the lack of sufficient liquidity in the market for our common ~~stock, and~~stock.

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review our Annual Report on Form 10-K for the year ended December 31, ~~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.


	September 30,			December 31,			September 30,			December 31,
	2018			2017			2019			2018
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash	$	98,910		$	54,438		$	72,549		$	112,769
Accounts receivable, net of allowance for uncollectible accounts of $17,000 and $17,000, respectively		676,956			270,896			15,434			293,994
Inventories, net		542,490			400,764			1,069,038			834,708
Prepaid expenses and other current assets		114,430			69,355			45,408			66,290
Total current assets		1,432,786			795,453			1,202,429			1,307,761

Property and equipment, net		82,173			45,327			57,423			78,642
Operating Right of use asset							776,189			—
Other noncurrent assets		572,229			532,540			434,085			483,974
Total assets	$	2,087,188		$	1,373,320		$	2,470,126		$	1,870,377

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	345,751		$	186,696		$	454,975		$	416,790
Accrued liabilities		600,021			362,804			426,488			605,357
Sales incentives		—			99,128
Capital lease obligation		629			3,443
Operating lease liabilities							155,547			—
Deferred compensation		1,593,724			1,626,003			1,492,370			1,564,253
Notes Payable - stockholders		350,000			7,988,349			1,008,000			325,000
Total Current Liabilities		2,890,125			10,266,423			3,537,380			2,911,400

Long-term operating lease liabilities							697,568			—
Notes Payable - stockholders		7,989,622			—			8,385,132			7,989,622
Total Liabilities		10,879,747			10,266,423			12,620,080			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		53,637,820			53,599,160			53,719,010			53,678,000
Accumulated deficit		(62,499,395	)		(62,561,279	)		(63,937,980	)		(62,777,661	)
Total stockholders’ deficit		(8,792,559	)		(8,893,103	)		(10,149,954	)		(9,030,645	)
Total liabilities and stockholders’ deficit	$	2,087,188		$	1,373,320		$	2,470,126		$	1,870,377


	Three Months Ended						Nine Months Ended							Three Months Ended								For the six months
	September 30,						September 30,							September 30,								September 30,
	2018			2017			2018			2017				2019				2018				2019				2018
Net sales	$	1,306,070		$	515,846		$	3,344,272		$	1,780,006			$	326,532			$	1,306,070			$	1,278,050			$	3,344,272
Cost of products sold		710,995			385,738			1,906,396			1,364,849				276,160				710,995				975,380				1,906,396
Gross Profit		595,075			130,108			1,437,876			415,157				50,372				595,075				302,670				1,437,876

Costs and expenses:
Salaries and wages		247,363			223,049			637,081			640,137				192,968				247,363				621,597				637,081
Selling and administrative		172,194			131,098			497,777			424,459				147,763				172,194				500,532				497,777
Loss on impairment of patents														32,324				—				43,741				—
Total operating costs		419,557			354,147			1,134,858			1,064,596				373,055				419,557				1,165,870				1,134,858

Income / (Loss) from operations		175,518			(224,039	)		303,018			(649,439	)
(Loss) / Income from operations														(322,683	)			175,518				(863,200	)			303,018

Other income (expense):
Interest expense		(85,763	)		(70,300	)		(241,134	)		(203,469	)			(108,968	)			(85,763	)			(297,119	)			(241,134	)
Total other expense, net		(85,763	)		(70,300	)		(241,134	)		(203,469	)			(108,968	)			(85,763	)			(297,119	)			(241,134	)
Net income / (loss) before income tax expense		89,755			(294,339	)		61,884			(852,908	)
Net (loss) / income before income tax expense														(431,651	)			89,755				(1,160,319	)			61,884

Provision for income taxes		—			—			—			—				—				—				—				—
Net Income / (loss)	$	89,755		$	(294,339	)	$	61,884		$	(852,908	)
Net (Loss) / Income													$	(431,651	)		$	89,755			$	(1,160,319	)		$	61,884

Basic income / (loss) per common share	$	0.00		$	(0.00	)	$	0.00		$	(0.01	)
Basic (loss) / income per common share													$	(0.01	)		$	0.00			$	(0.02	)		$	0.00

Diluted income / (loss) per common share	$	0.00		$	(0.00	)	$	0.00		$	(0.01	)
Diluted (loss) / income per common share													$	(0.01	)		$	0.00			$	(0.02	)		$	0.00

Weighted average common shares outstanding - basic		69,016,468			69,016,468			69,016,468			69,016,468				69,016,468				69,016,468				69,016,468				69,016,468

