0001553350-16-002313.txt : 20160811 0001553350-16-002313.hdr.sgml : 20160811 20160811170108 ACCESSION NUMBER: 0001553350-16-002313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160811 DATE AS OF CHANGE: 20160811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PURADYN FILTER TECHNOLOGIES INC CENTRAL INDEX KEY: 0001019787 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 141708544 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11991 FILM NUMBER: 161825322 BUSINESS ADDRESS: STREET 1: 2017 HIGH RIDGE ROAD CITY: BOYNTON BEACH STATE: FL ZIP: 33426 BUSINESS PHONE: 5615479499 MAIL ADDRESS: STREET 1: 2017 HIGH RIDGE ROAD CITY: BOYNTON BEACH STATE: FL ZIP: 33426 FORMER COMPANY: FORMER CONFORMED NAME: T F PURIFINER INC DATE OF NAME CHANGE: 19960726 10-Q 1 pfti_10q.htm QUARTERLY REPORT Quarterly Report


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


———————

FORM 10-Q

———————

(Mark One)

þ

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended: June 30, 2016

or

 

 

¨

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from: _____________ to _____________


COMMISSION FILE NUMBER: 001-11991


PURADYN FILTER TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)


DELAWARE

14-1708544

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

2017 HIGH RIDGE ROAD, BOYNTON BEACH, FL

33426

(Address of principal executive offices)

(Zip Code)


(561) 547-9499

(Registrant's telephone number, including area code)


NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes   ¨ No


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

þ Yes   ¨ No


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


Large accelerated filer

¨

 

 

Accelerated filer

¨

 

Non-accelerated filer

¨

 

 

Smaller reporting company

þ

 


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

¨ Yes   þ No


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  48,683,135 shares of common stock are issued and outstanding as of August 11, 2016.

 

 






TABLE OF CONTENTS

 


 

 

Page No.

                  

PART I. FINANCIAL INFORMATION

                  

 

 

 

ITEM 1.

FINANCIAL STATEMENTS.

1

 

 

 

 

Condensed Balance Sheets – As of June 30, 2016 (unaudited) and December 31, 2015

1

 

 Condensed Statements of Operations –Three months and Six months ended June 30, 2016 and 2015 (unaudited)

2

 

Condensed Statements of Cash Flows –  Six months ended June 30, 2016 and 2015 (unaudited)

3

 

Notes to Condensed Financial Statements (Unaudited)

4

 

 

 

ITEM 2.

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

14

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

19

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

19

 

 

 

 

PART II.   OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS.

20

 

 

 

ITEM 1A.

RISK FACTORS.

20

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

20

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

20

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURE.

20

 

 

 

ITEM 5.

OTHER INFORMATION.

20

 

 

 

ITEM 6.

EXHIBITS.

20

 







i



OTHER PERTINENT INFORMATION


Our web site is www.puradyn.com.  The information which appears on our web site is not part of this report.


When used in this report, the terms "Puradyn," the "Company," "we," "our," and "us" refers to Puradyn Filter Technologies Incorporated, a Delaware corporation.


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:

·

our history of losses and uncertainty that we will be able to continue as a going concern;

·

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

·

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

·

our ability to repay the outstanding debt of $12,839,000 at August 11, 2016 due our Chairman and CEO, and the possibility he may not continue to advance funds to us;

·

our reliance on sales to a limited number of customers;

·

our dependence on a limited number of distributors;

·

our ability to compete;

·

our ability to protect our intellectual property; and

·

the application of penny stock rules to the trading in our stock.

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review our Annual Report on Form 10-K for the year ended December 31, 2015 including the risks described in Part 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.





ii



 


PART I - FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS.


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED BALANCE SHEETS


 

 

June 30,

2016

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

ASSETS

     

 

                       

    

 

                       

  

Current assets:

 

 

 

 

 

 

 

Cash

 

$

51,028

 

$

34,471

 

Accounts receivable, net of allowance for uncollectible accounts of $17,000 and $17,000, respectively

 

 

160,945

 

 

116,425

 

Inventories, net

 

 

719,857

 

 

817,437

 

Prepaid expenses and other current assets

 

 

116,570

 

 

23,594

 

Total current assets

 

 

1,048,400

 

 

991,927

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

51,639

 

 

61,919

 

Other noncurrent assets

 

 

467,640

 

 

374,720

 

Total assets

 

$

1,567,679

 

$

1,428,566

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

73,090

 

$

73,844

 

Accrued liabilities

 

 

347,429

 

 

321,508

 

Current portion of capital lease obligation

 

 

3,755

 

 

3,755

 

Deferred compensation

 

 

1,595,306

 

 

1,609,585

 

Notes Payable - stockholders

 

 

25,000

 

 

 

Total current liabilities

 

 

2,044,580

 

 

2,008,692

 

 

 

 

 

 

 

 

 

Capital lease obligation, less current portion

 

 

5,320

 

 

7,198

 

Notes Payable - stockholders

 

 

12,688,529

 

 

11,924,617

 

Total Long Term Liabilities

 

 

12,693,849

 

 

11,931,815

 

Total Liabilities

 

 

14,738,429

 

 

13,940,507

 

 

 

 

 

 

 

 

 

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 48,683,135 and 48,683,135, respectively

 

 

48,683

 

 

48,683

 

Additional paid-in capital

 

 

47,392,505

 

 

47,329,344

 

Accumulated deficit

 

 

(60,611,938

)

 

(59,889,968

)

Total stockholders’ deficit

 

 

(13,170,750

)

 

(12,511,941

)

Total liabilities and stockholders’ deficit

 

$

1,567,679

 

$

1,428,566

 






See accompanying notes to unaudited condensed financial statements


1



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)


 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Net sales

 

$

578,688

 

 

$

519,700

 

 

$

1,016,874

 

 

$

1,226,329

 

Cost of products sold

 

 

419,095

 

 

 

369,906

 

 

 

735,915

 

 

 

810,929

 

Gross Profit

 

 

159,593

 

 

 

149,794

 

 

 

280,959

 

 

 

415,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

217,075

 

 

 

207,455

 

 

 

454,366

 

 

 

433,057

 

Selling and administrative

 

 

159,859

 

 

 

192,592

 

 

 

373,135

 

 

 

431,680

 

Total operating costs 

 

 

376,934

 

 

 

400,047

 

 

 

827,501

 

 

 

864,737

 

Loss from operations

 

 

(217,341

)

 

 

(250,253

)

 

 

(546,542

)

 

 

(449,337

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(89,572

)

 

 

(71,906

)

 

 

(175,428

)

 

 

(138,805

)

Total other expense, net

 

 

(89,572

)

 

 

(71,906

)

 

 

(175,428

)

 

 

(138,805

)

Loss before income taxes

 

 

(306,913

)

 

 

(322,159

)

 

 

(721,970

)

 

 

(588,142

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(306,913

)

 

$

(322,159

)

 

$

(721,970

)

 

$

(588,142

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$

(.01

)

 

$

(.01

)

 

$

(.01)

 

 

$

(.01

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

 

48,683,135

 

 

 

48,683,135

 

 

 

48,683,135

 

 

 

48,683,135

 






See accompanying notes to unaudited condensed financial statements


2



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)


 

 

Six Months Ended

June 30

 

  

 

2016

 

 

2015

 

Operating activities

  

 

 

 

 

 

Net loss

 

$

(721,970

)

 

$

(588,142

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19,238

 

 

 

21,456

 

Provision for slow moving inventory

 

 

2,950

 

 

 

912

 

Loss on disposal of fixed asset

 

 

 

 

 

4,322

 

Gain on extinguishment of lease

 

 

 

 

 

(3,307

)

Compensation expense on stock-based arrangements with employees and consultants

 

 

63,161

 

 

 

81,992

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(44,520

)

 

 

(37,498

)

Inventories

 

 

94,630

 

 

 

(184,290

)

Prepaid expenses and other current assets

 

 

(92,976

)

 

 

(3,794

)

Accounts payable

 

 

(756

)

 

 

(26,192

)

Deferred compensation

 

 

(14,279

)

 

 

45,889

 

Accrued liabilities

 

 

25,921

 

 

 

4,552

 

Net cash used in operating activities

 

 

(668,601

)

 

 

(684,100

)

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Capitalized patent costs

 

 

(100,174

)

 

 

(26,749

)

Purchases of property and equipment

 

 

(1,702

)

 

 

(20,735

)

Net cash used in investing activities

 

 

(101,876

)

 

 

(47,484

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of notes payable to stockholders

 

 

763,912

 

 

 

800,150

 

Proceeds from Stockholder loan

 

 

25,000

 

 

 

 

Payment of capital lease obligations

 

 

(1,878

)

 

 

(2,162

)

Net cash provided by financing activities

 

 

787,034

 

 

 

797,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase / (decrease) in cash

 

 

16,557

 

 

 

66,404

 

Cash at beginning of period

 

 

34,471

 

 

 

53,288

 

Cash at end of period

 

$

51,028

 

 

$

119,692

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

169,323

 

 

$

132,391

 

Assets acquired from capital lease

 

$

 

 

$

15,020

 






See accompanying notes to unaudited condensed financial statements


3



 


PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)


1.

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


Organization


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.


Basis of Presentation


The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.


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, 2015.


Revenue Recognition


The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured in accordance with FASB ASC 605, Revenue Recognition, as amended and interpreted. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying 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.


Use of Estimates


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


Cash and Cash Equivalents


Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At June 30, 2016 and December 31, 2015, the Company did not have any cash equivalents.


