabilities	$	71,827
Operating right of use assets obtained in exchange for operating lease liabilities	$	890,009


	Operating
	Leases
Remainder of 2019	$	92,023
2020		188,196
2021		193,627
2022		197,427
2023		197,807
2024		117,383
Total		986,463
Less: Imputed interest		(96,594	)
Present value of lease liabilities	$	889,869


	·	~~Continued growth in sales to end users~~Revenues in the ~~oil~~quarter were negatively impacted by the continued delays in expected orders, especially from customers in the Oil & Gas category. Downward market trends within the drilling and ~~gas industry with additional installations on rigs and new expansion into~~ pressure pumping segments are impacting capital expense decisions, and ~~pipeline operations;~~while we believe these orders will eventually be received, it has become difficult to predict the timing. Our primary distributor also delayed filter orders expected in second quarter which we expect to receive in the third quarter.

	·	~~Renewed interest~~The midstream segment is less impacted by the broader market volatility within Oil & Gas, and ~~installations~~we are nearing the completion of trials by ~~OEMs; and~~two new customers who are leaders in this segment. This is expected to not only lead to orders beginning in late 2019 but should open up visibility of our product’s viability throughout the segment.

	·	~~Accelerating growth~~We secured another major customer within the inland marine segment that intends to begin equipping their entire fleet in the ~~commercial marine segment.~~


	·	~~Sales growth of 100% during the second quarter of 2018 compared to the same period in 2017;~~third quarter.

	·	~~Gross profit growth~~We secured new business with a major government contractor that manages the maintenance of ~~over 1,000% during the second quarter of 2018 compared to the same period in 2017; and~~generators at remote U.S. military operations.

	·	~~A net income of $8,872 for the second quarter of 2018 compared~~We launched a completely updated website atwww.puradyn.com including an e-commerce component to ~~a loss of $(383,025) in the same period in 2017.~~facilitate direct-to-consumer sales.


	·o	~~Further adoption of Puradyn~~Diversifying our new customer sales efforts to counter weakness in the ~~pressure pumping and pipeline segments of the oil and gas industry;~~Oil & Gas segment
	o	Continuing to build on our sales momentum in commercial marine and power generation
	·o	~~Increased marketing focus on the commercial marine segment;~~Re-opening efforts with operators of transit buses and

	·	~~Continued discussions with OEMs.~~


	PURADYN FILTER TECHNOLOGIES INCORPORATED


Date: August ~~9, 2018~~14, 2019	By:	/s/ Edward S. Vittoria
		Edward S. Vittoria, Chief Executive Officer, principal executive officer

Date: August ~~9, 2018~~14, 2019	By:	/s/ Martin Scott
		CFO Consultant, principal financial and accounting officer


	·	~~Managing materials costs and preparing for any impacts from new tariffs;~~

	·	~~Restructuring our distributor network and pricing levels; and~~

	·	~~Increasing operating capacity and efficiency.~~ other fleets