Weighted average common shares outstanding - diluted		74,684,488			69,016,468			77,116,732			69,016,468				69,016,468				74,684,484				69,016,468				77,116,732


	Nine Months Ended
	September 30,							September 30,
	2018			2017				2019				2018
Operating activities
Net income / (loss)	$	61,884		$	(852,908	)
Net (loss) / income							$	(1,160,319	)		$	61,884
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		31,611			24,938				37,447				31,611
Provision for slow moving inventory		13,611			121,998				(44,053	)			13,611
Compensation expense on stock-based arrangements with employees and consultants		38,661			31,396				41,010				38,660
Impairment of capitalized patent costs								43,741				—
Amortization of Operating right of use asset								110,820				—
Changes in operating assets and liabilities:
Accounts receivable		(406,060	)		48,851				278,560				(406,059	)
Inventories		(155,337	)		139,457				(190,276	)			(155,337	)
Prepaid expenses and other current assets		(45,075	)		(25,297	)			20,882				(45,075	)
Other assets		850			—				—				850
Sales incentives		(99,128	)		30,708				—				(99,128	)
Accounts payable		159,053			31,247				38,184				159,053
Accrued liabilities								291,327				201,527
Deferred compensation		(32,279	)		(8,543	)			(108,580	)			(32,279	)
Accrued liabilities		201,527			27,045
Operating lease liabilities								(71,883	)			—
Net cash used in operating activities		(230,682	)		(431,108	)			(713,140	)			(230,682	)

Investing activities
Purchases of property and equipment								—				(18,026	)
Capitalized patent costs		(55,279	)		(53,385	)			(10,080	)			(55,279	)
Purchases of property and equipment		(18,026	)		(27,845	)
Net cash used in investing activities		(73,305	)		(81,230	)			(10,080	)			(73,305	)

Financing activities
Proceeds from issuance of notes payable to stockholders		601,273			575,000				683,000				601,273
Repayment of note payable to stockholder		(250,000	)		(50,000	)			—				(250,000	)
Payment of capital lease obligations		(2,814	)		(2,816	)			—				(2,814	)
Net cash provided by financing activities		348,459			522,184				683,000				348,459


Net increase in cash		44,472			9,846
Net increase / (decrease) in cash								(40,220	)			44,472
Cash at beginning of period		54,438			12,806				112,769				54,438
Cash at end of period	$	98,910		$	22,652			$	72,549			$	98,910

Supplemental cash flow information:
Cash paid for interest	$	109,167		$	180,317			$	—			$	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			$	—
Addition to leasehold improvement as lease incentive	$	35,690		$	—			$	—			$	35,690

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 nine-month periods ended September 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 during the nine months ended September 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 September 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 September 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 nine months ended September 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 nine months ended September 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 September30, 2018 (unaudited)	$	20,000
Balance as of September 30, 2019 (unaudited)			$	20,000

Advertising costs are expensed as incurred. During the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, advertising costs incurred by the Company totaled approximately $3,742 and $15,659 and $4,117 ~~$7,450, $430,~~ and ~~$731,~~$7,450, 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 nine months ended September 30, 2019 and 2018, ~~and 2017, research~~engineering and development costs incurred by the Company totaled $1,986 and $4,664 and , $1,582, ~~$4,395, $1,677~~ and ~~$4,970,~~$4,395, 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 nine months ended September 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 September 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 Per 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 September 30, ~~2018~~2019 and ~~2017,~~2018, there were 11,925,836 and 13,113,336 ~~and 4,175,162~~ 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 and ~~nine month~~nine-month period ended September 30, 2018. A separate computation of diluted earnings per share is presented using the treasury stock method 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 September 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 nine months ended September 30, 2018.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases~~, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. After reviewing of this ASU we have determined it will have no impact on our results of operations, cash flows or financial condition.

