PURADYN FILTER TECHNOLOGIES INC (Form: 10-Q, Received: 11/19/2012 17:19:27)

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: September 30, 2012
Or

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

COMMISSION FILE NUMBER: 001-11991

PURADYN FILTER TECHNOLOGIES INCORPORATED

(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

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 47,360,178 shares of common stock are issued and outstanding as of November 19, 2012.

TABLE OF CONTENTS

Page No.

PART I. - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

Condensed Consolidated Balance Sheets – As of September 30, 2012 (unaudited) and

December 31, 2011

Condensed Consolidated Statements of Operations – Three months and nine months ended

September 30, 2012 and 2011 (unaudited)

Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2012

and 2011 (unaudited)

Condensed Consolidated Statements of Comprehensive Income (Loss) – Nine months ended

September 30, 2012 and 2011 (unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 4.

CONTROLS AND PROCEDURES.

PART II. - OTHER INFORMATION

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

ITEM 4.

MINE SAFETY DISCLOSURE.

OTHER PERTINENT INFORMATION

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

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

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 $8.2 million at September 30, 2012 due our Chairman and CEO,
	·	our reliance on sales to a limited number of customers,
	·	our dependence on a limited number of distributors,
	·	our ability to compete,
	·	our ability to protect our intellectual property,
	·	market overhang issues, and
	·	the application of penny stock rules to the trading in our stock.

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review our Annual Report on Form 10-K for the year ended December 31, 2011, including the risks described in Part I. Item 1A. Risk Factors, together with our subsequent filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	91,151		$	51,152
Accounts receivable, net of allowance for uncollectible accounts of $16,154 and $24,355, respectively		122,758			309,962
Inventories, net		692,854			677,127
Settlement receivable		144,100			—
Prepaid expenses and other current assets		150,105			46,538
Total current assets		1,200,968			1,084,779
Property and equipment, net		87,611			97,013
Patents		130,371			75,629
Other noncurrent assets		35,615			35,615
Deferred financing costs, net		794			2,945
Total assets	$	1,455,359		$	1,295,981

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable		214,644			204,422
Accrued liabilities		1,569,494			1,414,279
Current portion of capital lease obligation		7,274			2,800
Note Payables - stockholders		100,000			100,000
Total current liabilities		1,891,412			1,721,501
Capital lease obligation, less current portion		13,294			10,042
Notes Payable - stockholders		8,224,017			7,429,017
Total Long Term Liabilities		8,237,311			7,439,059
Total Liabilities		10,128,723			9,160,560

Commitments and contingencies (see note 7)

Stockholders’ deficit:
Preferred stock, $.001 par value: Authorized shares – 500,000; None issued and outstanding		—			—
Common stock, $.001 par value: Authorized shares – 100,000,000; Issued and outstanding – 47,327,511 and 46,830,504, respectively		47,328			46,830
Additional paid-in capital		46,631,370			46,459,374
Notes receivable from stockholders		—			(790,785	)
Accumulated deficit		(55,352,062	)		(53,726,253	)
Accumulated other comprehensive income		—			146,255
Total stockholders’ deficit		(8,673,364	)		(7,864,579	)
Total liabilities and stockholders’ deficit	$	1,455,359		$	1,295,981

See accompanying notes to unaudited condensed consolidated financial statements

PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011

Net sales	$	472,743		$	554,960		$	2,028,344		$	1,937,775

Costs and expenses:
Cost of products sold		394,167			488,653			1,480,913			1,474,971
Salaries and wages		270,835			261,392			822,114			804,184
Selling and administrative		271,967			255,887			758,995			805,010
		936,969			1,005,932			3,062,022			3,084,165

Loss from operations		(464,226	)		(450,972	)		(1,033,678	)		(1,146,390	)

Other income (expense):
Realized Gain on Foreign Currency Translation Adjustment		—			—			146,255			—
Loss on notes receivable		(611,250	)		—			(611,250	)		—
Interest Income		—			1			—			2
Interest expense		(45,234	)		(46,113	)		(127,136	)		(128,662	)

Total other expense, net		(656,484	)		(46,112	)		(592,131	)		(128,660	)

Loss before income taxes		(1,120,710	)		(497,084	)		(1,625,809	)		(1,275,050	)

Income tax expense		—			—			—			—

Net loss	$	(1,120,710	)	$	(497,084	)		(1,625,809	)	$	(1,275,050	)

Basic and diluted loss per common share	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	(0.03	)

Weighted average common shares outstanding (basic and diluted)		47,282,631			46,576,786			47,174,355			46,511,613

See accompanying notes to unaudited condensed consolidated financial statements

PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2012			2011

Operating activities
Net loss	$	(1,625,809	)	$	(1,275,050	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		34,548			35,838
Realized gain on foreign currency adjustment		(146,255	)		—
Provision for bad debts		(8,201	)		205
Provision for obsolete and slow moving inventory		(4,876	)		(4,420	)
Amortization of deferred financing costs included in interest expense		377			755
Compensation expense on stock-based arrangements with employees, consultants, investors and vendors		168,585			154,921
Loss on notes receivable		611,250			—
Changes in operating assets and liabilities:
Accounts receivable		195,405			5,848
Inventories		(10,851	)		(39,529	)
Prepaid expenses and other current assets		(103,566	)		23,155
Accounts payable		10,222			22,239
Accrued liabilities		67,764			6,978
Deferred compensation		87,451			150,757
Deferred revenues		—			(2,743	)
Net cash used in operating activities		(723,956	)		(921,046	)

Investing activities
Capitalized patent costs		(54,742	)		—
Purchases of property and equipment		(25,146	)		(21,340	)
Net cash used in investing activities		(79,888	)		(21,340	)

Financing activities
Additions to deferred financing costs		1,775			—
Proceeds from sale of common stock		—			100,000
Proceeds from exercise of warrants		4,808
Proceeds from issuance of notes payable to stockholders		795,000			965,000
Proceeds from shareholder receivable		34,535
Proceeds of capital lease		12,473			13,475
Payment of capital lease obligations		(4,748	)		(1,989	)
Net cash provided by financing activities		843,843			1,076,486

Effect of exchange rate changes on cash		—			372

Net increase in cash		39,999			134,472
Cash at beginning of period		51,152			49,813
Cash at end of period	$	91,151		$	184,285

Supplemental cash flow information:
Cash paid for interest	$	113,754		$	120,871
Cash paid for taxes	$	—		$	—

See accompanying notes to unaudited condensed consolidated financial statements

PURADYN FILTER TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

Net loss	$	(1,120,710	)	$	(497,084	)	$	(1,625,809	)	$	(1,275,050	)

Other comprehensive income (loss):
Foreign currency translation adjustment		—			267			—			372
Comprehensive loss	$	(1,120,710	)	$	(496,817	)	$	(1,625,809	)	$	(1,274,678	)

See accompanying notes to unaudited condensed consolidated financial statements

PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated 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 and nine month periods ended September 30, 2012 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2012.

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

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

Use of Estimates

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

Basic and Diluted Loss Per Share

FASB ASC 260, Earnings Per Share , requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share totaled 7,763,730 for the three months and nine months ended September 30, 2012 and 7,585,848 for the three months and nine months ended September 30, 2011.

Stock Compensation

The Company adopted FASB ASC 718, C ompensation – Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005, recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the periods ended September 30, 2012 and September 30, 2011 have been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying Condensed Consolidated Financial Statements.

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 718 and FASB ASC 505 Equity , including related amendments and interpretations. The related expense is recognized over the period the services are provided.

Inventories

Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending inventories at a rate based on estimated production capacity and any excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.

PURADYN FILTER TECHNOLOGIES INCORPORATED

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

Inventories consisted of the following at September 30, 2012 and December 31, 2011, respectively:


	September 30 2012			December 31, 2011
	(unaudited)
Raw materials	$	882,301		$	885,781
Work In Progress		3,737			3,222
Finished goods		147,832			134,016
Valuation allowance		(341,016	)		(345,892	)
Inventory, net	$	692,854		$	677,127

Intellectual Property

Intellectual property consists of patents and pending patent applications, and are stated at cost, net of accumulated amortization. Patent costs are amortized over the life of the patent, which is generally 20 years from the date of the application. During the nine months ended September 30, 2012 the Company capitalized $54,742 of costs associated with patents and patent applications that are estimated to have a future value upon approval. Amortization of these costs will commence upon approval, or will be expensed immediately if the patent is not approved.

Deferred Financing Costs

The Company capitalizes financing costs and amortizes them using the straight-line method, which approximates the effective interest method, over the term of the related debt. Amortization of deferred financing costs is included in interest expense.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011

Amortization of Deferred Financing Costs	$	189	$	252	$	596	$	755

Accumulated Amortization of Deferred Financing Costs	$	680,521	$	679,892	$	680,521	$	679,892

Revenue Recognition

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

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

Product Warranty Costs

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

PURADYN FILTER TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 consolidated financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. As of September 30, 2012, management estimates the existing warranty reserve balances were sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.

Comprehensive Income

FASB ASC 220, Comprehensive Income establishes rules for reporting and displaying of comprehensive income and its components. Comprehensive income is the sum of net loss as reported in the consolidated statements of operations and other comprehensive income transactions. Other comprehensive income transactions that currently apply to the Company result from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary, Ltd. Comprehensive loss as of September 30, 2012 and 2011 is not shown net of taxes because the Company’s deferred tax asset has been fully offset by a valuation allowance. There was no comprehensive income or loss attributable to the three and nine months ended September 30, 2012 as Ltd’s business license was surrendered with the British authorities in January, 2012 and all accounts were closed. Upon surrender of Ltd’s license, foreign currency translation adjustments in the amount of $146,255 were realized in current loss and accordingly a reclassification adjustment was made to comprehensive income to remove the realized transaction.

Reclassifications

Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss or cash flows.

Recent Accounting Pronouncements

In July 2012, the FASB issued amended guidance that simplifies how entities test indefinite-lived intangible assets other than goodwill for impairment. After assessment of certain qualitative factors, if it is determined to be more likely than not that an indefinite-lived asset is impaired, entities must perform the quantitative impairment test. Otherwise, the quantitative test becomes optional. The amended guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.

In 2012 we adopted the provisions of Accounting Standards Update (ASU) 2011-05, “Presentation of Comprehensive Income” (ASU 2011-05) that requires presentation of all non-owner changes in equity in one continuous statement of comprehensive income or in two separate but consecutive statements. We elected to provide a separate statement of comprehensive income for all periods presented. The amendments in this update do not change the items that must be reported in other comprehensive income (OCI) or when an OCI item must be reclassified to net income. The adoption of ASU 2011-05 did not affect our condensed consolidated statements of financial position, results of operations and cash flows.

ASU 2011-05 was modified in December 2011 by the issuance of ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update indefinitely defers certain provisions of ASU 2011-05 that require the disclosure of the amount of reclassifications of items from OCI to net income by component of net income and by component of OCI.

2. Going Concern

The Company's financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception and used net cash in operations of $723,956 and $921,046 during the nine-months ended September 30, 2012 and 2011, respectively. As a result, the Company has had to rely principally on private placements of equity and debt securities, including the conversion of debt into stock, as well as stockholder loans to fund its activities to date.

PURADYN FILTER TECHNOLOGIES INCORPORATED

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

These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from an institutional investor and current stockholder led the Company’s independent registered public accounting firm, Liggett, Vogt & Webb, P.A., formerly known as Webb & Company, P.A., to include a statement in its audit report relating to the Company’s audited consolidated financial statements for the year ended December 31, 2011 expressing substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

The Company has been addressing the liquidity and working capital issues and continues to attempt to raise additional capital with institutional and private investors and current stockholders. Cost reductions were and continue to be implemented by the Company, including acquiring alternative suppliers for raw materials and volume purchase discounts when appropriate.

3. Common Stock

As partial compensation per an agreement dated May 19, 2011 and subsequently renewed on June 8, 2012 for consultant work, the Company issued to Monarch Communications, Inc. the following:


	Shares Issued		Per Share Value

July 30, 2012		45,455		$	0.11
September 6, 2012		34,483		$	0.145
September 30, 2012		10,571		$	0.14

Mr. Ford, the Company’s former Chief Executive Officer, transferred 6,000 shares of the Company’s common stock pursuant to a settlement in a civil lawsuit filed against Mr. Ford. These shares have been cancelled effective September 30, 2012.

Under the terms of the settlement, Mr. Ford agreed to transfer to the Company a total of 875,000 shares of the Company’s common stock, with 6,000 shares due immediately, 133,000 shares by December 31, 2012 and the balance at the rate of 184,000 shares per quarter beginning on March 1, 2013. In the event Mr. Ford should default in these arrangements, he is obligated to pay $145,000 less any monies or shares previously tendered. The Company has recognized a bad debt loss in the amount of $611,250 representing the balance due on the promissory notes reduced by the estimated value of the shares received and to be received under the settlement.

4. Stock Options.

For the three months and nine months ended September 30, 2012 the Company recorded stock-based compensation expense of $40,672 and $131,105, respectively. For the three months and nine months ended September 30, 2011 the Company recorded stock-based compensation expense of $36,912 and $116,853, respectively. These expenses were related to vested employee stock options.

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation – Stock Compensation . The related expense is recognized over the period the services are provided. Unrecognized expense remaining at September 30, 2012 and 2011 for the employee stock options is $220,122 and $217,747, respectively and will be recognized through March 2015.

PURADYN FILTER TECHNOLOGIES INCORPORATED

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

A summary of the Company’s stock option plans as of September 30, 2012, and changes during the nine-month period then ended is presented below:


	Nine Months Ended September 30, 2012
	Number of Options		Weighted Average Exercise Price
Options outstanding at December 31, 2011		2,993,972	$	.37
Options granted		920,000		.14
Options exercised		—		—
Options cancelled		25,000		.14
Options expired		10,000		.37
Options at end of period		3,878,972		.32
Options exercisable at September 30, 2012		2,135,722		.42

Changes in the Company’s unvested options for the nine months ended September 30, 2012 are summarized as follows:


	Nine Months Ended September 30, 2012
	Number of Options		Weighted Average Exercise Price
Non-Vested options at December 31, 2011		1,561,699	$	.25
Options granted		920,000		.14
Options vested		713,449		.24
Options cancelled		25,000		.14
Non-Vested options at September 30, 2012		1,743,250		.13


	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
$ .11 – $1.70		3,834,972		3.69	$	.30		2,091,722	$	.25
$1.99 – $2.60		44,000		.58		2.31		44,000		2.31
Totals		3,878,972		5.79	$	.32		2,135,722	$	.24

The estimated fair value of each stock option grant on the date of grant was computed using the following weighted-average assumptions:


	Nine Months Ended September 30,
	2012		2011
Risk-free interest rate	2.23	%	3.68	%
Expected term (life) of options (in years)	10.0		10.0
Expected dividends	—		—
Expected volatility	243.1	%	138.0	%

PURADYN FILTER TECHNOLOGIES INCORPORATED

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

5. Warrants

At September 30, 2012, 3,899,758 warrants with an average exercise price of $0.77 remain outstanding and were fully vested.

A summary of the Company’s warrant activity as of September 30, 2012 and changes during the nine month period then ended is presented below:


	Nine Months Ended September 30, 2012
	Weighted Average Exercise
	Warrants		Price
Warrants outstanding at December 31, 2011		4,096,476	$	.97
Granted		—		—
Exercised		196,718		.17
Expired
Warrants outstanding at September 30, 2012		3,899,758	$	.77


	Warrants Outstanding - September 30, 2012
Range of Exercise Price	Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price
$0.35 - $0.75		2,446,483		2.24	$	.48
$1.25		1,453,275		.70		1.25
Totals		3,899,758		1.82	$	.77

6. Notes Payable to Stockholders and Related Parties

Beginning on March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the Chairman of the Board and an executive officer, to fund up to $6,100,000. Under the terms of the agreements, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (1.641% per annum at September 30, 2012), 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 $7,000,000. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007 to December 31, 2013.

