U.S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

(Mark one)

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

                  For the quarterly period ended MARCH 31, 2002
                  ---------------------------------------------

[ ]      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)

       3020 High Ridge Road, Suite 100, 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 the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  [x]  No [ ]

                         (ISSUERS INVOLVED IN BANKRUPTCY
                     PROCEEDINGS DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports required to be
filed by Section12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes _____ 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: May 10, 2002: 15,574,423

<PAGE>



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


Part I.    Financial Information
                                                                                                                           Page
<S>               <C>                                                                                                        <C>
Item 1.           Financial Statements (Unaudited)

                  Condensed Consolidated Balance Sheet - March 31, 2002.....................................................  3

                  Condensed Consolidated Statements of Operations - Three months ended March 31, 2002 and
                  2001......................................................................................................  4

                  Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2002 and
                  2001......................................................................................................  5

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

Item 2.           Management's Discussion and Analysis of Financial Condition and Results of Operations.....................  10

Part II.   Other Information

Item 1.           Legal Proceedings.........................................................................................  14

Item 2.           Changes in Securities and Use of Proceeds.................................................................  14

Item 4.           Submission of Matters to a Vote of Security Holders.......................................................  14

Item 5.           Other Information.......................................................................................... 14

Item 6.           Exhibits and Reports on Form 8-K..........................................................................  14

Signatures..................................................................................................................  15
</TABLE>


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements


                    Puradyn Filter Technologies, Incorporated

                      Condensed Consolidated Balance Sheet

                                 March 31, 2002
                                  (Unaudited)
<TABLE>
<CAPTION>

<S>                                                                                <C>
Assets
Current assets:
     Cash and cash equivalents                                                     $  1,102,571
     Restricted cash                                                                     22,238
     Short-term investments                                                             603,938
     Accounts receivable, net of allowance for uncollectible accounts of $81,800        386,956
     Inventories                                                                        974,613
     Accrued interest receivable                                                         41,930
     Deferred financing costs                                                           318,000
     Prepaid expenses and other current assets                                          280,504
                                                                                   ------------
Total current assets                                                                  3,730,750

Property and equipment, net                                                             660,102
Other noncurrent assets                                                                  12,045
                                                                                   ------------
Total assets                                                                       $  4,402,897
                                                                                   ============

Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                                                              $    315,636
     Accrued liabilities                                                                187,415
     Current portion of capital lease obligation                                          4,551
     Deferred revenue                                                                   125,005
     Note payable secured by investments                                                 97,750
                                                                                   ------------
Total current liabilities                                                               730,357

Capital lease obligation, less current portion                                            6,407

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.001 par value:
         Authorized shares - 500,000; none issued and outstanding                            --
     Common stock, $.001 par value,
         Authorized shares - 20,000,000; issued and outstanding - 15,574,423             15,574
     Additional paid-in capital                                                      31,685,807
     Stockholder notes receivable                                                      (875,256)
     Accumulated deficit                                                            (27,136,474)
     Accumulated other comprehensive loss                                               (23,518)
                                                                                   ------------
Total stockholders' equity                                                            3,666,133
                                                                                   ------------
Total liabilities and stockholders' equity                                         $  4,402,897
                                                                                   ============
</TABLE>

See accompanying notes.


                                       3
<PAGE>

                    Puradyn Filter Technologies, Incorporated
                 Condensed Consolidated Statements of Operations
               For the Three Months Ended March 31, 2002 and 2001
                                   (Unaudited)


                                                       Three Months Ended
                                                             March 31,
                                                      2002             2001
                                                  ------------     ------------


Net sales                                         $    604,644     $    365,454
Investment income                                       88,940          167,068
                                                  ------------     ------------
                                                       693,584          532,522


Costs and expenses:
     Cost of products sold                             570,041          403,038
     Salaries and wages                                391,149          364,489
     Selling and administrative                        493,695          906,998
     Interest expense                                   31,862            1,020
                                                  ------------     ------------
                                                     1,444,447        1,675,545
                                                  ------------     ------------


Net loss                                          $   (750,863)    $ (1,143,023)
                                                  ============     ============

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


Weighted average common shares outstanding          15,545,706       14,209,775
                                                  ============     ============

See accompanying notes.



