U.S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

(Mark one)

[x]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                  For the quarterly period ended JUNE 30, 2003

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 (No Fee Required)

           For the transition period from ____________ to ____________


                         Commission file number 0-29192
                       -----------------------------------

                    PURADYN FILTER TECHNOLOGIES INCORPORATED
 -------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)


               Delaware                             14-1708544
               --------                             ----------
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

               2017 High Ridge Road, Boynton Beach, Florida 33426
               --------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number (561) 547-9499
                    -----------------------------------------


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that Puradyn Filter Technologies Incorporated was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [x]  No [ ]

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 15,692,164 shares of common stock
were outstanding as of August 8, 2003.

<PAGE>


                    Puradyn Filter Technologies Incorporated
                    Index to Quarterly Report on Form 10-QSB
<TABLE>
<CAPTION>


<S>               <C>                                                                                                   <C>
Part I.    Financial Information                                                                                     Page

Item 1.           Financial Statements (Unaudited)

                  Condensed Consolidated Balance Sheet - June 30, 2003...........................................       3

                  Condensed Consolidated Statements of Operations - Three months and six months ended
                  June 30, 2003 and 2002.........................................................................       4

                  Condensed Consolidated Statements of Cash Flows - Three months and six months ended
                  June 30, 2003 and 2002.........................................................................       5

                  Notes to Condensed Consolidated Financial Statements......................... .................       6

Item 2.           Management's Discussion and Analysis of Financial Condition and Results of Operations..........      14

Part II.   Other Information

Item 1.           Legal Proceedings..............................................................................      21

Item 2.           Changes in Securities and Use of Proceeds......................................................      22

Item 3.           Default Upon Senior Securities.................................................................      22

Item 4.           Submission of Matters to a Vote of Security Holders.............................................     22

Item 5.           Other Information...............................................................................     22

Item 6.           Exhibits and Reports on Form 8-K................................................................     22

Signatures........................................................................................................     23
</TABLE>

                                       2
<PAGE>



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


                    Puradyn Filter Technologies Incorporated
                      Condensed Consolidated Balance Sheet
                                  June 30, 2003
                                   (Unaudited)
<TABLE>
<CAPTION>

<S>                                                                                <C>
Assets
Current assets:
     Cash and cash equivalents                                                     $    180,879
     Accounts receivable, net of allowance for uncollectible accounts of $20,064        282,083
     Inventories                                                                      1,426,445
     Prepaid expenses and other current assets                                          322,671
                                                                                   ------------
Total current assets                                                                  2,212,078

Property and equipment, net                                                             659,600
Accrued interest receivable - stockholder notes                                          92,840
Deferred financing costs, net                                                           272,650
Other noncurrent assets                                                                 198,584
                                                                                   ------------
Total assets                                                                       $  3,435,752
                                                                                   ============

Liabilities and stockholders' deficit
Current liabilities:
     Accounts payable                                                              $    244,277
     Accrued liabilities                                                                405,505
     Current portion of capital lease obligation                                          5,193
     Deferred revenue                                                                   257,885
                                                                                   ------------
Total current liabilities                                                               912,860

Notes payable to stockholder                                                          3,501,900

Stockholders' deficit:
     Preferred stock, $.001 par value:
         Authorized shares - 500,000; none issued and outstanding                            --
     Common stock, $.001 par value:
         Authorized shares - 30,000,000; 15,692,164 issued and outstanding               15,692
     Additional paid-in capital                                                      31,952,319
     Stockholder notes receivable                                                      (875,256)
     Accumulated deficit                                                            (32,050,786)
     Accumulated other comprehensive loss                                               (20,977)
                                                                                   ------------
Total stockholders' deficit                                                            (979,008)
                                                                                   ------------
Total liabilities and stockholders' deficit                                        $  3,435,752
                                                                                   ============
</TABLE>

See accompanying notes.


                                       3
<PAGE>

                    Puradyn Filter Technologies Incorporated
                 Condensed Consolidated Statements of Operations
            For the Three and Six Months Ended June 30, 2003 and 2002
                                   (Unaudited)
<TABLE>
<CAPTION>

                                          Three Months Ended             Six Months Ended
                                               June 30,                      June 30,
                                          2003            2002           2003            2002
                                     ------------------------------------------------------------

<S>                                  <C>             <C>             <C>             <C>
Net sales                            $    313,036    $    721,986    $  1,065,494    $  1,326,630


Costs and expenses:
        Cost of products sold             478,773         562,042       1,159,698       1,156,783
        Salaries and wages                465,573         433,705         911,592         824,854
        Selling and administrative        496,851         379,948       1,025,022         789,014
                                     ------------------------------------------------------------
                                        1,441,197       1,375,695       3,096,312       2,770,651
                                     ------------------------------------------------------------
Loss from operations                   (1,128,161)       (653,709)     (2,030,818)     (1,444,021)


Other income (expense):
        Investment loss                        --         (87,088)             --         (27,725)
        Interest income                    12,724          12,339          25,448          24,287
        Interest expense                  (81,397)       (109,073)       (144,089)       (140,935)
                                     ------------------------------------------------------------
Total other expense                       (68,673)       (183,822)       (118,641)       (144,373)
                                     ------------------------------------------------------------

Net loss                             $ (1,196,834)   $   (837,531)   $ (2,149,459)   $ (1,588,394)
                                     ============================================================


Basic and diluted loss per common
share                                $      (0.08)   $      (0.05)   $      (0.14)   $      (0.10)
                                     ============================================================

Weighted average common shares
outstanding                            15,683,702      15,576,103      15,673,663      15,561,290
                                     ============================================================
</TABLE>

See accompanying notes.

