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 SEPTEMBER 30, 2005

[ ]   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)

As of November 14, 2005, there were 22,276,099 shares of registrant's common
stock outstanding, par value $.001.

                                        1

<PAGE>

                    Puradyn Filter Technologies Incorporated
                    Index to Quarterly Report on Form 10-QSB

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

Item 1.    Financial Statements (Unaudited)

                  Condensed Consolidated Balance Sheet - September 30, 2005...................................      3

                  Condensed Consolidated Statements of Operations - Three months and nine months ended
                  September 30, 2005 and 2004.................................................................      4

                  Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2005
                  and 2004....................................................................................      5

                  Condensed Consolidated Statement of Stockholders' Deficit...................................      6

                  Notes to Condensed Consolidated Financial Statements........................................      7

Item 2.    Management's Discussion and Analysis or Plan of Operation..........................................     16

Item 3.    Controls and Procedures............................................................................     23

Part II. Other Information

Item 1.    Legal Proceedings..................................................................................     24

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds........................................     24

Item 3.    Default Upon Senior Securities.....................................................................     24

Item 4.    Submission of Matters to a Vote of Security Holders................................................     24

Item 5.    Other Information..................................................................................     24

Item 6.    Exhibits...........................................................................................     24

Signatures....................................................................................................     25
</TABLE>

                                        2

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                    Puradyn Filter Technologies Incorporated
                      Condensed Consolidated Balance Sheet
                               September 30, 2005
                                   (Unaudited)

<TABLE>
<S>                                                                              <C>
Assets
Current assets:
   Cash and cash equivalents                                                          183,715
   Accounts receivable, net of allowance for uncollectible accounts of $61,581        213,192
   Inventories                                                                      1,204,189
   Prepaid expenses and other current assets                                          394,151
                                                                                 ------------
Total current assets                                                                1,995,247

Property and equipment, net                                                           383,250
Deferred financing costs, net                                                         112,060
Other noncurrent assets                                                                40,930
                                                                                 ------------
Total assets                                                                        2,531,487
                                                                                 ============

Liabilities and stockholders' deficit
Current liabilities:
   Accounts payable                                                                   237,359
   Accrued liabilities                                                                687,752
   Current portion of capital lease obligation                                          4,520
   Deferred revenue                                                                    71,308
                                                                                 ------------
Total current liabilities                                                           1,000,939

Capital lease obligation, less current portion                                          7,247
Notes payable to stockholder                                                        5,381,000

Commitments and Contingencies                                                              --

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; 22,276,099 issued and outstanding                22,276
   Additional paid-in capital                                                      37,091,126
   Notes receivable from stockholders, including accrued interest                  (1,076,475)
   Accumulated deficit                                                            (39,885,108)
   Accumulated other comprehensive loss                                                (9,518)
                                                                                 ------------
Total stockholders' deficit                                                        (3,857,699)
                                                                                 ------------
Total liabilities and stockholders' deficit                                         2,531,487
                                                                                 ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        3

<PAGE>

                    Puradyn Filter Technologies Incorporated
                 Condensed Consolidated Statements of Operations
     For the Three Months and Nine Months Ended September 30, 2005 and 2004
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                Three Months Ended               Nine Months Ended
                                                   September 30,                   September 30,
                                               2005            2004            2005            2004
                                           -------------------------------------------------------------
<S>                                        <C>             <C>             <C>             <C>
Net sales                                  $    538,443    $    515,330    $  1,775,225    $  1,756,054

Costs and expenses:
     Cost of products sold                      474,626         611,957       1,731,780       1,887,208
     Salaries and wages                         341,698         415,326       1,049,598       1,227,595
     Selling and administrative                 318,332         374,008       1,003,165       1,148,203
     Stock based compensation                   108,043        (161,530)         39,565          75,692
                                           -------------------------------------------------------------
                                              1,242,699       1,239,761       3,824,108       4,338,698
                                           -------------------------------------------------------------
Loss from operations                           (704,256)       (724,431)     (2,048,883)     (2,582,644)

Other income (expense):
     Interest income                             12,838          13,166          38,603          40,299
     Interest expense                          (108,897)        (81,247)       (334,976)       (236,882)
                                           -------------------------------------------------------------
Total other expense, net                        (96,059)        (68,081)       (296,373)       (196,583)
                                           -------------------------------------------------------------

Net loss                                       (800,316)   $   (792,512)     (2,345,255)   $ (2,779,227)
                                           =============================================================

Basic and diluted loss per
   common share                            $      (0.04)   $      (0.05)   $      (0.12)   $      (0.16)
                                           =============================================================

Weighted average common shares
   outstanding                               22,276,099      17,452,164      19,591,962      17,220,120
                                           =============================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                        4