Fair Value of Financial Instruments


The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of June 30, 2016 and December 31, 2015, respectively, because of their short-term natures.




4



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



Accounts Receivable


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


Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending 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


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


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 17-20 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.


Impairment of Long-Lived Assets


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.


Product Warranty Costs


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



5



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience.  The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the six months ended June 30, 2016, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.


The following table shows the changes in the aggregate product warranty liability for the six -months ended June 30, 2016:


Balance as of December 31, 2015

     

$

20,000

 

Less: Payments made

 

 

 

Add: Provision for current period warranties

 

 

 

Balance as of June 30, 2016 (unaudited)

 

$

20,000

 


Advertising Costs


Advertising costs are expensed as incurred. During the three and six months ended June, 2016 and 2015, advertising costs incurred by the Company totaled approximately $301 and $761, $1,115 and $0, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.


Research and Development


Research and development costs are expensed as incurred. During the three and six months ended June 30, 2016 and 2015, research and development costs incurred by the Company totaled $0, $2,809, and $2,113 and $4,223, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.


Income Taxes


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.


Stock Option Plans


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, 2015 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and six months ended June 30, 2016.


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.




6



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



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, including related amendments and interpretations. The related expense is recognized over the period the services are provided.


Credit Risk


The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At June 30, 2016 and December 31, 2015, 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 14 for further details.


Basic and Diluted Loss Per Share


FASB ASC 260, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share were 5,251,196 and 5,187,135 for the six months ended June 30, 2016 and 2015, respectively.


Reclassifications


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


Recent Accounting Pronouncements


In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS).  The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.




7



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



In August 2015, FASB issued ASU No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any 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.


2.

Going Concern


The Company's financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception through June 30, 2016 of $60,611,938, has a working capital deficit of $996,180 and $1,016,765 at June 30, 2016 and December 31, 2015, respectively.  The Company used net cash in operations of $668,601 and $684,100 during the six-months ended June 30, 2016 and 2015, respectively. As a result, the Company has had to rely principally on stockholder loans 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, 2015 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.


3.

Inventories


Inventories consisted of the following at June 30, 2016 and December 31, 2015, respectively:


 

 

June 30,

2016

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

Raw materials

 

$

120,003

 

$

1,145,452

 

Finished goods

 

 

1,090,279

 

 

159,460

 

Valuation allowance

 

 

(490,425

)

 

(487,475

)

Inventory, net

 

$

719,857

 

$

817,437

 




8



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



4.

Prepaid Expenses and Other Current Assets


At June 30, 2016 and December 31, 2015, prepaid expenses and other current assets consisted of the following:


 

 

June 30,

2016

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

Prepaid expenses

 

$

59,045

 

$

23,594

 

Deposits

 

 

57,525

 

 

 

 

 

$

116,570

 

$

23,594

 


5.

Property and Equipment


At June 30, 2016 and December 31, 2015, property and equipment consisted of the following:


 

 

June 30,

2016

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

Machinery and equipment

 

$

1,045,217

 

$

1,045,217

 

Furniture and fixtures

 

 

56,558

 

 

56,558

 

Leasehold improvements

 

 

129,722

 

 

129,722

 

Software and website development

 

 

88,842

 

 

88,842

 

Computer hardware and software

 

 

151,771

 

 

150,069

 

 

 

 

1,472,110

 

 

1,470,408

 

Less accumulated depreciation and amortization

 

 

(1,420,471

)

 

(1,408,489

)

 

 

$

51,639

 

$

61,919

 


Depreciation and amortization expense of property and equipment for the three and six months ended June 30, 2016 and 2015 is $5,741 and $11,982, and $7,159 and $14,938, respectively.


6.

Patents


Included in other assets at June 30, 2016 and December 31, 2015 are capitalized patent costs as follows:


 

 

June 30,

2016

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

Patent costs

 

$

472,584

 

$

372,411

 

Less accumulated amortization

 

 

(40,764

)

 

(33,512

)

 

 

$

431,820

 

$

338,899

 


Amortization expense for the three and six months ended June 30, 2016 and 2015 amounted to $3,394, $7,252, and $3,328 and $6,508, respectively.


7.

Leases


The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of June 30, 2016, 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 term of the current lease amount to $967,477.



9



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



In January 2015 the Company entered into a capital lease for office equipment in the amount of $15,020.


8.

Accrued Liabilities


At June 30, 2016 and December 31, 2015, accrued liabilities consisted of the following:


 

 

June 30,

2016

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

Accrued vacation and benefits

 

$

66,593

 

$

64,844

 

Accrued expenses relating to vendors and others

 

 

152,921

 

 

133,646

 

Accrued warranty costs

 

 

20,000

 

 

20,000

 

Accrued interest payable relating to stockholder notes

 

 

75,082

 

 

69,419

 

Deferred rent

 

 

32,833

 

 

33,599

 

 

 

$

347,429

 

$

321,508

 


9.

Deferred Compensation


Deferred compensation represents amounts owed to four employees for salary. At 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 June 30, 2016 and December 31, 2015 the Company recorded deferred compensation of $1,595,306 and $1,609,585, respectively.


10.

Notes Payable to Stockholders – Related Party


On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and Chief Executive Officer, 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 (2.83% per annum at June 30, 2016), 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 and through February 2012, the maturity date for the agreement was extended annually from December 31, 2007 to the agreements current maturity date of December 31, 2017. Refer to Note 13.


At June 30, 2016 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus additional advances of $6,588,529. At December 31, 2015 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus an additional $5,824,614.


Additionally, the Company has an unsecured loan outstanding from a member of the board of directors who is also a significant stockholder, totaling $25,000. The note bears interest at a rate of 5% per annum and is due January 7, 2017. Accrued interest at June 30, 2016 was $606.


During the three and six months ended June 30, 2016 and 2015, the Company incurred interest expense of $88,850 and $174,380, and $70,615 and $137,171, respectively, on its loan from the Chairman of the Board, which is included in interest expense in the accompanying statements of operations as well as interest expense of $312 and $606 for the three and six months ended June 30, 2016 related to the loan from one if its other Board members. These amounts, in addition to interest expense of $575 and $606 for the three and six months ended June 30, 2016 and 2015, respectively, related to capital lease obligations, financing and loans from a stockholder.




10



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



11.

Commitments and Contingencies  


Agreements


On March 7, 2016, the Company entered into an Advisory Agreement for duration of six months with an outside consultant, who is also a stockholder.  We issued the consultant five year warrants to purchase 350,000 shares of the Company's common stock with an exercise price of $0.05 per share.  These warrants vested immediately.


On October 1, 2014, the Company entered into a one-year agreement with Catalyst Global LLC to provide services rendered as investor relations consultant for the Company. As compensation for their services, Catalyst receives a monthly service fee of $4,000 in addition to warrants to purchase 635,000 shares of common stock exercisable at $0.25 per share, which warrants vest in lots of 52,917 warrants per month. Either party may terminate the agreement with 30 days’ notice. The Company suspended the agreement on May 31, 2015 with plans to resume at a later date, however, no firm date of reinstatement has been specified.


In January 2014, the Company renewed the lease at an annual expense of $8,500, on a condominium in Ocean Ridge, Florida until December 31, 2014.  In December 2015, the Company renewed the lease at an annual expense of $8,500 on a condominium in Ocean Ridge, Florida until December 21, 2016.


On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. The renewed lease commences August 1, 2013 and requires an initial rent of $12,026 per month beginning in the second month of the first year, increasing in varying amounts to $13,941 per month in the sixth year. In addition, the Company is responsible for all operating expenses and utilities.


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 member of our board of directors and a significant stockholder is President of Boxwood Associates, Inc.  Refer to Note 13.


12.

Stock Options and Warrants


For the three and six months ended June 30, 2016 and June 30, 2015, respectively, the Company recorded non-cash stock-based compensation expense of $14,313 and $63,161, and $33,588, and $81,992, respectively, relating to employee stock options and warrants issued for consulting services.


Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation – Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at June 30, 2016 and 2015 for the options is $91,228 and $163,571, respectively, and will be recognized through June 30, 2019.




11



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



A summary of the Company’s stock option plans as of June 30, 2016, and changes during the six month period then ended is presented below:


 

 

Six Months Ended

June 30, 2016

 

  

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

Options outstanding at December 31, 2015

 

 

3,858,000

 

 

$

0.22

 

Options granted

 

 

20,000

 

 

 

0.04

 

Options exercised

 

 

 

 

 

 

Options forfeited

 

 

(37,500

 

 

0.17

 

Options expired

 

 

 

 

 

 

Options at end of period

 

 

3,840,500

 

 

 

0.21

 

Options exercisable at June 30, 2016

 

 

3,110,493

 

 

 

0.22

 


Changes in the Company’s nonvested options for the six months ended June 30, 2016 are summarized as follows:


 

 

Six Months Ended

June 30, 2016

 

  

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

Nonvested options at December 31, 2015

 

 

1,006,667

 

 

$

0.17

 

Granted

 

 

20,000

 

 

 

.04

 

Vested

 

 

(259,160

)

 

 

0.16

 

Forfeited

 

 

(37,500

)

 

 

.17

 

Nonvested options at June 30, 2016

 

 

730,007

 

 

$

.0.22

 


 

 

 

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

 

$0.16 – $0.34

 

 

 

3,840,500

 

 

 

4.8

 

 

 

$0.21

 

 

 

3,110,493

 

 

 

$0.22

 

Totals

 

 

 

3,840,500

 

 

 

4.8

 

 

 

$0.21

 

 

 

3,110,493

 

 

 

$0.22

 


A summary of the Company’s warrant activity as of June 30, 2016 and changes during the six-month period then ended is presented below:


 

 

Six months ended

June 30, 2016

 

  

 

Weighted Average Exercise

 

  

 

Warrants

 

 

Price

 

Warrants outstanding at December 31, 2015

 

 

1,099,915

 

 

$

0.32

 

Granted

 

 

350,000

 

 

 

0.05

 

Expired

 

 

(39,219

)

 

 

0.50

 

Warrants outstanding at June 30, 2016

 

 

1,410,696

 

 

$

0.25

 


 

 

 

Warrants Outstanding

 

Range of Exercise Price

 

 

Number Outstanding

 

 

Remaining Average Contractual Life (In Years)

 

 

Weighted Average

Exercise Price

 

$0.25 - $0.50

 

 

 

1,410,696

 

 

 

2.7

 

 

 

$0.25

 

Totals

 

 

 

1,410,696

 

 

 

2.7

 

 

 

$0.25

 



12



PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)



13.