                                       4
<PAGE>

                    Puradyn Filter Technologies Incorporated
                 Condensed Consolidated Statements of Cash Flows
            For the Three and Six Months Ended June 30, 2003 and 2002
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                       Three Months Ended            Six Months Ended
                                                            June 30,                      June 30,
                                                        2003          2002           2003           2002
                                                    --------------------------------------------------------
<S>                                                 <C>            <C>            <C>            <C>
OPERATING ACTIVITIES
Net cash used in operating activities               $  (779,135)   $(1,033,465)   $(1,923,592)   $(2,376,715)
                                                    --------------------------------------------------------
INVESTING ACTIVITIES
   Proceeds from sales and maturities of
     investments                                             --        435,540             --      5,723,223
   Purchases of property and equipment                  (25,012)       (15,166)       (42,038)       (15,166)
                                                    --------------------------------------------------------
Net cash (used in) provided by investing
     activities                                         (25,012)       420,374        (42,038)     5,708,057
                                                    --------------------------------------------------------
FINANCING ACTIVITIES
   Proceeds from exercise of stock options               30,000         10,950         42,666         97,969
   Proceeds from note payable secured by
     investments                                             --        152,750             --      1,453,250
   Proceeds from notes payable to stockholder           501,900             --      1,501,900             --
   Proceeds from short term loan payable to
     officer                                                 --             --        100,000             --
   Payments on short term loan payable to officer            --             --       (100,000)            --
   Payments on note payable secured by
     investments                                             --       (247,752)            --     (5,434,084)
   Payment of capital lease obligations                  (1,215)        (1,093)        (2,135)        (2,158)
                                                    --------------------------------------------------------
Net cash provided by (used in) financing
     activities                                         530,685        (85,145)     1,542,431     (3,885,023)
                                                    --------------------------------------------------------

Effect of exchange rate changes on cash and cash
     equivalents                                         (5,215)       (34,656)       (28,946)       (28,441)
                                                    --------------------------------------------------------
Decrease in cash and cash equivalents                  (278,677)      (732,892)      (452,145)      (582,122)


Cash and cash equivalents at beginning of period        459,556      1,124,809        633,024        974,039
                                                    --------------------------------------------------------

Cash and cash equivalents at end of period          $   180,879    $   391,917    $   180,879    $   391,917
                                                    ========================================================

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest                              $    36,197    $     3,073    $    58,028    $    34,935
                                                    ========================================================
NONCASH INVESTING AND FINANCING ACTIVITIES
Net unrealized gain (loss) on available-for-sale
     investments                                    $        --    $    23,695    $        --    $    (4,587)
                                                    ========================================================

Warrants issued for deferred financing costs        $        --    $        --    $   212,500    $   318,000
                                                    ========================================================

Common stock options issued in lieu of officer
cash bonus                                          $        --    $        --    $    80,000    $        --
                                                    ========================================================
</TABLE>


See accompanying notes.

                                       5
<PAGE>

                    Puradyn Filter Technologies Incorporated
              Notes to Condensed Consolidated Financial Statements
                                  June 30, 2003
                                   (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-QSB
and Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments consisting of a normal and recurring nature considered necessary for
a fair presentation have been included. Operating results for the three-month
and six-month periods ended June 30, 2003 may not necessarily be indicative of
the results that may be expected for the year ending December 31, 2003.

For further information, refer to Puradyn Filter Technologies Incorporated's
(the Company) consolidated financial statements and footnotes thereto included
in the Form 10-KSB for the year ended December 31, 2002.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical
Corrections (SFAS 145). Among other things, SFAS 145 rescinds various
pronouncements regarding early extinguishments of debt and allows extraordinary
accounting treatment for early extinguishments only when the provisions of APB
30 are met. This statement also amends SFAS 13 to require sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The provisions of SFAS 145 became
effective for the Company on January 1, 2003. The adoption of the new statement
did not have an effect on the Company's financial position or the results of its
operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146), which addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for pursuant to the guidance that the Emerging
Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The scope of
SFAS 146 also includes (1) costs related to terminating a contract that is not a
capital lease and (2) termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual deferred-compensation contract.
SFAS 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption of the new statement did not have an effect on
the Company's financial position or the results of its operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure (SFAS 148). SFAS 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS 123), to provide alternative
methods of transition to SFAS 123's fair value method of accounting for
stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. SFAS 148 does not require companies to account for
employee stock options using the fair value method proscribed by SFAS 123. The
adoption of the new statement did not have an effect on the Company's financial
position or the results of its operations. Additional disclosures required for
interim periods by SFAS 148 are included in this report.

                                       6
<PAGE>

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, (SFAS 149). This statement amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under Statement 133. SFAS 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The guidelines are to be applied prospectively. The provisions of SFAS
149 that relate to Statement 133 implementation issues that have been effective
for fiscal quarters that began prior to June 15, 2003, should continue to be
applied in accordance with their respective effective dates. The adoption of the
new statement did not have an effect on the Company's financial position or the
results of its operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Financial Instruments
with Characteristics of Liabilities, Equity, or Both, (SFAS 150). SFAS 150
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company does not believe that the
adoption of this standard will have a material effect on its financial position
or the results of its operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires that certain guarantees be
initially recorded at fair value, which is different from the general current
practice of recording a liability only when a loss is probable and reasonably
estimable. FIN 45 also requires a guarantor to make significant new disclosures
for virtually all guarantees. The Company adopted the disclosure requirements
under FIN 45 for the year ended December 31, 2002 and will adopt the initial
recognition and initial measurement provisions for any guarantees issued or
modified after December 31, 2002. The adoption of the new interpretation did not
have an effect on the Company's financial position or the results of its
operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51 (FIN 46), which
addresses consolidation of variable interest entities. FIN 46 expands the
criteria for consideration in determining whether a variable interest entity
should be consolidated by a business entity, and requires existing
unconsolidated variable interest entities (which include, but are not limited
to, Special Purpose Entities, or SPEs) to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among parties
involved. This interpretation applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial position or the
results of its operations.

In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on
EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF
00-21). EITF 00-21 addresses certain aspects of the accounting by a company for
arrangements under which it will perform multiple revenue-generating activities.
In applying EITF 00-21, generally, separate contracts with the same customer
that are entered into at or near the same time are presumed to have been
negotiated as a package and should, therefore, be evaluated as a single
contractual arrangement. It also addresses how contract consideration should be
measured and allocated to the separate deliverables in the arrangement. This
pronouncement is applicable to revenue arrangements entered into beginning in
2004. The Company does not believe that the adoption of this pronouncement will
have a material effect on its financial position or the results of its
operations.

                                       7
<PAGE>

Principles of Consolidation

The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Puradyn Filter
Technologies Ltd. All significant inter-company transactions and balances have
been eliminated.

Use of Estimates

The preparation of condensed consolidated 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

SFAS No. 128, 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
2,743,137 and 2,487,178 for the three and six-months ended June 30, 2003 and
2002, respectively.

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.