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 ~~through the December 31, 2017. During the nine-months ended September 30, 2018 the Company has begun to generate net income. However, the Company~~and does not have sufficient revenues and income to fully fund the operations. During the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 the Company used net cash in operations of ~~$230,682~~$713,140 and ~~$431,108,~~$230,682, 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 September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively:

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


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
	(Unaudited)				(Unaudited)
Prepaid expenses	$	44,446	$	26,648	$	45,408	$	27,854
Deposits		69,984		42,707		—		38,436
	$	114,430	$	69,355	$	45,408	$	66,290

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


	September 30, 2018			December 31, 2017			September 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		188,012			152,322			188,012			188,012
Software and website development		88,842			88,842			88,842			88,842
Computer hardware and software		171,275			153,249			179,258			179,258
		1,549,904			1,496,188			1,542,866			1,542,866
Less accumulated depreciation and amortization		(1,467,731	)		(1,450,861	)		(1,485,443	)		(1,464,224	)
	$	82,173		$	45,327		$	57,423		$	78,642

Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2019 and 2018 are $6,828 and ~~2017 is~~$21,219, and $6,817 and $16,870, ~~and $5,657 and $14,751, respectively.~~

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

~~Amortization expense for the three and nine months ended September 30, 2018 and 2017 amounted to $4,183, $14,741, $3,394, and $10,187, respectively.~~

~~Depreciation and amortization expense of property and equipment and capitalized patents for the three and nine months ended September 30, 2018 and 2017 is $11,000, $31,611, $9,051 and $24,938,~~ respectively.

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

Amortization expense for the three and nine months ended September 30, 2019 and 2018 are $5,409 and $16,228 and $4,183 and $14,741, respectively. During the nine months ended September 30, 2019 the Company impaired $43,741 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 September 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.~~$853,116.

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 agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of ~~September 30,~~December 31, 2018 the Company had received all of the reimbursement.

In January 2015 the Company entered into a capital lease for office equipment in the amount of $15,020, which expires in December 2018. As of September 30, 2018 and December 31, 2017 the balance under capital lease obligations was $629 and $3,443, respectively.

In September 2018, the Company entered into a new capital lease for office equipment in the amount of $559, which ~~will commence~~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:

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


	September 30, 2018		December 31, 2017			September 30, 2019			December 31, 2018
	(Unaudited)					(Unaudited)
Accrued vacation and benefits	$	50,950	$	69,025
Accrued wages and benefits					$	48,724		$	52,753
Accrued expenses relating to vendors and others		213,376		136,681			150,731			128,114
Accrued warranty costs		20,000		20,000			20,000			20,000
Accrued interest payable relating to stockholder notes		245,900		115,039			207,033			329,801
Deferred rent		69,795		22,059			—			74,689
	$	600,021	$	362,804		$	426,488		$	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 is possible that the employees could demand payment in full at any time. As of September 30, ~~2018~~2019 and December 31, ~~2017~~2018, the Company recorded deferred compensation of ~~$1,593,724~~$1,492,370 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 ~~(3.89%~~(4.046% and ~~3.61%~~3.89% % per annum at September 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 nine months ended September 30, 2018~~On March 25, 2019 we ~~borrowed an additional $26,273 from~~entered into a note exchange agreement with our Executive Chairman ~~together with $325,000~~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 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 September 30, 2019, the Company received additional loans in the amount of $658,000 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 September 30, ~~2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% 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 $9,368,132.

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 nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the Company incurred interest expense of $94,483 and $271,827, and $85,309 ~~$240,028, $68,564,~~ and ~~$200,405,~~$240,028, 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 $315 and ~~$935~~$915, and ~~$315~~$139 and ~~$1,068~~$935 for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, related to the loan from a former Board member. These amounts, in addition to interest expense of $14,170 and $24,377, and $139 ~~$171,~~and $1,421, ~~and $1,996,~~ for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, are related to ~~capital lease obligations,~~ financing and ~~loans from a stockholder.~~late fees.

~~Notes payable and capital leases consisted of the following at September 30, 2018 and December 31, 2017:~~

~~The minimum annual principal payments of notes~~Notes payable and ~~capital~~operating lease ~~obligations~~liabilities consisted of the following at September 30, ~~2018 were:~~2019 and December 31, 2018:

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 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 agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company has received all of the reimbursement.

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 of Directors and a significant stockholder is President of Boxwood Associates, Inc. Refer to Note ~~14.~~13.

For the three and nine months ended September 30, ~~2018~~2019 and ~~September 30, 2017,~~2018, respectively, the Company recorded non-cash stock-based compensation expense of $13,452 and $41,010, and $13,928 ~~$38,661 $9,999,~~ and ~~$31,396,~~$38,660, 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 September 30, ~~2018~~2019 and ~~2017~~2018 for the options is ~~$180,650~~$83,239 and ~~$24,705,~~$180,650, respectively, and will be recognized through ~~June~~September 30, 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, the Company granted employees and directors options to purchase 4,475,000 shares of the Company’s 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 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 1,400,000 shares of the common stock.