Related Party Transactions


On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and Chief Executive Officer, to fund up to $6.1 million. Under the terms of the agreements, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (2.828% per annum at June 30, 2016), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to the agreements current maturity date of December 31, 2017.


At June 30, 2016 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus an additional $6,558,529. At December 31, 2015 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus an additional $5,824,614.


On January 6, 2016 the Company entered into an unsecured loan outstanding from another member of the Board of Directors, totaling $25,000. The note bears interest at a rate of 5% per annum and is due January 7, 2017. Accrued interest at June 30, 2016 was $606.


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 and six months ended June 30, 2016 and 2015, we paid Boxwood Associates, Inc. $6,000 and $12,000, respectively under this agreement. A member of our board of directors is President of Boxwood Associates, Inc.


14.

Major Customers


There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by three customers at June 30, 2016 whose balances each represented approximately 36%, 23%  and 11%, for a total of 70% of total accounts receivables. There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, 2015 whose balances each represented approximately 47%, and 32%, for a total of 77% of total accounts receivables. 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.


15.

Subsequent Events


From July 1, 2016 through August 11, 2016, the Company received additional loans in the amount of $150,000 from the Company’s Chairman and CEO, as advances for working capital needs. The loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points.






13



 


ITEM 2.

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


Overview


We focus our sales strategy on individual sales and distribution efforts as well as on the development of a global distribution network that will sell, install and support our product. In the second quarter of 2016, there were a total of 48 distributors, including their branch outlets and dealers that sold the Puradyn system in the U.S. and internationally.  


DistributionNow (DNOW) recently joined the Puradyn distributor network and now provides the potential to consistently support our product on a global basis, with 300 locations worldwide.  The addition of DNOW as our new distributor for the industries they serve increases our worldwide coverage and brings immediate name recognition of quality products and dedication to customer service.  The majority of our sales to DNOW are through its main distribution center located in the southwest U.S.  The initial rollout of the product has been extremely encouraging and these opportunities have led to new orders and evaluations in 2016.


Sales of the Company’s products, the Puradyn® bypass oil filtration system and replaceable filter elements, depend principally upon end user demand for such products.  Developing market acceptance for the Company’s existing and new products requires substantial marketing and sales efforts and the expenditure of a significant amount of funds to inform customers of the benefits and cost advantages of its products. We continue to market our product and its benefits through direct contact efforts with our distributors, direct customers, and original equipment manufacturers.


Our marketing efforts target industries and potential customers willing to consider innovative methods to protect their high-value engine assets, to reduce oil maintenance costs, to reduce engine overhaul costs and to reduce engine downtime.  We believe that these businesses are searching for new and progressive ways to better maintain their equipment using bypass oil filtration. While this is a long-term and ongoing process, we believe we have achieved a degree of product acceptance based on the expansion of existing strategic relationships we have with Nabors Industries, Inc., Scandrill, Inc., and other end-users and distributors, including:


·

Over the past year we have been developing a hydraulic filtration system which can handle hydraulic power units with volumes ranging from 88 gal. (333.1 L) to 1,200 gal. (4,542.5 L).  With lab and field testing behind us, we are now introducing these systems to our existing and potential customers.  It is too early in the process to know whether or not sales of the hydraulic system will be significant, however, we are encouraged by the interest received and the fact a limited number of systems have been purchased.


·

Evaluations begun in 2015 in Africa, Asia, Europe, and South America are still currently underway with commercial marine, construction, transportation, and mining applications.


Our revenues historically have not been sufficient to fund our operating expenses.  During the second quarter of 2016 and the six months then ended we maintained our total operating expenses at approximate 2015 levels. We continue to implement measures to preserve our ability to operate, including organizational changes and reductions in personnel.  In addition, as described below, certain key employees continue to defer a portion of their cash compensation in an effort to conserve our cash resources.


We continue to address our liquidity and working capital issues through the utilization of the borrowing agreement with the Company’s Chairman. During the period ended June 30, 2016 we borrowed an additional $763,912 from him, and at June 30, 2016 we owed our Chairman $12,688,529 which represented approximately 86% of our total liabilities. Subsequent to June 30, 2016, he has advanced an additional $150,000 in working capital funding. This loan, which is unsecured, matures on December 31, 2017 and we do not presently have sufficient funds to repay this obligation.  While he has continued to fund our working capital needs and extend the due date of the $6.1 million credit agreement, he is under no contractual obligation to do so and there are no assurances he will continue to make funds available to us or extend the due date of the obligations.  




14



 


We also owe certain of our employees $1,595,306 in deferred cash compensation at June 30, 2016, which represents 78% of our current liabilities on that date.  Since 2005, Messrs. Sandler and Kroger, two of our executive officers, and two other employees have deferred a portion of the compensation due them to assist us in managing our cash flow and working capital needs.  As there is no written agreement with these employees which memorializes the terms of salary deferral, only a voluntary election to do so, it is possible the employees could demand payment in full at any time. We do not have the funds to pay these amounts in entirety, and any demand by these officers and employees for full payment would reduce the amount of funds we have available for our operations.  We could be required to pay these obligations at a time when it is disadvantageous for us, and could result in our inability to satisfy our other obligations as they become due.


If budgeted sales levels are not achieved and/or significant unanticipated expenditures occur, or if we are not able to borrow or raise additional investment capital, we may have to modify our business plan, reduce or discontinue some of our operations or seek a buyer for part of our assets to continue as a going concern through 2016. There can be no assurance we will be able to raise additional capital or that sales will increase to the level required to generate profitable operations to provide positive cash flow from operations. In the event we are unable to secure needed capital, it is possible that stockholders could lose their entire investment in our company.


Going Concern


Our financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred net losses each year since inception and have relied on loans from related parties to fund our 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, 2015 and 2014 expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to generate profitable operations in the future. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due or generate positive operating results.


Critical Accounting Policies and Estimates


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


Recent Accounting Pronouncements


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





15



 


Results of Operations for the Three-months Ended June 30, 2016 Compared to the Three-months Ended June 30, 2015


Net Sales


Net sales increased 11% in the second quarter of 2016 as compared to the second quarter of 2015 due to a number of customers who purchased the larger product models. We believe certain of our customers and potential customers in targeted markets continue to internally adapt to volatile oil prices and are reluctant to enter into new purchases or evaluations until a certain measure of stability is achieved.  Despite a recent, mild stabilization of oil prices that has brought a modest increase in new unit sales, our net revenues have been declining since 2014 and there are no assurances the increase in sales in the second quarter of 2016 will continue during the balance of 2016 or that we will ever return our net sales to earlier levels, even if oil prices begin rising to 2014 and earlier levels.


Cost of Products Sold


Gross profit, as a percentage of sales, decreased slightly by 1%; from 29% in the second quarter of 2015 to 28% in the second quarter of 2016.  We continue to review cost of materials increases, some of which were passed through to our customers as product price increases in the past few years.


Total Operating Costs


Our total operating costs declined 6% in the second quarter of 2016 from the comparable period in 2015 primarily as a result of the suspension of a service agreement with an outside investor relations media firm and reduced professional fees which were partially offset by increases in salaries and wages.


Salaries and wages increased 4% in the second quarter of 2016 as compared to the second quarter of 2015. The increase was attributable to a new hire in the first quarter of 2016.


Selling and administrative expenses decreased 17% for the second quarter of 2016 from the comparable period in 2015. The following table sets forth the components of selling and administrative expenses:


 

 

Three Months Ended June 30,

(unaudited)

 

  

 

2016

 

 

2015

 

 

Change

 

Employee Benefits & Payroll Processing

 

$

33,843

 

 

$

32,135

 

 

$

1,708

 

Travel & Marketing

 

 

25,698

 

 

 

27,029

 

 

 

(1,331

)

Depreciation & Amortization

 

 

4,454

 

 

 

5,555

 

 

 

(1,101

)

Engineering

 

 

1,751

 

 

 

(2,238

)

 

 

3,989

 

Professional Fees

 

 

34,380

 

 

 

38,778

 

 

 

(4,398

)

Investor Relations

 

 

 

 

 

26,552

 

 

 

(26,552

)

Occupancy Expense

 

 

27,223

 

 

 

26,598

 

 

 

625

 

Patent Expense

 

 

9,696

 

 

 

9,029

 

 

 

667

 

Stock Compensation

 

 

1,296

 

 

 

1,503

 

 

 

(207

)

Bad Debts

 

 

 

 

 

256

 

 

 

(256

)

Other Expenses

 

 

21,518

 

 

 

27,395

 

 

 

(5,877

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

159,859

 

 

$

192,592

 

 

$

(32,733)

 


The slight increase in employee benefits resulted from the impact of vested employee stock option expenses. Travel and marketing expenses decreased due to reduced travel. Our allocation of costs to engineering has decreased as the company has reduced engineering staff.  Investor relations expenses decreased due to termination of a service agreement with an outside investor relations media firm, which was suspended in May 2015.  Other Expenses represents various expenses including communication costs, office supplies and other components of administrative expenses. We anticipate that our selling and administration expenses for the full year 2016 will remain at the same level as for the full year 2015.