At September 30, 2012 the Company had drawn the full funding amount under the agreement of $6,100,000 plus an additional $1,799,017, which includes direct loans in the amount of $470,000. During the three months ended September 30, 2012, the stockholder loaned the Company an additional $325,000 directly, for a total amount due of $8,224,017.

Additionally, the Company has loans outstanding from one board member, who is also a significant stockholder and consultant, totaling $100,000 at September 30, 2012 and December 31, 2011. The outstanding debt obligation at September 30, 2012 matures January 1, 2013 and is included in Current Liabilities.

For the three-months ended September 30, 2012 and 2011, the Company recorded interest expense of $43,752 and $45,263, respectively, and for the nine-months ended September 30, 2012 and 2011, the Company recorded $122,617 and $126,453, respectively, related to the notes payable to stockholders, which is included in interest expense in the accompanying condensed consolidated statements of operations.

PURADYN FILTER TECHNOLOGIES INCORPORATED

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

7. Commitments and Contingencies

On October 20, 2009, the Company entered into a consulting agreement with Boxwood Associates, Inc., that stipulated a $2,000 monthly payment for management and strategic development services performed. The contract will remain in effect until terminated by either party providing 30 days’ written notice. Mr. Telesco, a member of the Company’s board of directors, is the President of Boxwood Associates, Inc. Mr. Telesco has advanced loans to the Company. See note 6.

On June 8, 2012, we renewed a consulting agreement with Monarch Communications, Inc. for services rendered as public relations firm and media relations consultants for the Company. The term of the agreement is for twelve months. As compensation for their services, Monarch will receive a fee of $7,000 per month, for the first six months, payable as $2,000 cash and $5,000 in shares of common stock. For the final six months of the agreement, Monarch will receive a fee of $7,000, payable as $3,000 in cash and $4,000 in shares of common stock. Either party may terminate the agreement with 30 days’ notice. The recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. The lease commences August 1, 2013 and requires an initial rent of $12,026 per month beginning in the second month for 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.

8. Subsequent Events

On October 9, 2012, the Company received a loan in the amount of $140,000 and on October 30, 2012 the Company received a loan in the amount of $200,000, from the Company’s Chairman and CEO, as an advance for working capital needs. These loans bear interest at the same rate of interest as the credit facility provided by the stockholder under the note dated March 28, 2002. These advances do not have a specific due date but are to be paid based on management’s determination of the Company’s ability to pay and cash flow. The Company is using the proceeds for working capital.

On October 15, 2012 the Company issued to Monarch Communications, Inc. 26,667 shares of common stock valued at $0.15 per share as partial compensation per the agreement for consultant work.

ITEM 2.

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

Overview

Sales of the Company’s products, the pura DYN ® bypass oil filtration system and replaceable filter elements depend principally upon end user demand for such products and acceptance of the Company’s products by OEMs. The oil filtration industry is competitive and, as is typically the case, the ultimate level of demand for the Company’s products is subject to the willingness of an established industry or major company to adopt a new technology. Developing market acceptance for the Company’s existing and proposed products will require continued research and development, and laboratory and field testing for validity and performance credibility, as well as substantial marketing and sales efforts to inform customers of the benefits and cost advantages of its products, all of which require a significant amount of funds. While customer and OEM feedback, as well as field performance have validated the value of the product, with limited resources, we have not had adequate funds available to undertake all of the necessary marketing efforts to achieve wide market acceptance.

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


	·	A competitively priced, value-added product based on an advanced, patented technology;
	·	An alternative solution to the rising costs and national concerns over dependence on foreign oil and the growing trend toward ‘ greening ’ of existing technologies.
	·	Providing an operational maintenance solution to end users currently dealing with the existing federal environmental regulation and the pending new more stringent regulation slated for the near future. These regulations mandating cleaner engine emissions for all on- and off-highway equipment calls for closer engine tolerance. These new closer tolerances will require cleaner oil to maintain the engines performance.
	·	Providing significant oil maintenance operational savings which will reduce engine life cycle costs
	·	Providing overall engine efficiency and potential fuel efficiency due to a reduction of friction in the engine components from continuously clean lubricating oil.
	·	Providing a proven technology to keep engine oil constantly clean thereby allowing the extension of engine oil drain and overhaul intervals to increase engine life.

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

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


	·	The expansion of existing strategic relationships we have with John Deere, Nabors International, Avis, and others;
	·	Continued development of our distribution network with distributors who have an established customer base and will aggressively promote bypass oil filtration;
	·	Continued development of relationships with targeted market industries and companies;
	·	Creating customer ‘ pull-through ’ , a sustained level of request for our product on the OEM level.

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


	·	The Company was named an authorized supplier of its Puradyn system for John Deere Construction and Forestry Division. The product was selected after over four years of evaluation and testing.
	·	Increased sales and distribution activity in Europe, the Middle East, and South and Central America.

We believe that industry acceptance resulting in sales will continue to grow into the foreseeable future; however, there can be no assurance that any of our sales efforts or strategic relationships will meet management’s expectations or result in actual revenues. The primary reason for this uncertainty is the dependency on our customer’s middle management at these companies to maintain an emphasis on the implementation of our systems. This requires manpower resources to keep our product on the priority investment plan of the customer. Our limited manpower and financial resources present a challenge for us to maintain the necessary contact to overcome our customer’s middle management’s lack of emphasis on implementing our systems.

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

We believe international sales are especially well suited to our product for a number of reasons, including the fact that lubricating oil products in foreign countries are usually more expensive than in the United States. Also, a number of countries at this time outside of North America and the European Union are not mandated to use low-sulfur fuels, and a higher sulfur content typically deteriorates the engine oil’s chemical balance more rapidly.

Our focus on specific industries several years earlier began to demonstrate a positive impact on sales through the first half of 2012, notwithstanding the general recessed economic environment. Although sales in the current period have not reflected the same growth as earlier periods, we anticipate future positive impact from the efforts previously invested in these specific industries. Further, some of our existing customers have reduced their purchases as they have fulfilled their outfitting program of our units into their fleet. Moving forward, we anticipate receiving ongoing orders for replacement filter elements and additional orders for units from these customers as they bring new engines into their fleet to replace the units in the field and in the process install a new Puradyn system along with the new engine.

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

We continue to address our liquidity and working capital issues as we continue to seek to raise additional capital from institutional and private investors and current stockholders. Historically, we have faced difficulties in raising adequate capital and we anticipate that those efforts will continue given the uncertainties facing the capital markets in the U.S. in general and our company in particular. We continue to implement cost reductions in an effort to improve margins, including securing alternative suppliers for raw materials and manufacturing and we anticipate these cost reductions will have a positive impact on our results of operations during the balance of 2012 and beyond. We also review cost of material increases on an ongoing basis, exploring new sources and vendors to avoid or minimize product price increases wherever possible. During the current period we experienced a significant increase in the price of cotton purchased, a major element in our filters. This impacted the cost of our product in the quarter ended September 30, 2012. We have since established a source at a much lower cost while still maintaining our high quality standards. Even though the cost of material is a major focal point of our purchasing department, establishing strong and loyal quality suppliers is also as important to us for our long term visibility. We have begun a program to evaluate our suppliers’ performance in order to be sure we have a strong supply chain in place when needed.

Going Concern

Our financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred net losses each year since inception and have relied on the sale of our stock from time to time and loans from third parties and from related parties to fund our operations. These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from a current stockholder and executive officer and director, have led our independent registered public accounting firm Liggett, Vogt & Webb, P.A., formerly known as Webb & Company P.A. to include a statement in its audit report relating to audited consolidated financial statements for the years ended December 31, 2011 and 2010 expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to generate profitable operations in the future. During 2012 we have been materially dependent on loans from our principal stockholder who is also an executive officer and director of our company. We plan to seek to continue to provide for our capital requirements through the sale of equity securities, however, we have not sold any equity securities during 2012 and have no firm commitments from any third party to provide this financing. Accordingly, we cannot assure you we will be successful in raising working capital as needed. We are also materially dependent upon loans from related parties to provide working capital. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due, or generate positive operating results.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, financing operations, warranty obligations and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant or material changes to our critical accounting policies or estimates since we filed our Form 10-K for the year ended December 31, 2011 with the Securities and Exchange Commission.

Recent Accounting Pronouncements

Information concerning recently issued accounting pronouncements is set forth in Note 1 of our Notes to Condensed Consolidated Financial Statements under Item 1. “Financial Statements” and is appearing elsewhere in this report.

Results of Operations for the Three-months Ended September 30, 2012 Compared to the Three-months Ended September 30, 2011

The following table sets forth the amount of increase or decrease represented by certain items reflected in our condensed consolidated statements of operations in comparing the three-months ended September 30, 2012 to the three-months ended September 30, 2011:


	Three Months Ended September 30,
	2012			2011			Change
Net sales	$	472,743		$	554,960			(82,217	)
Costs and expenses:
Cost of products sold		394,167			488,653			(94,486	)
Salaries and wages		270,835			261,392			9,443
Selling and administrative		271,967			255,887			16,080
Loss on notes receivable		611,250			—			611,250
Total costs and expenses		1,548,219		$	1,005,932			542,287

Other (expense) income:
Interest income		—			1			(1	)
Interest expense		(45,234	)		(46,113	)		879
Total other expense		(45,234	)		(46,112	)		878
Net loss	$	(1,120,710	)	$	(497,084	)		(623,626	)

Net Sales

Net sales decreased 15% in the three months ending September 30, 2012 compared to the three months ending September 30, 2011. The decrease in sales was attributable to two existing customers who reduced their purchases compared to their purchases for the same time period last year. Additionally, net sales for the three months ending September 30, 2012 included $30,732 from the price increase effective September 15, 2011.

Sales to four customers accounted for 18%, 14%, 12% and 10% (for a total of 54%) of net sales for the three-months ended September 30, 2012. Sales to four customers accounted for 14%, 14%, 13% and 11% (for a total of 52%) of net sales for the three-months ended September 30, 2011.

We anticipate that sales in the fourth quarter of 2012 will be at the same or slightly higher level as third quarter sales, based on customer indications.

Cost of Products Sold

Gross profit, the amount of profit to the Company after cost of products sold is deducted from net sales, as a percentage of net sales, increased from 11.9% in the three months ending September 30, 2011 to 16.6% in the three months ending September 30, 2012. The decrease in cost of goods sold, which generates a higher gross profit, is primarily attributable to savings in materials, freight and reduced overhead applied. Materials, overhead applied and freight costs for the three months ending September 30, 2012 decreased 32% compared to the three months ending September 30, 2011while net sales decrease 15.9% for those comparative periods. We attribute the decrease in comparative cost of sales to the product mix sold in those comparable periods. We sold 34% more filters than units in the three months ending September 30, 2012 compared to the same period in 2011. The filters have a higher gross margin that units. We anticipate higher gross profits in the fourth quarter resulting from improved sourcing of cotton and higher filter sales.

Salaries and Wages

Salaries and wages increased 3.6% for the three months ending September 30, 2012 compared to the three months ending September 30, 2011. This variance resulted from an increase in accrued vacation not taken by employees during the three months ending September 30, 2012 compared to the three months ending September 30, 2011.

Salaries and wages, as a percentage of net sales, were 57.3% for the three months ending September 30, 2012 and 47.1% for the three months ending September 30, 2011. The increase in salaries and wages as a percentage of net sales was due primarily to the decrease in net sales for the three months ending September 30, 2012 compared to the same period in 2011.

Management does not anticipate any changes to our salaries and wages at our current sales volume.

Selling and Administrative Expenses

Selling and administrative expenses increased by 6.3% for the three months ended September 30, 2012 from the comparable period in 2011. The increased expenses primarily resulted from higher employee costs from earned but not taken vacation accrual and travel/marketing expense. These increased costs were primarily offset by lower patent, engineering and professional expenses. The lower patent expenses resulted from the capitalization of costs incurred on patent applications.

The following table lists the major categories of expenses included in Selling and Administrative expenses:


	Three Months Ended September 30,
	2012			2011			Change
Employee Benefits	$	59,832		$	57,064		$	2,768
Travel & Marketing		53,225			41,845			11,380
Depreciation & Amortization		8,385			9,441			(1,056	)
Engineering		9,413			—			9,413
Professional Fees		76,316			65,534			10,782
Investor Relations		1,326			322			1,004
Occupancy Expense		28,695			28,651			44
Patent Expense		19,582			27,740			(8,158	)
Stock Compensation		1,455			1,535			(80	)
Bad Debts		(1,999	)		(16	)		(1,983	)
Other Expenses		15,737			23,771			(8,034	)

Total	$	271,967		$	255,887		$	16,080

Travel and marketing expense increased 27% as a result of expanded marketing efforts and trade shows in the third quarter of 2012 that were not an expense in the same period in 2011. Additionally, our public and media relations firm fees contributed to the increase in the three months ended September 30, 2012 compared to 2011.

Engineering expenses for the three months ended September 30, 2012 increased as a result of expenses for testing work performed by an outside lab incurred in connection with the development of improvements to the current filter products. Engineering expenses for the three months ended September 30, 2011 were entirely offset by the standard engineering fee assessed in the production of units, which equaled the costs of engineering incurred during that period.

Professional fees increased during the three months ended September 30, 2012 compared to 2011 primarily due to legal expenses that were incurred in connection with our lawsuit against a former officer of the company, as more fully explained in Part II, Item 1, Legal Proceedings appearing later in this report.

Patent expense for the three months ended September 30, 2012 was 29% lower than the three months ended September 30, 2011, as we had submitted several patent applications and incurred licensing fees in 2011 that were not incurred in 2012. We capitalize costs related to filing and pursuing patent applications upon the granting of the patent. The capitalized costs are amortized on a straight line basis over the life of the patent, which is usually twenty years.

We anticipate expenses for the remainder of 2012 should be similar to those incurred in the three months ending September 30, 2012.

Loss on Settlement of Notes Receivable from Former Officer

In 2009 we filed a civil lawsuit against Mr. Richard C. Ford, the Company’s former Chief Executive Officer, for non-payment of three promissory notes totaling $756,250. On August 22, 2012 we reached a settlement with Mr. Ford in this civil suit. Under the terms of the settlement, Mr. Ford agreed to transfer to us a total of 875,000 shares of our common stock, with 6,000 shares due within one week of the execution of a settlement agreement, 133,000 shares by December 31, 2012 and the balance at the rate of 184,000 shares per quarter beginning on March 1, 2013. In the event Mr. Ford should default in these arrangements, he is obligated to pay $145,000 less any monies or shares previously tendered. Mr. Ford has delivered the initial 6,000 shares due under the settlement and these shares have been cancelled. The Company has recognized a bad debt loss in the amount of $611,250, representing the balance due on the promissory notes reduced by the estimated value of the shares received and the shares to be received under the settlement.

Interest Expense

Interest expense remained relatively constant for the three months ending September 30, 2012 compared to the three months ending September 30, 2011. Although borrowings increased in the three months ended September 30, 2012 compared to the same period in 2011, we have received a lower rate of interest on the entire loan and that has resulted in overall lower interest expense.