Inventories consisted of the following at June 30, 2003:

         Raw materials                                       $1,015,323
         Finished goods                                         411,122
                                                             ----------
                                                             $1,426,445
                                                             ==========
Deferred Financing Costs

The Company capitalizes costs related to obtaining financing 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 and totaled approximately $45,000 and $106,000 for
the three-months ended June 30, 2003 and 2002, respectively, and approximately
$83,000 and $106,000 for the six-months ended June 30, 2003 and 2002,
respectively. The deferred financing costs related to the $2.5 million
commitment provided by the Company's stockholder, who is also a director, were
being amortized over the nine-month draw down period ending December 31, 2002.
Upon the first draw in August 2002, the amortization period was extended to 18
months or through December 31, 2003. On March 14, 2003, the Company recorded
additional deferred financing costs of $212,500 related to an additional $3.5
million commitment provided by the same stockholder, with a payback date of
December 31, 2004. The $212,500 of deferred financing costs are being amortized
over the payback period, which is 21.5 months. In addition, the original
commitment was amended to extend the repayment period for the $2.5 million
commitment through December 31, 2004. Effective March 14, 2003, the Company is
amortizing the then remaining deferred financing costs for the $2.5 million
commitment prospectively over the extended payback period (see Note 2).

                                       8
<PAGE>

Stock Option Plans

The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation (FIN 44), and provides pro forma disclosures of the
compensation expense determined under the fair value provisions of SFAS 123. The
Company does not record compensation expense using the fair value provisions,
because the alternative fair value accounting provided for under SFAS 123
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, since the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

The Company leases its employees from a payroll leasing company. The Company's
leased employees meet the definition of employees as specified by FIN 44 for
purposes of applying APB 25.

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 SFAS
123 and EITF 96-18, Accounting for Equity Investments That are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling Goods or Services.
The related expense is recognized over the period the services are provided.

Pro forma information regarding net loss and loss per common share as if the
Company had accounted for its employee stock options under the fair value method
of SFAS 123 is presented below. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                  Three Months Ended June 30,    Six Months Ended June 30,
                                                      2003          2002            2003           2002
                                                  --------------------------------------------------------
<S>                                               <C>            <C>            <C>            <C>
Net loss as reported                              $(1,196,834)   $  (837,531)   $(2,149,459)   $(1,588,394)


Stock-based employee compensation cost
     (intrinsic value method)                              --             --             --             --

Fair value method stock option
     (expense) income                                (262,473)       106,485       (616,918)      (411,484)
                                                  --------------------------------------------------------
Pro forma net loss                                $(1,459,307)   $  (731,046)   $(2,766,377)   $(1,999,878)
                                                  ========================================================

Loss per common share:
  Basic and diluted loss as reported              $     (0.08)   $     (0.05)   $     (0.14)   $     (0.10)
  Basic and diluted loss pro forma                $     (0.09)   $     (0.05)   $     (0.18)   $     (0.13)

Weighted average fair value per option
   granted during the period(1)                   $      2.60    $      3.66    $      1.56    $      3.32
Assumptions:

      Average risk free interest rate                    2.42%          4.00%          1.58%          4.00%
      Average Volatility Factor                         1.261          1.256          1.194          1.256
      Expected Dividend Yield                               0%             0%             0%             0%
      Expected Life (in years)                              5              5           4.43              5

(1)  A Black-Scholes option-pricing model was used to develop the fair
     values of the options granted.
</TABLE>

                                       9
<PAGE>

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 for which collectibility is reasonably assured in accordance with
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). 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.

During the three-months ended March 31, 2003, the Company recognized revenue on
several shipments of product to one of its largest customers. Under the terms of
the arrangement with the customer, the Company received full payment for these
shipments during the three-months ended June 30, 2003. These shipments met the
criteria for revenue recognition under SAB 101 as of March 31, 2003. In August
2003, the Company and the customer mutually agreed that the customer would, at
the customer's cost, return a portion of the shipment to the Company, the
Company would perform certain product enhancements, and the Company would then,
at the customer's cost, ship the enhanced product back to the customer. These
enhancements, which were not required to correct any product quality or
performance issues, will enable the customer to expand and broaden its industry
market targets. As of the date of this filing, the Company has completed the
enhancements on and shipped approximately one half of the returned product to
the customer, and the Company expects to complete the enhancements on and ship
the remainder of the product to the customer before August 31, 2003.

During the three-months ended June 30, 2003, in accordance with the requirements
of SFAS No. 48, Revenue Recognition When Right of Return Exists (SFAS 48) and
SAB 101, the Company has recorded a provision for sales returns of approximately
$146,000, and a corresponding reduction in the cost of products sold of
approximately $107,000, related to the product returned for enhancements. The
Company will recognize revenue and cost of products sold upon shipment of the
enhanced product to the customer, which, as described above, will be completed
during the three-months ended September 30, 2003.

Product Warranty Costs

In connection with the Company's adoption of FASB Interpretation No. 45 (FIN
45), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, the Company is
including the following disclosure applicable to its product warranties.

The Company accrues for warranty costs for the expected material and labor costs
to provide warranty replacement product. The methodology used in determining
liability for warranty cost is based upon historical information and experience.
The Company's warranty reserve is calculated as the gross sales multiplied by
the warranty expense return rate. The Company is currently in the process of
accumulating data for its warranty accrual methodology. As of June 30, 2003,
accrued warranty expense was approximately $52,000, which is included in accrued
liabilities in the accompanying condensed consolidated balance sheet.

Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income (SFAS 130), establishes rules for
reporting and display 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 reported in the
consolidated statement of changes in stockholders' equity. Comprehensive income
transactions that apply to the Company result from changes in the market value
of the available-for-sale investments and changes in exchange rates from
translating the financial statements of the Company's foreign subsidiary.