                                       4
<PAGE>


                    Puradyn Filter Technologies, Incorporated
                 Condensed Consolidated Statements of Cash Flows
               For the Three Months Ended March 31, 2002 and 2001
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                                                         MARCH 31
                                                                   2002           2001
                                                               -----------    -----------
<S>                                                            <C>            <C>
OPERATING ACTIVITIES

Net cash used in operating activities                          $(1,343,250)   $  (937,000)
INVESTING ACTIVITIES
Proceeds from sales and maturities of investments                5,287,684        600,000
Purchases of property and equipment                                     --        (12,023)
                                                               -----------    -----------
Net cash provided by investing activities                        5,287,684        587,977

FINANCING ACTIVITIES
Proceeds from exercise of stock options                             87,019          7,500
Proceeds from note payable secured by investments                1,300,500             --
Collection of notes receivable from officer                             --        150,000
Payments on note payable secured by investments                 (5,186,332)            --
Payment of capital lease obligations                                (1,066)        (7,025)
                                                               -----------    -----------
Net cash (used in) provided by financing activities             (3,799,879)       150,475
Effect of exchange rate changes on cash and cash equivalents         6,215             --
                                                               -----------    -----------
Increase (decrease) in cash and cash equivalents                   150,770       (198,548)
Cash and cash equivalents at beginning of period                   974,039        479,158
                                                               -----------    -----------
Cash and cash equivalents at end of period                       1,124,809        280,610

Less restricted cash                                               (22,238)       (22,238)
                                                               -----------    -----------
Unrestricted cash and cash equivalents                         $ 1,102,571    $   258,372
                                                               ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest                                         $    31,862    $        --
                                                               ===========    ===========
NONCASH INVESTING AND FINANCING ACTIVITIES

Net unrealized loss on available-for-sale investments          $   (28,283)   $        --
                                                               ===========    ===========
Increase in deferred financing costs resulting
   from the issuance of stock purchase warrants                $   318,000    $        --
                                                               ===========    ===========
</TABLE>


See accompanying notes.


                                       5
<PAGE>

                    Puradyn Filter Technologies Incorporated
              Notes to Condensed Consolidated Financial Statements
                                 March 31, 2002
                                   (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
period ended March 31, 2002 may not necessarily be indicative of the results
that may be expected for the year ended December 31, 2002.

For further information, refer to Puradyn Filter Technologies Incorporated (the
Company) consolidated financial statements and footnotes thereto included on the
Form 10-KSB for the year ended December 31, 2001.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141 Business Combinations (SFAS 141) and
SFAS No. 142 Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The Company has
adopted SFAS 141 and SFAS 142 as of January 1, 2002. The adoption of these
statements had no impact on the Company's financial position or the results of
its operations.

In September 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 144),
which supersedes SFAS No. 121, Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to Be Disposed Of (FAS 121), and the accounting
and reporting provisions of Accounting Principles Board (APB) Opinion No. 30,
Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions (APB 30), for the disposal of a segment of a business.
SFAS 144 establishes a single accounting model, based on the framework
established in SFAS 121, for long-lived assets to be disposed of. It also
addresses certain significant implementation issues under SFAS 121. The
provisions of SFAS 144 were effective for the Company on January 1, 2002.
Management will assess the recoverability of its long-lived assets when
indicators of impairment are present. The Company does not believe that the
adoption of the standard will have a material effect on its consolidated
financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Puradyn Filter Technologies Ltd, formed during May
2000. 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.


                                       6
<PAGE>

Basic and Diluted Loss Per Share

The Company has adopted FASB Statement No. 128, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per share. However,
because of the Company's net losses, the effect of stock options and warrants
would be anti-dilutive and, accordingly, are excluded from the computation of
loss per share. The number of such shares excluded from the computation of loss
per share totaled 2,299,611 and 3,779,054 at March 31, 2002 and 2001,
respectively.

Restricted Cash

Restricted cash consists of funds set aside in accordance with the order of a
court for attorney's fees and court costs in connection with certain litigation
(see Note 5).

Inventories

Inventories are stated at the lower of cost or market using the first in, first
out (FIFO) method. Production costs 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.


Inventories consisted of the following at March 31, 2002:



            Raw materials                                   $797,279
            Finished goods                                   177,334
                                                            --------
                                                            $974,613
                                                            ========

Revenue Recognition

The Company recognizes revenue from product sales to customers, distributors and
resellers when products that do not require further services or installation at
the customer's site are shipped, 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 customers under terms allowing certain
limited rights of return and other limited product and performance warranties
for which provision has been made in the accompanying financial statements.

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. Other comprehensive
income transactions that currently 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.