Results of Operations for the Nine-months Ended September 30, 2012 Compared to the Nine-months Ended September 30, 2011

The following table sets forth the amount of increase or decrease represented by certain items reflected in the condensed consolidated statements of operations in comparing the nine-months ended September 30, 2012 to the nine-months ended September 30, 2011:


	Nine Months Ended September 30,
	2012			2011			Change
Net sales	$	2,028,344		$	1,937,775		$	90,569
Costs and expenses:
Cost of products sold		1,480,913			1,474,971			5,942
Salaries and wages		822,114			804,184			17,930
Selling and administrative		758,995			805,010			(46,015	)
Loss on notes receivable		611,250			—			611,250
Total costs and expenses		3,673,272			3,084,165			589,107
Other (expense) income:
Realized Gain on Foreign Currency Translation Adjustment		146,255			—			146,255
Interest income		—			2			(2	)
Interest expense		(127,136	)		(128,662	)		1,526
Total other (expense) income		19,119			(128,660	)		147,779
Net loss	$	(1,625,809	)	$	(1,275,050	)	$	350,759

Net Sales

Net sales increased 4.7% in the nine months ending September 30, 2012 compared to the nine months ending September 30, 2011. $131,904 of net sales are derived from the price increase effective September 15, 2011, indicating that the increase in sales for the nine months ending September 30, 2012 compared to the same period in 2011 resulted entirely from the price increase. Net sales decreased 2.1% for the nine months ending September 30, 2012 compared to the same period in 2011 after taking the price increase into effect.

Sales to four customers individually accounted for 15, 13%, 12% and 10% (for a total of 50%) for the nine months ending September 30, 2012. Sales to four customers individually accounted for 17%, 14%, 11% and 10% (for a total of 52%) for the nine months ending September 30, 2011.

Cost of Products Sold

Gross profit, as a percentage of sales, increased from 23.9% in the nine months ending September 30, 2011 to 27% in the nine months ending September 30, 2012. The higher gross profit percentage results from the price increase effective September 15, 2011, reduced manufacturing wages as a result of scaling back production activities and higher overhead allocations in the prior year. The reduced costs were offset by higher scrap and rework costs incurred during the beginning of the current year.

Salaries and Wages

Salaries and wages increased 2.2% for the nine months ending September 30, 2012 compared to the nine months ending September 30, 2011. This increase was primarily due to accrued vacation not taken by employees. Salaries and wages, as a percentage of sales, were 40.5% for the nine months ending September 30, 2012 and 41.5% for the nine months ending September 30, 2011. Management does not anticipate any changes to our salaries and wages at our current sales volume.

Selling and Administrative Expenses

Selling and administrative expenses decreased 5.7% for the nine months ending September 30, 2012 compared to the nine months ending September 30, 2011. The following table represents the major components of Selling and Administrative expenses for the nine months ended September 30, 2012 and 2011 and the change of those components over their respective periods:


	Nine Months Ended September 30,
	2012			2011		Change
Employee Benefits	$	192,158		$	177,667	$	14,491
Travel & Marketing		143,144			118,351		24,793
Depreciation & Amortization		26,806			27,806		(1,000	)
Engineering		8,206			3,211		4,995
Professional Fees		182,893			180,127		2,766
Investor Relations		2,844			18,335		(15,491	)
Occupancy Expense		83,750			82,452		1,298
Patent Expense		62,535			138,244		(75,709	)
Stock Compensation		4,319			4,820		(501	)
Bad Debts		(1,103	)		148		(1,251	)
Other Expenses		53,443			53,849		(406	)

Total	$	758,995		$	805,010	$	(46,015	)

Increased medical insurance premiums and stock option costs contributed to the increase in employee benefits for the nine months ending September 30, 2012 compared to the nine months ending September 30, 2011.

Travel & Marketing increased 20.9% for the nine months ending September 30, 2012 compared to the nine months ending September 30, 2011. This increase resulted from the engagement of Monarch Communications effective May, 2011, to assist us in the marketing and communication of our products and our public relation needs and sponsoring a booth at a target industry trade show.

Engineering expenses increased as a result of independent lab test services engaged by the Company and the renewal of engineering software licensing that was not renewed in the prior year.

Our investor relations expense decreased as a result of the cancellation of our contract with Emerging Markets. We anticipate that our expenses for investor relations will remain at or below 2011 levels for the remainder of the current year.

Patent expense for the nine months ending September 30, 2012 compared to the nine months ending September 30, 2011 was substantially lower as we had several new patent applications and submission of certain existing patents for international recognition in 2011 but not in 2012. We anticipate that these costs will remain at 2012 levels for the balance of the year. As previously stated, we capitalize costs related to filing and pursuing patent applications upon the granting of the patent. The capitalized costs are amortized on a straight line basis over the life of the patent, which is usually twenty years.

In May 2011 we entered into an agreement with Monarch Communications, Inc., to pay a portion of our public relations firm fees in stock. This agreement was renewed in June 2012. This amount has been reported as a marketing expense. Amounts reported as stock compensation for 2012 represent the value of options issued to Directors pursuant to our 2000 Non-Employee Directors Stock Option Plan. We do not anticipate issuing stock for services other than for those marketing services and Director compensation through the end of the current year.

Loss on Settlement of Notes Receivable from Former Officer

Interest Expense

Interest expense remained relatively constant for the period ending September 30, 2012 as compared to the period ending September 30, 2011 and was incurred primarily on the outstanding balance of the notes payable to an executive officer, director and stockholder. The Company pays interest monthly on the notes payable at the prime rate less one-half percent, which was a weighted average of 2.03% as of September 30, 2012 as opposed to 2.57% as of September 30, 2011.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate adequate amounts of cash to meet its obligations. As of September 30, 2012, the Company had cash and cash equivalents of $91,151, as compared to $51,152 at December 31, 2011. At September 30, 2012, we had a working capital deficit of $690,444 and our current ratio (current assets to current liabilities) was 0.63 to 1. At December 31, 2011 we had a working capital deficit of $636,722 and our current ratio was 0.63 to 1. The increase in our working capital deficit is primarily attributable to the decrease in accounts receivable and an increase in accrued liabilities.

We have incurred net losses each year since inception and at September 30, 2012 we had an accumulated deficit of $55,352,062. Our net sales are not sufficient to fund our operating expenses. Historically, we have relied on the sale of our stock from time to time and loans from third parties and from related parties to fund our operations. During 2011, we raised a total of $100,000 in capital from an institutional investor and current stockholder. Other than $4,808 received from the exercise of warrants, we did not raise any capital during the nine months ending September 30, 2012. During the nine months ending September 30, 2012, we borrowed an additional $795,000 from our principal stockholder, who is also an executive officer and director of our company. At September 30, 2012, we owe this executive officer and director of our company $8,224,017. Interest expense from debt owed to stockholders, executive officer and directors was $122,438 for the nine months ending September 30, 2012. Subsequent to September 30, 2012, we borrowed an additional $340,000 from our principal stockholder, who is also an executive officer and director of our company. We are using these funds for general working capital.

We do not currently have any commitments for capital expenditures. Our current cash position is insufficient to cover our current operating needs for the next twelve months and we do not have any external sources of working capital. . We remain materially dependent upon loans to us from our principal stockholder who is also an executive officer and director of the Company. While we anticipate cash flows from 2012 sales activity, our revenues declined significantly in the third quarter of 2012 from the second quarter of 2012 and additional cash will still be needed to support operations, meet our working capital needs and satisfy our obligations as they become due. While we are actively seeking additional equity investments, we have no firm commitments from any third parties and there are no assurances we will be successful in attracting additional capital. In addition, as set forth above, at September 30, 2012 we owed our principal stockholder who is also an executive officer and director a total of $8.23 million which is due on December 31, 2013 or (i) at such time as we have raised an additional $7 million over the $3.5 million raised in prior offerings, or (ii) at such time as we are operating within sufficient cash flow parameters to sustain operations, or (iii) until a disposition of our company, such as an acquisition or merger, occurs. We do not have sufficient funds to pay this loan when it becomes due and there are no assurances the note holder will extend the due date, or that he will continue to advance funds to us to meeting our capital needs.

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

Operating activities

For the nine-month period ended September 30, 2012 net cash used in operating activities was $723,956, which primarily resulted from the net loss of $1,625,809, reduced by loss on notes receivable, a decrease in accounts receivable and an increase in accrued liabilities and deferred compensation.

Investing activities

For the nine months ending September 30, 2012, $79,888 cash was used in investing activities for the purchase of computer equipment.

Financing activities

Net cash provided by financing activities was $843,843, made up of other components, in addition to the items below, for the nine months ending September 30, 2012, composed of borrowings on capital leases, proceeds from a stockholder note receivable related to warrants exercised, proceeds from the exercise of warrants and $795,000 of advances under the line of credit from our stockholder as described above less $4,748 in payment of capital lease obligations.

Critical Accounting Policies and Estimates

General

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

Impact of Inflation and Foreign Currency Translation

Inflation has not had a significant impact on the Company's operations. However, any significant decrease in the price for oil or labor, environmental compliance costs, and engine replacement costs could adversely impact the Company's end users cost/benefit analysis as to the use of the Company's products. Effective January, 2012, we no longer have operations or bank accounts in any foreign country and are therefore not impacted by foreign currency translations.

Off Balance Sheet Financing

The Company has not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties, nor has it entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing or hedging services with us.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for a smaller reporting company.

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 and accounting officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13(a) -15 promulgated under the Securities and Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") as of the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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

Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

In July 2009 Puradyn Filter Technologies Incorporated filed a lawsuit in the Circuit Court in 15th Judicial District in and for Palm Beach County, Florida, styled Puradyn Filter Technologies, Inc. versus Richard C. Ford case number 502009CA023128XXXXMB. In this action against Mr. Ford, our former Chief Executive Officer, we alleged non-payment of three promissory notes totaling $756,250 with interest at a rate of 5.63% per annum since July 25, 2001 and we sought payment of the promissory notes and accrued interest which totaled $1,110,046 in the aggregate.

On August 22, 2012 we reached a settlement with the plaintiff in this civil suit. Under the terms of the settlement, Mr. Ford agreed to transfer to us a total of 875,000 shares of our common stock, with 6,000 shares due within one week of the execution of a settlement agreement, 133,000 shares by December 31, 2012 and the balance at the rate of 184,000 shares per quarter beginning on March 1, 2013.

In the event Mr. Ford should default in these arrangements, he is obligated to pay us $145,000 less any monies or shares previously tendered to us, we are entitled to obtain a judgment in such amount and he will waive any rights he may have to discharge such judgment through bankruptcy.

On September 11, 2012, a definitive settlement agreement was executed containing these and other customary terms.

ITEM 1A.

RISK FACTORS.

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On July 30, 2012, the Company issued 45,455 shares of its common stock valued at $0.11 per share to Monarch Communications, Inc. as partial compensation per an agreement dated June 8, 2012 for consultant work.

On September 6, 2012, the Company issued 34,483 shares of its common stock valued at $0.145 per share to Monarch Communications, Inc. as partial compensation per the agreement for consultant work.

On October 8, 2012 the Company issued to Monarch Communications, Inc. 10,571 shares of common stock valued at $0.14 per share as partial compensation per the agreement for consultant work.

On October 15, 2012 the Company issued to Monarch Communications, Inc. 26,667 shares of common stock valued at $0.15 per share as partial compensation per the agreement for consultant work.

In each of the foregoing instances, the recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURE.

Not Applicable to our Company.

ITEM 5.

OTHER INFORMATION.

On September 27, 2012, we signed a lease for our office and warehouse facility in Boynton Beach with Duke PGC At Quantum I-9. The lease commences August 1, 2013 and is for a term of six years. The facility is 25,541 square feet and we are responsible for all operating expenses and utilities. The minimum annual rent is as follows:

Year 1

$120,255

Year 2

$148,636

Year 3

$153,095

Year 4

$157,688

Year 5

$162,418

Year 6

$167,291

ITEM 6.

EXHIBITS.


Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation dated December 30, 1996 (2)
3.2		Certificate of Amendment to Certificate of Incorporation dated February 3, 1998 (3)
3.3		Bylaws (1)
3.4		Certificate of Amendment to the Certificate of Incorporation dated July 7, 2011 (14)
4.1		Form of common stock certificate (8)
4.2		Form of Class A Warrant issued to Mr. Vittoria (9)
4.3		Form of $1.25 common stock purchase warrant (7)
4.4		Form of Warrant Amendment (15)
10.1		Agreement dated June 8, 2012 by and between Puradyn Filter Technologies Incorporated and Monarch Communications, Inc. (17)
10.2		1999 Stock Option Plan (4)
10.3		2000 Non-Employee Directors’ Plan (5)
10.4		2002 Audit Committee Charter (6)
10.5		Agreement between T/F Systems, Inc. and T/F Purifiner, Inc. dated March 1, 1991 (1)
10.6		Asset Purchase Agreement between T/F Systems, Inc. and T/F Purifiner, Inc. dated December 31, 1995 (1)
10.7		Lease Amendment #2 between Puradyn Filter Technologies, Inc. and Premier Gateway Center at Quantum LLP (10)
10.8		Master Distributor Agreement dated February 18, 2008 by and between Puradyn Filter Technologies Incorporated and Filter Solutions Ltd. (11)
10.9		Employment Agreement dated July 3, 2000 between Puradyn Filter Technologies Incorporated and Kevin Kroger, as amended (11)
10.10		Extension of Note from Mr. Vittoria (16)
10.11		Consulting Agreement dated October 20, 2009 between Puradyn Filter Technologies Incorporated and Boxwood Associates, Inc.(16)
10.12		2010 Stock Option Plan (13)
10.13		Lease between Puradyn Filter Technologies, Inc. and Duke PBC At Quantum I-9, LLC*
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.

In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

(1)

Incorporated by reference from the exhibits to the registration statement on Form 10-SB, SEC File No. 001-11991, as filed with the Securities and Exchange Commission, on July 30, 1996, as amended.

(2)

Incorporated by reference from the exhibit to the Current Report on Form 8-K as filed on January 9, 1997.

(3)

Incorporated by reference from the exhibit to the Current Report on Form 8-K/A as filed on February 12, 1998.

(4)

Incorporated by reference to the registration statement on Form S-8, SEC File No. 333-91379, as filed with the Securities and Exchange Commission on November 22, 1999.

(5)

Incorporated by reference from the exhibits to the Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 2000.

(6)

Incorporated by reference from the exhibits to the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.

(7)

Incorporated by reference to the Current Report on Form 8-K as filed on October 10, 2006.

(8)

Incorporated by reference to exhibits to the Form 8-A as filed with the Securities and Exchange Commission on December 6, 2001.

(9)

Incorporated by reference to exhibits to the Quarterly Report on Form 10-QSB for the period ended March 31, 2005.

(10)

Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for the period ended June 30, 2008.

(11)

Incorporated by reference to the registration statement on Form S-1, SEC File No. 333-155,054, as declared effective on November 14, 2008, as amended.

(12)

Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

(13)

Incorporated by reference to the registration statement on Form S-8, SEC File No. 333-169441, as filed with the Securities and Exchange Commission on September 16, 2010.

(14)

Incorporated by reference to the Quarterly Report on Form 10-Q for the period ended June 30, 2011.

(15)

Incorporated by reference to the Current Report on Form 8-K as filed on November 28, 2012.

(16)

Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

(17)

Incorporated by reference to the Quarterly Report on Form 10-Q for the period ended June 30, 2012.

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: November 19, 2012	By:	/s/ Joseph V. Vittoria
		Joseph V. Vittoria, Chairman and Chief Executive Officer, principal executive officer


Date: November 19, 2012	By:	/s/ Alan J. Sandler
		Alan J. Sandler, Secretary to the Board, Vice President and principal financial officer and principal accounting officer

EXHIBIT 10.13



	2400 North Commerce Parkway Suite 405 Weston . FL 33326 954.453 . 5660 www dukerealty com


October 1, 2012	VIA UPS OVERNIGHT DELIVERY

Mr. Alan Sandler

Vice-President

Puradyn Filter Technologies Incorporated

2017 High Ridge Road

Boynton Beach , Florida 33426

Re: LEASE by and between DUKE PGC AT QUANTUM 1-9, LLC, a Delaware limited liability company ("Landlord") and PURADYN FILTER TECHNOLOGIES INCORPORATED, a Delaware corporation ( " Tenant").