                                       10
<PAGE>

Comprehensive loss consisted of the following for the three and six-months ended
June 30, 2003 and 2002:
<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED             SIX MONTHS ENDED
                                                      JUNE 30,                      JUNE 30,
                                                2003           2002            2003             2002
                                             --------------------------------------------------------
<S>                                          <C>            <C>            <C>            <C>
Net loss                                     $(1,196,834)   $  (837,531)   $(2,149,459)   $(1,588,394)
                                             --------------------------------------------------------

Other comprehensive income (loss):
   Unrealized loss on available
    for-sale securities                               --        (70,958)            --        (97,872)
   Less:  Reclassification adjustment for
    losses included in net loss                       --         94,653             --         93,285
                                             --------------------------------------------------------
   Net unrealized gain (loss) on
    available-for-sale securities                     --         23,695             --         (4,587)
   Foreign currency translation adjustment        (5,215)       (34,656)       (28,946)       (28,441)
                                             --------------------------------------------------------
Total other comprehensive loss                    (5,215)       (10,961)       (28,946)       (33,028)
                                             --------------------------------------------------------

Comprehensive loss                           $(1,202,049)   $  (848,492)   $(2,178,405)   $(1,621,422)
                                             ========================================================
</TABLE>

Reclassifications

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

2.   ISSUES AFFECTING LIQUIDITY AND MANAGEMENT'S PLANS

The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has sustained losses since its
inception and has used net cash in operations of approximately $1,924,000 and
$2,377,000 during the six-months ended June 30, 2003 and 2002, respectively. As
a result, the Company has had to rely principally on private debt and equity
funding, including the conversion of debt into stock, to fund its activities to
date.

The Company has experienced increased cash flows from 2002 and first quarter
2003 sales activity, however, additional cash will be needed to support
operations. During the first seven months of 2002, the Company sold its
remaining investments, the proceeds of which were used to repay the Company's
loan on investments in April 2002 and to fund operations.

On March 28, 2002, the Company executed a binding agreement with one of its
stockholders, who is also a director, to fund up to $2.5 million through March
31, 2003. Under the terms of the agreement, the Company could draw amounts as
needed in multiples of $500,000 to fund operations subject to Board of Director
approval. Amounts drawn bear interest at the prime rate (4% as of June 30, 2003)
payable monthly and become due and payable on December 31, 2003 or upon a change
in control of the Company or consummation of any other financing over $3
million. In March 2003, the payback date was extended to December 31, 2004. In
consideration for the stockholder entering into this agreement the Company
granted the stockholder 100,000 common stock purchase warrants at an exercise
price equal to the closing market price of the Company's stock on the date of
grant (see Note 3). As of June 30, 2003, the Company had drawn $2.5 million of
the available funds.

On March 14, 2003, the Company executed a second binding agreement with the same
stockholder to fund up to an additional $3.5 million through December 31, 2003.
Under the terms of the second agreement, the Company can draw amounts as needed
in multiples of $500,000 to fund operations subject to Board of Director
approval. Amounts drawn bear interest at the prime rate payable monthly and
become due and payable on December 31, 2004 or upon a change in control of the
Company or consummation of any other financing over $7 million. In
consideration, the Company granted the stockholder 125,000 common stock purchase
warrants at an exercise price equal to the closing market price of the Company's
stock on the date of grant (see Note 3). As of June 30, 2003, the Company had
drawn $1.0 million of the available funds.

                                       11
<PAGE>

Management believes that the commitment received from its stockholder will be
sufficient to sustain the Company's operations through December 31, 2003.
However, if the commitment does not continue to fund for any reason or budgeted
sales levels are not achieved, the Company may have to modify its business plan,
reduce or discontinue some of its operations or seek a buyer for part of its
assets to continue as a going concern through 2003. The Company is contemplating
various other sources of funding such as a private placement, however, there can
be no assurance that the Company will complete a private placement or obtain
additional funding from any other sources.

3. STOCK-BASED COMPENSATION

During the three and six-month periods ended June 30, 2003, the Company
recognized approximately $95,000 and $129,000, respectively, of compensation
expense (under the intrinsic value method), relating to variable option awards
outstanding, which is included in selling and administrative expenses. During
the three and six-month periods ended June 30, 2002, the Company recorded a
credit to operations of approximately $180,000 and $318,000, respectively.

On March 28, 2002, the Company recorded a deferred charge of $318,000 for the
issuance of 100,000 fully vested warrants to purchase common stock relating to a
financing agreement with one of its stockholders, who is also a director, to
fund up to $2.5 million through March 31, 2003 (see Note 2). The fair value of
the deferred charge was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions: risk free interest rate of
4.65%, volatility factors of the expected market price of the Company's common
stock of 1.385, a dividend yield of zero, and a weighted average expected life
of 3 years. The warrants have an exercise price of $4.05. The deferred charge
was initially amortized over the commitment period and subsequently revised to
include the repayment period, which was extended to December 31, 2004.

On March 14, 2003, the Company executed a second binding agreement with the same
stockholder to fund up to an additional $3.5 million through December 31, 2003
(see Note 2). In consideration, the Company granted the stockholder 125,000
common stock purchase warrants. The fair value of the warrants was estimated at
the date of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 1.70%, volatility factors of the
expected market price of the Company's common stock of 1.142, a dividend yield
of zero, and a weighted average expected life of 4 years. The warrants have an
exercise price of $2.25. The estimated fair value of $212,500 was recorded as a
deferred charge and is being amortized through the repayment period, which is
December 31, 2004.

During the six-months ended June 30, 2003 and 2002, employees of the Company
exercised 43,775 and 81,500, respectively of common stock options. The Company
received $42,666 and $98,000, respectively, in proceeds in exchange for the
shares issued. The Company received $20,000 of proceeds in April 2003 related to
stock option exercises that were transacted during the three-month period ended
March 31, 2003.

4. NOTE PAYABLE TO STOCKHOLDER

As of June 30, 2003, the Company has drawn a total of $3,501,900 from two
available lines-of-credit, which are provided by a stockholder, who is also a
director, of the Company (see Notes 2 and 3). Amounts drawn bear interest at the
prime rate (4% as of June 30, 2003) payable monthly and become due and payable
on December 31, 2004 or upon a change in control of the Company or consummation
of any other financing over $3 million for the initial commitment of $2.5
million and over $7 million for both the $2.5 and $3.5 million commitments in
the aggregate. For the three and six-months ended June 30, 2003 and 2002, the
Company recorded approximately $35,000 and zero, and $59,000 and zero,
respectively, of interest expense related to the notes payable to stockholder,
which is included in interest expense in the accompanying condensed consolidated
statements of operations.

                                       12
<PAGE>

5. COMMITMENTS AND CONTINGENCIES

Malt Litigation

In connection with the Company being granted worldwide manufacturing and
marketing rights for certain of the Purifiner products, a royalty agreement was
entered into with a term equal to the life of the related patents or any
improvements thereto. Pursuant to this royalty agreement, the owner of the
patents was to receive 5% of the net unit sale price of all covered Purifiner
products, as defined. Additionally, 1% of the net sales price of replacement oil
filter elements was to be paid as a royalty on certain Puradyn filters for the
use of the U.S. Purifiner trademark. The Company is no longer retaining the
Purifiner patents or trademarks and accordingly is not renewing them upon
expiration.