Comprehensive loss consisted of the following at March 31, 2002:


            Net loss                                              $(728,649)

            Other comprehensive income (loss):
               Net unrealized loss on available-for-sale
                  securities                                        (28,283)
               Foreign currency translation adjustment                4,765
                                                                  ---------
            Comprehensive loss                                    $(752,167)
                                                                  =========

Presentation of comprehensive income for the three-month period ended March 31,
2001 is not presented, as it was immaterial to the net loss.


                                       7
<PAGE>

Reclassification

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
inception and used net cash in operations of $1,343,250 and $937,000 during the
three months ended March 31, 2002 and 2001, respectively. As a result, the
Company has had to rely principally on private equity funding, including the
conversion of debt into stock, to fund its activities to date.

The Company anticipates increased cash flows from 2002 sales activity, however,
additional cash may still be needed to support operations. As of March 2002, the
Company has fully borrowed against its investment portfolio and has liquidated
approximately $5.29 million of its investment portfolio to repay the outstanding
loan on investments of $5.19 million. In April 2002, the loan on investments was
paid in full and the Company has no further plans to draw upon it.

On March 28, 2002, the Company executed a commitment letter with one of its
shareholders to fund up to $2.5 million through the end of 2002. Under the terms
of the commitment, the Company may draw amounts as needed in multiples of
$500,000 to fund operations subject to Board of Director approval. Amounts drawn
will bear interest at 8% and will 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 consideration, the Company granted such shareholder 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 4).

Management believes that the commitment received from its shareholder and net
cash expected from the liquidation of its investments will be sufficient to
sustain the Company's operations through December 31, 2002. However, if the
commitment is not funded 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 2002. The Company is contemplating various
other sources of funding such as a private placement and a bank line of credit.

3. NOTE PAYABLE SECURED BY INVESTMENTS

In April 2001, the Company entered into a revolving loan agreement with Salomon
Smith Barney that is collateralized by its investment portfolio. The maximum
loan value is calculated as 75% of the fair market value of corporate bonds and
60% of money market and certificate of deposit fair values. The interest rate at
March 31, 2002 was 3.125% and the Company recorded $31,442 of interest expense
related to the loan. In March 2002, the Company liquidated approximately $5.29
million of its investment portfolio to repay the outstanding balance of notes
payable on investments of approximately $5.19 million. As of March 31, 2002, the
outstanding loan balance is $97,750. In April 2002, the note was paid in full
and the Company has no further plans to draw upon it.

4. STOCK-BASED COMPENSATION

In January 2001, the Company granted one of its non-employee Board of Directors
7,500 stock options for past services. Such options were recorded at their fair
value of approximately $48,000 and included in general and administrative
expenses for the quarter ended March 31, 2001.

During the three-month period ended March 31, 2002 and 2001, the Company
recognized a credit to operations of approximately $138,000 and compensation
expense of approximately $95,000, respectively, relating to variable option
awards outstanding.

On March 28, 2002, the Company recorded a deferred charge of approximately
$318,000 for the issuance of 100,000 warrants to purchase common stock relating
to a financing agreement with one of its shareholders to fund up to $2.5 million
through the end of 2002 (see Note 2). 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 rates of 4.65, volatility factors
of the expected market price of the Company's common stock of 1.39; and an
expected life of 3 years. The deferred charge will be amortized over the
commitment period.


                                       8
<PAGE>

During the three month period ended March 31, 2002, employees of the Company
exercised approximately 81,500 and 20,000, respectively, common stock options.
The Company received approximately $87,000 and $7,500 in proceeds in exchange
for the shares issued.

5. CONTINGENCIES

SEARCY, DENNY, SCAROLA  ET. AL AND RELATED CLAIMS

TF Systems, Inc. ("Systems"), a related party (previously under common ownership
with the Company), formerly owned the manufacturing and marketing rights to the
Purifiner and transferred or sold such rights to the Company in 1995. In June
1997, the former law firm of Systems filed a complaint against the Company,
Systems, Richard C. Ford, individually and an inactive Company controlled by
Richard C. Ford, demanding payment of approximately $313,000 of legal fees and
other costs, plus interest and attorney fees, related primarily to obtaining the
manufacturing and marketing rights to the Purifiner for Systems and the Company.
Systems was awaiting a judgment of an appellate court which, if adjudicated in
Systems' favor, would have provided it with sufficient funds to pay such legal
fees and other possible claims aggregating approximately $75,000. On February
26, 1997, the appellate court ruled against Systems and, accordingly, the funds
discussed above are not currently available to Systems to satisfy such claims.
Puradyn did not assume these obligations as part of its purchase of Systems in
1995 and based on advice of legal counsel, management believes such amounts are
not the responsibility of the Company. On January 30, 2002, the action was
dismissed without prejudice. The law firm did not receive any payment from the
Company and both parties agreed to be responsible for their own litigation
expenses.