Dear Mr. Sandler :

Enclosed please find one (1) fully executed original counterpart of the above referenced document for your files.

If I can be of further assistance, or if you have any questions, please do not hesitate to call.

Sincerely,

DUKE REALTY CORPORATION

[PFTI_EX10Z13004.GIF]

Ana M. Hernandez

Property Administrator

[PFTI_EX10Z13006.GIF]

2400 North Commerce Parkway

Suite 405

Weston, FL 33326

Main: 954-453-5660

P: 954-453 - 5265

F: 954.453 . 5695

ana.hernandez @ dukerealty.com

www . dukerealt y. com

Cc : File

LEASE

THIS LEASE (the "Lease") is executed this 27 day of September, 2012, by and between DUKE PGC AT QUANTUM 1-9, LLC, a Delaware limited liability company ("Landlord") , and PURADYN FILTER TECHNOLOGIES INCORPORATED, a Delaware corporation ("Tenant").

ARTICLE 1 - LEASE OF PREMISES

Section 1.01 . Basic Lease Provisions and Definitions.

(a)

Leased Premises (shown outlined on Exhibit A attached hereto): a portion of the building commonly known as Gateway Center 7 (the "Building"), located at 2017 High Ridge Road, Boynton Beach , Florida 33426, within Gateway Center at Quantum (the "Park").

(b)

Rentable Area: approximately 25,541 square feet.

(c)

Tenant's Proportionate Share: 31.87%.

(d)

Minimum Annual Rent:


Year 1	$	120,255 . 50
Year 2	$	148,635.84
Year 3	$	153,094.92
Year 4	$	157,687.80
Year 5	$	162,418.44
Year 6	$	167,290.92

(Note: Minimum Annual Rent does not include applicable Florida State Sales Tax, or Additional Rent, which sums shall be the sole responsibility of Tenant.)

(e)

Monthly Rental Installments:


Month 1 - 2	$	0.00
Months 3 - 12	$	12,025.55
Months 13 - 24	$	12,386.32
Months 25 - 36	$	12,757.91
Months 37 - 48	$	13,140.65
Months 49 - 60	$	13,534.87
Months 61 - 72	$	13,940 . 91

(Note: Monthly Rental Installments do not include applicable Florida State Sales Tax, or Additional Rent, which sums shall be the sole responsibility of Tenant.)

(f)

Intentionally Omitted.

(g)

Commencement Date: August 1, 2013.

(h)

Lease Term: Six (6) years.

(i)

Security Deposit: $34,970.00.

(j)

Broker(s): Duke Realty Services, LLC and CBRE, Inc. representing Landlord, and

Flagler Real Estate Services, LLC representing Tenant.

(k)

Permitted Use: General office, warehousing and storage of oil filtration systems and related purposes.

(l)

Address for notices and payments are as follows:

Landlord:

Duke PGC at Quantum 1-9, LLC

^{c/o Duke Realty Corporation}

Attn.: South Florida Market- V.P., Asset Mgmt. & Customer

Service

2400 North Commerce Parkway, Suite 405

Weston, FL 33326

With Payments to:

Duke PGC at Quantum 1-9, LLC

c/o Duke Realty Corporation

75 Remittance Drive, Suite 1477

Chicago, IL 60675-1477

Tenant:

Puradyn Filter Technologies Incorporated

2017 High Ridge Road

Boynton Beach, Florida 33426

(m)

Guarantor: None.

EXHIBITS

Exhibit A:

Leased Premises

Exhibit B:

Intentionally Omitted

Exhibit C:

Letter of Understanding

Exhibit D:

Rules and Regulations

Exhibit E:

Offer Space

Section 1.02 . Lease of Premises . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Leased Premises, under the terms and conditions herein, together with a non-exclusive right, in common with others, to use the following (collectively, the "Common Areas"): the areas of the Building and the underlying land and improvements thereto that are designed for use in common by all tenants of the Building and their respective employees, agents, customers, invitees and others.

ARTICLE 2 - TERM AND POSSESSION

Section 2.0 I . Term . The Commencement Date and Lease Term shall be as set forth in Sections 1.01(g) and 1.01 (h) above.

Section 2.02 . Condition ofthe Leased Premises.

(a)

As Is Condition. Tenant has personally inspected the Leased Premises and accepts the same " AS IS " without representation or warranty by Landlord of any kind.

(b)

Letter of Understanding . Promptly following the Commencement Date, Tenant shall execute Landlord's Letter of Understanding in substantially the form attached hereto as Exhibit C and made a part hereof, acknowledging, among other things, that Tenant has accepted the Leased Premises. If Tenant takes possession of and occupies the Leased Premises, Tenant shall be deemed to have accepted the Leased Premises and that the condition of the Leased Premises and the Building was at the time satisfactory and in conformity with the provisions of the Lease in all respects.

Section 2.03 . Surrender of the Leased Premises . Upon the expiration or earlier termination of this Lease, Tenant shall, at its sole cost and expense, immediately (a) surrender the Leased Premises to Landlord in broom-clean condition and in good order, condition and repair, reasonable wear and tear and casualty damage excepted, (b) remove from the Leased Premises or where located (i) Tenant's Property (as defined in Section 8.01 below), (ii) all data and communications equipment, wiring and cabling (including above ceiling, below raised floors and behind walls), and (iii) any alterations required to be removed pursuant to Section 7.03 below, and (c) repair any damage caused by any such removal and restore the Leased Premises to the condition existing upon the Commencement Date, reasonable wear and tear and casualty damage excepted. All of Tenant's Property that is not removed within ten (I 0) days following Landlord's written demand therefor shall be conclusively deemed to have been abandoned and Landlord shall be entitled to dispose of such property at Tenant's cost without incurring any liability to Tenant. This Section 2.03 shall survive the expiration or any earlier termination of this Lease.

Section 2.04 . Holding Over . If Tenant retains possession of the Leased Premises after the expiration or earlier termination of this Lease, Tenant shall be a tenant at sufferance at one hundred fifty percent (150%) of the Monthly Rental Installments and Annual Rental Adjustment (as hereinafter defined) for the Leased Premises in effect upon the date of such expiration or earlier termination, and otherwise upon the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease, nor shall such acceptance create a month-to-month tenancy. In the event a month-to-month tenancy is created by operation of law, either party shall have the right to terminate such month-to-month tenancy upon thirty (30) days' prior written notice to the other, whether or not said notice is given on the rent paying date. This Section 2.04 shall in no way constitute a consent by Landlord to any holding over by Tenant upon the expiration or earlier termination of this Lease, nor limit Landlord's remedies in such event.

ARTICLE 3 - RENT

Section 3.01 . Base Rent. Tenant shall pay to Landlord the Minimum Annual Rent in the Monthly Rental Installments, plus Florida State Sales Tax, in advance, without demand, deduction or offset, on the Commencement Date and on or before the first day of each and every calendar month thereafter during the Lease Term. The Monthly Rental Installments for partial calendar months shall be prorated. Tenant shall be responsible for delivering the Monthly Rental Installments to the payment address set forth in Section 1.01(1) above in accordance with this Section 3.01 .

Section 3.02 . Annual Rental Adjustment Definitions.

(a)

" Annual Rental Adjustment " shall mean the amount of Tenant's Proportionate Share of Operating Expenses for a particular calendar year.

(b)

" Operating Expenses " shall mean the amount of all of Landlord's costs and expenses paid or incurred in operating, repairing, replacing and maintaining the Building and the Common Areas in good condition and repair for a particular calendar year (including all additional costs and expenses that Landlord reasonably determines that it would have paid or incurred during such year if the Building had been fully occupied), including by way of illustration and not limitation, the following: all Real Estate

Taxes (as hereinafter defined), insurance premiums and deductibles; water, sewer, electrical and other utility charges other than the separately billed electrical and other charges paid by Tenant as provided in this Lease (or other tenants in the Building); painting; stormwater discharge fees; tools and supplies; repair costs; landscape maintenance costs; access patrols; license, permit and inspection fees; management fees (which shall not exceed 5% of the gross rental receipts for the Building); administrative fees; supplies, costs, wages and related employee benefits payable for the management, maintenance and operation of the Building; maintenance, repair and replacement of the driveways, parking areas, curbs and sidewalk areas (including snow and ice removal), landscaped areas, drainage strips, sewer lines, exterior walls, foundation, structural frame, roof, gutters and lighting; and maintenance and repair costs, dues, fees and assessments incurred under any covenants or charged by any owners association. The cost of any Operating Expenses that are capital in nature shall be amortized over the useful life of the improvement (as reasonably determined by Landlord), and only the amortized portion shall be included in Operating Expenses.

(c)

" Tenant's Proportionate Share of Operating Expenses " shall mean an amount equal to the product of Tenant's Proportionate Share times the Operating Expenses.

(d)

" Real Estate Taxes " shall mean any form of real estate tax or assessment or service payments in lieu thereof, and any license fee, commercial rental tax, improvement bond or other similar charge or tax (other than inheritance, personal income or estate taxes) imposed upon the Building or Common Areas, or against Landlord's business of leasing the Building, by any authority having the power to so charge or tax, together with the reasonable costs and expenses of contesting the validity or amount of the Real Estate Taxes; provided, however, in no event shall Real Estate Taxes included in the Operating Expenses exceed the total amount assessed (less any savings Landlord realizes as a result of contesting the validity or amount of the same) less the maximum discount available for early payment.

Section 3.03 . Payment of Additional Rent .

(a)

Any amount required to be paid by Tenant hereunder (in addition to Minimum Annual Rent) and any charges or expenses incurred by Landlord on behalf of Tenant under the terms of this Lease shall be considered "Additional Rent" payable in the same manner and upon the same terms and conditions as the Minimum Annual Rent reserved hereunder, except as set forth herein to the contrary. Any failure on the part of Tenant to pay such Additional Rent when and as the same shall become due shall entitle Landlord to the remedies available to it for non-payment of Minimum Annual Rent.

(b)

In addition to the Minimum Annual Rent specified in this Lease, commencing as of the Commencement Date, Tenant shall pay to Landlord as Additional Rent for the Leased Premises, in each calendar year or partial calendar year during the Lease Term, an amount equal to the Annual Rental Adjustment for such calendar year. Landlord shall estimate the Annual Rental Adjustment annually, and written notice thereof shall be given to Tenant prior to the beginning of each calendar year. Tenant shall pay to Landlord each month, at the same time the Monthly Rental Installment is due, an amount equal to one-twelfth (1112) of the estimated Annual Rental Adjustment. Tenant shall be responsible for delivering the Additional Rent to the payment address set forth in Section 1.01(1) above in accordance with this Section 3.03 . If Operating Expenses increase during a calendar year, Landlord may increase the estimated Annual Rental Adjustment one (1) time during such year by giving Tenant written notice to that effect, and thereafter Tenant shall pay to Landlord, in each of the remaining months of such year, an amount equal to the amount of such increase in the estimated Annual Rental Adjustment divided by the number of months remaining in such year. Within one hundred twenty (120) days after the end of each calendar year, Landlord shall prepare and deliver to Tenant a statement showing the actual Annual Rental Adjustment. Within thirty (30) days after receipt of the aforementioned statement, Tenant shall pay to Landlord, or Landlord shall credit against the next rent payment or payments due from Tenant, as the case

may be, the difference between the actual Annual Rental Adjustment for the preceding calendar year and the estimated amount paid by Tenant during such year. This Section 3.03 shall survive the expiration or any earlier termination of this Lease.

Section 3.04 . Late Charges . Tenant acknowledges that Landlord shall incur certain additional unanticipated administrative and legal costs and expenses if Tenant fails to pay timely any payment required hereunder. Therefore, in addition to the other remedies available to Landlord hereunder, if any payment required to be paid by Tenant to Landlord hereunder shall become overdue, such unpaid amount shall bear interest from the due date thereof to the date of payment at the prime rate of interest, as reported in the Wall Street Journal (the "Prime Rate") plus six percent (6%) per annum; provided, however such interest rate shall not be less than twelve percent (12%) per annum.

Section 3.05 . Maximum Increase in Operating Expenses . Notwithstanding anything in this Lease to the contrary, Tenant will be responsible for Tenant's Proportionate Share of Real Estate Taxes, insurance premiums, utilities, janitorial services, snow removal, landscaping, management fees, and charges assessed against the Building pursuant to any covenants or owner's association ("Uncontrollable Expenses"), without regard to the level of increase in any or all of the above in any year or other period of time. Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses that are not Uncontrollable Expenses (herein "Controllable Expenses") shall be limited to a five percent (5%) per annum increase over the amount the Controllable Expenses per square foot for the immediately preceding calendar year would have been had the Controllable Expenses per square foot increased at the rate of five percent (5%) in all previous calendar years beginning with the actual Controllable Expenses per square foot for the calendar year ending December 31, 2014 .

Section 3.06 . Inspection and Audit Rights.

(a)

Tenant shall have the right to inspect, at reasonable times and in a reasonable manner, during the sixty (60) day period following the delivery of Landlord's statement ofthe actual amount of the Annual Rental Adjustment (the "Inspection Period"), such of Landlord's books of account and records as pertain to and contain information concerning the Annual Rental Adjustment for the prior calendar year in order to verify the amounts thereof. Such inspection shall take place at Landlord's office upon at least fifteen (15) days prior written notice from Tenant to Landlord. Only Tenant or a certified public accountant that is not being compensated for its services on a contingency fee basis shall conduct such inspection. Tenant shall also agree to follow Landlord's reasonable procedures for auditing such books and records. Landlord and Tenant shall act reasonably in assessing the other party's calculation of the Annual Rental Adjustment. Tenant shall provide Landlord with a copy of its findings within thirty (30) days after completion of the audit. Tenant's failure to exercise its rights hereunder within the Inspection Period shall be deemed a waiver of its right to inspect or contest the method, accuracy or amount of such Annual Rental Adjustment.

(b)

If Landlord and Tenant agree that Landlord's calculation of the Annual Rental Adjustment for the inspected calendar year was incorrect, the parties shall enter into a written agreement confirming such undisputed error and then Landlord shall make a correcting payment in full to Tenant within thirty (30) days after the determination of the amount of such error or credit such amount against future Additional Rent if Tenant overpaid such amount, and Tenant shall pay Landlord within thirty (30) days after the determination of such error if Tenant underpaid such amount. In the event of any errors on the part of Landlord that Landlord agrees were errors costing Tenant in excess of five percent (5%) of Tenant's actual Operating Expense liability for any calendar year, Landlord will also reimburse Tenant for the costs of an audit reasonably incurred by Tenant in an amount not to exceed $2,500 within the above thirty (30) day period. If Tenant provides Landlord with written notice disputing the correctness of Landlord's statement, and if such dispute shall have not been settled by agreement within thirty (30) days

after Tenant provides Landlord with such written notice, Tenant may submit the dispute to a reputable firm of independent certified public accountants selected by Tenant and approved by Landlord, and the decision of such accountants shall be conclusive and binding upon the parties. If such accountant decides that there was an error, Landlord will make correcting payment if Tenant overpaid such amount, and Tenant shall pay Landlord if Tenant underpaid such amount. The fees and expenses involved in such decision shall be borne by the party required to pay for the audit.

(c)

All of the information obtained through Tenant's inspection with respect to financial matters (including, without limitation, costs, expenses and income) and any other matters pertaining to Landlord, the Leased Premises, the Building and/or the Park as well as any compromise, settlement or adjustment reached between Landlord and Tenant relative to the results of the inspection shall be held in strict confidence by Tenant and its officers, agents, and employees; and Tenant shall cause its independent professionals to be similarly bound. The obligations within the preceding sentence shall survive the expiration or earlier termination of this Lease.