In May 1994, the Company and the patent owner entered into a settlement
agreement relating to royalties under which the patent owner was entitled to a
minimum annual royalty of $24,000, payable in monthly installments of $2,000. In
February 1997, the patent owner filed an action against the Company for
nonpayment of approximately $20,000 of royalties claimed by him, seeking a
permanent injunction against the Company's manufacturing and selling of the
covered Purifiner products. On March 2, 1999, the trial court ruled that the
patent owner was not entitled to any injunctive relief but was entitled to
$20,169 in past royalties, which the Company paid. The patent owner filed a
motion for additional damages and attorney fees and on December 13, 2000, the
Court found the patent owner was entitled to an additional $15,505. The Company
appealed that judgment but has paid the additional judgment. Thereafter, on
February 22, 2002, the trial court ordered the Company to pay the sum of $18,049
for the patent owner's attorney's fees and court costs, for which the Company
posted a bond in the amount of $22,238 to secure payment. That order was
appealed and combined with the first appeal. On April 24th, 2002, the judgment
for attorney's fees and court costs was reversed. In May 2002, the bond was
discharged and in June 2002, the funds were released to the Company. In April
2003, the patent owner posed two discovery requests, in order to extend the
automatic dismissal of his claim. The Company does not believe the likelihood of
an unfavorable outcome is probable.

In August 2003, the Company agreed to pay severance to a former employee who
resigned in May 2003. An accrual for the severance of $5,000 is recorded in
accrued liabilities in the accompanying condensed consolidated balance sheet.

                                       13
<PAGE>


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

The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Form 10-KSB for the year ended December 31, 2002.

Other than historical and factual statements, the matters and items discussed in
this Quarterly Report on Form 10-QSB are forward-looking statements that involve
risks and uncertainties. Actual results of the Company may differ materially
from the results discussed in the forward-looking statements. Certain factors
that could contribute to such differences are discussed with the forward-looking
statements throughout this report.

General

         The Company was formed in 1987, and was inactive until it commenced
limited operations in 1991 when it obtained worldwide manufacturing and
marketing rights to the Purifiner (R) product, now called the Puradyn By-pass
Oil Filtration System or the "Puradyn" system.

         Through 1997, the Company had minimal revenues from its distribution
network, which caused the Company to change its sales strategy. In 1998, the
Company changed its name from T/F Purifiner, Inc. to Puradyn Filter
Technologies, Incorporated in anticipation of its new business plan. The Company
reduced its workforce and operational overhead in an effort to reduce cash
expenditures until it had sufficient funds to support operations based on its
new sales plan. The Company began to refocus its sales effort toward the
development of commercial relationships with original equipment manufacturers
("OEM's") and companies having medium to large size fleets of vehicles, as well
as the expansion of its international and domestic distribution networks. As
part of this refocus, the Company announced a strategic relationship in
September 2002, with Honeywell's Consumer Products Group, the manufacturer of
FRAM oil filters, under which the Puradyn system will be sold to Honeywell and
co-branded with the FRAM trademark name. The co-branded product will be
distributed through Honeywell's Consumer Products Group's distribution network
to offer a complete filtration system in conjunction with FRAM's full flow
filter so as to significantly reduce both large and small particle contamination
in the lubricating oil. Honeywell's Consumer Products Group also includes the
Prestone(R), Autolite(R) and Holts(R) brands and is a subsidiary of Honeywell,
Inc. There can be no assurance, however, that the Company's sales efforts or
strategic relationships will meet management's expectations or result in
projected revenues.

         The Company's sales effort not only involves educating the potential
customer on the benefits of the Puradyn system, but also allowing the customer
to test the Puradyn system on its fleet vehicles. Consequently the sales cycle
is relatively long. The Company continues to work with several large OEM's and a
large number of companies that have large vehicle fleets to enable them to
evaluate the benefits of the Puradyn system.

         Effective June 1, 2000, the Company formed a wholly owned subsidiary
(Puradyn Filter Technologies, Ltd. "PFTL") in the United Kingdom to sell the
Company's products in Europe, the Middle East and Africa. The subsidiary was the
result of the dissolution of a joint venture (TF Purifiner, Ltd.) the Company
had with Centrax, Ltd. The results of PFTL have been consolidated with the
Company since June 1, 2000.

         The Company directly and/or with the assistance of its sales
representatives, warehouse distributors, dealers or other agents, markets its
products primarily to national accounts. Typically these larger customers, and
some smaller customers, have required an evaluation period, usually ranging from
three to twelve months, to ensure that the Company's products perform as
advertised. Management believes that this evaluation period will continue to be
shortened as the Company's products gain wider acceptance and support from
well-known customers and OEM's. Based on the results from some of the
evaluations and from orders placed, the Company has experienced a significant
increase in revenues in 2002 and the first quarter of 2003; however there can be
no assurance that revenues for the remainder of 2003 or beyond will meet or
exceed management's expectations.

                                       14
<PAGE>

         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 for which collectibility is reasonably
assured in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements. Cash received by the Company prior to
shipment is recorded as deferred revenue. Sales are made to certain 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. Management believes, based on past
experience and future expectations, that such limited return rights and
warranties will not have a material adverse effect on the Company's financial
statements.

         During the three-months ended March 31, 2003, the Company recognized
revenue on several shipments of product to one of its largest customers. Under
the terms of the arrangement with the customer, the Company received full
payment for these shipments during the three-months ended June 30, 2003. These
shipments met the criteria for revenue recognition under SAB 101 as of March 31,
2003. In August 2003, the Company and the customer mutually agreed that the
customer would, at the customer's cost, return a portion of the shipment to the
Company, the Company would perform certain product enhancements, and the Company
would then, at the customer's cost, ship the enhanced product back to the
customer. These enhancements, which were not required to correct any product
quality or performance issues, will enable the customer to expand and broaden
its industry market targets. As of the date of this filing, the Company has
completed the enhancements on and shipped approximately one half of the returned
product to the customer, and the Company expects to complete the enhancements on
and ship the remainder of the product to the customer before August 31, 2003.