On ~~May 18, 2018,~~March 28, 2019, the Company ~~upon recommendation~~filed a definitive information statement on Schedule 14C with the Securities and ~~approval by~~Exchange Commission to notify our common shareholders that effective March 27, 2019, the ~~compensation committee~~holders of 35,713,727 shares of our common stock, representing 51.7% of the ~~Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000~~outstanding shares of ~~the Company’s~~our 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.

On August ~~24, 2018,~~26, 2019, the Company granted one director options to purchase 5,000 shares of the Company’s common stock, at an exercise price of ~~$0.045~~$0.030 per share. The options vest over a two year period and expire August 25, ~~2023.~~2024. The quoted market price of the common stock at the time of issuance of the options was ~~$0.045~~$0.030 per share. The fair value of the options totaled ~~$223~~$164 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of ~~2.70%~~1.43%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of ~~188%~~255%.

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

Changes in the Company’s non-vested options for the nine months ended September 30, 2019 are summarized as follows:

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

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

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


	Nine months ended September 30, 2018					Nine months ended September 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		(216,826	)	$	0.35		—			—
Warrants outstanding and exercisable at September 30, 2018		773,336		$	0.16
Warrants outstanding and exercisable at September 30, 2019						773,336		$	0.16


	Warrants Outstanding and Exercisable						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
		773,336		1.7	$	0.16
$0.05 - $0.25								773,336		0.65	$	0.16
Totals		733,336		1.7	$	0.16		773,336		0.65	$	0.16

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, 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’s common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028.

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. Prior to his appointments, Mr. Edward Vittoria had been providing advisory services to us beginning in December 2017.

On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Company’s common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share.

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

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 ~~nine months~~nine-month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, we paid Boxwood Associates, Inc. $6,000 and $18,000, respectively, under this agreement. A former member of our Board of Directors is President of Boxwood Associates, Inc.

There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by ~~four~~three customers at September 30, ~~2018~~2019 whose balances each represented approximately ~~36%~~22%, ~~33%, 14%,~~11% and ~~13%~~10%, for a total of ~~96%~~42% 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 ~~three~~two customers for the nine months ended September 30, 2019 were 33%, and 29% for total of 53% of sales. During the nine months ended September 30, 2018 ~~were~~sales from three customers represented 32%, 27% and 14% of total sales for total of 73% of sales. Sales to four customers for the three months ended September 30, 2018 were 32%, 29%, 16% and 12% for total of 89% of sales. During the three months ended September 30, 2017 sales from four customers represented 33%, 17%, 16% and 11% for a total of 77% of sales. During the nine months ended September 30, 2017 sales from three customers represented 39%, 12%, and 11% for a total of 62% 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.

On October 24, 2019 we entered into a Business Loan Agreement with Kabbage® pursuant to which we borrowed $43,100 under the terms of a one year secured loan. The terms of the loan provided for a loan fee of $7,111.50 which results in an effective annual interest rate of 26.56%. We utilized these proceeds for working capital. We granted Kabbage® a security interest in our assets as collateral for this loan. The loan, which provides for monthly payments, may be prepaid by us at any time without penalty. The loan agreement includes customary events of default, as well as a cross default against any other loan and/or security agreement to which we are a party or if a judgment is entered against us in excess of $250, subject to a 30 day cure period. This loan has been personally guaranteed by Mr. Edward S. Vittoria, our Chief Executive Officer.

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

The following discussion of our unaudited condensed financial condition and results of operations for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 should be read in conjunction with the unaudited condensed 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 nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 is unaudited and derived from the unaudited condensed 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 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 and into 2020 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 third quarter of ~~2018 and~~2019 compared to the ~~nine months then ended over the comparable periods in 2017~~third quarter of 2018 to a ~~number~~virtual halt of new system orders from customers ~~in targeted markets experiencing improved business conditions and greater receptivity to Puradyn’s message~~within the Oil & Gas industry. While volumes have slowed since the fourth quarter of ~~proven cost savings. Revenue growth continues to derive from multiple customer segments especially~~2018, the reduced sales activity in the ~~oil~~current quarter reflected the continued anxiety and ~~gas industry, which continues~~short-term actions to reduce capacity and expenses by Oil & Gas customers. Evaluations continue to increase, and while the results of these evaluations continue to prove our product performance, final decisions to proceed with roll-outs may be ~~our largest. With new customers added this quarter, we believe Puradyn systems will now be active on~~delayed due to CapEx freezes across the ~~majority of active U.S. land rigs.~~industry. Our focus on developing new business from within the pressure pumping and midstream segments, both of which we believe may provide more than double the opportunity of ~~land rigs, has been~~our existing onshore rig business, is now being further supported by ~~expanded marketing efforts through~~a threefold expansion in DNOW salespeople actively promoting our DNOW relationship and the sharing of positive results by early adopters, such as Legend Energy Services, who proceeded to make Puradyn standard on their entire fleet of pressure pumping engines within a few months of beginning testing in the first quarter of 2018.product line. Our ~~efforts in the~~ commercial marine ~~segment will benefit from an expanded relationship with one~~business is growing as more prospective customers are made aware of our ~~stronger distribution partners, MNI Diesel, who will now be our exclusive distributor along the U.S. Gulf Coast~~proven results at like companies, and ~~up through the Mississippi and Ohio River valleys. MNI has installed hundreds of Puradyn systems and has witnessed the performance first hand, which makes them a very credible advocate.~~