16



 


Interest Expense


Interest expense increased 25% for the three months ended June 30, 2016 as compared to the three month period ended June 30, 2015 primarily due to higher borrowings.


Results of Operations for the Six-months Ended June 30, 2016 Compared to the Six-months Ended June 30, 2015


Net Sales


Net sales decreased 17% during the six months ended June 30, 2016 as compared to six months ended June 30, 2015 due to certain customers that had purchased the larger product models and who continue to postpone ordering additional systems until oil pricing begins to stabilize and their companies resume production. We believe certain of our customers and potential customers in targeted markets continue to internally adapt to volatile oil prices and are reluctant to enter into new purchases or evaluations until a certain measure of stability is achieved.  Our net revenues have been declining since 2014 and there are no assurances the increase in sales in the second quarter of 2016 will continue during the balance of 2016 or that we will ever return our net sales to earlier levels, even if oil prices begin rising to 2014 and earlier levels.


Cost of Products Sold


Gross profit, as a percentage of sales, decreased by 6%, from 34% in the six months ended June 30, of 2015 to 28% in the six months ended June 30, 2016.  The decrease is attributable to reduced sales that resulted in increased overhead allocations.


Total Operating Costs


Our total operating costs declined 4% in the six months ended June 30, 2016 from the comparable period in 2015.


Salaries and wages increased 5% from six months ended June 30, 2015 compared to June 30, 2016.  The increase was attributable to a new hire in the first quarter of 2016.


Selling and administrative expenses declined by 13% for the six months ended June 30, 2016 from the comparable period in 2015. The following table sets forth the components of selling and administrative expenses:


 

 

Six Months Ended June 30,

(unaudited)

 

  

 

2016

 

 

2015

 

 

Change

 

Employee Benefits & Payroll Processing

 

$

71,302

 

 

$

76,971

 

 

$

(5,769

)

Travel & Marketing

 

 

61,363

 

 

 

51,737

 

 

 

9,626

 

Depreciation & Amortization

 

 

9,297

 

 

 

11,590

 

 

 

(2,293

)

Engineering

 

 

874

 

 

 

(9,372

)

 

 

10,246

 

Professional Fees

 

 

110,295

 

 

 

95,314

 

 

 

14,981

 

Investor Relations

 

 

 

 

 

69,810

 

 

 

(69,810

)

Occupancy Expense

 

 

53,050

 

 

 

51,342

 

 

 

1,708

 

Patent Expense

 

 

18,809

 

 

 

34,794

 

 

 

(15,985

)

Stock Compensation

 

 

2,590

 

 

 

3,007

 

 

 

(417

)

Bad Debts

 

 

 

 

 

256

 

 

 

(256

)

Other Expenses

 

 

45,655

 

 

 

46,231

 

 

 

(576

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

373,135

 

 

$

431,680

 

 

$

(58,545

)




17



 


The decrease in employee benefits resulted from the impact of vested employee stock option expenses. Travel and marketing expenses increased due to increased travel. Our allocation of costs to engineering has decreased as the company has reduced engineering staff. Investor relations expenses decreased due to termination of a service agreement with an outside investor relations media firm, which was suspended in May 2015. The decrease in patent costs was due to certain patent annuities reaching full-term in 2016 against additional patent filings associated with our MTS and future products filed in 2015.  Professional fees increased primarily due to the expense associated with issuance of warrants to a consultant. Other Expenses represents various expenses including communication costs, office supplies and other components of administrative expenses.


Interest Expense


Interest expense increased 26% for the six month period ending June 30, 2016 as compared to the six month period ending June 30, 2015 primarily due to higher borrowings.


Liquidity and Capital Resources


As of June 30, 2016, the Company had cash of $51,028, as compared to $34,471 at December 31, 2015. At June 30, 2016, we had negative working capital of ($996,180) and our current ratio (current assets to current liabilities) was 0.51 to 1.  At December 31, 2015 we had negative working capital of ($1,016,765) and our current ratio was 0.49 to 1. The decrease in working capital deficit and increase in current ratio is primarily attributable to the increase in cash, accounts receivable prepaid and other current expenses, offset by a decrease in inventories and deferred compensation and an increase in accrued liabilities and notes payable - stockholder.


We have incurred net losses each year since inception and at June 30, 2016 we had an accumulated deficit of $60,611,938. Our net sales are not sufficient to fund our operating expenses. Historically, we have relied on loans from related parties to fund our operations. During the six months ended June 30, 2016 we raised an additional $763,912 from stockholder loans and $25,000 from another member of the Board of Directors. Interest expense on our loans was $175,428 for the six months ended June 30, 2016.


Cash Flows  


Operating activities


For the six month period ended June 30, 2016 net cash used in operating activities was $668,601, which primarily resulted from the net loss, after taxes, of $721,970, as found in the Condensed Statement of Operations.  In addition to the cash used in funding the operating loss, the utilization of cash in operations is also attributable to the increase in accounts receivable of $44,520 and, an increase in prepaid expenses of $92,976, increased deferred compensation of $14,279, increased accrued liabilities of $25,921 and reduced accounts payable of $756. The amounts were partially offset by decreased inventory of $94,630 as a result of slower than expected sales.


For the six month period ended June 30, 2015 net cash used in operating activities was $684,100, which primarily resulted from the net loss, after taxes, of $588,142, as found in the Condensed Statement of Operations. In addition to the cash used in funding the operating loss, the utilization of cash in operations is also attributable to the increase in accounts receivable of $37,498 and increased inventory of $184,290 as a result of purchases related to our new MTS product line, an increase in prepaid expenses of $3,794, as well as reduced accounts payable of $26,192. The amounts were partially offset by increased deferred compensation of $45,889 and increased accrued liabilities of $4,552.


Investing activities


For the six months ending June 30, 2016, $101,876 was used in investing activities for the purchase of software and capitalized patent costs. For the six months ending June 30, 2015, $47,484 was used in investing activities for the purchase of software and capitalized patent costs.




18



 


Financing activities


Net cash provided by financing activities was $787,034 for the six months ended June 30, 2016, which was composed of $763,912 in loans from our stockholders as described above, an unsecured loan from a member of the Board of Directors, totaling $25,000 which was partially offset by $1,878 in payments of capital lease obligations. Net cash provided by financing activities was $797,988 for the six months ended June 30, 2015, which was composed of $800,150 in loans from our stockholders as described above, offset by $2,162 in payments of capital lease obligations.


Off Balance Sheet Arrangements


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.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not applicable for a smaller reporting company.


ITEM 4.

CONTROLS AND PROCEDURES.


Evaluation of Disclosure Controls and Procedures


Our management, which includes our CEO, and our Vice President who serves as our principal financial officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2016 (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 Vice President who also serves as our principal financial officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Vice President who serves as our principal financial officer, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


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.




19



 


PART II.   OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


None.


ITEM 1A.

RISK FACTORS.


Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2015. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


None, except as previously reported.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURE.


Not Applicable.


ITEM 5.

OTHER INFORMATION.


None.  


ITEM 6.

EXHIBITS.


31.1

     

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

31.2

 

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

32.1

 

Section 1350 certification of Chief Executive Officer *

32.2

 

Section 1350 certification of principal financial officer *

101.INS

 

XBRL Instance Document *

101.SCH

 

XBRL Taxonomy Extension Schema Document *

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document *

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document *

———————

*

filed herewith.






20



 


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





 

PURADYN FILTER TECHNOLOGIES INCORPORATED

 

 

 

 

 

 

Date:  August 11, 2016

By:

/s/ Joseph V. Vittoria

 

 

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

  

 

 

Date:  August 11, 2016

By:

/s/ Alan J. Sandler

 

 

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

















21


EX-31.1 2 pfti_ex31z1.htm RULE 13A-14(A)/15D-14(A) CERTIFICATION Certification

 


EXHIBIT 31.1


Rule 13a-14(a)/15d-14(a) Certification


I, Joseph V. Vittoria, certify that:


1.

I have reviewed this report on Form 10-Q for the period ended  June 30, 2016 of Puradyn Filter Technologies Incorporated;


2.

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


3.

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


4.

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


 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

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


5.

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


 

(a)

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

 

(b)

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


Dated:  August 11, 2016

 

/s/ Joseph V. Vittoria,

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




EX-31.2 3 pfti_ex31z2.htm RULE 13A-14(A)/15D-14(A) CERTIFICATION Certification

 


EXHIBIT 31.2


Rule 13a-14(a)/15d-14(a) Certification


I, Alan J. Sandler, certify that:


1.

I have reviewed this report on Form 10-Q for the period ended June 30, 2016 of Puradyn Filter Technologies Incorporated;


2.

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


3.

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


4.

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


 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

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


5.