         During the three-months ended June 30, 2003, in accordance with the
requirements of SFAS No. 48, Revenue Recognition When Right of Return Exists
(SFAS 48) and SAB 101, the Company has recorded a provision for sales returns of
approximately $146,000, and a corresponding reduction in the cost of products
sold of approximately $107,000, related to the product returned for
enhancements. The Company will recognize revenue and cost of products sold upon
shipment of the enhanced product to the customer, which, as described above,
will be completed during the three-months ended September 30, 2003.

Critical Accounting Policies and Estimates

         The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's condensed 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 the Company to make estimates and judgments that
affect the amounts reported in the financial statements. On an on-going basis,
the Company evaluates its estimates, including those related to product returns,
bad debts, inventories, investments, warranty obligations and contingencies and
litigation. The Company bases its estimates on historical experience and on
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.

         The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.

                                       15
<PAGE>

Revenue Recognition

         Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the provisions issued in SAB No. 101, Revenue
Recognition in Financial Statements. Revenue from product sales to customers,
distributors and resellers is recorded when products that do not require further
services or installation by the Company are shipped, when there are no
uncertainties surrounding customer acceptance and for which collectibility is
reasonably assured. The Company provides for sales returns based on an
historical returns analysis. The estimate is updated for current return activity
and the provision is adjusted accordingly. Should actual returns exceed
management's estimates, the provision may require further adjustment and
accordingly, net sales may decrease.

Allowance for Doubtful Accounts

         The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial conditions of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The Company provides for potential uncollectible
accounts receivable based on customer specific identification and historical
collection experience. If market conditions decline, actual collection
experience may not meet expectations and may result in decreased cash flows and
increased bad debt expense.

Estimation of Product Warranty Cost

         The Company provides for the estimated cost of product warranties at
the time revenue is recognized. The Company accrues for warranty costs for the
expected material and labor costs to provide warranty services. The methodology
used in determining liability for product warranty services was based upon
historical information and experience. The Company's warranty reserve is
calculated as the gross sales volume multiplied by the historical warranty
expense rate. While the Company engages in product quality programs and
processes, including actively monitoring and evaluating the quality of its
component suppliers, the Company's warranty obligation is affected by product
failure rates, material usage and service delivery costs incurred in correcting
a product failure. Should actual product failure rates, material usage or
service delivery costs differ from the Company's estimates, revisions to the
estimated warranty liability would be required.

Estimation of Inventory Obsolescence

         The Company provides for estimated inventory obsolescence or
unmarketable inventory in amounts equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those projected by management, additional inventory write-downs may be
required.

RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED JUNE 30, 2003 COMPARED TO THE
THREE-MONTHS ENDED JUNE 30, 2002

The following table sets forth the amount of increase or decrease represented by
certain items reflected in the Company's condensed consolidated statements of
operations in comparing the three-months ended June 30, 2003 to the three-months
ended June 30, 2002:

                 (In thousands)                     Three Months Ended June 30,
                                                  -----------------------------
                                                    2003      2002      Change
                                                  -----------------------------

         Net sales                                $   313    $   722    $  (409)
                                                  -----------------------------
         Costs and expenses:
           Cost of products sold                      479        562        (83)
           Salaries and wages                         466        434         32
           Selling and administrative                 497        380        117
                                                  -----------------------------
         Total costs and expenses                   1,442      1,376         66
                                                  -----------------------------

         Other income (expense):
            Investment loss                            --        (87)        87
            Interest income                            13         12          1
            Interest expense                          (81)      (109)        28
                                                  -----------------------------
         Total other income (expense)                 (68)      (184)       116
                                                  -----------------------------
         Net loss                                 $(1,197)   $  (838)   $  (359)
                                                  =============================

                                       16
<PAGE>

NET SALES

Net sales decreased by approximately 57% from approximately $722,000 in 2002 to
approximately $313,000 in 2003 primarily as a result of a reduction in orders
placed by one of the Company's significant customers in 2002, who has reduced
their expenditures due to the economy, industry trends and excess assets from an
acquisition. The Company, in accordance with the requirements of SFAS 48 and SAB
101, recorded a provision for sales returns of approximately $146,000 related to
a product enhancement exchange, which was not required to correct any product
quality or performance issues. The revenue will be recognized upon reshipment of
the enhanced product, which will be completed by August 31, 2003 (for further
details see "General" section above). In addition, the Company recognized net
sales of approximately $85,000 during the three-months ended June 30, 2002 from
prior period warranty related sales deferrals, representing 12% of net sales for
the 2002 period.

Sales to one customer accounted for approximately 41% of net sales for the
three-months ended June 30, 2003. For the three-months ended June 30, 2002, a
different single customer accounted for approximately 30% of net sales. Despite
the Company's overall sales decrease for the three-months ended June 30, 2003,
the UK subsidiary's net sales increased 36% over the three-month period ended
June 30, 2002.


COST OF PRODUCTS SOLD

Cost of products sold decreased by approximately 15% from $562,000 in 2002 to
$479,000 in 2003. Material costs decreased approximately $75,000 due to
decreased net sales and by approximately $102,000 for the net accrual related to
the above described product enhancement. Excluding the effect of these two
items, a 3% increase is primarily due to the increased manufacturing overhead
costs of approximately $53,000, resulting from the move to a larger
manufacturing facility at the end of 2002 and the addition of a quality control
technician, a purchasing agent and increased freight costs due to more overseas
shipments, which totaled approximately $41,000.

SALARIES AND WAGES

Salaries and wages increased approximately $32,000, or 7%, due to the addition
of three employees as well as normal adjustments for vacation accruals and
salary increases.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses increased by approximately 31% from $380,000
for the three-months ended June 30, 2002 to $497,000 for the three-months ended
June 30, 2003, which was primarily due to an increase in stock-based
compensation expense of approximately $128,000 related to variable stock option
accounting. The Company recorded a net credit to selling and administrative
expense of approximately $33,000 compared with compensation expense of
approximately $95,000 for the three months ended June 30, 2002 and 2003,
respectively, relating to certain awards.

Excluding the effects of stock-based compensation, selling and administrative
expenses actually decreased by approximately $11,000, or 3%, due to decreased
spending in engineering and advertising expenses. The primary reason for
decreased spending in engineering is attributed to the diminishing requirements
of engineering development of the PFT family of product, which is now in full
production. As stock-based compensation expense related to variable awards is
subject to changes in the quoted market value of the Company's common stock, the
Company cannot predict the impact of stock-based compensation expense on
operations in the future.