<PAGE>

                    Puradyn Filter Technologies Incorporated
                 Condensed Consolidated Statements of Cash Flows
              For the Nine Months Ended September 30, 2005 and 2004
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                                2005            2004
                                                            -----------------------------
<S>                                                         <C>             <C>
OPERATING ACTIVITIES
Net loss                                                    $ (2,345,255)   $ (2,779,227)
                                                            -----------------------------
Adjustments to reconcile net loss to net cash used in
   operating activities:
   Depreciation and amortization                                 181,225         182,834
   Provision for bad debts                                        21,833           2,271
   Amortization of deferred financing costs included in
      interest expense                                            78,786         105,710
   Interest receivable from stockholders' notes                  (35,951)        (36,083)
   Compensation expense on stock-based arrangements
      with employees and vendors                                  (6,035)         75,692
   Compensation expense on option-based arrangements
      with consultants                                            45,600               -
   Changes in operating assets and liabilities:
      Accounts receivable                                        255,625         (70,016)
      Inventories                                                 66,452         (92,249)
      Prepaid expenses and other current assets                   17,474          (4,817)
      Other noncurrent assets                                          -          18,750
      Accounts payable                                            17,124         190,963
      Accrued liabilities                                        185,341           3,245
      Deferred revenues                                           28,917          10,905
                                                            -----------------------------
Net cash used in operating activities                         (1,488,864)     (2,392,022)

INVESTING ACTIVITIES
Purchases of property and equipment                              (21,675)        (70,500)
                                                            -----------------------------
Net cash used in investing activities                            (21,675)        (70,500)

FINANCING ACTIVITIES
Proceeds from sale of common stock, net of issuance costs      1,482,200       1,964,480
Proceeds from exercise of stock options                            2,936          10,000
Proceeds from notes payable to stockholder                       923,100       1,500,000
Payment of notes payable to stockholder                       (1,044,000)     (2,000,000)
Payment of capital lease obligations                              (3,374)         (3,006)
                                                            -----------------------------
Net cash provided by financing activities                      1,360,862       1,471,474
Effect of exchange rate changes on cash and cash
   equivalents                                                    76,182            (852)
                                                            -----------------------------
Net (decrease) in cash and cash equivalents                      (73,495)       (991,900)
Cash and cash equivalents at beginning of period                 257,210       1,394,830
                                                            -----------------------------
Cash and cash equivalents at end of period                       183,715         402,930

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest                                           244,149    $    135,072
                                                            =============================

NONCASH INVESTING AND FINANCING ACTIVITIES

Warrants issued for deferred financing and capital
   raising costs                                            $     55,000    $    112,500
                                                            =============================
</TABLE>

See accompanying notes to consolidated financial statements.

                                        5

<PAGE>

                    Puradyn Filter Technologies Incorporated
           Consolidated Statements of Changes in Stockholders' Deficit

<TABLE>
<CAPTION>
                                                                       Notes                      Accumulated
                                                       Additional    Receivable                      Other           Total
                                    Common Stock         Paid-in        From      Accumulated    Comprehensive   Stockholders'
                                  Shares     Amount      Capital    Stockholders     Deficit     Income (Loss)      Deficit
<S>                             <C>         <C>       <C>           <C>           <C>             <C>            <C>
Balance at December 31, 2004    17,452,164  $ 17,452  $ 35,516,248  $ (1,040,524) $(37,539,853)   $  (80,680)    $ (3,127,357)
Foreign currency translation
   adjustment                            -         -             -             -             -        71,162           71,162

Net loss                                 -         -             -             -    (2,345,255)            -       (2,345,255)
                                                                                                                 -------------
Total comprehensive loss                 -         -             -             -             -             -       (5,401,450)
Exercise of stock options            3,270         3         2,933             -             -             -            2,936
Issuance of common stock in
   private placement, net        4,820,665     4,821     1,477,380             -             -             -        1,482,201
Warrants issued to
   nonemployee directors                 -         -        55,000             -             -             -           55,000

Stock options issued to
   consultants                           -         -        45,600             -             -             -           45,600
Interest receivable related
   to notes receivable from
   stockholders                          -         -                     (35,951)            -             -          (35,951)
Compensation expense
   associated with outstanding
   variable option awards                -         -        (6,035)            -             -             -           (6,035)
                                ----------------------------------------------------------------------------------------------
Balance at September 30, 2005   22,276,099  $ 22,276  $ 37,091,126  $ (1,076,475) $(39,885,108)   $   (9,518)    $ (3,857,699)
                                ==============================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                        6

<PAGE>

              Notes to Condensed Consolidated Financial Statements
                               September 30, 2005
                                   (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 nine-month periods ended September 30, 2005 may not necessarily be
indicative of the results that may be expected for the year ending December 31,
2005.

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, 2004.

Going Concern

The Company's financial statements have been prepared on the basis that it will
operate as a going concern, which comtemplates the realization of assets and
satisfaction of liabilities in the normal course of business. 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.

These recurring operating losses, liabilities exceeding assets and the reliance
on cash inflows from an institutional investor and current stockholder have led
the Company's independent registered accounting firm DaszkalBolton to include a
statement in its audit report relating to the Company's audited consolidated
financial statements for the year ended December 31, 2004 expressing substantial
doubt about the Company's ability to continue as a going concern.