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,
including 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, 2001, the trial court ordered the Company to pay the sum of $18,049
for the patent owner's attorney's fees and court costs, which is included in
accrued liabilities. That order has been appealed and has been combined with the
first appeal. On April 24th, 2002, the judgment for attorney's fees and court
costs was reversed and upon the receipt of a mandate by the court the bond will
be discharged. Management does not expect the ultimate resolution of this matter
to have a significant effect on the Company's financial position or results of
operations.

6. SUBSEQUENT EVENTS

On April 1, 2002, the Company executed an agreement with a related party who is
affiliated with an executive officer and a third party to receive web site and
advertising consulting services. The agreement is for a term of 15 weeks and the
two consultants will receive 10,000 stock options each as well as cash payments
for services rendered. The fair value of the options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rates of 4.65, volatility factors of the
expected market price of the Company's common stock of 1.39; and an expected
life of 3 years. The deferred charge of approximately $64,000 will be amortized
over the commitment period.


                                       9
<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, 2001.

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 "Puradyn".

         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. Puradyn 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. The sales effort not
only involves educating the potential customer on the benefits of the Puradyn,
but also allowing the customer to test the Puradyn on its fleet vehicles.
Consequently the sales cycle is long. The Company is currently working 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.

         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.) 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 manufacturer's
representatives, warehouse distributors or other agents markets its products
directly 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 of some of the evaluations
as well as orders placed and indications from several customers, the Company
anticipates a significant increase in revenues in 2002.

         The Company recognizes revenue upon shipment of its products that do
not require further services or installation at the customer's site 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 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.

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 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.


                                       10
<PAGE>

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

Revenue Recognition

         Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). Revenue from product sales to customers, distributors and resellers
is recorded when products that do not require further services or installation
at the customer's site are shipped, there are no uncertainties surrounding
customer acceptance and for which collectibility is reasonably assured.

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 condition 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 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. 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 writes down its inventory for estimated obsolescence or
unmarketable inventory 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 March 31, 2002 Compared to the
Three-months Ended March 31, 2001

The following table sets forth for the amount of increase or decrease
represented by certain items reflected in the Company's statements of operations
in comparing the three-months ended March 31, 2002 to the three-months ended
March 31, 2001:

                                     Three Months Ended March 31, (in thousands)
                                     -------------------------------------------
                                                                 Increase
                                             2002      2001     (Decrease)
                                            -------    -------    -------
            Net sales                       $   605    $   365    $   240

            Investment income                    89        167        (78)
                                            -------    -------    -------

                                                694        532        162

            Operating costs and expenses:

              Cost of products sold             528        403        125

              Salaries and wages                391        364         27

              Selling and administrative        494        907       (413)

              Interest expense                   32          1         31
                                            -------    -------    -------
                                              1,445      1,675       (230)
                                            -------    -------    -------
            Net loss                        $  (751)   $(1,143)   $  (392)
                                            =======    =======    =======

                                       11
<PAGE>


NET SALES. Net sales increased by approximately 66% from $365,000 in 2001 to
$605,000 in 2002 as a result of the Company's continuing efforts to refocus its
marketing toward OEMs and companies having large fleets of trucks. Several large
OEMs comprised a majority of the sales for the three-month period ended March
31, 2002. Late in 2000, Asplundh Tree Expert Company, the world's largest
vegetation management Company with one of the nation's largest, privately held
fleet of trucks and equipment, began purchasing the Puradyn for new equipment
including trucks, chippers and aerial devices. In 2001, Puradyn sold over 1,400
units to Asplundh, totaling approximately $330,000. Through April 30, 2002,
sales to Asplundh have exceeded sales to Asplundh in 2001 by approximately 37%.
The UK subsidiary's sales of $115,800 contributed 19% of total net sales.

INVESTMENT INCOME. Investment income decreased by approximately $78,000 or 47%
in 2002 over the 2001 period due to the reduction in the Company's investments
in various` securities. The investment securities were purchased from proceeds
received from the Company's private placements in 2000 and 2001. The Company
sold substantially all of these securities by the end of March 2002 to pay off
its note payable, which was collateralized by the investments.