~~We also~~we continue to ~~receive orders from emerging,~~explore new opportunities with bus and ~~sometimes unexpected, segments. This quarter, we fulfilled a large order for units headed to Afghanistan for use on generators. Another order was for mobile cell transmission towers~~truck fleets and lighting units. The applicability of Puradyn bypass filtration to a wide range of industrial engine uses and hydraulic systems is becoming clearer, and people responsible for the maintenance and cost mitigation of this machinery are increasingly seeking the proven results of our systems.remote power generation.

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


	Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended September 30,										Nine Months Ended September 30,
	2018		2017			% change		2018		2017			% change			2019				2018			% change			2019				2018			% change
	(unaudited)							(unaudited)								(unaudited)										(unaudited)

Net sales	$	1,306,070	$	515,846			153%	$	3,344,272	$	1,780,006			88%		$	326,532			$	1,306,070			(75%)		$	1,278,050			$	3,344,272			(62%)
Gross profit	$	595,075	$	130,108			357%	$	1,437,876	$	415,157			246%		$	50,372			$	595,075			(92%)		$	302,670			$	1,437,876			(79%)
Total operating costs																$	373,055			$	419,557			(11%)		$	1,165,870			$	1,134,858			3%
Income (loss) from operations	$	175,518	$	(224,039	)		(178)%	$	303,018	$	(649,439	)		(147)%
(Loss) / income from operations															$	(322,683	)		$	175,518			(284%)		$	(863,200	)		$	303,018			(385%)
Total other expense, net																$	(108,968	)		$	(85,763	)		27%		$	(297,119	)		$	(241,134	)		23%
Net income (loss)	$	89,755	$	(294,339	)		(130)%	$	61,884	$	(852,908	)		(107)%
Net (loss) / income															$	(431,651	)		$	89,755			(581%)		$	(1,160,319	)		$	61,884			(1,975%)
Basic and diluted earnings (loss) per share	$	0.00	$	(0.00	)		—	$	0.00	$	(0.00)			—		$	(0.01	)		$	0.00			—		$	(0.02)			$	(0.00	)		—

Our gross profit margins for the ~~third quarter of 2018 increased from 25% in the third quarter of 2017 to 46% in the third quarter of 2018,~~three and ~~from 23% for the first~~ nine months ~~of 2017~~ended September 30, 2019 decreased by 92% and 79% as compared to ~~43% for~~ the ~~first~~three and nine months ofended September 30, 2018. The ~~increase~~decrease in our gross profit margins infor the ~~2018 periods~~three and nine months ended September 30, 2019 is attributable to ~~increased~~reduced facility utilization ~~and operating efficiencies~~ due to ~~increased~~decreased sales ~~and~~which was partial offset by a ~~significant~~ decrease in the ~~expense~~reserve for slow moving inventory ~~from amounts recorded in 2017.~~of $(44,053) during the nine months ended September 30, 2019 compared to $13,611 for the nine months ended September 30, 2018. We have been advised by several of our suppliers that prices for various raw materials are being increased as a result of the loss of some of their primary suppliers and higher prices with their secondary suppliers and the unknown impact of recently enacted tariffs by the current administration. However, we are exploring and implementing measures to 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 and adopt further pricing action in the future as warranted.