ARTICLE 4 - SECURITY DEPOSIT

Tenant heretofore deposited the Security Deposit with Landlord as security for the performance by Tenant of all of Tenant's obligations contained in this Lease. In the event of a default by Tenant, Landlord may apply all or any part of the Security Deposit to cure all or any part of such default; provided, however, that any such application by Landlord shall not be or be deemed to be an election of remedies by Landlord or considered or deemed to be liquidated damages. Tenant agrees promptly, upon demand, to deposit such additional sum with Landlord as may be required to maintain the full amount of the Security Deposit. All sums held by Landlord pursuant to this Article 4 shall be without interest and may be commingled by Landlord. Within forty-five (45) days following the end of the Lease Term, provided that there is then no uncured default or any repairs required to be made by Tenant pursuant to Section 2.03 above or Section 7.03 below, Landlord shall return the Security Deposit to Tenant.

ARTICLE 5 - OCCUPANCY AND USE

Section 5.01 . Use . Tenant shall use the Leased Premises for the Permitted Use and for no other purpose without the prior written consent of Landlord.

Section 5.02 . Covenants of Tenant Regarding Use.

(a)

Tenant shall (i) use and maintain the Leased Premises and conduct its business thereon in a safe, careful, reputable and lawful manner, (ii) comply with all covenants that encumber the Building and all laws, rules, regulations, orders, ordinances, directions and requirements of any governmental authority or agency, now in force or which may hereafter be in force, including, without limitation, those which shall impose upon Landlord or Tenant any duty with respect to or triggered by a change in the use or occupation of, or any improvement or alteration to, the Leased Premises, and (iii) comply with and obey all reasonable directions, rules and regulations of Landlord, including the Building Rules and Regulations attached hereto as Exhibit D and made a part hereof, as may be modified from time to time by Landlord on reasonable prior written notice to Tenant.

(b)

Tenant shall not do or permit anything to be done in or about the Leased Premises that will in any way cause a nuisance, obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any of Landlord's directions, rules and regulations, but agrees that any enforcement thereof shall be done uniformly. Tenant shall not overload the floors of the Leased Premises. All damage to the floor structure or foundation of the Building due to improper

positioning or storage of items or materials shall be repaired by Landlord at the sole expense of Tenant, who shall reimburse Landlord immediately therefor upon demand. Tenant shall not use the Leased Premises, nor allow the Leased Premises to be used, for any purpose or in any manner that would (i) invalidate any policy of insurance now or hereafter carried by Landlord on the Building, or (ii) increase the rate of premiums payable on any such insurance policy unless Tenant reimburses Landlord for any increase in premium charged.

Section 5.03 . Landlord's Rights Regarding Use . Without limiting any of Landlord's rights specified elsewhere in this Lease (a) Landlord shall have the right at any time, without notice to Tenant, to control, change or otherwise alter the Common Areas in such manner as it deems necessary or proper so long as any such control, change or alteration does not materially and adversely affect Tenant's use of the Leased Premises for the Permitted Use, and (b) Landlord, its agents, employees and contractors and any mortgagee of the Building shall have the right to enter any part of the Leased Premises at reasonable times upon reasonable notice (except in the event of an emergency where no notice shall be required) for the purposes of examining or inspecting the same (including, without limitation, testing to confirm Tenant's compliance with this Lease), showing the same to prospective purchasers, mortgagees or tenants, and making such repairs, alterations or improvements to the Leased Premises or the Building as Landlord may deem necessary or desirable. Landlord shall incur no liability to Tenant for such entry, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to any abatement of rent therefor.

Section 5.04 . Hurricane Shutters . Landlord shall provide Tenant with hurricane shutters for Tenant's use at the Leased Premises in case of a threat of hurricane, tropical storm, or other adverse weather conditions. Tenant agrees to (a) store the hurricane shutters in the Leased Premises in accordance with Landlord's recommendations, (b) be solely responsible for the maintenance and protection of the hurricane shutters, and (c) replace the hurricane shutters in the event of damage, theft or loss. If there is a threat of hurricane, tropical storm, or other adverse weather condition, it will be Tenant's sole responsibility to promptly install the hurricane shutters and to then remove the hurricane shutters after the weather threat has passed. Hurricane shutters will be installed on the pre-existing bolts installed by Landlord for such purposes, and Tenant shall not be permitted to drill or install other bolts, nails or other devices into the exterior of the Building. Tenant shall be solely responsible to monitor weather reports, and Landlord has no duty to advise Tenant of the threat of hurricane, tropical storm or other adverse weather condition nor will Landlord have any duty or obligation to assist or instruct Tenant in the installation or removal of the hurricane shutters. Upon the expiration or earlier termination of this Lease, Tenant shall return the hurricane shutters to Landlord in substantially the same condition in which such hurricane shutters were received, ordinary wear and tear excepted. From time to time but not more than once in any calendar year, with in ten (I 0) days following Tenant's receipt of written notice from Landlord, Tenant shall deliver to Landlord an inventory of the hurricane shutters on hand. If Tenant fails to deliver the inventory to Landlord within the time specified, Landlord's agents or employees shall be given access to the Leased Premises to take the inventory themselves, and in such event, Tenant agrees to reimburse to Landlord, within ten (I 0) days of demand, an administrative fee in the fixed amount of $500.00 representing a reimbursement to Landlord of Landlord's time and expense to have the inventory performed.

ARTICLE 6 - UTILITIES

Tenant shall obtain in its own name and pay directly to the appropriate supplier the cost of all utilities and services serving the Leased Premises. However, if any services or utilities are jointly metered with other property, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services (at rates that would have been payable if such utilities and services had been directly billed by the utilities or services providers) and Tenant shall pay such share to

Landlord within fifteen (15) days after receipt of Landlord's written statement. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility or other Building service and no such failure or interruption shall entitle Tenant to terminate this Lease or withhold sums due hereunder.

ARTICLE 7 - REPAIRS, MAINTENANCE AND ALTERATIONS

Section 7.01 . Repair and Maintenance of Building . Landlord shall make all necessary repairs, replacements and maintenance to the roof, sprinkler systems, exterior walls, foundation, structural frame of the Building and the parking and landscaped areas and other Common Areas. The cost of such repairs, replacements and maintenance shall be included in Operating Expenses to the extent provided in Section 3.02; provided however, to the extent any such repairs, replacements or maintenance are required because of the negligence, misuse or default of Tenant, its employees, agents, contractors, customers or invitees, Landlord shall make such repairs at Tenant's sole expense.

Section 7.02 . Repair and Maintenance of Leased Premises . Tenant shall, at its own cost and expense, maintain the Leased Premises in good condition, regularly servicing and promptly making all repairs and replacements thereto, including but not limited to the electrical systems, heating and air conditioning systems, plate glass, floors, windows and doors, and plumbing systems. Tenant shall obtain a preventive maintenance contract on the heating, ventilating and air-conditioning systems and provide Landlord with a copy thereof. The preventive maintenance contract shall meet or exceed Landlord's standard maintenance criteria, and shall provide for the inspection and maintenance of the heating, ventilating and air conditioning system on at least a semi-annual basis.

Section 7.03 . Alterations . Tenant shall not permit alterations in or to the Leased Premises unless and until Landlord has approved the plans therefor in writing; provided, however, that Tenant shall have the right to make alterations to the Leased Premises, without obtaining Landlord's prior written consent provided that (a) such alterations do not exceed Ten Thousand and Noll 00 Dollars ($1 0,000.00) in cost in any one instance and Fifty Thousand and No/100 Dollars ($50,000.00) in cost in the aggregate during the Lease Term; (b) such alterations are non-structural and non-mechanical in nature; (c) such alterations do not require a permit; (d) Tenant provides Landlord with prior written notice of its intention to make such alterations, stating in reasonable detail the nature, extent and estimated cost of such alterations, together with the plans and specifications for the same, to the extent applicable, and (e) at Landlord's option, Tenant must remove such alterations and restore the Leased Premises upon termination of this Lease. As a condition of such approval, Landlord may require Tenant to remove the alterations and restore the Leased Premises upon termination of this Lease; otherwise, all such alterations shall at Landlord's option become a part of the realty and the property of Landlord, and shall not be removed by Tenant. Notwithstanding anything contained herein to the contrary, Tenant shall have no obligation hereunder to remove any of the Tenant Improvements or to otherwise remove any other alterations or improvements which have been made by Tenant with the express written consent of Landlord, unless, at the time of granting such consent, Landlord has expressly required the removal of any such proposed alterations or improvements as a condition to granting such consent. Tenant shall ensure that all alterations shall be made in accordance with all applicable laws, regulations and building codes, in a good and workmanlike manner and of quality equal to or better than the original construction of the Building. No person shall be entitled to any lien derived through or under Tenant for any labor or material furnished to the Leased Premises, and nothing in this Lease shall be construed to constitute Landlord's consent to the creation of any lien. If any lien is filed against the Leased Premises for work claimed to have been done for or material claimed to have been furnished to Tenant, Tenant shall cause such lien to be discharged of record within thirty (30) days after filing . Tenant shall indemnify Landlord from all costs, losses, expenses and attorneys' fees in connection with any construction or alteration and any related lien.

ARTICLE 8 - INDEMNITY AND INSURANCE

Section 8.01 . Release . All of Tenant's trade fixtures, merchandise, inventory , special fire protection equipment, telecommunication and computer equipment, supplemental air conditioning equipment, kitchen equipment and all other personal property in or about the Leased Premises, the Building or the Common Areas, which is deemed to include the trade fixtures, merchandise, inventory and personal property of others located in or about the Leased Premises or Common Areas at the invitation, direction or acquiescence (express or implied) of Tenant (all of which property shall be referred to herein, collectively, as "Tenant's Property"), shall be and remain at Tenant's sole risk. Landlord shall not be liable to Tenant or to any other person for, and Tenant hereby releases Landlord (and its affiliates, property managers and mortgagees) from (a) any and all liability for theft or damage to Tenant's Property, and (b) any and all liability for any injury to Tenant or its employees, agents, contractors, guests and invitees in or about the Leased Premises, the Building or the Common Areas, except to the extent of personal injury caused directly by the negligence or willful misconduct of Landlord, its agents, employees or contractors. Nothing contained in this Section 8.01 shall limit (or be deemed to limit) the waivers contained in Section 8.06 below. In the event of any conflict between the provisions of Section 8 . 06 below and this Section 8 . 01, the provisions of Section 8 . 06 shall prevail. This Section 8 . 01 shall survive the expiration or earlier termination of this Lease .

Section 8.02 . Indemnification by Tenant . Tenant shall protect, defend, indemnify and hold Landlord, its agents , employees and contractors of all tiers harmless from and against any and all claims, damages, demands, penalties, costs, liabilities, losses , and expenses (including reasonable attorneys' fees and expenses at the trial and appellate levels) to the extent (a) arising out of or relating to any act, omission, negligence, or willful misconduct of Tenant or Tenant's agents, employees, contractors, customers or invitees in or about the Leased Premises, the Building or the Common Areas, (b) arising out of or relating to any of Tenant's Property, or (c) arising out of any other act or occurrence within the Leased Premises, in all such cases except to the extent of personal injury caused directly by the negligence or willful misconduct of Landlord , its agents, employees or contractors . Nothing contained in this Section 8.02 shall limit (or be deemed to limit) the waivers contained in Section 8.06 below. In the event of any conflict between the provisions of Section 8.06 below and this Section 8 . 02 , the provisions of Section 8.06 shall prevail. This Section 8.02 shall survive the expiration or earlier termination of this Lease.

Section 8.03 . Indemnification by Landlord . Landlord shall protect, defend, indemnify and hold Tenant, its agents, employees and contractors of all tiers hannless from and against any and all claims, damages, demands, penalties, costs, liabilities, losses and expenses (including reasonable attorneys' fees and expenses at the trial and appellate levels) to the extent arising out of or relating to any act , omission, negligence or willful misconduct of Landlord or Landlord's agents, employees or contractors in or about the Leased Premises , the Building or the Common Areas. Nothing contained in this Section 8.03 shall limit (or be deemed to limit) the waivers contained in Section 8.06 below . In the event of any conflict between the provisions of Section 8.06 below and this Section 8.03 , the provisions of Section 8.06 shall prevail. This Section 8.03 shall survive the expiration or earlier termination of this Lease.

Section 8.04 . Tenant's Insurance.

(a)

During the Lease Tenn (and any period of early entry or occupancy or holding over by Tenant, i f applicable) , Tenant shall maintain the following types of insurance , in the amounts specified below :

(i)

Liability Insurance. Commercial General Liability Insurance, ISO Form CG 00 01, or its equivalent, covering Tenant's use of the Leased Premises against claims for bodily injury or

death or property damage, which insurance shall be primary and non-contributory and shall provide coverage on an occurrence basis with a per occurrence limit of not less than $2,000,000 for each policy year, which limit may be satisfied by any combination of primary and excess or umbrella per occurrence policies.

(ii)

Property Insurance . Special Form Insurance in the amount of the full replacement cost of Tenant's Property (including, without limitation, alterations or additions performed by Tenant pursuant hereto, but excluding those improvements, if any, made pursuant to Section 2.02 above), which insurance shall waive coinsurance limitations.

(iii)

Worker's Compensation Insurance . Worker's Compensation insurance in amounts required by applicable law; provided, if there is no statutory requirement for Tenant, Tenant shall still obtain Worker's Compensation insurance coverage.

(iv)

Business Interruption Insurance . Business Interruption Insurance with limits not less than an amount equal to six (6) months rent hereunder.

(v)

Automobile Insurance . Comprehensive Automobile Liability Insurance insuring bodily injury and property damage arising from all owned, non-owned and hired vehicles, if any, with minimum limits of liability of $1,000,000 combined single limit, per accident.

(b)

All insurance required to be carried by Tenant hereunder shall (i) be issued by one or more insurance companies reasonably acceptable to Landlord, licensed to do business in the State in which the Leased Premises is located and having an AM Best's rating of A VII or better, and (ii) provide that said insurance shall not be materially changed, canceled or permitted to lapse on less than thirty (30) days' prior written notice to Landlord. In addition, Tenant shall name Landlord, Landlord's managing agent, and any mortgagee requested by Landlord, as additional insureds under its commercial general liability, excess and umbrella policies (but only to the extent of the limits required hereunder). On or before the Commencement Date (or the date of any earlier entry or occupancy by Tenant), and thereafter, within thirty (30) days prior to the expiration of each such policy, Tenant shall furnish Landlord with certificates of insurance in the form of ACORD 25 (or other evidence of insurance reasonably acceptable to Landlord), evidencing all required coverages, and that with the exception of Workers Compensation insurance, such insurance is primary and non-contributory. Upon Tenant's receipt of a request from Landlord, Tenant shall provide Landlord with copies of all insurance policies, including all endorsements, evidencing the coverages required hereunder. If Tenant fails to carry such insurance and furnish Landlord with such certificates of insurance or copies of insurance policies (if applicable), Landlord may obtain such insurance on Tenant's behalf and Tenant shall reimburse Landlord upon demand for the cost thereof as Additional Rent. Landlord reserves the right following the initial Lease Term or in the event of any expansion of the Leased Premises to require Tenant to obtain higher minimum amounts or different types of insurance if it becomes customary for other landlords of similar buildings in the area to require similar sized tenants in similar industries to carry insurance of such higher minimum amounts or of such different types.

Section 8.05 . Landlord's Insurance . During the Lease Term, Landlord shall maintain the following types of insurance, in the amounts specified below (the cost of which shall be included in Operating Expenses):

(a)

Liability Insurance . Commercial General Liability Insurance, ISO Form CG 00 01, or its equivalent, covering the Common Areas against claims for bodily injury or death and property damage, which insurance shall be primary and non-contributory and shall provide coverage on an occurrence basis

with a per occurrence limit of not less than $2,000,000 for each policy year, which limit may be satisfied by any combination of primary and excess or umbrella per occurrence policies.