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


 

(a)

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

 

(b)

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


Dated: August 11, 2016

 

/s/ Alan J. Sandler

Alan J. Sandler, Vice President, principal financial and accounting officer

 



EX-32.1 4 pfti_ex32z1.htm SECTION 1350 CERTIFICATION Certification

 


EXHIBIT 32.1


Section 1350 Certification


In connection with the Quarterly Report of Puradyn Filter Technologies Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Joseph V. Vittoria, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.

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

 

2.

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

 

 


Dated: August 11, 2016

 

/s/ Joseph V. Vittoria

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

 


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











EX-32.2 5 pfti_ex32z2.htm SECTION 1350 CERTIFICATION Certification

 


EXHIBIT 32.2


Section 1350 Certification


In connection with the Quarterly Report of Puradyn Filter Technologies Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Alan J. Sandler, Vice President and principal financial and accounting officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.

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

 

2.

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

 

 


Dated: August 11, 2016

 

/s/ Alan J. Sandler

Alan J. Sandler, Vice President, principal financial and accounting officer


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















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Document and Entity Information - shares
6 Months Ended
Jun. 30, 2016
Aug. 11, 2016
Document and Entity Information [Abstract]    
Entity Registrant Name PURADYN FILTER TECHNOLOGIES INC  
Entity Central Index Key 0001019787  
Document Type 10-Q  
Document Period End Date Jun. 30, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   48,683,135
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2016  
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CONDENSED BALANCE SHEETS - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Current assets:    
Cash $ 51,028 $ 34,471
Accounts receivable, net of allowance for uncollectible accounts of $17,000 and $17,000, respectively 160,945 116,425
Inventories, net 719,857 817,437
Prepaid expenses and other current assets 116,570 23,594
Total current assets 1,048,400 991,927
Property and equipment, net 51,639 61,919
Other noncurrent assets 467,640 374,720
Total assets 1,567,679 1,428,566
Current liabilities:    
Accounts payable 73,090 73,844
Accrued liabilities 347,429 321,508
Current portion of capital lease obligation 3,755 3,755
Deferred compensation 1,595,306 1,609,585
Notes Payable - stockholders 25,000
Total current liabilities 2,044,580 2,008,692
Capital lease obligation, less current portion 5,320 7,198
Notes Payable - stockholders 12,688,529 11,924,617
Total Long Term Liabilities 12,693,849 11,931,815
Total Liabilities 14,738,429 13,940,507
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 48,683,135 and 48,683,135, respectively 48,683 48,683
Additional paid-in capital 47,392,505 47,329,344
Accumulated deficit (60,611,938) (59,889,968)
Total stockholders' deficit (13,170,750) (12,511,941)
Total liabilities and stockholders' deficit $ 1,567,679 $ 1,428,566
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CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Allowance for uncollectible accounts of accounts receivable $ 17,000 $ 17,000
Preferred stock, par value per share $ 0.001 $ 0.001
Preferred stock, shares authorized 500,000 500,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value per share $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 48,683,135 48,683,135
Common stock, shares outstanding 48,683,135 48,683,135
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CONDENSED STATEMENTS OF OPERATIONS - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Income Statement [Abstract]        
Net sales $ 578,688 $ 519,700 $ 1,016,874 $ 1,226,329
Cost of products sold 419,095 369,906 735,915 810,929
Gross Profit 159,593 149,794 280,959 415,400
Costs and expenses:        
Salaries and wages 217,075 207,455 454,366 433,057
Selling and administrative 159,859 192,592 373,135 431,680
Total operating costs 376,934 400,047 827,501 864,737
Loss from operations (217,341) (250,253) (546,542) (449,337)
Other income (expense):        
Interest expense (89,572) (71,906) (175,428) (138,805)
Total other expense, net (89,572) (71,906) (175,428) (138,805)
Loss before income taxes (306,913) (322,159) (721,970) (588,142)
Income tax expense
Net loss $ (306,913) $ (322,159) $ (721,970) $ (588,142)
Basic and diluted loss per common share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Weighted average common shares outstanding (basic and diluted) 48,683,135 48,683,135 48,683,135 48,683,135
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CONDENSED STATEMENTS OF CASH FLOWS - USD ($)
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Operating activities    
Net loss $ (721,970) $ (588,142)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 19,238 21,456
Provision for slow moving inventory 2,950 912
Loss on disposal of fixed asset 4,322
Gain on extinguishment of lease (3,307)
Compensation expense on stock-based arrangements with employees and consultants 63,161 81,992
Changes in operating assets and liabilities:    
Accounts receivable (44,520) (37,498)
Inventories 94,630 (184,290)
Prepaid expenses and other current assets (92,976) (3,794)
Accounts payable (756) (26,192)
Deferred compensation (14,279) 45,889
Accrued liabilities 25,921 4,552
Net cash used in operating activities (668,601) (684,100)
Investing activities    
Capitalized patent costs (100,174) (26,749)
Purchases of property and equipment (1,702) (20,735)
Net cash used in investing activities (101,876) (47,484)
Financing activities    
Proceeds from issuance of notes payable to stockholders 763,912 800,150
Proceeds from Stockholder loan 25,000
Payment of capital lease obligations (1,878) (2,162)
Net cash provided by financing activities 787,034 797,988
Net increase / (decrease) in cash 16,557 66,404
Cash at beginning of period 34,471 53,288
Cash at end of period 51,028 119,692
Supplemental cash flow information:    
Cash paid for interest 169,323 132,391
Assets acquired from capital lease $ 15,020
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Basis of Presentation, Going Concern and Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2016
Accounting Policies [Abstract]  
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies

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

 

Organization

 

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.

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.

 

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, 2015.

 

Revenue Recognition

 

The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured in accordance with FASB ASC 605, Revenue Recognition, as amended and interpreted. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying 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.

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At June 30, 2016 and December 31, 2015, the Company did not have any cash equivalents.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of June 30, 2016 and December 31, 2015, respectively, because of their short-term natures.

 

 Accounts Receivable

 

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

 

Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending 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

 

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

 

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 17-20 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.

 

Impairment of Long-Lived Assets

 

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.

 

Product Warranty Costs

 

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

 

 

The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience.  The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the six months ended June 30, 2016, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.

 

The following table shows the changes in the aggregate product warranty liability for the six -months ended June 30, 2016:

 

         
Balance as of December 31, 2015   $ 20,000  
Less: Payments made      
Add: Provision for current period warranties      
Balance as of June 30, 2016 (unaudited)   $ 20,000  

 

Advertising Costs

 

Advertising costs are expensed as incurred. During the three and six months ended June, 2016 and 2015, advertising costs incurred by the Company totaled approximately $301 and $761, $1,115 and $0, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.

 

Research and Development

 

Research and development costs are expensed as incurred. During the three and six months ended June 30, 2016 and 2015, research and development costs incurred by the Company totaled $0, $2,809, and $2,113 and $4,223, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.

 

Income Taxes

 

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.

 

Stock Option Plans

 

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, 2015 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and six months ended June 30, 2016.

 

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 with FASB ASC 505, 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.

 

Credit Risk

 

The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At June 30, 2016 and December 31, 2015, 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 14 for further details.

 

Basic and Diluted Loss Per Share

 

FASB ASC 260, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share were 5,251,196 and 5,187,135 for the six months ended June 30, 2016 and 2015, respectively.

 

Reclassifications

 

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

 

Recent Accounting Pronouncements

 

In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS).  The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In August 2015, FASB issued ASU No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any 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.

XML 18 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
Going Concern
6 Months Ended
Jun. 30, 2016
Going Concern [Abstract]  
Going Concern

2. Going Concern

 

The Company's financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception through June 30, 2016 of $60,611,938, has a working capital deficit of $996,180 and $1,016,765 at June 30, 2016 and December 31, 2015, respectively.  The Company used net cash in operations of $668,601 and $684,100 during the six-months ended June 30, 2016 and 2015, respectively. As a result, the Company has had to rely principally on stockholder loans 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, 2015 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.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
Inventories
6 Months Ended
Jun. 30, 2016
Inventory Disclosure [Abstract]  
Inventories

3. Inventories

 

Inventories consisted of the following at June 30, 2016 and December 31, 2015, respectively:

 

               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Raw materials   $ 120,003   $ 1,145,452  
Finished goods     1,090,279     159,460  
Valuation allowance     (490,425 )   (487,475 )
Inventory, net   $ 719,857   $ 817,437  
XML 20 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
Prepaid Expenses and Other Current Assets
6 Months Ended
Jun. 30, 2016
Prepaid Expense and Other Assets, Current [Abstract]  
Prepaid Expenses and Other Current Assets

4. Prepaid Expenses and Other Current Assets

 

At June 30, 2016 and December 31, 2015, prepaid expenses and other current assets consisted of the following:

 

               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Prepaid expenses   $ 59,045   $ 23,594  
Deposits     57,525      
    $ 116,570   $ 23,594  
XML 21 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property and Equipment
6 Months Ended
Jun. 30, 2016
Property, Plant and Equipment [Abstract]  
Property and Equipment

5. Property and Equipment

 

At June 30, 2016 and December 31, 2015, property and equipment consisted of the following:

 

               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Machinery and equipment   $ 1,045,217   $ 1,045,217  
Furniture and fixtures     56,558     56,558  
Leasehold improvements     129,722     129,722  
Software and website development     88,842     88,842  
Computer hardware and software     151,771     150,069  
      1,472,110     1,470,408  
Less accumulated depreciation and amortization     (1,420,471 )   (1,408,489 )
    $ 51,639   $ 61,919  

 

Depreciation and amortization expense of property and equipment for the three and six months ended June 30, 2016 and 2015 is $5,741 and $11,982, and $7,159 and $14,938, respectively.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Patents
6 Months Ended
Jun. 30, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Patents

6. Patents

 

Included in other assets at June 30, 2016 and December 31, 2015 are capitalized patent costs as follows:

 

               
   

June 30,

2016

 

December 31,

2015

 
     (Unaudited)      
Patent costs   $ 472,584   $ 372,411  
Less accumulated amortization     (40,764 )   (33,512 )
    $ 431,820   $ 338,899  

 

Amortization expense for the three and six months ended June 30, 2016 and 2015 amounted to $3,394, $7,252, and $3,328 and $6,508, respectively.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Leases
6 Months Ended
Jun. 30, 2016
Leases [Abstract]  
Leases

7. Leases

 

The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of June 30, 2016, 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 term of the current lease amount to $967,477.