Our total operating costs, which ~~includes~~include salaries and wages and selling and administrative expenses, increased slightly during the ~~three~~nine months ended September 30, ~~2018 and~~2019 compared to the nine months ended September 30, 2018 due to ~~primarily to the hiring~~increases in early 2019 of ~~our new CEO in May 2018. The additional expense was~~salary and advertising expenses which were then offset by cost-cutting measures, including staff reductions and an approximately 20% reduction in factory hours and office salaries that began late in the ~~decision not fill a position vacated voluntarily and the impact~~second quarter of ~~one employee who is now being paid only from deferred compensation.~~2019. The ~~increases~~decrease in selling and administrative expenses during the third quarter of ~~2018 and the nine 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~~factory hours and ~~our decision to restart targeted advertising. We anticipate that our selling and administration expenses will increase slightly throughout 2018, inclusive of communication costs,~~ office ~~supplies, and other components of administrative expenses.~~salaries.

Total other expense, net represents interest we pay to related parties on amounts advanced to us for working capital. The increase in the 2019 periods from the comparable periods in 2018 reflects our increased borrowings.

We had cash on hand of ~~$98,910~~$72,549 and a working capital deficit of ~~$1,457,339~~$2,334,951 at September 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 ~~.50~~.34 to 1 at September 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 ~~sales incentives 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 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 $26,273 under a previous line, and at September 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~~which are due on demand.

In October 2019 we ~~are unable to meet our obligation to Mr. Vittoria prior to maturity, he has advised us that he may forgive all, or substantially all,~~borrowed $43,100 from a third party commercial lender under the terms of a 12 month secured loan agreement which is described later in this ~~obligation. However, he is~~report under ~~no obligation to do so.~~Part II, Item 5. We utilized these funds for working capital.

We also owe certain of our employees ~~$1,593,724~~$1,492,370 and ~~$1,626,003,~~$1,564,253, respectively, in deferred cash compensation at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, which represents ~~55%~~42% and ~~16%~~54%, respectively, of our current liabilities on that date. ~~Since 2005, Mr. Kroger, our President~~These current and ~~COO, has deferred~~former employees agreed to defer a portion of ~~his~~their compensation to assist us in managing our cash flow and working capital needs. ~~Two other employees, who no longer receive a salary, are receiving regular payments from their deferred compensation.~~ 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.~~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 increase revenues, increase gross profit margins and control our expenses. Over the past few years we have not had 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 revenue levels, operating losses, and the amount of debt due ~~Mr. Vittoria. In an effort~~ to ~~improve~~our Executive Chairman. At September 30, 2019 we owe him in excess of $9 million. He is not obligated to lend us any additional funds and a substantial amount of what we owe him is secured by our assets under the terms of a secured note which matures 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, if at all Accordingly, during October 2019 we obtained a one year $43,100 principal amount high interest secured loan from a third party commercial lender to provide operating capital. While our Executive Chairman subordinated his first position security interest in our assets to accommodate our need to take out this loan, there are no assurances we will do so in the future should we be forced to seek additional third party loans. Given our declining revenues, history of losses and debt levels, we face a number of challenges in our ability to raise capital ~~on November 11, 2016 he converted $6,100,000 of principal and interest~~from third parties. Our ability to provide for our current working capital 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. If we are unsuccessful in our efforts to significantly increase our net sales over sustained quarters and/or raise significant outside capital, we will no ~~assurance we will~~longer be able to ~~raise additional capital or generate enough to repay our debt holders, and it is possible~~continue as a going concern. In that ~~stockholders could~~event, you would lose ~~their entire~~all of your investment in our company.


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net cash (used) by operating activities	$	(230,682	)	$	(431,108	)	$	(713,140	)	$	(230,682	)
Net cash (used) by investing activities	$	(73,305	)	$	(81,230	)	$	(10,080	)	$	(73,305	)
Net cash provided by financing activities	$	348,459		$	522,184		$	683,000		$	348,459

During the first nine months of 2019 net cash used by our operating activities was principally related to increases in inventory, which were offset by reduced accounts receivable, and an increase in accounts payable. The 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 nine months of 2018 net cash used by our operating activities was principally related to increases in inventory, accounts receivable and prepaid expenses offset by increase in accounts payable and accrued liabilities. 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 nine months of 2017, cash used by operating activities was primarily used to fund our net loss together with increase in prepaid expenses were partially offset by decrease in accounts receivable and inventory as well a provision for slow moving inventory and increase in accrued liabilities.

During the first nine months of ~~2018~~2019 and ~~2017,~~2018, net cash used by investing activities represented capitalized patent ~~costs and purchases of equipment.~~costs.

During the first nine months of 2019, net cash provided by financing activities represented loans from related parties. During the first nine 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 through December 31, 2017~~since inception and have relied on loans from related parties to fund our operations. ~~During the nine-months ended September 30, 2018 the Company has begun to generate net income. However, the~~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 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 ~~September 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 Chairman of the Board, as well as other affiliates. Our Chairman of the Board 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 September 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 amounts, we will be unable to repay these obligations when due.