(b)

Property Insurance . Special Form Insurance in the amount of the full replacement cost of the Building, including, without limitation, any improvements, if any, made pursuant to Section 2.02 above, but excluding Tenant's Property and any other items required to be insured by Tenant pursuant to Section 8.04 above.

All insurance required to be carried by Landlord hereunder shall be issued by one or more insurance companies licensed to do business in the State in which the Leased Premises is located and having an AM Best's rating if A VII or better.

Section 8.06 . Waiver of Subrogation . Notwithstanding anything contained in this Lease to the contrary, Landlord (and its affiliates, property managers and mortgagees) and Tenant (and its affiliates) hereby waive any rights each may have against the other on account of any loss of or damage to their respective property, the Leased Premises, its contents, or other portions of the Building or Common Areas arising from any risk which is required to be insured against by Sections 8.04(a)(ii) , 8.04(a)(iii) , and 8.05(b) above. The special form property insurance policies and worker's compensation insurance policies maintained by Landlord and Tenant as provided in this Lease shall include an endorsement containing an express waiver of any rights of subrogation by the insurance company against Landlord and Tenant, as applicable.

ARTICLE 9 - CASUALTY

In the event of total or partial destruction of the Building or the Leased Premises by fire or other casualty, Landlord agrees promptly to restore and repair same; provided, however, Landlord's obligation hereunder with respect to the Leased Premises shall be limited to the reconstruction of such of the leasehold improvements as were originally required to be made by Landlord pursuant to Section 2.02 above, if any. Rent shall proportionately abate during the time that the Leased Premises or part thereof are unusable because of any such damage; provided, however, that in the event fifty percent (50%) or more of the Leased Premises is unusable in Tenant's good faith judgment, then Rent shall abate in full. Notwithstanding the foregoing, if the Leased Premises are (a) so destroyed that they cannot be repaired or rebuilt within one hundred eighty (180) days from the casualty date; or (b) destroyed by a casualty that is not covered by the insurance required hereunder or, if covered, such insurance proceeds are not released by any mortgagee entitled thereto or are insufficient to rebuild the Building and the Leased Premises; then, in case of a clause (a) casualty, either Landlord or Tenant may, or, in the case of a clause (b) casualty, then Landlord may, upon thirty (30) days' written notice to the other party, terminate this Lease with respect to matters thereafter accruing. Tenant waives any right under applicable laws inconsistent with the terms of this paragraph. Notwithstanding the provisions of this paragraph, if any such damage or destruction occurs within the final six (6) months of the term hereof, then either Landlord or Tenant, may, without regard to the aforesaid one hundred eighty ( 180) day period, terminate this Lease by written

notice to the other.

ARTICLE 10 - EMINENT DOMAIN

If all or any substantial part of the Building or Common Areas shall be acquired by the exercise of eminent domain, Landlord may terminate this Lease by giving written notice to Tenant on or before the date possession thereof is so taken. If all or any part of the Leased Premises shall be acquired by the exercise of eminent domain so that the Leased Premises shall become impractical for Tenant to use for the Permitted Use, Tenant may terminate this Lease by giving written notice to Landlord as of the date

possession thereof is so taken. All damages awarded shall belong to Landlord; provided, however, that Tenant may claim dislocation damages if such amount is not subtracted from Landlord's award.

ARTICLE 11 - ASSIGNMENT AND SUBLEASE

Section 11.01 . Assignment and Sublease.

(a)

Tenant shall not assign this Lease or sublet the Leased Premises in whole or in part without Landlord's prior written consent (but in accordance with Section 16.12 below). In the event of any permitted assignment or subletting, Tenant shall remain primarily liable hereunder. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or to be a consent to the assignment of this Lease or the subletting ofthe Leased Premises. Any assignment or sublease consented to by Landlord shall not relieve Tenant (or its assignee) from obtaining Landlord's consent to any subsequent assignment or sublease.

(b)

By way of example and not limitation, Landlord shall be deemed to have reasonably withheld consent to a proposed assignment or sublease if in Landlord's opinion (i) the Leased Premises are or may be in any way adversely affected; (ii) the business reputation of the proposed assignee or subtenant is unacceptable; (iii) the financial worth of the proposed assignee or subtenant is insufficient to meet the obligations hereunder, or (iv) the prospective assignee or subtenant is a current tenant at the Park or is a bona-fide third-party prospective tenant. Landlord further expressly reserves the right to refuse to give its consent to any subletting if the proposed rent is publicly advertised to be less than the then current rent for similar premises in the Building. If Landlord refuses to give its consent to any proposed assignment or subletting, Landlord may, at its option, within thirty (30) days after receiving a request to consent, terminate this Lease by giving Tenant thirty (30) days' prior written notice of such termination, whereupon each party shall be released from all further obligations and liability hereunder, except those which expressly survive the termination of this Lease.

(c)

If Tenant shall make any assignment or sublease, with Landlord's consent, for a rental in excess of the rent payable under this Lease, Tenant shall pay to Landlord all of any such excess rental upon receipt. Tenant agrees to pay Landlord $500.00 upon demand by Landlord for reasonable accounting and attorneys' fees incurred in conjunction with the processing and documentation of any requested assignment, subletting or any other hypothecation of this Lease or Tenant's interest in and to the Leased Premises as consideration for Landlord's consent.

Section 11.02 . Permitted Transfer . Notwithstanding anything to the contrary contained in Section 11.01 above, Tenant shall have the right, without Landlord's consent, but upon ten (I0) days' prior notice to Landlord, to (a) sublet all or part of the Leased Premises to any related corporation or other entity which controls Tenant, is controlled by Tenant or is under common control with Tenant; (b) assign all or any part of this Lease to any related corporation or other entity which controls Tenant, is controlled by Tenant, or is under common control with Tenant, or to a successor entity into which or with which Tenant is merged or consolidated or which acquires substantially all of Tenant's assets or property; or (c) effectuate any public offering of Tenant's stock on the New York Stock Exchange or in the NASDAQ over the counter market, provided that in the event of a transfer pursuant to clause (b), the tangible net worth after any such transaction is not less than the tangible net worth of Tenant as of the date hereof and provided further that such successor entity assumes all of the obligations and liabilities of Tenant (any such entity hereinafter referred to as a "Permitted Transferee"). For the purpose of this Article II, (i) "control" shall mean ownership of not less than fifty percent (50%) of all voting stock or legal and equitable interest in such corporation or entity, and (ii) "tangible net worth" shall mean the excess of the value of tangible assets (i.e. assets excluding those which are intangible such as goodwill, patents and trademarks) over liabilities. Any such transfer shall not relieve Tenant of its obligations under this Lease.

Nothing in this paragraph is intended to nor shall permit Tenant to transfer its interest under this Lease as part of a fraud or subterfuge to intentionally avoid its obligations under this Lease (for example, transferring its interest to a shell corporation that subsequently files a bankruptcy), and any such transfer shall constitute a Default hereunder. Any change in control of Tenant resulting from a merger, consolidation, or a transfer of partnership or membership interests, a stock transfer, or any sale of substantially all of the assets of Tenant that do not meet the requirements of this Section 11.02 shall be deemed an assignment or transfer that requires Landlord's prior written consent pursuant to Section 11.01 above.

ARTICLE 12 - TRANSFERS BY LANDLORD

Section 12.01 . Sale of the Building . Landlord shall have the right to sell the Building at any time during the Lease Term, subject only to the rights of Tenant hereunder; and such sale shall operate to release Landlord from liability hereunder that arises or accrues after the date of such conveyance. This release shall not apply to the Security Deposit unless Landlord transfer the Security Deposit to its successor, who acknowledges receipt of same in writing to Tenant.

Section 12.02 . Estoppel Certificate . Within ten ( 1 0) days following receipt of a written request from Landlord, Tenant shall execute and deliver to Landlord, without cost to Landlord, an estoppel certificate in such fonn as Landlord may reasonably request certifying (a) that this Lease is in full force and effect and unmodified or stating the nature of any modification, (b) the date to which rent has been paid, (c) that there are not, to Tenant's knowledge, any uncured defaults or specifying such defaults if any are claimed, and (d) any other matters or state of facts reasonably required respecting the Lease. Such estoppel may be relied upon by Landlord and by any purchaser or mortgagee of the Building.

Section 12.03 . Subordination . This Lease is and shall be expressly subject and subordinate at all times to the lien of any present or future mortgage or deed of trust encumbering fee title to the Leased Premises. If any such mortgage or deed of trust be foreclosed, upon request of the mortgagee or beneficiary ("Landlord's Mortgagee"), as the case may be, Tenant will attorn to the purchaser at the foreclosure sale. The foregoing provisions are declared to be self-operative and no further instruments shall be required to effect such subordination and/or attornment; provided, however, that subordination of this Lease to any present or future mortgage or trust deed shall be conditioned upon the mortgagee, beneficiary, or purchaser at foreclosure, as the case may be agreeing that Tenant's occupancy of the Leased Premises and other rights under this Lease shall not be disturbed by reason of the foreclosure of such mortgage or trust deed, as the case may be, so long as Tenant is not in default under this Lease. Within ten (1 0) days following receipt of a written request from Landlord, Tenant shall execute and deliver to Landlord, without cost, any instrument that Landlord deems reasonably necessary or desirable to confirm the subordination of this Lease.

ARTICLE 13 - DEFAULT AND REMEDY

Section 13.01 . Default . The occurrence of any of the following shall be a "Default":

(a)

Tenant fails to pay any Monthly Rental Installments or Additional Rent (i) within five (5) business days following written notice from Landlord on the first occasion in any twelve (12) month period, or (ii) within five (5) business days after the same is due on any subsequent occasion within said twelve ( 12) month period. Tenant hereby expressly waives any additional notice required under §83.20 of the Florida Statutes.

(b)

Tenant fails to perform or observe any other term, condition, covenant or obligation required under this Lease for a period of thirty (30) days after written notice thereof from Landlord;

provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required to cure, then such default shall be deemed to have been cured if Tenant commences such performance within said thirty (30) day period and thereafter diligently completes the required action within a reasonable time.

(c)

Tenant shall vacate or abandon the Leased Premises, or fail to occupy the Leased Premises or any substantial portion thereof for a period of thirty (30) days, unless Tenant continues to timely pay all Monthly Rental Installments and Additional Rent as it comes due.

(d)

Tenant shall assign or sublet all or a portion of the Leased Premises in contravention of the provisions of Article 11 of this Lease.

(e)

All or substantially all of Tenant's assets in the Leased Premises or Tenant's interest in this Lease are attached or levied under execution (and Tenant does not discharge the same within sixty (60) days thereafter); a petition in bankruptcy, insolvency or for reorganization or arrangement is filed by or against Tenant (and Tenant fails to secure a stay or discharge thereof within sixty (60) days thereafter); Tenant is insolvent and unable to pay its debts as they become due; Tenant makes a general assignment for the benefit of creditors; Tenant takes the benefit of any insolvency action or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its assets if such receivership has not been vacated or set aside within thirty (30) days thereafter; or, dissolution or other termination of Tenant's corporate charter if Tenant is a corporation.

Section 13.02 . Remedies . Upon the occurrence of any Default, Landlord shall have the following rights and remedies, in addition to those stated elsewhere in this Lease and those allowed by law or in equity, any one or more of which may be exercised without further notice to Tenant:

(a)

Landlord may re-enter the Leased Premises and cure any Default of Tenant, and Tenant shall reimburse Landlord as Additional Rent for any reasonable costs and expenses that Landlord thereby incurs; and Landlord shall not be liable to Tenant for any loss or damage that Tenant may sustain by reason of Landlord's action.

(b)

Landlord may terminate this Lease by giving Tenant notice of termination, in which event this Lease shall expire and terminate on the date specified in such notice of termination and all rights of Tenant under this Lease and in and to the Leased Premises shall terminate. Tenant shall remain liable for all obligations under this Lease arising up to the date of such termination, and Tenant shall surrender the Leased Premises to Landlord on the date specified in such notice. Furthermore, Tenant shall be liable to Landlord for the unamortized balance of any leasehold improvement allowance and brokerage fees paid in connection with the Lease.

(c)

Without terminating this Lease, Landlord may terminate Tenant's right to possession of the Leased Premises, and thereafter, neither Tenant nor any person claiming under or through Tenant shall be entitled to possession of the Leased Premises. In such event, Tenant shall immediately surrender the Leased Premises to Landlord, and Landlord may re-enter the Leased Premises and dispossess Tenant and any other occupants of the Leased Premises by any lawful means and may remove their effects, without prejudice to any other remedy that Landlord may have. Upon termination of possession, Landlord may re-let all or any part thereof as the agent of Tenant for a term different from that which would otherwise have constituted the balance of the Lease Term and for rent and on terms and conditions different from those contained herein, whereupon Tenant shall be immediately obligated to pay to Landlord an amount equal to (i) the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the Leased Premises, for the period which would otherwise have constituted the balance of the Lease Term had this Lease not been terminated (said period

being referred to herein as the "Remaining Term"), (ii) the costs of recovering possession of the Leased Premises and all other expenses, loss or damage incurred by Landlord by reason of Tenant's Default ("Default Damages"), which shall include, without limitation, reasonable expenses of preparing the Leased Premises for re-letting, demolition, repairs, tenant finish improvements, brokers' commissions and attorneys' fees, and (iii) all unpaid Minimum Annual Rent and Additional Rent that accrued prior to the date of termination of possession, plus any interest and late fees due hereunder (the "Prior Obligations"). Neither the filing of any dispossessory proceeding nor an eviction of personalty in the Leased Premises shall be deemed to terminate the Lease.

(d)

Landlord may terminate this Lease and recover from Tenant all damages Landlord may incur by reason of Tenant's default, including, without limitation, an amount which, at the date of such termination is equal to the sum of the following: (i) the value of the excess, if any, discounted at the prime rate of interest (as reported in the Wall Street Journal), of (A) the Minimum Annual Rent, Additional Rent and all other sums that would have been payable hereunder by Tenant for the Remaining Term, less (B) the aggregate reasonable rental value of the Leased Premises for the Remaining Term, as determined by a real estate broker licensed in the State of Florida who has at least ten (1 0) years of experience, (ii) all of Landlord's Default Damages, and (iii) all Prior Obligations. Landlord and Tenant acknowledge and agree that the payment of the amount set forth in clause (i) above shall not be deemed a penalty, but shall merely constitute payment of liquidated damages, it being understood that actual damages to Landlord are extremely difficult, if not impossible, to ascertain. It is expressly agreed and understood that all of Tenant's liabilities and obligations set forth in this subsection (d) shall survive termination.

(e)

Intentionally omitted.

(f)

Landlord may sue for injunctive relief or to recover damages for any loss resulting from _{the Default.}

(g)

If Landlord terminates this Lease or Tenant's right to possession, Landlord's duty to mitigate its damages under this Lease shall be as follows: (i) Landlord shall be required only to use reasonable efforts to mitigate, which shall not exceed such efforts as Landlord generally uses to lease other space in the Building, (ii) Landlord will not be deemed to have failed to mitigate if Landlord leases any other portions of the Building before reletting all or any portion of the Leased Premises, and (iii) Landlord shall not be deemed to have failed to mitigate if it incurs costs and expenses for repairs, maintenance, changes, alterations and improvements to the Leased Premises (whether to prevent damage or to prepare the Leased Premises for reletting), brokerage commissions, advertising costs, attorneys' fees, any economic incentives given to replacement tenants, and costs of collecting rent from replacement tenants. In recognition that the value of the Building depends on the rental rates and terms of leases therein, Landlord's rejection of a prospective replacement tenant based on an offer of rentals below Landlord's published rates for new leases of comparable space at the Building at the time in question, or at Landlord's option, below the rates provided in this Lease, or containing terms less favorable than those contained herein, shall not give rise to a claim by Tenant that Landlord failed to mitigate Landlord's damages. Tenant shall bear the burden of proving Landlord's failure to mitigate.