Additionally, the Company continues to address liquidity concerns because of
inadequate revenue growth. As a result, cash flow from operations is
insufficient to cover our liquidity needs for the immediate future. The Company
was successful in raising $1.48 million in capital in June and July 2005. As the
Company performance improves, it will continue to seek additional capital and is
exploring financing availability and options with investment bankers, funds,
private sources, members of management and directors. The Company has
implemented further measures to preserve its ability to operate, including
organizational changes, a reduction and/or deferral of salaries, reduction in
personnel and renegotiating creditor and collection arrangements. There can be
no assurance that the Company will be able to raise the additional capital
needed or reduce the level of expenditures in order to sustain operations.

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.

                                        7

<PAGE>

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
3,418,070 for the three-month and nine-month periods ended September 30, 2005
and 2,933,570 for the three-month and nine-month periods ended September 30,
2004, 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 September 30, 2005:

                 Raw materials            $   786,791
                 Finished goods               417,398
                                          -----------
                                          $ 1,204,189
                                          ===========

Deferred Financing Costs

The Company capitalizes financing costs and amortizes them using the
straight-line method, which approximates the effective interest method, over the
term of the related debt. Amortization of deferred financing costs is included
in interest expense and totaled approximately $22,000 and $34,000 for the
three-months ended September 30, 2005 and 2004, respectively, and approximately
$79,000 and $106,000 for the nine-months ended September 30, 2005 and 2004,
respectively. The deferred financing costs related to the $2.5 million
commitment provided by the Company's stockholder, who is also a Board Member,
totaled $318,000 and were initially 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
$214,400 related to an additional $3.5 million commitment provided by the same
stockholder, with a payback date of December 31, 2004. The deferred financing
costs of $214,400 were amortized over the payback period. In addition, the
repayment period for the $2.5 million commitment was extended to December 31,
2004. Effective March 14, 2003, the Company began amortizing the remaining
balance of deferred financing costs for the $2.5 million commitment
prospectively over the extended payback period. On February 2, 2004, the payback
period for both the $2.5 and $3.5 million commitments was extended to December
31, 2005 (see Note 2), resulting in the addition of approximately $94,000 of
related deferred financing costs. Effective February 2, 2004, the Company began
amortizing the remaining balance of deferred financing costs for both the $2.5
and $3.5 million commitments prospectively over the extended payback period. On
April 14, 2005, the payback period for both the $2.5 and $3.5 million
commitments were extended to December 31, 2006 (see Note 2), resulting in the
addition of approximately $55,000 of related deferred financing costs. Effective
April 2005, the Company began amortizing the remaining balance of deferred
financing costs prospectively over the extended payback period. Accumulated
amortization of deferred financing costs as of September 30, 2005 was
approximately $569,000.

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 No. 123,
Accounting for Stock-

                                        8

<PAGE>

Based Compensation (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, in
situations where 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           Nine Months Ended
                                               September 30,               September 30,
                                             2005         2004          2005           2004
                                         -------------------------------------------------------
<S>                                      <C>           <C>          <C>            <C>
Net loss as reported                     $  (800,316)  $ (792,512)  $ (2,345,255)  $ (2,779,227)

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

Fair value method stock option
   expense                                   (38,847)     (28,231)        58,067       (653,153)
                                         -------------------------------------------------------
Pro forma net loss                       $  (839,163)  $ (820,743)  $ (2,287,188)  $ (3,432,380)
                                         =======================================================
Loss per common share:
   Basic and diluted loss as
      reported                           $     (0.04)  $    (0.05)  $      (0.12)  $      (0.16)
   Basic and diluted loss
      pro forma                          $     (0.04)  $    (0.05)  $      (0.12)  $      (0.20)

Weighted average fair value per
   option granted during the period(1)   $       .24                $        .53

Assumptions
   Average Risk Free Interest Rate              3.99%        3.67%          4.26%          3.28%
   Average Volatility Factor                    .607        1.020           .712          1.049
   Expected Dividend Yield                         0%           0%             0%             0%
   Expected Life (in years)                      2.5            5           4.75              5
</TABLE>

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

                                        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 when collectibility is reasonably assured in accordance with
Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements
(SAB 104), as amended and interpreted. Cash received by the Company prior to
shipment is recorded as deferred revenue. Sales are made to customers under
terms allowing certain limited rights of return and other limited product and
performance warranties for which provision has been made in the accompanying
condensed consolidated financial statements.

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

Product Warranty Costs

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

The Company accrues for warranty costs based on the expected material and labor
costs to provide warranty replacement products. The methodology used in
determining the liability for warranty cost is based upon historical information
and experience. The Company's warranty reserve is calculated as the gross sales
multiplied by the historical warranty expense return rate.

The following table shows the changes in the aggregate product warranty
liability for the nine months ended September 30, 2005:

       Balance as of December 31, 2004                          $  44,203
       Less: Payments made                                         (9,570)
             Change in prior period estimate                        1,068
       Add: Provision for current period warranties                25,498
                                                                ---------
       Balance as of September 30, 2005                         $  61,199
                                                                =========

Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income (SFAS 130) establishes rules for
reporting and displaying of comprehensive income and its components.
Comprehensive income is the sum of net loss as reported in the consolidated
statements of operations and other comprehensive income transactions. Other
comprehensive income transactions that currently apply to the Company result
from changes in exchange rates used in translating the financial statements of
its wholly owned subsidiary, Puradyn Filter Technologies, Ltd. (Ltd).
Comprehensive loss as of September 30, 2005 and 2004 is not shown net of taxes
because the Company's deferred tax asset has been fully offset by a valuation
allowance.