On ~~November 13, 2018 Puradyn Filter Technologies Incorporated~~October 24, 2019 we entered into a Business Loan Agreement with Kabbage® pursuant to which we borrowed $43,100 under the terms of a one year secured loan. The terms of the loan provided for a loan fee of $7,111.50 which results in an effective annual interest rate of 26.56%. We utilized these proceeds for working capital. We granted Kabbage® a security interest in our assets as collateral for this loan. The loan, which provides for monthly payments, may be prepaid by us at any time without penalty. The loan agreement includes customary events of default, as well as a cross default against any other loan and/or security agreement to which we are a party or if a judgment is entered against us in excess of $250, subject to a 30 day cure period. This loan has been personally guaranteed by Mr. Edward S. Vittoria, our Chief Executive Officer.

In order to permit us to take out this loan, we have entered into a Subordination Agreement (Affiliated Creditor) with Mr. Joseph V. Vittoria pursuant to which he subordinated to Kabbage® his first position security interest in our assets which serves as collateral under the Secured Note we issued ~~a press release announcing its financial results for~~him in the ~~third quarter~~principal amount of ~~2018. A copy~~$9,129,430.15.

The foregoing descriptions of ~~this press release is furnished~~the terms and conditions of the Business Loan Agreement with Kabbage® and the Subordination Agreement (Affiliated Creditor) with Mr. Vittoria are qualified in their entirety by reference to these agreements which are filed as ~~Exhibit 99.1~~Exhibits 10.1 and 10.2, respectively, to this report. Pursuant to General Instruction B.2 of Form 8-K, the information in this Part II, Item 5 of Form 10-Q, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise be subject to the liabilities of that section, nor is it incorporated by reference into any filing of Puradyn Filter Technologies Incorporated under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Incorporated by Reference

Filed

or Furnished

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

Business Loan Agreement

Filed

10.2

Lease agreement between Puradyn and Duke Realty

10-Q

8/9/18

10.2

Subordination Agreement (Affiliated Creditor)

Filed

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

99.1

Press Release dated November 13, 2018

Furnished

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:September 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 September 30, ~~2018~~2019 (unaudited) and December 31, 20178	1
	Condensed Statements of Operations ~~–Three~~– Three months and Nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	2
	Condensed Statements of Cash Flows – Nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	3
	Condensed Statements of Stockholders’ Deficit– Three and Nine months ended September 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.	1718

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	22

ITEM 4.	CONTROLS AND PROCEDURES.	22

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	23

ITEM 1A.	RISK FACTORS.	23

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	23

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	23

ITEM 4.	MINE SAFETY DISCLOSURE.	23

ITEM 5.	OTHER INFORMATION.	2423

ITEM 6.	EXHIBITS.	24


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

Balance at June 30, 2018 (unaudited)		—	$	—		69,016,468	$	69,016	$	53,623,892	$	(62,589,150	)	$	(8,896,242	)
Net income for the three months ended September 30, 2018		—		—		—		—		—		89,755			89,755
Compensation expense associated with unvested option awards		—		—		—		—		13,928		—			13,928
Balance at September 30, 2018 (unaudited)		—	$	—		69,016,468	$	69,016	$	53,637,820	$	(62,499,395	)	$	(8,792,559	)


		September 30,
Operating Leases	Classification	2019
Right-of-use assets	Operating right of use assets	$	776,189

Current lease liabilities	Current operating lease liabilities		155,547
Non-current lease liabilities	Long-term operating lease liabilities		697,568
Total lease liabilities		$	853,115


	September 30,
	2019
Weighted average remaining lease term (years)		4.79
Weighted average discount rate		4	%


	Three months ended September 30,
	2019
Operating lease cost	$	46,663
Variable lease cost (1)		26,953
Total lease costs	$	73,616


	September 30,
	2019
Cash paid for operating lease liabilities	$	87,277
Operating right of use assets obtained in exchange for operating lease liabilities	$	890,009


	Operating
	Leases
Remainder of 2019	$	46,490
2020		188,196
2021		193,627
2022		197,427
2023		197,807
2024		117,383
Total		940,930
Less: Imputed interest		(87,815	)
Present value of lease liabilities	$	853,115


	September 30, 2018			December 31, 2017
Notes payable to stockholders	$	8,339,622		$	7,988,349
Capital lease obligation		629			3,443
		8,340,251			7,991,792
Less: current maturities		(350,629	)		(7,991,792	)
Long-term maturities	$	7,989,622		$	—