Section 13.03 . Landlord's Default and Tenant's Remedies . Landlord shall be in default if it fails to perform any term, condition, covenant or obligation required under this Lease for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within thirty (30) days, such default shall be deemed to have been cured if Landlord commences such performance within said thirty-day period and thereafter diligently undertakes to complete the same. Upon the occurrence of any such default, Tenant may sue for injunctive relief or to recover damages for

any loss directly resulting from the breach, but Tenant shall not be entitled to terminate this Lease or withhold, offset or abate any sums due hereunder. As to Landlord's maintenance and repair obligations hereunder inside the Leased Premises, if Landlord has not cured or commenced to cure a maintenance or repair default set forth in said notice from Tenant within said 30-day period, Tenant may undertake all reasonable action to cure Landlord's failure of performance. If Tenant elects to cure said default, Tenant shall, prior to commencement of said work, provide to Landlord a specific description of the work to be performed by Tenant and the name of Tenant's contractor. Any materials used shall be of equal or better quality than currently exists in the Building and Tenant's contractor shall be adequately insured and of good reputation. Landlord agrees to reimburse Tenant on demand for all reasonable, third party out-of pocket expenses incurred by Tenant in connection therewith, provided that Tenant delivers to Landlord adequate bills or other supporting evidence substantiating said cost. In no event, however, shall Landlord be liable to Tenant for any consequential or punitive damages.

Section 13.04 . Limitation of Landlord's Liability . If Landlord shall fail to perform any term, condition, covenant or obligation required to be performed by it under this Lease and if Tenant shall, as a consequence thereof, recover a money judgment against Landlord, Tenant agrees that it shall look solely to Landlord's right, title and interest in and to the Building including any net proceeds of the sale or refinancing (after paying off any encumbrances) received within the twelve month period prior to date Tenant's claim was filed, and any insurance proceeds or condemnation awards not applied to the reconstruction or restoration of the Building or the Leased Premises for the collection of such judgment; and Tenant further agrees that no other assets of Landlord shall be subject to levy, execution or other process for the satisfaction of Tenant's judgment.

Section 13.05 . Nonwaiver of Defaults . Neither party's failure or delay in exercising any of its rights or remedies or other provisions of this Lease shall constitute a waiver thereof or affect its right thereafter to exercise or enforce such right or remedy or other provision. No waiver of any default shall be deemed to be a waiver of any other default. Landlord's receipt of less than the full rent due shall not be construed to be other than a payment on account of rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction. No act or omission by Landlord or its employees or agents during the Lease Term shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord.

Section 13.06 . Attorneys' Fees . If either party defaults in the performance or observance of any of the terms, conditions, covenants or obligations contained in this Lease and the non-defaulting party obtains a judgment against the defaulting party, then the defaulting party agrees to reimburse the non defaulting party for reasonable attorneys' fees incurred in connection therewith. In addition, if a monetary Default shall occur and Landlord engages outside counsel to exercise its remedies hereunder, and then Tenant cures such monetary Default, Tenant shall pay to Landlord, on demand, all expenses incurred by Landlord as a result thereof, including reasonable attorneys' fees, court costs and expenses actually incurred.

ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT

INTENTIONALLY OMITTED.

ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES

Section 15.01 . Environmental Definitions.

(a)

"Environmental Laws" shall mean all present or future federal, state and municipal laws, ordinances, rules and regulations applicable to the environmental and ecological condition of the Leased Premises, and the rules and regulations of the Federal Environmental Protection Agency and any other federal, state or municipal agency or governmental board or entity having jurisdiction over the Leased Premises.

(b)

"Hazardous Substances" shall mean those substances included within the definitions of "hazardous substances," "hazardous materials," "toxic substances" "solid waste" or "infectious waste" under Environmental Laws and petroleum products.

Section 15.02 . Restrictions on Tenant . Tenant shall not cause or permit the use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Substances on, under or about the Leased Premises, or the transportation to or from the Leased Premises of any Hazardous Substances, except as necessary and appropriate for its Permitted Use in which case the use, storage or disposal of such Hazardous Substances shall be performed in compliance with the Environmental Laws.

Section 15.03 . Notices, Affidavits, Etc . Tenant shall immediately (a) notify Landlord of (i) any violation by Tenant, its employees, agents, representatives, customers, invitees or contractors of any Environmental Laws on, under or about the Leased Premises, or (ii) the presence or suspected presence of any Hazardous Substances on, under or about the Leased Premises, and (b) deliver to Landlord any notice received by Tenant relating to (a)(i) and (a)(ii) above from any source. Tenant shall execute affidavits, representations and the like within five (5) days of Landlord's request therefor concerning Tenant's best knowledge and belief regarding the presence of any Hazardous Substances on, under or about the Leased Premises.

Section 15.04 . Tenant's Indemnification . Tenant shall indemnify Landlord and Landlord's managing agent from any and all claims, losses, liabilities, costs, expenses and damages, including attorneys' fees, costs of testing and remediation costs, incurred by Landlord in connection with any breach by Tenant of its obligations under this Article 15 . The covenants and obligations under this Article 15 shall survive the expiration or earlier termination of this Lease.

Section 15.05 . Existing Conditions . Notwithstanding anything contained in this Article 15 to the contrary, Tenant shall not have any liability to Landlord under this Article 15 resulting from any conditions existing, or events occurring, or any Hazardous Substances existing or generated, at, in, on, under or in connection with the Leased Premises prior to the Commencement Date of this Lease (or any earlier occupancy of the Leased Premises by Tenant) except to the extent Tenant exacerbates the same.

ARTICLE 16 - MISCELLANEOUS

Section 16.01 . Benefit of Landlord and Tenant . This Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective successors and assigns.

Section 16.02 . Governing Law . This Lease shall be governed in accordance with the laws of the State where the Building is located.

Section 16.03 . Force Majeure . Landlord and Tenant (except with respect to the payment of any monetary obligation) shall be excused for the period of any delay in the performance of any obligation hereunder when such delay is occasioned by causes beyond its control, including but not limited to work stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment, labor or energy; unusual weather conditions; or acts or omissions of governmental or political bodies.

Section 16.04 . Examination of Lease . Submission of this instrument by Landlord to Tenant for examination or signature does not constitute an offer by Landlord to lease the Leased Premises. This Lease shall become effective, if at all, only upon the execution by and delivery to both Landlord and Tenant. Execution and delivery of this Lease by Tenant to Landlord constitutes an offer to lease the Leased Premises on the terms contained herein.

Section 16.05 . I ndemnification for Leasing Commissions . The parties hereby represent and warrant that the only real estate brokers involved in the negotiation and execution of this Lease are the Brokers and that no other party is entitled, as a result of the actions of the respective party, to a commission or other fee resulting from the execution of this Lease. Each party shall indemnify the other from any and all liability for the breach ofthis representation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto. Landlord shall pay any commissions due Brokers based on this Lease pursuant to separate agreements between Landlord and Brokers.

Section 16.06 . Notices . Any notice required or permitted to be given under this Lease or by law shall be deemed to have been given if it is written and delivered in person or by overnight courier or mailed by certified mail, postage prepaid, to the party who is to receive such notice at the address specified in Section 1.01 (1) . If sent by overnight courier, the notice shall be deemed to have been given one (1) day after sending. If mailed, the notice shall be deemed to have been given on the date that is three (3) business days following mailing. Either party may change its address by giving written notice thereof to the other party.

Section 16.07 . Partial Invalidity; Complete Agreement . If any provision ofthis Lease shall be held to be invalid, void or unenforceable, the remaining provisions shall remain in full force and effect. This Lease represents the entire agreement between Landlord and Tenant covering everything agreed upon or understood in this transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof or in effect between the parties. No change or addition shall be made to this Lease except by a written agreement executed by Landlord and Tenant.

Section 16.08 . Financial Statements . During the Lease Term and any extensions thereof, Tenant shall provide to Landlord on an annual basis, within ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's most recent financial statements prepared as of the end of Tenant's fiscal year. Such financial statements shall be signed by Tenant or an officer of Tenant, if applicable, who shall attest to the truth and accuracy of the information set forth in such statements, or if the Minimum Annual Rent hereunder exceeds $100,000.00, said statements shall be certified and, if available, audited. All financial statements provided by Tenant to Landlord hereunder shall be prepared in conformity with generally accepted accounting principles ("GAAP"), consistently applied, but only if Tenant utilizes GAAP in the normal preparation of its financial statements.

Section 16.09 . Representations and Warranties.

(a)

Tenant hereby represents and warrants that (i) Tenant is duly organized, validly existing and in good standing (if applicable) in accordance with the laws of the State under which it was

organized; (ii) Tenant is authorized to do business in the State where the Building is located; and (iii) the individual(s) executing and delivering this Lease on behalf of Tenant has been properly authorized to do so, and such execution and delivery shall bind Tenant to its terms.

(b)

Landlord hereby represents and warrants that (i) Landlord is duly organized, validly existing and in good standing (if applicable) in accordance with the laws of the State under which it was organized; (ii) Landlord is authorized to do business in the State where the Building is located; and (iii) the individual(s) executing and delivering this Lease on behalf of Landlord has been properly authorized to do so, and such execution and delivery shall bind Landlord to its terms.

Section 16.1 0 . Signage . Tenant may, at its own expense, erect a sign concerning the business of Tenant that shall be in keeping with the decor and other signs on the Building. All signage (including the signage described in the preceding sentence) in or about the Leased Premises shall be first approved by Landlord and shall be in compliance with any codes and recorded restrictions applicable to the sign or the Building. The location, size and style of all signs shall be approved by Landlord. Tenant agrees to maintain any sign in good state of repair, and upon expiration of the Lease Term, Tenant agrees to promptly remove such signs and repair any damage to the Leased Premises.

Section 16.11 . Parking . Tenant shall be entitled to the non-exclusive use of the parking spaces designated for the Building by Landlord. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of the parking facilities. Landlord reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded and, in such event, to allocate parking spaces between Tenant and other tenants; provided, however that in no event shall fewer than fifty (50) parking spaces be available to Tenant. There will be no assigned parking unless Landlord, in its sole discretion, deems such assigned parking advisable. No vehicle may be repaired or serviced in the parking area and any vehicle brought into the parking area by Tenant, or any of Tenant's employees, contractors or invitees, and deemed abandoned by Landlord will be towed and all costs thereof shall be borne by Tenant. All driveways, ingress and egress, and all parking spaces are for the joint use of all tenants. There shall be no parking permitted on any of the streets or roadways located within the Park. In addition, Tenant agrees that its employees will not park in the spaces designated visitor parking. Landlord and Tenant acknowledge and agree that Tenant shall have the right, at Tenant's sole risk, to park its company trucks and other vehicles overnight in the truck loading area serving the Leased Premises, so long as such parking is in compliance with all applicable laws, codes and ordinances.

Section 16.12 . Consent or Approval . Where the consent or approval of a party is required, such consent or approval will not be unreasonably withheld, conditioned or delayed.

Section 16.13 . Time . Time is of the essence of each term and provision of this Lease.

Section 16.14 . Patriot Act . Each of Landlord and Tenant, each as to itself, hereby represents its compliance and its agreement to continue to comply with all applicable anti-money laundering laws, including, without limitation, the USA Patriot Act, and the laws administered by the United States Treasury Department's Office of Foreign Assets Control, including, without limitation, Executive Order 13224 ("Executive Order"). Each of Landlord and Tenant further represents (such representation to be true throughout the Lease Term) (a) that it is not, and it is not owned or controlled directly or indirectly by any person or entity, on the SON List published by the United States Treasury Department's Office of Foreign Assets Control and (b) that it is not a person otherwise identified by government or legal authority as a person with whom a U.S. Person is prohibited from transacting business. As of the date hereof, a list of such designations and the text of the Executive Order are published under the website address www.ustreas.gov/offices/enforcement/ofac.

Section 16.15 . Radon Gas . Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit.

ARTICLE 17 - SPECIAL STIPULATIONS

Section 17.01 . Termination of Preceding Lease . Landlord, as successor in interest to Premier Gateway Center at Quantum LLP, and Tenant heretofore entered into that certain Lease Agreement dated May 29, 2002, as amended by that certain Lease Amendment No. 1 dated August 14, 2002, and as supplemented by that certain Clarification of Lease Terms dated November 12, 2002, and as amended by that certain Lease Amendment No. 2 dated August 1, 2008, and as amended by that certain Lease Amendment No.3 dated May 1, 2009 (as so amended, the "Preceding Lease"). Landlord and Tenant acknowledge and agree that as of the Commencement Date hereunder, this Lease shall supercede the Preceding Lease in its entirety and that as of the Commencement Date hereunder, the Preceding Lease shall be null and void and of no further force or effect, except with respect to any provisions thereunder that expressly survive such termination.

Section 17.02 . Tenant Allowance . Landlord and Tenant acknowledge and agree that Tenant intends to construct and install certain improvements within the Leased Premises (the "Tenant Alterations"). Within thirty (30) days following the full execution of this Lease, Landlord shall pay to Tenant an amount equal to Twenty-Five Thousand Five Hundred Forty-One and No/100 Dollars ($25,541.00) (the "Allowance") for the construction and installation ofthe Tenant Alterations. Tenant acknowledges and agrees that the construction and installation of the Tenant Alterations shall be performed in accordance with Section 7.03 of this Lease.

Section 17.03 . Options to Extend.

(a)

Grant and Exercise of Option. Provided that (i) no default has occurred and is then continuing, and (ii) Tenant originally named herein or its Permitted Transferee remains in possession of the Leased Premises, Tenant shall have the option to extend the Lease Term for two (2) additional periods of five (5) years each (each an "Extension Term"). Each Extension Term shall be upon the same terms and conditions contained in the Lease except (x) this provision giving two (2) extension options shall be amended to reflect the remaining options to extend, if any, (y) any improvement allowances or other concessions applicable to the Leased Premises under the Lease shall not apply to the Extension Term, and (z) the Minimum Annual Rent shall be adjusted as set forth below (the "Rent Adjustment"). Tenant shall exercise each option by delivering to Landlord, no later than one hundred eighty (180) days prior to the expiration of the preceding term, written notice of Tenant's desire to extend the Lease Term. Tenant's failure to timely exercise such option shall be deemed a waiver of such option and any succeeding option. Landlord shall notify Tenant of the amount of the Rent Adjustment no later than ninety (90) days prior to the commencement of the Extension Term. Tenant shall be deemed to have accepted the Rent Adjustment if it fails to deliver to Landlord a written objection thereto within five (5) business days after receipt thereof. If Tenant properly exercises its option to extend, Landlord and Tenant shall execute an amendment to the Lease (or, at Landlord's option, a new lease on the form then in use for the Building) reflecting the terms and conditions of the Extension Term within thirty (30) days after Tenant's acceptance (or deemed acceptance) of the Rent Adjustment.