                                       10

<PAGE>

Comprehensive loss consisted of the following for the three and nine-months
ended September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                                 SEPTEMBER 30,                SEPTEMBER 30,
                                               2005         2004          2005            2004
                                             -----------------------------------------------------
<S>                                          <C>          <C>          <C>            <C>
Net loss                                     $(800,316)   $(792,512)   $(2,345,255)   $(2,779,227)
                                             -----------------------------------------------------

Other comprehensive income (loss):
   Foreign currency translation adjustment      20,511        3,154         71,162           (852)
                                             -----------------------------------------------------
Total other comprehensive income (loss)         20,511        3,154         71,162           (852)
                                             -----------------------------------------------------

Comprehensive loss                           $(779,805)   $(789,358)   $(2,274,093)   $(2,780,079)
                                             =====================================================
</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
inception in 1987 and used net cash in operations of approximately $1,488,000
and $2,392,000 during the nine-months ended September 30, 2005 and 2004,
respectively. As a result, the Company has had to rely principally on private
equity funding, including the conversion of debt into stock, as well as
stockholder loans to fund its activities to date.

These recurring operating losses, liabilities exceeding assets and the reliance
on cash inflows from an institutional investor and current stockholder led the
Company's independent registered public accounting firm, DaszkalBolton to
include a statement in its audit report relating to the Company's audited
consolidated financial statements for the year ended December 31, 2004
expressing substantial doubt about the Company's ability to continue as a going
concern.

Additionally, the Company continues to address liquidity concerns because of
inadequate revenue growth. As a result, cash flow from operations is
insufficient to cover our liquidity needs for the immediate future. The Company
was successful in raising $1.48 million in capital in June 2005. As the Company
performance improves, it will continue to seek additional capital and explore
financing availability and options with investment bankers, funds, private
sources, members of management and existing shareholders. The Company has
implemented further measures to preserve its ability to operate, including
organizational changes, deferral of salaries, reduction in personnel and
renegotiating creditor and collection arrangement. There can be no assurance
that the Company will be able to raise the additional capital needed or reduce
the level of expenditures in order to sustain operations.

On March 28, 2002 and March 14, 2003, respectively, the Company executed a
binding agreement with one of its stockholders, who is also a Board Member, to
fund up to $2.5 million through March 31, 2003 and an additional $3.5 million
through December 31, 2003. Under the terms of the agreements, 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 per
annum (6.75% at September 30, 2005), payable monthly and were to become due and
payable on December 31, 2003 and December 31, 2004, respectively, or upon a
change in control of the Company or consummation of any other financing over
$3.0 million or over $7.0 million in the aggregate. In March 2003, the payback
date for the first agreement was extended to December 31, 2004.

On February 2, 2004, the stockholder amended both agreements to extend the
payback dates to December 31, 2005 and to waive the funding requirement
mandating payback terms until such time as the Company has raised an additional
$7.0 million over the $3.5 million raised in the Company's recent private
placement offering; or until such time as the Company is operating within
sufficient cash flow parameters, as defined, to

                                       11

<PAGE>

sustain its operations; or until a disposition of the Company occurs. In March
2004, the Company had repaid $2.0 million of the $5.0 million it had drawn from
the available funds. Both of the lines allow for discretionary principal
payments, which add to the availability of additional funds that the Company may
draw. During the nine-months ended September 30, 2004, the Company had drawn an
additional $1,500,000 of the available balance. In October 2004, an additional
$500,000 draw was made.

In addition, as part of the February 2, 2004 amendment described above, the
second agreement was amended to allow the Company to draw the remaining
available balance ($1.5 million as of September 30, 2004) through December 31,
2004. In consideration for the amendments, as well as for efforts in obtaining
private placement funding, the Company granted the stockholder 150,000 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).

In April 2005, the payback dates of the March 28, 2002 and March 14, 2004
agreements were extended from December 31, 2005 to December 31, 2006. As
consideration of this extension, this stockholder was granted an additional
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, for a period of five
years.

In December 2003, the Company issued 750,000 shares of common stock for gross
proceeds of $1.5 million from its recent private placement offering
(approximately $1.47 million net of related expenses) to a third party investor.
In March 2004, an additional 1.0 million shares of common stock were issued to
the same investor for gross proceeds of $2.0 million (approximately $1.98
million net of related expenses.) The $2.0 million of gross proceeds was used to
reduce the outstanding principal balance of the notes payable to stockholder.
There is no assurance that the Company will raise any additional proceeds from
future private placements. Subscriptions for the recent private placement
expired on April 30, 2004.

The Company anticipates increased cash flows from 2005 sales activity; however,
additional cash will still be needed to support operations. Management believes
that the commitments received from its stockholder, the funds received from its
recent current private placement offering, as well as cash from sales and
current working capital will be sufficient to sustain its operations at its
current level through January 1, 2006. However, if budgeted sales levels are not
achieved and/or significant unanticipated expenditures occur, the Company may
have to modify its business plan, reduce or discontinue some of its operations
or seek a buyer for all or part of its assets to continue as a going concern
through 2005.