COST OF PRODUCTS SOLD. Cost of sales increased by approximately 31% from
$403,000 in 2001 to $528,000 in 2002 due primarily to an increase in sales of
approximately $240,000. In addition to the foregoing, excess overhead production
capacity also contributed to the Company generating low to negative margins on
products sold during the 2002 and 2001 periods, respectively. Additionally,
approximately 20% of the excess capacity has been utilized for the rework of
existing inventory for product design improvements on the PFT product line.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
decreased by approximately 46% from $907,000 in 2001 to $494,000 in 2002.
Salaries and wages increased approximately $27,000 due to the addition of
several employees. General selling and administrative expenses in the 2001
period included $94,538 in compensation expense due to the effect of variable
options accounting for options granted to certain employees whereas the effect
of such variable options for 2002 resulted in a credit of approximately
$138,000. Excluding these transactions, general selling and administrative
expenses decreased by approximately 22% in 2002 as compared to 2001 primarily as
a result of a significant decrease in the Company's advertising efforts.

INTEREST EXPENSE. Interest expense increased by approximately $31,000 in 2002
over the 2001 period due to the interest paid on the note payable secured by the
Company's investment portfolio, which the Company first began to draw upon in
April 2001.

Liquidity and Capital Resources

         As of March 31, 2002, the Company had cash and cash equivalents of
$1,102,571. For the period ended March 31, 2002, net cash used in operating
activities was $1,343,250, which primarily resulted from the net loss of
$750,863. Net cash provided by investing activities was $5,328,652 resulting
from net proceeds from sales of our investments. Net cash used in financing
activities was $3,799,879 for the period, primarily due to repayments on the
note payable collateralized by the investments.

         The Company has incurred net losses each year since 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 March 31, 2002, the Company had working capital of $3,000,393 and
its current ratio (current assets to current liabilities) was 5.11 to 1. The
Company anticipates increased cash flows from 2002 sales activity, however,
additional cash may still be needed to support operations. During 2000, the
Company invested the funds received from its private placements into corporate
bonds, certificates of deposits and for a brief period, in international bonds.
The investment portfolio is managed by Salomon Smith Barney, who in April 2001,
executed an express credit line loan with the Company, which is collateralized
by the investment portfolio. The maximum borrowing capacity is calculated as 75%
of the fair market value of the corporate bonds and 60% of cash equivalents. In
March 2002, the Company sold approximately $5.29 million of its investment
portfolio to pay the outstanding loan on investments of $5.19 million. As of
March 31, 2002, the Company had $97,750 outstanding through the credit line. In
April 2002, the Company paid the loan in full and is now utilizing the cash
account as needed instead of borrowing on the line-of-credit.

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         On March 28, 2002, the Company executed a commitment letter with one of
its shareholders to fund up to $2.5 million through the end of 2002. Under the
terms of the commitment, the Company may draw amounts as needed in multiples of
$500,000 to fund operations subject to Board of Director approval. Amounts drawn
will bear interest at 8% and will become due and payable on December 31, 2003 or
upon a change in control of the Company or consummation of any other financing
arrangement over $3 million. In consideration, the Company granted such
shareholder 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.

         Management believes that the commitments received from its shareholder
and net cash from sales and maturities or sales of investments will be
sufficient to sustain its operations at its current level through December 31,
2002. However, if the commitment is not funded for any reason or its 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 2002. The Company is contemplating
various other sources of funding such as a private placement and a bank line of
credit.

         The Company believes it has sufficient cash for fiscal year 2002, 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 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.

         The Company is currently negotiating to lease a new office and
warehouse facility, with an anticipated move by the September 1, 2002. This new
facility, which will be located near our existing office and warehouse facility,
will consist of approximately 20,000 square feet for manufacturing and
distribution plus 5,000 square feet of office space. The lease will include the
option to expand the space by the sixth month of the lease up to an additional
24,000 square feet.

         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 significantly 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.


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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, 2001.
                Subsequent to the filing of such Form 10-KSB, no material
                developments have occurred with respect to such litigation
                with the exception of the reversal on April 24th, 2002 of the
                judgment for attorney's fees and court costs related to the
                Searcy, Denny, Scarola et. al and Related Claims case.

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:
                None

     b)    Reports on Form 8-K.
                None



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                                   SIGNATURES

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



                               PURADYN FILTER TECHNOLOGIES INCORPORATED
                                   (Registrant)


Date:  May 15, 2001
                               By /s/ Lisa M. De La Pointe
                                  ----------------------------------------
                                  Lisa M. De La Pointe, Chief Financial Officer


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