                                       17
<PAGE>

INVESTMENT LOSS

During the three-months ended June 30, 2002, approximately $87,000 of net
investment loss was recorded when the Company sold substantially all of its bond
investments in April and May of 2002.

INTEREST EXPENSE

Interest expense decreased by approximately $28,000 due to the change in the
amortization period of the deferred financing costs from nine months to thirty
months based on amendments to the payback period of the stockholder note,
resulting in a reduction in financing costs of approximately $60,000, which was
offset by the interest expense incurred related to the outstanding principal of
the notes payable to a stockholder of approximately $35,000.

RESULTS OF OPERATIONS FOR THE SIX-MONTHS ENDED JUNE 30, 2003 COMPARED TO THE
SIX-MONTHS ENDED JUNE 30, 2002

The following table sets forth the amount of increase or decrease represented by
certain items reflected in the Company's condensed consolidated statements of
operations in comparing the six-months ended June 30, 2003 to the six-months
ended June 30, 2002:


             (In thousands)                         Six Months Ended June 30,
                                                 -----------------------------
                                                   2003       2002     Change
                                                 -----------------------------
         Net sales                               $ 1,065    $ 1,327    $  (262)
                                                 -----------------------------
         Costs and expenses:
           Cost of products sold                   1,160      1,157          3
           Salaries and wages                        912        825         87
           Selling and administrative              1,025        789        236
                                                 -----------------------------
         Total costs and expenses                  3,097      2,771        326
                                                 -----------------------------
         Other income (expense):
            Investment loss                           --        (28)        28
            Interest income                           26         25          1
            Interest expense                        (144)      (141)        (3)
                                                 -----------------------------
         Total other income (expense)               (118)      (144)        26
                                                 -----------------------------
         Net loss                                $(2,150)   $(1,588)   $  (562)
                                                 =============================

NET SALES

Net sales decreased by approximately 20% from approximately $1,327,000 in 2002
to approximately $1,065,000 in 2003. The Company, in accordance with the
requirements of SFAS 48 and SAB 101, recorded a provision for sales returns of
approximately $146,000 related to a product enhancement exchange, which was not
required to correct any product quality or performance issues. The revenue will
be recognized upon reshipment of the enhanced product, which will be completed
by August 31, 2003 (for further details see "General" section above). Excluding
this transaction, net sales decreased by approximately 9%, primarily as a result
of a reduction in orders of over 83%, placed by one of the Company's significant
customers in 2002, who reduced their expenditures due to the economy, industry
trends and excess assets from an acquisition. This decrease is partially offset
by the commencement of the Company's strategic alliance with Honeywell's
Consumer Products Group (HCPG) coupled with continued sales to international
OEM's and work with specific strategic customers.

                                       18
<PAGE>

Sales to two customers individually accounted for approximately 30% and 19% (for
a total 49%) of net sales for the six-months ended June 30, 2003. For the
six-months ended June 30, 2002, one customer accounted for approximately 40% of
net sales. The UK subsidiary's net sales of approximately $380,000 and $275,000,
contributed 36% and 21% of total net sales for the six-month periods ended June
30, 2003 and June 30, 2002, respectively, an increase of 38% over the six-months
ended June 30, 2002.

COST OF PRODUCTS SOLD

Cost of products sold increased by approximately $3,000 from $1,157,000 in 2002
to $1,160,000 in 2003. Material costs decreased approximately $43,000 due to the
decrease in actual sales of 9% and by approximately $102,000 for the net accrual
related to the above described product enhancement. Excluding the effect of
these two items the increase is primarily due to the increased manufacturing
overhead costs of approximately $77,000, resulting from the move to a larger
manufacturing facility at the end of 2002, the addition of a quality control
technician, two direct laborers, a purchasing agent and increased freight costs
due to more overseas shipments, which totaled approximately $73,000. The direct
labor was added in the first quarter due to the increased sales volumes,
however, was reduced at the end of the second quarter due to reduced sales
volumes. The Company is in the process of obtaining 9001:2000 certification from
the International Standardization Organization (ISO) and therefore added
personnel to accomplish this task.

SALARIES AND WAGES

Salaries and wages increased approximately $87,000, or 11%, due to the addition
of three employees as well as normal adjustments for vacation accruals and
salary increases.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses increased by approximately 30% from $789,000
for the six months ended June 30, 2002 to $1,025,000 for the six months ended
June 30, 2003, which was primarily due to an increase in compensation expense of
approximately $300,000 related to variable stock option accounting. The Company
recorded compensation expense of approximately $129,000 compared with a net
credit to selling and administrative expenses of approximately $171,000 for the
six-months ended June 30, 2003 and 2002, respectively, related to certain stock
option awards.

Excluding the effects of stock-based compensation, selling and administrative
expenses actually decreased by approximately $64,000, or 7%, due to decreased
spending in engineering and sales and marketing expenses. As stock-based
compensation expense related to variable awards is subject to changes in the
quoted market value of the Company's common stock, the Company cannot predict
the impact of stock-based compensation expense on operations in the future.

INVESTMENT INCOME

During the six-months ended June 30, 2002, the Company had investments in bonds,
for which approximately $28,000 of net investment loss was incurred. The Company
sold substantially all of its bond investments in April and May of 2002.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2003, the Company had cash and cash equivalents of
approximately $181,000. For the six-month period ended June 30, 2003, net cash
used in operating activities was approximately $1,924,000, which primarily
resulted from the net loss of approximately $2,150,000. Net cash used in
investing activities was approximately $42,000 for the purchase of property and
equipment. Net cash provided by financing activities was approximately
$1,542,000 for the period, primarily due to draws taken on the loans provided
under stockholder commitments.

                                       19
<PAGE>

         The Company has incurred net losses each year since its inception and
has relied on the sale of its stock from time to time and loans from third
parties and from related parties to fund its operations.

         At June 30, 2003, the Company had working capital of approximately
$1,299,000 and its current ratio (current assets to current liabilities) was
2.42 to 1. The Company's cash burn rate was fairly consistent for the year ended
December 31, 2002 but increased in December 2002 and into 2003, due to costs
associated with the move to the new facility and due to product enhancements
that the Company has made which required rework to some of the existing
inventory. The product enhancement costs to existing inventory were completed by
the end of the second quarter of 2003. Currently, cash flows from sales are not
sufficient to support the Company's operations. The Company has experienced
increased cash flows from 2002 and 2003 first quarter sales activity, however,
additional cash will still be needed. The Company continues to try to reduce its
burn rate in an effort to achieve positive cash flows from operations.