3. COMMON STOCK

During June and July 2005, the Company received cash proceeds of $1.48 million
from the sale of 4,820,665 shares of common stock from a private placement
offering. The funds will be used for corporate purposes and to reduce the
outstanding principle balance of the notes payable to stockholder. Additionally,
warrants in the amount of 400,000 and 80,000 were offered to two separate
participants in the private placement at a price of $0.80 per each share of
common stock with an exercise date of June 17, 2006, and an expiration date of
June 17, 2008.

On March 12, 2004, the Company received cash proceeds of $2.0 million from the
sale of 1.0 million shares of common stock from its private placement offering,
which expired on April 30, 2004. The funds were used to reduce the outstanding
principal balance of the notes payable to stockholder (see Note 2). The Company
incurred related offering costs of approximately $21,000.

On February 2, 2004, the two binding funding agreements with a stockholder, who
is also a Board member, were amended (see Note 2). In consideration for the
amendments, as well as for efforts in obtaining private placement funding, the
Company granted the stockholder 150,000 fully vested 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 2.43%, volatility factor of the expected market price of
the Company's common stock of .526, a dividend yield of zero, and a weighted
average expected life of 3 years. The warrants have an exercise price of $2.00,
which was equal to quoted market value on the date of grant. The fair value of
the warrants was estimated at $112,500. The Company accrued $18,750 of the fair
value related to the services rendered by the stockholder in association with
the private placement

                                       12

<PAGE>

funds raised in December 2003, in the 2003 consolidated balance sheet in Form
10-KSB, and recorded a deferred charge of $93,750 in February 2004 for the
amendments to the commitment agreements, which is being amortized over the
repayment period of 23 months.

4. STOCK OPTIONS

During the nine-months ended September 30, 2004, employees of the Company
exercised 10,000 common stock options. The Company received $10,000, in cash
proceeds in exchange for the shares issued.

During the three-month periods ended September 30, 2005 and 2004, the Company
recognized an expense of approximately $114,000 and a credit to operations of
approximately $162,000 respectively (under the intrinsic value method), relating
to outstanding variable option awards, which is included in stock based
compensation expense. During the nine-month periods ended September 30, 2005 and
2004, the Company recognized a credit to operations of approximately $ 6,000 and
$187,000 respctively, relating to variable option awards, which is included
stock based compensation expense. At September 30, 2005, approximately 212,000
awards subject to variable accounting remained outstanding with an average
exercise price of $0.44.

On March 9, 2004, the Company extended the expiration date of the exercise
period of 270,000 fully vested stock options for a retired employee who left the
Company in August 2003. The Company's Stock Option Plan permits an employee to
exercise their stock options for up to one month after their termination date,
at which time they expire. The exercise price of the options ranges from $1.00
to $8.50. In accordance with FIN 44, the Company compared the options' intrinsic
value on the modification date to the original intrinsic value on the date of
grant. The Company recorded approximately $263,000 of compensation expense
related to this modification, which is included in stock based compensation
expense for the nine-month period ended September 30, 2004.

On March 11, 2005, the Company granted a total of 80,000 non-qualified options
to two consultants for services rendered. The total value of the options is
$45,600, all of which has been expensed.

On August 25, 2005, the Company granted a total of 5,000 each non-employee
director's stock options to two persons joining the Board upon the August 23rd
resignation of two current Board members.

5. NOTES PAYABLE TO STOCKHOLDER

As of September 30, 2005, the Company had drawn a gross aggregate of
approximately $5.381 of the $6.150 million available from the line-of-credit,
which is provided by a stockholder, who is also a Board Member, of the Company
(see Notes 2 and 3). Amounts drawn bear interest at the prime rate (6.75% as of
September 30, 2005) payable monthly and become due and payable on December 31,
2006; or until such time as the Company has raised an additional $7.0 million
over the $3.5 million raised in the Company's recent private placement offering;
or until such time as the Company is operating within sufficient cash flow
parameters, as defined, to sustain its operations; or until a disposition of the
Company occurs. In March 2004, the Company repaid $2.0 million of the
outstanding balance, with the funds received from the private placement, which
expired in April 2004. Both of the lines allow for discretionary principal
payments, which add to the availability of additional funds that the Company may
draw. During the year ended December 31, 2004, the Company had drawn an
additional $2.0 million of the available balance. During the period ended March
31, 2005, the Company had drawn the remaining $648,100 of available balance. On
March 22, 2005, the original $2.5 million funding agreement was amended to
increase the funds available to $2.65 million and in March 2005, that final draw
was made. During 2005, the Company repaid $1,044,000 of the outstanding balance,
using the funds received from the private placement in June and July 2005.

On April 14, 2005, the repayment dates of the notes payables to stockholder,
dated March 28, 2002 and March 14, 2003, were extended from December 31, 2005 to
December 31, 2006. As consideration of this extension,

                                       13

<PAGE>

this stockholder was granted an additional 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, for a period of five years. The fair value of the
warrants was estimated at $55,000.

For the three-months ended September 30, 2005 and 2004, the Company recorded
approximately $86,000 and $46,000, respectively, and for the nine-months ended
September 30, 2005 and 2004, the Company recorded approximately $255,000 and
$128,000, 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.