 

In January 2015 the Company entered into a capital lease for office equipment in the amount of $15,020.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accrued Liabilities
6 Months Ended
Jun. 30, 2016
Accrued Liabilities [Abstract]  
Accrued Liabilities

8. Accrued Liabilities

 

At June 30, 2016 and December 31, 2015, accrued liabilities consisted of the following:

 

               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Accrued vacation and benefits   $ 66,593   $ 64,844  
Accrued expenses relating to vendors and others     152,921     133,646  
Accrued warranty costs     20,000     20,000  
Accrued interest payable relating to stockholder notes     75,082     69,419  
Deferred rent     32,833     33,599  
    $ 347,429   $ 321,508  
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
Deferred Compensation
6 Months Ended
Jun. 30, 2016
Compensation Related Costs [Abstract]  
Deferred Compensation

9. Deferred Compensation

 

Deferred compensation represents amounts owed to four employees for salary. At 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 June 30, 2016 and December 31, 2015 the Company recorded deferred compensation of $1,595,306 and $1,609,585, respectively.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
Notes Payable to Stockholders - Related Party
6 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
Notes Payable to Stockholders - Related Party

10. Notes Payable to Stockholders – Related Party

 

On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and Chief Executive Officer, 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 (2.83% per annum at June 30, 2016), 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 and through February 2012, the maturity date for the agreement was extended annually from December 31, 2007 to the agreements current maturity date of December 31, 2017. Refer to Note 13.

 

At June 30, 2016 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus additional advances of $6,588,529. At December 31, 2015 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus an additional $5,824,614.

 

Additionally, the Company has an unsecured loan outstanding from a member of the board of directors who is also a significant stockholder, totaling $25,000. The note bears interest at a rate of 5% per annum and is due January 7, 2017. Accrued interest at June 30, 2016 was $606.

 

During the three and six months ended June 30, 2016 and 2015, the Company incurred interest expense of $88,850 and $174,380, and $70,615 and $137,171, respectively, on its loan from the Chairman of the Board, which is included in interest expense in the accompanying statements of operations as well as interest expense of $312 and $606 for the three and six months ended June 30, 2016 related to the loan from one if its other Board members. These amounts, in addition to interest expense of $575 and $606 for the three and six months ended June 30, 2016 and 2015, respectively, related to capital lease obligations, financing and loans from a stockholder.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

11. Commitments and Contingencies  

 

Agreements

 

On March 7, 2016, the Company entered into an Advisory Agreement for duration of six months with an outside consultant, who is also a stockholder.  We issued the consultant five year warrants to purchase 350,000 shares of the Company's common stock with an exercise price of $0.05 per share.  These warrants vested immediately.

 

On October 1, 2014, the Company entered into a one-year agreement with Catalyst Global LLC to provide services rendered as investor relations consultant for the Company. As compensation for their services, Catalyst receives a monthly service fee of $4,000 in addition to warrants to purchase 635,000 shares of common stock exercisable at $0.25 per share, which warrants vest in lots of 52,917 warrants per month. Either party may terminate the agreement with 30 days’ notice. The Company suspended the agreement on May 31, 2015 with plans to resume at a later date, however, no firm date of reinstatement has been specified.

 

In January 2014, the Company renewed the lease at an annual expense of $8,500, on a condominium in Ocean Ridge, Florida until December 31, 2014.  In December 2015, the Company renewed the lease at an annual expense of $8,500 on a condominium in Ocean Ridge, Florida until December 21, 2016.

 

On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. The renewed lease commences August 1, 2013 and requires an initial rent of $12,026 per month beginning in the second month of the first year, increasing in varying amounts to $13,941 per month in the sixth year. In addition, the Company is responsible for all operating expenses and utilities.

 

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 member of our board of directors and a significant stockholder is President of Boxwood Associates, Inc.  Refer to Note 13.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Warrants
6 Months Ended
Jun. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options and Warrants

12. Stock Options and Warrants

 

For the three and six months ended June 30, 2016 and June 30, 2015, respectively, the Company recorded non-cash stock-based compensation expense of $14,313 and $63,161, and $33,588, and $81,992, respectively, relating to employee stock options and warrants issued for consulting services.

 

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation – Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at June 30, 2016 and 2015 for the options is $91,228 and $163,571, respectively, and will be recognized through June 30, 2019.

 

A summary of the Company’s stock option plans as of June 30, 2016, and changes during the six month period then ended is presented below:

 

                 
   

Six Months Ended

June 30, 2016

 
   

Number of

Options

   

Weighted

Average

Exercise Price

 
Options outstanding at December 31, 2015     3,858,000     $ 0.22  
Options granted     20,000       0.04  
Options exercised            
Options forfeited     (37,500     0.17  
Options expired            
Options at end of period     3,840,500       0.21  
Options exercisable at June 30, 2016     3,110,493       0.22  

 

Changes in the Company’s nonvested options for the six months ended June 30, 2016 are summarized as follows:

 

                 
   

Six Months Ended

June 30, 2016

 
   

Number of

Options

   

Weighted

Average

Exercise Price

 
Nonvested options at December 31, 2015     1,006,667     $ 0.17  
Granted     20,000       .04  
Vested     (259,160 )     0.16  
Forfeited     (37,500 )     .17  
Nonvested options at June 30, 2016     730,007     $ .0.22  

 

                                           
      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  
$0.16 – $0.34       3,840,500       4.8       $0.21       3,110,493       $0.22  
Totals       3,840,500       4.8       $0.21       3,110,493       $0.22  

 

A summary of the Company’s warrant activity as of June 30, 2016 and changes during the six-month period then ended is presented below:

 

                 
   

Six months ended

June 30, 2016

 
    Weighted Average Exercise  
    Warrants     Price  
Warrants outstanding at December 31, 2015     1,099,915     $ 0.32  
Granted     350,000       0.05  
Expired     (39,219 )     0.50  
Warrants outstanding at June 30, 2016     1,410,696     $ 0.25  

 

                           
      Warrants Outstanding  
Range of Exercise Price     Number Outstanding     Remaining Average Contractual Life (In Years)    

Weighted Average

Exercise Price

 
$0.25 - $0.50       1,410,696       2.7       $0.25  
Totals       1,410,696       2.7       $0.25  
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions
6 Months Ended
Jun. 30, 2016
Related Party Transactions [Abstract]  
Related Party Transactions

13. Related Party Transactions

 

On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and Chief Executive Officer, to fund up to $6.1 million. Under the terms of the agreements, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (2.828% per annum at June 30, 2016), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to the agreements current maturity date of December 31, 2017.

 

At June 30, 2016 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus an additional $6,558,529. At December 31, 2015 the Company had drawn the full funding amount under the initial agreement of $6.1 million plus an additional $5,824,614.

 

On January 6, 2016 the Company entered into an unsecured loan outstanding from another member of the Board of Directors, totaling $25,000. The note bears interest at a rate of 5% per annum and is due January 7, 2017. Accrued interest at June 30, 2016 was $606.

 

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 and six months ended June 30, 2016 and 2015, we paid Boxwood Associates, Inc. $6,000 and $12,000, respectively under this agreement. A member of our board of directors is President of Boxwood Associates, Inc.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
Major Customers
6 Months Ended
Jun. 30, 2016
Risks and Uncertainties [Abstract]  
Major Customers

14. Major Customers

 

There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by three customers at June 30, 2016 whose balances each represented approximately 36%, 23%  and 11%, for a total of 70% of total accounts receivables. There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, 2015 whose balances each represented approximately 47%, and 32%, for a total of 77% of total accounts receivables. 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.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events
6 Months Ended
Jun. 30, 2016
Subsequent Events [Abstract]  
Subsequent Events

15. Subsequent Events

 

From July 1, 2016 through August 11, 2016, the Company received additional loans in the amount of $150,000 from the Company’s Chairman and CEO, as advances for working capital needs. The loans bear interest at the BBA Libor Daily Floating Rate plus 1.4 points.

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2016
Accounting Policies [Abstract]  
Organization

Organization

 

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.

Basis of Presentation

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.

 

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, 2015.

Revenue Recognition

Revenue Recognition

 

The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured in accordance with FASB ASC 605, Revenue Recognition, as amended and interpreted. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying 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.

Use of Estimates

Use of Estimates

 

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

Cash and Cash Equivalents

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At June 30, 2016 and December 31, 2015, the Company did not have any cash equivalents.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of June 30, 2016 and December 31, 2015, respectively, because of their short-term natures.