         During 2000, the Company invested the funds received from its private
placements into corporate bonds, certificates of deposit and for a brief period,
in international bonds. The investment portfolio was managed by Salomon Smith
Barney, who in April 2002 extended a credit line loan to the Company, which was
collateralized by the investment portfolio. As of July 2002, the Company had
sold all of its investments, the proceeds of which were used to repay the
Company's loan on investments in March and April 2002 and to fund operations.

         On March 28, 2002, the Company executed a binding agreement with one of
its stockholders, who is also a director, to fund up to $2.5 million through
March 31, 2003. Under the terms of the agreement, the Company could draw amounts
as needed in multiples of $500,000 to fund operations subject to Board of
Director approval. Amounts drawn bear interest at the prime rate (4% as of June
30, 2003) payable monthly and become due and payable on December 31, 2003 or
upon a change in control of the Company or consummation of any other financing
over $3 million. In March 2003, the payback date was extended to December 31,
2004. In consideration for the stockholder entering into this agreement the
Company granted the stockholder 100,000 common stock purchase warrants at an
exercise price equal to the closing market price of the Company's stock on the
date of grant. As of June 30, 2003, the Company had drawn $2.5 million of the
available funds.

         On March 14, 2003, the Company executed a second binding agreement with
the same stockholder to fund up to an additional $3.5 million through December
31, 2003. Under the terms of the second agreement, the Company can draw amounts
as needed in multiples of $500,000 to fund operations subject to Board of
Director approval. Amounts drawn bear interest at the prime rate payable monthly
and become due and payable on December 31, 2004 or upon a change in control of
the Company or consummation of any other financing over $7 million. In
consideration, the Company granted the stockholder 125,000 common stock purchase
warrants at an exercise price equal to the closing market price of the Company's
stock on the date of grant. As of June 30, 2003, the Company had drawn $1.0
million of the available funds.

         Management believes that the commitment received from its stockholder
will be sufficient to sustain the Company's operations through December 31,
2003. However, if the commitment does not continue to fund for any reason or
budgeted sales levels are not achieved, the Company may have to modify its
business plan, reduce or discontinue some of its operations or seek a buyer for
part of its assets to continue as a going concern through 2003. The Company is
contemplating various other sources of funding such as a private placement,
however, there can be no assurance that the Company will complete a private
placement or obtain additional funding from any other sources.

         The Company believes it has sufficient cash for the remainder of fiscal
year 2003, and while the Company believes it can attain profitable operations in
the future, there is no assurance that sales will increase to the level required
to generate profitable operations and to provide positive cash flow from
operations, and there is no assurance that the Company will not have to seek
additional financing in the future.

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<PAGE>

         In May 2002, the Company executed a sixty-eight month agreement to
lease a new office and warehouse facility, and moved in December 2002. This new
facility, which is located near the former office and warehouse facility,
consists of approximately 20,000 square feet for manufacturing and distribution
plus 5,000 square feet of office space. A $235,000 security deposit was paid,
which will be refunded ratably on an annual basis over the first three years of
the lease term beginning on the last day of the first lease year, provided there
has been no Event of Default, as defined, by the Company. The total minimum
lease payments over the term of the lease aggregate approximately $774,000.

         The Company's former office lease expired on March 31, 2003. The
Company was obligated to pay rent of approximately $32,000 through that date of
which approximately $17,000 of rent expense was accrued in 2002, which was the
Company's net obligation for the period that the former office space was vacant.

         Consistent with industry practices, the Company may accept product
returns or provide other credits in the event that a distributor holds excess
inventory of the Company's products. The Company's sales are made on credit
terms, which vary depending on the nature of the sale. The Company believes it
has established sufficient reserves to accurately reflect the amount or
likelihood of product returns or credits and uncollectible receivables. However,
there can be no assurance that actual returns and uncollectible receivables will
not exceed the Company's reserves.

         Sales of the Company's products will depend principally on end user
demand for such products and acceptance of the Company's products by original
equipment manufacturers ("OEM's"). The oil filtration industry has historically
been competitive and, as is typically the case with innovative products, the
ultimate level of demand for the Company's products is subject to a high degree
of uncertainty. Developing market acceptance, particularly worldwide, for the
Company's existing and proposed products will require substantial marketing and
sales efforts and the expenditure of a significant amount of funds to inform
customers of the perceived benefits and cost advantages of its products.

Impact of Inflation

         Inflation has not had a significant impact on the Company's operations.
However, any significant decrease in the price for oil or labor, environmental
compliance costs, and engine replacement costs could adversely impact the
Company's end users' cost/benefit analysis as to the use of the Company's
products.

Item 3.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Puradyn Filter Technologies Incorporated's Chief Executive Officer and Chief
Financial Officer have evaluated the Company's disclosure controls and
procedures as of August 14, 2003, and they concluded that these controls and
procedures are effective.

(b) Changes in Internal Controls

There are no significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to August 14, 2003.

Part II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Certain litigation involving the Company is described in the Company's Form
10-KSB for the year ended December 31, 2002. Subsequent to the filing of such
Form 10-KSB, no material developments have occurred with respect to such
litigation except in April 2003, the patent owner in the Malt litigation case
posed two discovery requests, in order to extend the automatic dismissal of his
claim.

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<PAGE>

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS
           None

ITEM 3.    DEFAULT UPON SENIOR SECURITIES
           None

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
           None

ITEM 5.    OTHER INFORMATION
           None

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.

           a) Exhibits:

              31.1        Certification of Chief Executive Officer pursuant to
                          Section 302 of the Sarbanes-Oxley Act of 2002

              31.2        Certification of Chief Financial Officer pursuant to
                          Section 302 of the Sarbanes-Oxley Act of 2002

              32.1        Certification of Chief Executive Officer pursuant to
                          Section 906 of the Sarbanes-Oxley Act of 2002

              32.2        Certification of Chief Financial Officer pursuant to
                          Section 906 of the Sarbanes-Oxley Act of 2002

           b) Reports on Form 8-K. None


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<PAGE>


                                     SIGNATURES

In accordance with the requirements of the Exchange Act, Puradyn Filter
Technologies Incorporated caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



PURADYN FILTER TECHNOLOGIES INCORPORATED
(Registrant)

By /s/ Lisa M. De La Pointe                             Date:  August 14, 2003
----------------------------------------
Lisa M. De La Pointe, Chief Financial Officer



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