6. COMMITMENTS AND CONTINGENCIES

INVESTMENT BANKING AGREEMENT

On October 26, 2004, the Company engaged Imperial Capital, LLC ("IC") as an
exclusive financial advisor to the Company. IC will assist the Company in
raising additional capital, as well as possibly pursuing a strategic partner
from a mutually related field to enhance the Company's ability to develop
business.

In consideration for IC's services, the Company agreed to pay a $100,000
non-refundable retainer, as well as an advance for future out-of-pocket expenses
incurred by IC. Upon the consummation of a transaction, as defined by the
agreement, the Company will pay a success fee of 2.5% of the principal amount of
any debt or equity securities sold or the consideration received from a
strategic relationship. Either party upon 30-day written notice may terminate
the agreement. No equity capital has been raised pursuant to this agreement
through the date of this filing.

The Company has also engaged the services of two additional investment-banking
firms for assistance in obtaining additional financing. Fees for both of these
firms are performance-based and do not require any retainers or fees in advance.

On April 21, 2005, the Company entered into an agreement with Biscayne Capital
Markets, Inc ("BCMI") an investment-banking firm, to provide assistance in
obtaining financing. The company agreed to pay a fee of 7% of gross proceeds
received by the Company as a result of services performed under the agreement.
Fees paid in consideration of services rendered are based upon performance and
there is no obligation to pay any fees unless financing is closed.

On April 28, 2005, the Company entered into a one-year non-exclusive agreement
with CapitalLink, L.C., an investment-banking firm, to assist in additional
financing. The company agreed to pay a fee of 7% of gross proceeds received by
the Company as a result of services performed under the contract, as well as
reimbursement of pre-approved out of pocket expenses.

AMERICAN STOCK EXCHANGE DELISTING

On April 28, 2005, the Company received a notice from the Staff of the American
Stock Exchange (the Exchange) indicating that the Company was below certain of
the Exchange's continued listing standards. Specifically, as set forth in
Sections 1003(a)(i) and (ii) of the Exchange Company Guide, the Company
sustained losses from continuing operations and/or net losses in two out of its
three most recent fiscal years with stockholders' equity of less than $2
million, and losses from continuing operations and/or net losses in three out of
its four most recent fiscal years with stockholders' equity of less than $4
million.

The Company was given the opportunity to submit a plan to the Exchange outlining
actions it has taken, or would take, over the next 18 months that would bring it
into compliance with continued listing standards. The Company submitted its
compliance plan to Exchange by the scheduled deadline of May 31, 2005.

On June 24, 2005, the Board of Directors approved a resolution to voluntarily
withdraw the Company's common stock from listing on the Exchange. The Board's
decision was based upon a determination that

                                       14

<PAGE>

Puradyn would not be able to timely comply with the Exchange's ongoing financial
compliance standards under Section 1003 of the Exchange's Company Guide, as well
as the ongoing costs of compliance with the Exchange's requirement, including
the provisions of the Sarbanes-Oxley Act of 2002 as they apply to
Exchange-listed companies, and the requirement to either limit the amount of
financing of its previously announced financing or to incure additional costs
and defer receipt of the financing pending stockholder approval as required by
the Exchange's rules.

Additionally, on June 24, 2005, the Company submitted an application to the
Securities and Exchange Commission (SEC) pursuant to Section 12(d) of the
Securities Exchange Act of 1934 for the voluntarily withdrawal of the listing of
its common stock from the Exchange. On August 18, 2005 this application was
approved effective at the opening of business that day. The Company continues to
be required to file reports with the SEC under Section 13 of the Securities
Exchange Act of 1934, including quarterly and annual reports, and as of August
31, 2005, its common stock is included for quotation on the OTC Bulletin Board.

7. SUBSEQUENT EVENTS

On October 3, 2005, the Company extended the expiration date of the exercise
period of 17,500 stock options granted to two members of the board of directors
who tendered their resignation on August 23, 2005. The Company's 2000
Non-Employee Director Stock Option Plan states that a participant's option will
expire at one year after the date the participant ceases to serve as a director
of the Company for any reason. The exercise price of these options is $1.06. In
accordance with FIN 44, the Company compared the options' intrinsic value on the
modification date to the original intrinsic value on the date of grant. The
Company recorded approximately $255 of compensation expense related to this
modification, which will be included in stock-based compensation expense for the
fiscal period ended December 31, 2005.

On November 10, 2005, a member of the Board of directors, who is also chairman
of the audit committee, resigned and was succeeded on this same date by a new
director to the Board, who will assume the additional duties as chairman of the
audit committee. As per the terms of the 2000 non-employee directors stock
option plan, 5,000 stock options will be automatically granted at the effective
date of initial election to the Board of Directors, in addition to an option to
purchase 2,500 shares for each committee on which a director serves at the time
of initial appointment. Additionally, the Company extended the expiration date
of the exercise period of 10,000 stock options granted to the resigning member
of the board of directors who tendered his resignation on November 10.
Subsequently, the Company recorded a credit of approximately $600 to
compensation expense related to this modification, which will be included in
stock-based compensation expense for the fiscal period ended December 31, 2005.