	September 30, 2019			December 31, 2018
Notes payable to stockholders	$	9,393,132		$	8,314,622
Less: current maturities		(1,008,000	)		(325,000	)
Long-term maturities	$	8,385,132		$	7,989,622


	Number of Options			Weighted Average Exercise Price
Options outstanding at December 31, 2018		11,785,000		$	0.05
Options granted		5,000			0.03
Options exercised		—			—
Options forfeited		(233,333	)		0.02
Options expired		(404,167	)		0.14
Options at end of period		11,152,500		$	0.05
Options exercisable at September 30, 2019		4,987,505		$	0.08


	Six Months Ended September 30, 2019
	Number of Options			Weighted Average Exercise Price
Nonvested options at December 31, 2018		9,595,000		$	0.02
Granted		5,000			0.03
Vested		(3,201,672	)		0.02
Forfeited		(233,333	)		0.02
Nonvested options at September 30, 2019		6,164,995		$	0.02


	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.017- $0.30		11,152,500		7.63		$0.05		4,987,505		$0.08
Totals		11,152,500		7.63		$0.05		4,987,505		$0.08


·	~~Launched~~Revenues in the quarter were negatively impacted by the continued delays in expected orders, especially from new customers in the Oil & Gas category. Our sales in Oil & Gas were down 93% in the third quarter of 2019 compared to the third quarter of 2018 and are down 78% through the first nine months of 2019 vs the same period in 2018. Customers within the drilling and pressure pumping segments are reducing active equipment, which has a ~~new~~combined effect of reduced demand of replacement filters among existing customers and ~~expanded relationship with MNI Diesel, LLC in August 2018 that made MNI~~ the pausing or extension of evaluation periods by prospective customers. While we believe these orders may eventually be received, it has become difficult to predict the timing. Our exclusive distributor for the Oil & Gas segment, DNOW, has expanded the number of active salespeople supporting the promotion and sale of our product line by over 300%, and they share our belief that many customers will find even greater value in Puradyn products given their need to the commercial marine industry for the Ohio and Mississippi River Valleys and the U.S. Gulf Coast of Texas, Louisiana, Mississippi and Alabama. MNI has significant experience with selling, installing and monitoring the success of Puradyn systems on their clients’ vessels, making them a powerful advocate for our product line.implement new cost savings measures.

·	~~Continued growth in unit sales~~Our efforts to ~~new end users~~diversify our customer base continue to show promise as our Commercial Marine business grew 35% in the ~~oil and gas industry including:~~
	o	~~In this~~third quarter ~~the last~~ of ~~the largest contractors we had targeted in the land drilling segment began installing Puradyn systems on their fleet.~~
	o	~~Puradyn was featured in a webinar presented by~~~~World Oil~~ ~~that shared the success experienced by Legend Energy Services, who began testing Puradyn on their pressure pumping equipment earlier in the year and quickly proceeded~~2019 compared to ~~make Puradyn standard on their entire fleet after realizing such strong and immediate results. The webinar produced a number of leads that are currently being pursued by Puradyn and DNOW.~~
	o	~~Continued growing interest and testing by clients in the midstream and pipeline segment.~~

·	~~We fulfilled a large order bound for Afghanistan to be used on power generation systems.~~


	·	~~Sales growth of 153% during~~ the third quarter of 2018 ~~compared to~~and is up 34% through nine months of 2019 versus the same period in ~~2017;~~

	·	~~Gross profit margins almost doubled to 46% during the third~~2018. In this quarter, ~~of 2018~~we secured new business from ~~25% in the same period in 2017; and~~

	·	~~A net income of $89,755 for the third quarter of 2018 compared to a loss of $(294,339) in the same period in 2017.~~industry leader, Campbell Transportation, who is equipping their entire fleet with Puradyn systems.


	·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, including representation at the upcoming WorkBoat annual convention;~~Re-opening efforts with operators of transit buses and

	·	~~Further expansion in key international markets through new and existing distributors.~~ other fleets


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

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

	·	~~Increasing operating capacity and efficiency.~~


	PURADYN FILTER TECHNOLOGIES INCORPORATED


Date: November 13, ~~2018~~2019	By:	/s/ Edward S. Vittoria
		Edward S. Vittoria, Chief Executive Officer, principal executive officer

Date: November 13, ~~2018~~2019	By:	/s/ Martin Scott
		CFO Consultant, principal financial and accounting officer