Accounts Receivable

Accounts Receivable

 

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

Inventories

 

Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending 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

Property and Equipment

 

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

Patents

 

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 17-20 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.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

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

Product Warranty Costs

Product Warranty Costs

 

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

 

 

The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience.  The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the six months ended June 30, 2016, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.

 

The following table shows the changes in the aggregate product warranty liability for the six -months ended June 30, 2016:

 

         
Balance as of December 31, 2015   $ 20,000  
Less: Payments made      
Add: Provision for current period warranties      
Balance as of June 30, 2016 (unaudited)   $ 20,000  
Research and Development

Research and Development

 

Research and development costs are expensed as incurred. During the three and six months ended June 30, 2016 and 2015, research and development costs incurred by the Company totaled $0, $2,809, and $2,113 and $4,223, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.

Income Taxes

Income Taxes

 

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.

Stock Option Plans

Stock Option Plans

 

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, 2015 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and six months ended June 30, 2016.

 

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 with FASB ASC 505, 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.

Credit Risk

Credit Risk

 

The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At June 30, 2016 and December 31, 2015, 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 14 for further details.

Basic and Diluted Loss Per Share

Basic and Diluted Loss Per Share

 

FASB ASC 260, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share were 5,251,196 and 5,187,135 for the six months ended June 30, 2016 and 2015, respectively.

Reclassifications

Reclassifications

 

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS).  The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In August 2015, FASB issued ASU No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any 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.

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2016
Accounting Policies [Abstract]  
Schedule of Product Warrant Liability
         
Balance as of December 31, 2015   $ 20,000  
Less: Payments made      
Add: Provision for current period warranties      
Balance as of June 30, 2016 (unaudited)   $ 20,000  
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
Inventories (Tables)
6 Months Ended
Jun. 30, 2016
Inventory Disclosure [Abstract]  
Schedule of Inventories
               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Raw materials   $ 120,003   $ 1,145,452  
Finished goods     1,090,279     159,460  
Valuation allowance     (490,425 )   (487,475 )
Inventory, net   $ 719,857   $ 817,437  
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
Prepaid Expenses and Other Current Assets (Tables)
6 Months Ended
Jun. 30, 2016
Prepaid Expense and Other Assets, Current [Abstract]  
Schedule of Prepaid Expenses and Other Current Assets

               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Prepaid expenses   $ 59,045   $ 23,594  
Deposits     57,525      
    $ 116,570   $ 23,594  

XML 36 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property and Equipment (Tables)
6 Months Ended
Jun. 30, 2016
Property, Plant and Equipment [Abstract]  
Schedule of Property and Equipment
               
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Machinery and equipment   $ 1,045,217   $ 1,045,217  
Furniture and fixtures     56,558     56,558  
Leasehold improvements     129,722     129,722  
Software and website development     88,842     88,842  
Computer hardware and software     151,771     150,069  
      1,472,110     1,470,408  
Less accumulated depreciation and amortization     (1,420,471 )   (1,408,489 )
    $ 51,639   $ 61,919  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Patents (Tables)
6 Months Ended
Jun. 30, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of capitalized patent costs included in other assets

               
   

June 30,

2016

 

December 31,

2015

 
     (Unaudited)      
Patent costs   $ 472,584   $ 372,411  
Less accumulated amortization     (40,764 )   (33,512 )
    $ 431,820   $ 338,899  

XML 38 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accrued Liabilities (Tables)
6 Months Ended
Jun. 30, 2016
Accrued Liabilities [Abstract]  
Schedule of Accrued Liabilities
   

June 30,

2016

 

December 31,

2015

 
    (Unaudited)      
Accrued vacation and benefits   $ 66,593   $ 64,844  
Accrued expenses relating to vendors and others     152,921     133,646  
Accrued warranty costs     20,000     20,000  
Accrued interest payable relating to stockholder notes     75,082     69,419  
Deferred rent     32,833     33,599  
    $ 347,429   $ 321,508  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Warrants (Tables)
6 Months Ended
Jun. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of Stock Options Activity
                 
   

Six Months Ended

June 30, 2016

 
   

Number of

Options

   

Weighted

Average

Exercise Price

 
Options outstanding at December 31, 2015     3,858,000     $ 0.22  
Options granted     20,000       0.04  
Options exercised            
Options forfeited     (37,500     0.17  
Options expired            
Options at end of period     3,840,500       0.21  
Options exercisable at June 30, 2016     3,110,493       0.22  
Schedule of Unvested Options Activity
                 
   

Six Months Ended

June 30, 2016

 
   

Number of

Options

   

Weighted

Average

Exercise Price

 
Nonvested options at December 31, 2015     1,006,667     $ 0.17  
Granted     20,000       .04  
Vested     (259,160 )     0.16  
Forfeited     (37,500 )     .17  
Nonvested options at June 30, 2016     730,007     $ .0.22  
Summary of Options Outstanding by Price Range
                                           
      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  
$0.16 – $0.34       3,840,500       4.8       $0.21       3,110,493       $0.22  
Totals       3,840,500       4.8       $0.21       3,110,493       $0.22  
Summary of Warrants Activity
                 
   

Six months ended

June 30, 2016

 
    Weighted Average Exercise  
    Warrants     Price  
Warrants outstanding at December 31, 2015     1,099,915     $ 0.32  
Granted     350,000       0.05  
Expired     (39,219 )     0.50  
Warrants outstanding at June 30, 2016     1,410,696     $ 0.25  
Summary of Warrants Outstanding by Price Range
                           
      Warrants Outstanding  
Range of Exercise Price     Number Outstanding     Remaining Average Contractual Life (In Years)    