                                       15

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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, 2004.

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. Except as required by law or regulation, we
do not undertake any obligation to publicly update forward-looking statements to
reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events.

Going Concern

The Company's financial statements have been prepared on the basis that it will
operate as a going concern, which comtemplates the realization of assets and
satisfaction of liabilities in the normal course of business. 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.

These recurring operating losses, liabilities exceeding assets and the reliance
on cash inflows from institutional investors and current stockholders have led
the Company's independent registered accounting firm DaszkalBolton to include a
statement in its audit report relating to the Company's audited consolidated
financial statements for the year ended December 31, 2004 expressing substantial
doubt about the Company's ability to continue as a going concern.

Additionally, the Company continues to address liquidity concerns because of
inadequate revenue growth. As a result, cash flow from operations is
insufficient to cover our liquidity needs for the immediate future. The Company
was successful in raising $1.48 million in capital in June 2005. As the Company
performance improves, it will continue to seek additional capital and is
exploring financing availability and options with investment bankers, funds,
private sources, members of management and directors. The Company has
implemented further measures to preserve its ability to operate, including
organizational changes, a reduction and/or deferral of salaries, reduction in
personnel and renegotiating creditor and collection arrangement. There can be no
assurances that the Company will be able to raise the additional capital needed
or reduce the level of expenditures in order to sustain operations.

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(R) Bypass Oil Filtration
System or the "PURADYN" system.

Sales of the Company's products will depend principally upon end user demand for
such products and acceptance of the Company's products by OEMs. 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 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.

Through industry data research, we have been able to identify the potential
applications where management believes market penetration is most accessible.
Currently no bypass oil filtration system has captured a substantial share of
the estimated recurring $13 billion potential industry. We believe we are in a
unique

                                       16

<PAGE>

position to capitalize on the growing acceptance of bypass oil filtration given
that our product and our Company are positioned as, including, but not limited
to:

      o     A competitively priced, value-added unique product offering a unique
            selling concept substantial end-user savings related to oil
            maintenance costs based on an advanced, patented technology

      o     An alternative solution to the rising costs and increasing
            dependence on foreign oil

      o     Providing an operational maintenance solution to end users in
            conjunction with existing and reasonable foreseeable federal
            environmental applications

In 2001, the Company redirected the focus of its sales strategy from individual
sales and distribution efforts to the development of a strong nationwide
distribution network that will not only sell but also install and service our
product. The company continues this momentum with its most recent announcement
of the addition of Atlantic Detroit Diesel Allison and Florida Detroit Diesel
Allison. Their expertise and established presence in the diesel engine industry
will be an asset to our organization.

Additionally, we began to refocus our sales and marketing efforts to target
areas and issues specific to the bypass oil filtration industry. These efforts
include identifying customer needs and educating the customer on the total
values of our system concerning oil maintenance costs and procedures,
specifically, that oil does not need to be changed on a regular basis and the
drain interval is safely extended, provided that oil analysis verifies the oil
is clean.

      This strategy includes focus on:

      o     The expansion of existing strategic relationships

      o     Continued development and expansion of our distribution network with
            qualified distributors in order to establish a sales- and
            service-oriented nationwide infrastructure

      o     Continuing to target existing and new medium-to-large sized fleets,
            industrial/construction business and major diesel engine and
            generator set OEMs

      o     Creating customer 'pull-through', a sustained level of request for
            our product on the OEM level

      o     Closely monitoring customer evaluations to ensure the salient
            aspects of our system are perceived and accepted on a timely basis

      o     Converting customer evaluations into sales, both immediate and long
            term

While this is a long-term and ongoing commitment, we believe we have achieved a
limited amount of industry acceptance based on the following accomplishments:

      o     2001 approved by one of the largest private fleets in the U.S. to
            install PURADYN on their new equipment, a program still currently
            ongoing.

      o     2002 approval and purchase of the PURADYN system by a major
            international OEM of medium-sized power generators.

      o     2003 selection as a Strategic Supplier for one of the larger
            equipment rental companies in North America. Although the system is
            fully supported at the customer's corporate level, the program is
            expected to take some time to gain momentum as all branches become
            familiar enough with the benefits of the PURADYN system to begin
            purchasing.

      o     2004 ongoing test results released by the US Department of Energy
            (DOE) estimating an 80% savings in oil using bypass oil filtration.
            Our system was used in this test, concluded in October 2005,
            evaluating the benefits and cost savings of the technology.

      o     2004 announcement that Miami-Dade County, Florida has again
            specified the PURADYN system on new equipment purchases.

                                       17

<PAGE>

      o     2004 announcement of combined international expansion with the
            introduction of two potential distributors in the bus and
            construction markets in China.

      o     2005 notification from the U.S. Army that the PURADYN system
            received very favorable reviews during the Expedited Modernization
            Initiative Procedure (EMIP) demonstration in which the Company
            participated. As a direct result of these favorable reviews, the
            PURADYN system is now being evaluated by several vehicle platforms
            within the U.S. Army.