(b)

Rent Adjustment. The Minimum Annual Rent for the applicable Extension Term shall be ninety-eight percent (98%) of the fair market rent rate as reasonably determined by Landlord based on the monthly rent charged to prospective renewing tenants for the Building and comparable buildings (e.g.,

buildings of comparable age, physical condition, number of stories, total size, comparable location) in the area in which the Leased Premises are located, taking into account all financial terms, including without limitation, base rent, free rent, escalations, work contributions and allowances and leasing and brokerage commissions; provided, however, that in no event shall the Minimum Annual Rent during any Extension Term be less than the highest Minimum Annual Rent payable during the immediately preceding term. The Monthly Rental Installments shall be an amount equal to one-twelfth (1112) of the Minimum Annual Rent for the Extension Term and shall be paid at the same time and in the same manner as provided in the Lease. Without limiting the foregoing, if Tenant delivers to Landlord a written objection to Landlord's calculation of the Rent Adjustment within five (5) business days after Tenant's receipt of Landlord's determination of the Rent Adjustment, and the parties cannot agree on a Rent Adjustment within ten (10) days after Tenant's written objection then Tenant may retract its exercise of its option to extend, or Tenant may choose arbitration to determine the Rent Adjustment. If Tenant chooses arbitration, Tenant shall give Landlord written notice of its desire to seek arbitration within three (3) days after expiration of such ten (10) day period ("Arbitration Notice"). Within ten (10) days after Tenant provides Landlord with its Arbitration Notice, the parties shall each appoint an appraiser to determine the Rent Adjustment for the Leased Premises. Each appraiser so selected shall be either a MAI appraiser or a licensed real estate broker, each having at least ten (10) years prior experience in the appraisal or leasing of comparable space in the metropolitan area in which the Leased Premises are located and with a working knowledge of current rental rates and practices. If the two appraisers cannot agree upon the Rent Adjustment for the Leased Premises within twenty (20) days after their appointment, then, within ten (I 0) days after the expiration of such twenty (20) day period, the two appraisers shall select a third appraiser meeting the above criteria. Once the third appraiser has been selected as provided for above, then such third appraiser shall within ten (1 0) days after appointment make its determination of the Rent Adjustment. The average of the two closest determinations of the Rent Adjustment shall be used as the Minimum Annual Rent for the applicable Extension Term and shall be binding on both Landlord and Tenant. Landlord and Tenant shall each bear the cost of its appraiser and shall share the cost of the third. If Tenant fails to provide the Arbitration Notice as provided above, then Tenant's exercise of its option to extend shall be deemed retracted.

Section 17.04 . Right of First Offer.

(a)

Provided that (i) no default has occurred and is then continuing, (ii) the creditworthiness of Tenant is then reasonably acceptable to Landlord, and (iii) Tenant originally named herein or its Permitted Transferee remains in possession of the Leased Premises, and subject to any rights of other tenants to the Offer Space (as defined herein) and Landlord's right to renew or extend the lease term of any other tenant with respect to the portion of the Offer Space now or hereafter leased by such other tenant, Landlord shall, before entering into a lease with a third party for the space located in the Building contiguous to the Leased Premises as shown on the attached Exhibit E (the "Offer Space"), notify Tenant in writing of the availability of the Offer Space for leasing and setting forth the terms and conditions upon which Landlord is willing to lease the Offer Space to Tenant ("Landlord's Notice"). Tenant shall have five (5) business days from its receipt of Landlord's Notice to deliver to Landlord a written notice agreeing to lease the Offer Space on the terms and conditions contained in Landlord's Notice ("Tenant's Acceptance"). In the event Tenant fails to deliver Tenant's Acceptance to Landlord within said five (5)business day period, such failure shall be conclusively deemed a rejection of the Offer Space and a waiver by Tenant of this right of first offer, whereupon Tenant shall have no further rights with respect to the Offer Space and Landlord shall be free to lease the Offer Space to a third party.

(b)

In the event that Tenant exercises its right of first offer in the first twenty-four (24) months of the Lease Term, the Offer Space shall be offered to Tenant at the rental rate per square foot (including periodic escalations) in effect with respect to the then existing Leased Premises ("Existing Premises") as of the commencement of the term for the Offer Space and upon the other terms and

conditions as are set forth in this Lease, including a tenant improvement allowance equal to a rate per square foot used to determine the Allowance granted under this Lease prorated for the number of months remaining in the Lease Term for the Existing Premises and two (2) months of free Monthly Rental Installments for the Offer Space.

(c)

In the event that Tenant exercises its right of first offer after the first twenty-four (24) months of the Lease Term, the term for the Offer Space shall be coterminous with the term for the original Leased Premises; provided, however, that the minimum term for the Offer Space shall be five (5) years and the term for the Existing Premises shall be extended, if necessary, to be coterminous with the term for the Offer Space. If the Lease Term for the Existing Premises is extended as provided above, the Minimum Annual Rent for such extension term shall be an amount equal to the Minimum Annual Rent then being quoted by Landlord to prospective renewing tenants of the Building for space of comparable size and quality and with similar or equivalent improvements as are found in the Building, and if none, then in similar buildings in the vicinity; provided, however, that in no event shall the Minimum Annual Rent during such extension term be less than the highest Minimum Annual Rent payable during the immediately preceding term.

(d)

lf Tenant properly exercises its right of first offer, Landlord and Tenant shall enter into an amendment to this Lease adding the Offer Space to the Leased Premises upon the terms and conditions set forth herein and making such other modifications to this Lease as are appropriate under the circumstances. If Tenant shall fail to enter into such amendment within ten (1 0) days following Tenant's Acceptance, then Landlord may terminate this right of first offer by notifying Tenant in writing, in which event Tenant shall have no further rights with respect to the Offer Space and Landlord shall be free to lease the Offer Space to a third party.

Section 17.05 . Quiet Enjoyment . So long as Tenant has not committed a Default hereunder that remains uncured, Landlord agrees that Tenant shall have the right to quietly use, possess and enjoy the Leased Premises for the Lease Term, without hindrance by anyone claiming by, through or under Landlord.

[SIGNATURES FOLLOW ON NEXT PAGE]

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written.


			_LANDLORD:

WITNESSES:			DUKE PGC AT QUANTUM 1-9, LLC,
			a Delaware limited liability company

/s/ Ana M. Hernandez			By:	Duke Realty Limited Partnership,
Printed Name:		Ana M. Hernandez		an Indiana limited partnership, its managing
				member

/s/ Nina Sorla				By:	Duke Realty Corporation , an
Printed Name:	Nina Sorla				Indiana corporation, its general
					partner

					By:	/s/ Edward P. Mitchell
						Edward P. Mitchell
						Senior Vice President
						South Florida Operations

Date of execution: 9/28/2012


		TENANT:

WITNESSES:		PURADYN FILTER TECHNOLOGIES INCORPORATED , a Delaware corporation

/s/ Kathryn A. Morris		By:	/s/ Alan J. Sandler
Printed Name:	Kathryn A. Morris		Name:	Alan J. Sandler
			Title:	Vice Pres.

/s/ David Duckworn
Printed Name:	David Duckworn

Date of execution: 9/27/12

_EXHIBITA

SITE PLAN OF LEASE PREMISES

[PFTI_EX10Z13008.GIF]

Exhibit A

Page 1 of 1

EXHIBIT B

INTENTIONALLY OMITTED

Exhibit B

Page 1 of 1

EXHIBIT C

LETTER OF UNDERSTANDING

Duke PGC at Quantum 1-9, LLC

c/o Duke Realty Corporation

Attn.: South Florida Market-V.P., Asset Mgmt. & Customer Service

2400 North Commerce Parkway, Suite 405

Weston, FL 33326

RE:

Lease between Duke PGC at Quantum 1-9, LLC, a Delaware limited liability company
("Landlord") and Puradyn Filter Technologies Incorporated, a Delaware corporation
("Tenant"), dated _______________________2012 (the "Lease") for the premises located at
2017 High Ridge Road, Boynton Beach, Florida 33426 (the "Leased Premises " ), within
Gateway Center at Quantum

Dear ______________________:

The undersigned, on behalf of Tenant, certifies to Landlord as follows:

The Commencement Date under the Lease is August 1, 2013.

The rent commencement date is September 1, 2013.

The expiration date of the Lease is August 31, 2019.

The Lease (including amendments or guaranty, if any) is the entire agreement between Landlord and Tenant as to the leasing of the Leased Premises and is in full force and effect.

Landlord has completed the improvements designated as Landlord's obligation under the Lease (excluding punchlist items as agreed upon by Landlord and Tenant), if any, and Tenant has accepted the Leased Premises as of the Commencement Date .

To the best of the undersigned's knowledge, there are no uncured events of default by either Tenant or Landlord under the Lease.

IN WITNESS WHEREOF, the undersigned has caused this Letter of Understanding to be executed this ___ day of _________________, 20__.

Exhibit C

Page 1 of 2


			TENANT:

			PURADYN FILTER TECHNOLOGIES INCORPORATED , a Delaware corporation

			By:
				Name:
				Title:


			Attest:
				Name:
				Title:




			[Exhibit- Not to be executed]

Exhibit C

Page 2 of 2

EXHIBIT D

RULES AND REGULATIONS

The sidewalks, entrances, driveways and roadways serving and adjacent to the Leased Premises shall not be obstructed or used for any purpose other than ingress and egress. Landlord shall control the Common Areas .

No awnings or other projections shall be attached to the outside walls of the Building . No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Leased Premises other than Landlord standard window coverings without Landlord's prior written approval. All electric ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent, of a quality, type, design and tube color approved by Landlord. Neither the interior nor the exterior of any windows shall be coated or otherwise sunscreened without written consent of Landlord.

No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by any tenant on, about or from any part of the Leased Premises, the Building or in the Common Areas including the parking area without the prior written consent of Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove or stop same without any liability, and may charge the expense incurred in such removal or stopping to tenant.

The sinks and toilets and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose subtenants, assignees or any of their servants, employees, agents, visitors or licensees shall have caused the same.

No boring, cutting or stringing of wires or laying of any floor coverings shall be permitted, except with the prior written consent of Landlord and as Landlord may direct. Landlord shall direct electricians as to where and how telephone or data cabling are to be introduced. The location of telephones, call boxes and other office equipment affixed to the Leased Premises shall be subject to the approval of Landlord.

No bicycles, vehicles, birds or animals of any kind (except seeing eye dogs) shall be brought into or kept in or about the Leased Premises, and no cooking shall be done or permitted by any tenant on the Leased Premises, except microwave cooking, and the preparation of coffee, tea, hot chocolate and similar items for tenants and their employees. No tenant shall cause or permit any unusual or objectionable odors to be produced in or permeate from the Leased Premises.

The Leased Premises shall not be used for manufacturing, unless such use conforms to the zoning applicable to the area, and Landlord provides written consent. No tenant shall occupy or permit any portion of the Leased Premises to be occupied as an office for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or a dance, exercise or music studio, or any type of school or daycare or copy, photographic or print shop or an employment bureau without the express written consent of Landlord. The Leased Premises shall not be used for lodging or sleeping or for any immoral or illegal purpose.

No tenant shall make, or permit to be made any unseemly, excessive or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises or those having

Exhibit D

Page 1 of 3

business with them, whether by the use of any musical instrument, radio, phonograph, unusual noise, or in any other way. No tenant shall throw anything out of doors, windows or down the passageways.

No tenant, subtenant or assignee nor any of its servants, employees, agents, visitors or licensees, shall at any time bring or keep upon the Leased Premises any flammable, combustible or explosive fluid, chemical or substance or firearm.

10.

No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made to existing locks or the mechanism thereof. Each tenant must upon the termination of its tenancy, restore to Landlord all keys of doors, offices, and toilet rooms, either furnished to, or otherwise procured by, such tenant and in the event of the loss of keys so furnished, such tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

11.

No tenant shall overload the floors of the Leased Premises. All damage to the floor, structure or foundation of the Building due to improper positioning of storage items or materials shall be repaired by Landlord at the sole cost and expense of tenant, who shall reimburse Landlord immediately therefor upon demand .

12.

Each tenant shall be responsible for all persons entering the Building at tenant's invitation, express or implied. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of an invasion, mob riot, public excitement or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right without any abatement of rent to require all persons to vacate the Building and to prevent access to the Building during the continuance of the same for the safety of the tenants and the protection of the Building and the property in the Building.

13.

Canvassing, soliciting and peddling in the Building are prohibited, and each tenant shall report and otherwise cooperate to prevent the same.

14.

All equipment of any electrical or mechanical nature shall be placed by tenant in the Leased Premises in settings that will, to the maximum extent possible, absorb or prevent any vibration, noise and annoyance.

15.

There shall not be used in any space, either by any tenant or others, any hand trucks except those equipped with rubber tires and rubber side guards.

16.

The scheduling of tenant move-ins shall be before or after normal business hours and on weekends, subject to the reasonable discretion of Landlord.

17.

The Building is a smoke-free Building. Smoking is strictly prohibited within the Building. Smoking shall only be allowed in areas designated as a smoking area by Landlord. Tenant and its employees, representatives, contractors or invitees shall not smoke within the Building or throw cigar or cigarette butts or other substances or litter of any kind in or about the Building, except in receptacles for that purpose. Landlord may, at its sole discretion, impose a charge against monthly rent of $50.00 per violation by tenant or any of its employees, representatives, contractors or invitees, of this smoking policy.

18 .

Tenants will insure that all doors are securely locked, and water faucets, electric lights and electric machinery are turned off before leaving the Building.

Exhibit D

Page 2 of 3

Tenant, its employees, customers, invitees and guests shall, when using the parking facilities in and around the Building, observe and obey all signs regarding fire lanes and no-parking and driving speed zones and designated handicapped and visitor spaces, and when parking always park between the designated lines. Landlord reserves the right to tow away, at the expense of the owner, any vehicle which is improperly parked or parked in a no-parking zone or in a designated handicapped area, and any vehicle which is left in any parking lot in violation of the foregoing regulation. All vehicles shall be parked at the sole risk of the owner, and Landlord assumes no responsibility for any damage to or loss of vehicles.

20.

Tenant shall be responsible for and cause the proper disposal of medical waste, including hypodermic needles, created by its employees.

21.

Except as otherwise expressly set forth in the Lease, no outside storage is permitted including without limitation the storage of trucks and other vehicles.

22.

No tenant shall be allowed to conduct an auction from the Leased Premises without the prior written consent of Land lord.

It is Landlord's desire to maintain in the Building and Common Areas the highest standard of dignity and good taste consistent with comfort and convenience for tenants. Any action or condition not meeting this high standard should be reported directly to Landlord. Landlord reserves the right to make such other and further rules and regulations as in its judgment may from time to time be necessary for the safety, care and cleanliness of the Building and Common Areas, and for the preservation of good order therein.

Exhibit D

Page 3 of 3

EXHIBIT E

OFFER SPACE

[PFTI_EX10Z13010.GIF]

Exhibit E

Page 1 of 1

Exhibit 31.1

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

I, Joseph V. Vittoria, certify that:


1.	I have reviewed this quarterly report on Form 10-Q for the nine months ended September 30, 2012 of Puradyn Filter Technologies Incorporated;

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

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

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


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

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

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

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


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


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

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

Date: November 19, 2012



	By:	/s/ Joseph V. Vittoria
		Joseph V. Vittoria
		Chairman and Chief Executive Officer, principal executive officer

Exhibit 31.2

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

I, Alan J. Sandler, certify that:


1.	I have reviewed this quarterly report on Form 10-Q for the nine months ended September 30, 2012 of Puradyn Filter Technologies Incorporated;

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

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

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


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

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

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

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


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


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

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

Date: November 19, 2012



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

Exhibit 32.1

Section 1350 certification of Chief Executive Officer

In connection with the quarterly report of Puradyn Filter Technologies Incorporated (the "Company") on Form 10-Q for the nine-month period ended September 30, 2012 as filed with the Securities and Exchange Commission (the "Report"), I, Joseph V. Vittoria, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


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

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

Dated: November 19, 2012



	By:	/s/ Joseph V Vittoria
		Joseph V. Vittoria
		Chairman and Chief Executive Officer,
		principal executive officer

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

Exhibit 32.2

Section 1350 certification of Chief Financial Officer

In connection with the quarterly report of Puradyn Filter Technologies Incorporated (the "Company") on Form 10-Q for the nine-month period ended September 30, 2012 as filed with the Securities and Exchange Commission (the "Report"), I, Alan J. Sandler, Secretary to the Board, Vice President and principal financial officer, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


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

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

Dated: November 19, 2012



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