Weighted Average

Exercise Price

 
$0.25 - $0.50       1,410,696       2.7       $0.25  
Totals       1,410,696       2.7       $0.25  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies (Narrative) (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Cash equivalents    
Advertising costs 301 $ 0 761 $ 1,115  
Engineering and development costs 0 $ 2,113 2,809 $ 4,223  
FDIC insured limit $ 250,000   $ 250,000    
Shares excluded from computation loss per share 5,251,196 5,187,135 5,251,196 5,187,135  
Minimum [Member]          
Property and equipment, estimated useful life     3 years    
Estimated useful lives of patents     17 years    
Maximum [Member]          
Property and equipment, estimated useful life     5 years    
Estimated useful lives of patents     20 years    
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies (Product Warrant Liability) (Details)
6 Months Ended
Jun. 30, 2016
USD ($)
Accounting Policies [Abstract]  
Balance as of December 31, 2015 $ 20,000
Less: Payments made
Add: Provision for current period warranties
Balance as of June 30, 2016 $ 20,000
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
Going Concern (Details) - USD ($)
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Going Concern [Abstract]      
Net cash used in operating activities $ 668,601 $ 684,100  
Working capital deficit 996,180   $ 1,016,765
Accumulated deficit $ 60,611,938   $ 59,889,968
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
Inventories (Details) - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Inventory Disclosure [Abstract]    
Raw materials $ 120,003 $ 1,145,452
Finished goods 1,090,279 159,460
Valuation allowance (490,425) (487,475)
Inventory, net $ 719,857 $ 817,437
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
Prepaid Expenses and Other Current Assets (Details) - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Prepaid Expense and Other Assets, Current [Abstract]    
Prepaid expenses $ 59,045 $ 23,594
Deposits 57,525
Prepaid expenses and other current assets $ 116,570 $ 23,594
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property and Equipment (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Property, Plant and Equipment [Line Items]          
Property and equipment, gross $ 1,472,110   $ 1,472,110   $ 1,470,408
Less accumulated depreciation and amortization (1,420,471)   (1,420,471)   (1,408,489)
Property and equipment, net 51,639   51,639   61,919
Depreciation and amortization expense of property and equipment 5,741 $ 7,159 11,982 $ 14,948  
Machinery and Equipment [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, gross 1,045,217   1,045,217   1,045,217
Furniture and Fixtures [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, gross 56,558   56,558   56,558
Leasehold Improvements [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, gross 129,722   129,722   129,722
Software and website development [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, gross 88,842   88,842   88,842
Computer hardware and software [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, gross $ 151,771   $ 151,771   $ 150,069
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
Patents (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]          
Patent costs $ 472,584   $ 472,584   $ 372,411
Less accumulated amortization (40,764)   (40,764)   (33,512)
Patent costs, less accumulated amortization 431,820   431,820   $ 338,899
Amortization expense $ 3,394 $ 3,328 $ 7,252 $ 6,508  
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
Leases (Narrative) (Details) - USD ($)
6 Months Ended
Jun. 30, 2016
Jan. 31, 2015
Sep. 27, 2012
Operating Leased Assets [Line Items]      
Security deposit $ 34,970    
Capital leased assets - office equipment, gross   $ 15,020  
Office and Warehouse Facilities, Boynton Beach, Florida [Member]      
Operating Leased Assets [Line Items]      
Aggregate total minimum lease payments     $ 967,477
Lease expiration date Jul. 31, 2019    
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accrued Liabilities (Details) - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Accrued Liabilities [Abstract]    
Accrued vacation and benefits $ 66,593 $ 64,844
Accrued expenses relating to vendors and others 152,921 133,646
Accrued warranty costs 20,000 20,000
Accrued interest payable relating to stockholder notes 75,082 69,419
Deferred rent 32,833 33,599
Accrued liabilities $ 347,429 $ 321,508
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.5.0.2
Deferred Compensation (Details)
6 Months Ended
Jun. 30, 2016
USD ($)
item
Dec. 31, 2015
USD ($)
Compensation Related Costs [Abstract]    
Number of employees for salary | item 4  
Deferred compensation | $ $ 1,595,306 $ 1,609,585
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.5.0.2
Notes Payable to Stockholders - Related Party (Details) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Jan. 06, 2016
Mar. 28, 2002
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2012
Dec. 31, 2015
Debt Instrument [Line Items]                
Interest expense related to capital lease obligations     $ 575 $ 575 $ 606 $ 606    
Accrued interest     75,082   75,082     $ 69,419
Board of Directors [Member]                
Debt Instrument [Line Items]                
Accrued interest     606   606      
Board of Directors [Member] | Unsecured Loan [Member]                
Debt Instrument [Line Items]                
Maturity date Jan. 07, 2017              
Board of Directors [Member] | Unsecured Loan [Member]                
Debt Instrument [Line Items]                
Interest expense, debt     $ 312   $ 606      
Unsecured loan outstanding $ 25,000              
Note bearing interest rate 5.00%              
Chief Executive Officer [Member] | Note Payable to Chairman of Board [Member]                
Debt Instrument [Line Items]                
Face amount of debt instrument   $ 6,100,000            
Percent in addition to BBA LIBOR   1.40%            
Interest rate on outstanding term loan     2.83%   2.83%      
Maximum amount of additional financing the company may obtain that will affect the repayment provisions of the debt instrument   $ 7,000,000            
Additional amount of borrowings on debt instrument above face amount of debt agreement     $ 6,588,529   $ 6,588,529     $ 5,824,614
Interest expense, debt     $ 88,850 $ 70,615 $ 174,380 $ 137,171    
Chief Executive Officer [Member] | Note Payable to Board Member [Member]                
Debt Instrument [Line Items]                
Maturity date             Dec. 31, 2017  
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies (Details) - USD ($)
1 Months Ended
Oct. 20, 2009
Mar. 31, 2016
Dec. 31, 2015
Oct. 31, 2014
Sep. 30, 2012
Sep. 27, 2012
Purchase Commitment, Excluding Long-term Commitment [Line Items]            
Lease term         72 months  
Initial monthly rent paid           $ 12,026
Increase in monthly rent           $ 13,941
Condominium, Ocean Ridge, Florida [Member]            
Purchase Commitment, Excluding Long-term Commitment [Line Items]            
Rent expense     $ 8,500      
Lease expiration date     Dec. 21, 2016      
Consulting Agreement with Boxwood Associates, Inc. [Member]            
Purchase Commitment, Excluding Long-term Commitment [Line Items]            
Monthly fee under agreement $ 2,000          
Notice period to terminate the agreement 30 days          
Consultant [Member]            
Purchase Commitment, Excluding Long-term Commitment [Line Items]            
Issuance of common shares for exercise of warrants for compensation of services   350,000        
Term of agreement   6 months        
Exercise price of warrants   $ .05        
Catalyst Global LLC [Member]            
Purchase Commitment, Excluding Long-term Commitment [Line Items]            
Issuance of common shares for exercise of warrants for compensation of services       635,000    
Monthly service fee payable for services rendered as investor relations counsel for the Company       $ 4,000    
Number of warrants that can be purchased in each lot during the month       52,917    
Exercise price of warrants       $ 0.25    
Notice period to terminate the agreement       30 days    
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Warrants (Stock Options Narrative) (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]        
Compensation expense $ 14,313 $ 33,588 $ 63,161 $ 81,992
Unrecognized compensation cost $ 91,228 $ 163,571 $ 91,228 $ 163,571
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Warrants (Summary of Stock Options Activity) (Details)
6 Months Ended
Jun. 30, 2016
$ / shares
shares
Options  
Options outstanding at December 31, 2015 | shares 3,858,000
Options granted | shares 20,000
Exercised | shares
Forfeited | shares (37,500)
Expired | shares
Options at end of period | shares 3,840,500
Options exercisable at June 30, 2016 | shares 3,110,493
Weighted Average Exercise Price  
Options outstanding at December 31, 2015 | $ / shares $ 0.22
Granted | $ / shares 0.04
Exercised | $ / shares
Forfeited | $ / shares 0.17
Expired | $ / shares
Options at end of period | $ / shares 0.21
Options exercisable at June 30, 2016 | $ / shares $ 0.22
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Warrants (Schedule of Unvested Options Activity) (Details)
6 Months Ended
Jun. 30, 2016
$ / shares
shares
Unvested stock option activity, shares:  
Nonvested options at December 31, 2015 | shares 1,006,667
Options granted | shares 20,000
Vested | shares (259,160)
Forfeited | shares (37,500)
Nonvested options at June 30, 2016 | shares 730,007
Unvested stock option activity, weighted average exercise price:  
Nonvested options at December 31, 2015 | $ / shares $ 0.17
Granted | $ / shares 0.04
Vested | $ / shares 0.16
Forfeited | $ / shares 0.17
Nonvested options at June 30, 2016 | $ / shares $ 0.22
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Warrants (Summary of Options Outstanding by Price Range) (Details) - Stock Option Exercise Range One [Member]
6 Months Ended
Jun. 30, 2016
$ / shares
shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Range of Exercise Price, lower limit $ 0.16
Range of Exercise Price, upper limit $ 0.34
Number Outstanding | shares 3,840,500
Remaining Average Contractual Life 4 years 9 months 18 days
Weighted Average Exercise Price, Outstanding $ 0.21
Number Exercisable | shares 3,110,493
Weighted Average Exercise Price, Exercisable $ 0.22
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Stock Options and Warrants (Summary of Warrants Activity) (Details) - Warrant [Member]
6 Months Ended
Jun. 30, 2016
$ / shares
shares
Warrant activity, number of shares:  
Warrants outstanding at December 31, 2015 | shares 1,099,915
Granted | shares 350,000
Expired | shares (39,219)
Warrants outstanding at June 30, 2016 | shares 1,410,696
Warrant activity, weighted average exercise price:  
Warrants outstanding at December 31, 2015 | $ / shares $ 0.32
Granted | $ / shares 0.05
Expired | $ / shares 0.50
Warrants outstanding at June 30, 2016 | $ / shares $ 0.25
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Stock Options and Warrants (Summary of Warrants Outstanding by Price Range) (Details) - Warrant Exercise Price Range One [Member]
6 Months Ended
Jun. 30, 2016
$ / shares
shares
Share Based Compensation Shares Authorized Under Equity Instruments Other Than Options Exercise Price Range [Line Items]  
Range of exercise price, lower limit $ 0.25
Range of exercise price, upper limit $ 0.50
Number outstanding | shares 1,410,696
Remaining Average Contractual Life 2 years 8 months 12 days
Weighted average exercise price, outstanding $ 0.25
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions - Related Party (Details) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Jan. 06, 2016
Oct. 20, 2009
Mar. 28, 2002
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2012
Dec. 31, 2015
Debt Instrument [Line Items]                  
Interest expense related to capital lease obligations       $ 575 $ 575 $ 606 $ 606    
Consulting Agreement with Boxwood Associates, Inc. [Member]                  
Debt Instrument [Line Items]                  
Monthly fee under agreement   $ 2,000              
Notice period to terminate the agreement   30 days              
Payments to consultants       6,000 6,000 12,000 12,000    
Board of Directors [Member]                  
Debt Instrument [Line Items]                  
Accrued interest       606   606      
Board of Directors [Member] | Unsecured Loan [Member]                  
Debt Instrument [Line Items]                  
Maturity date Jan. 07, 2017                
Board of Directors [Member] | Unsecured Loan [Member]                  
Debt Instrument [Line Items]                  
Interest expense       $ 312   $ 606      
Unsecured loan outstanding $ 25,000                
Note bearing interest rate 5.00%                
Note Payable to Chairman of Board [Member] | Chief Executive Officer [Member]                  
Debt Instrument [Line Items]                  
Face amount of debt instrument     $ 6,100,000            
Percent in addition to BBA LIBOR     1.40%            
Interest rate on outstanding term loan       2.83%   2.83%      
Maximum amount of additional financing the company may obtain that will affect the repayment provisions of the debt instrument     $ 7,000,000            
Additional amount of borrowings on debt instrument above face amount of debt agreement       $ 6,588,529   $ 6,588,529     $ 5,824,614
Interest expense       $ 88,850 $ 70,615 $ 174,380 $ 137,171    
Note Payable to Board Member [Member] | Chief Executive Officer [Member]                  
Debt Instrument [Line Items]                  
Maturity date               Dec. 31, 2017  
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Major Customers (Details) - Accounts Receivable [Member] - item
6 Months Ended 12 Months Ended
Jun. 30, 2016
Dec. 31, 2015
Concentration Risk [Line Items]    
Concentration risk percentage 70.00% 77.00%
Number of customers representing concentration risk percentage 3 2
Customer One [Member]    
Concentration Risk [Line Items]    
Concentration risk percentage 36.00% 47.00%
Customer Two [Member]    
Concentration Risk [Line Items]    
Concentration risk percentage 23.00% 32.00%
Customer Three [Member]    
Concentration Risk [Line Items]    
Concentration risk percentage 11.00%  
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Subsequent Events (Details) - Note Payable to Chairman of Board [Member] - Subsequent Event [Member]
1 Months Ended
Aug. 11, 2016
USD ($)
Amount of additional financing for working capital requirement $ 150,000
Percent in addition to BBA LIBOR 1.40%
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