We believe that the renewed interest shown in the technology of bypass oil
filtration as an economic alternative to rising oil prices, dependence upon
foreign oil, with the added benefit of being environmentally beneficial, will
timely and favorable position the Company as a manufacturer of this type of
product. We also believe that industry acceptance resulting in sales will
continue to grow in 2005; however, there can be no assurance that any of our
sales efforts or strategic relationships will meet management's expectations or
result in actual revenues.

The Company's sales effort not only involves educating the potential customer on
the benefits of our product, but also allowing the customer to test and evaluate
the PURADYN system on its fleet vehicles. While set for a specific period of
time, typically ranging from three to twelve months, evaluations are often
influenced by a number of variables including equipment applications downtime or
servicing, which may extend the evaluation period. Consequently, the sales cycle
can be relatively long. Management believes that this evaluation period will
continue to be shortened as our products gain wider acceptance, support and
usage from well-known customers and OEMs.

Effective June 1, 2000, the Company formed a wholly owned subsidiary, Puradyn
Filter Technologies, Ltd ("Ltd."), 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 Ltd. have been consolidated with the Company since
June 1, 2000.

International sales are especially well suited to our product given that
environmental controls are not as regulated in countries outside North America.
Certain applications representing a higher return on investment are more
prevalent in use outside of North America and end-users consequently are more
receptive to the total maintenance package, including the use of oil analysis,
which the PURADYN system represents. In first nine months of 2005, total
international sales accounted for 48.5% of the Company's consolidated net sales.

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. 104, Revenue Recognition in Financial
Statements, as amended and interpreted. 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.

                                       18

<PAGE>

RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO
THE THREE-MONTHS ENDED SEPTEMBER 30, 2004

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 September 30, 2005 to the
three-months ended September 30, 2004:

            (In thousands)              Three Months Ended September 30,
                                       ----------------------------------
                                          2005         2004        Change
                                       ----------------------------------

       Net sales                       $      538   $      515        23
                                       ----------------------------------

       Costs and expenses:
         Cost of products sold                474          612      (138)
         Salaries and wages                   342          416       (74)
         Selling and administrative           318          374       (56)
         Stock-based compensation             108         (162)      270
                                       ----------------------------------
       Total costs and expenses             1,242        1,240         2
                                       ----------------------------------

       Other (expense) income:
          Interest income                      13           13         -
          Interest expense                   (109)         (81)       28
                                       ----------------------------------
       Total other expense, net               (96)         (68)       28
                                       ----------------------------------

       Net loss                        $     (800)  $     (793)        7
                                       ==================================

NET SALES

Net sales increased by approximately $23,000 or 5% from approximately $515,000
in 2004 to approximately $538,000 in 2005.

Sales to two customers accounted for approximately 51% and 15% (for a total of
66%) of the consolidated net sales for the three-months ended September 30,
2005. For the three-months ended September 30, 2004, sales to two customers
accounted for approximately 28% and 15% (for a total of 43%), of the
consolidated net sales. The UK subsidiary's net sales increased by approximately
$15,000 or 9% for the three-month period ended September 30, 2005 compared to
the three-month period ended September 30, 2004.

COST OF PRODUCTS SOLD

Cost of products sold decreased by approximately 23% from approximately $612,000
in 2004 to approximately $474,000 in 2005. In addition to improving raw material
outsourcing, the company issued price increases on its core products. The
domestic price increase was approximately 13% at the distributor level and was
effective August 1, 2005. The international price increase was approximately 19%
at the distributor level and was effective September 1, 2005.

SALARIES AND WAGES

Salaries and wages decreased approximately $74,000, or 18%. This decrease is the
result of a reduction of three employees in the sales and marketing department,
representing $63,000 of the decrease in expenses.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses decreased by approximately $56,000, or 15%.
This decrease is due to a reduction in travel, entertainment and lodging
expenses and audit fees by approximately $52,000 and $34,000 respectively. These
decreases were partially offset by an increase in patent expenses of
approximately $23,000.

                                       19

<PAGE>

STOCK-BASED COMPENSATION

Stock-based compensation expense increased approximately $270,000, related to
certain variable equity awards and other stock-based compensation. 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.

RESULTS OF OPERATIONS FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO
THE NINE-MONTHS ENDED SEPTEMBER 30, 2004

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 nine-months ended September 30, 2005 to the
nine-months ended September 30, 2004:

         (in thousands)                     Nine Months ended September 30,
                                           ---------------------------------
                                              2005         2004       Change
                                           ---------------------------------

    Net sales                              $    1,775   $    1,756       19
                                           ---------------------------------

    Costs and expenses:
      Cost of products sold                     1,732        1,887     (155)
      Salaries and wages                        1,049        1,227     (178)
      Selling and administrative                1,003        1,148     (145)
      Stock-based compensation                     40           76      (36)
                                           ---------------------------------
    Total costs and expenses                    3,824        4,338     (514)
                                           ---------------------------------

    Other income (expense):
       Interest income                             39           40       (1)
       Interest expense                          (335)        (237)      98
                                           ---------------------------------
    Total other expense, net                     (296)        (197)      97
                                           ---------------------------------

    Net loss                               $   (2,345)  $   (2,779)    (434)
                                           =================================

NET SALES

Net sales increased by approximately 1% from approximately $1,756,000 in 2004 to
approximately $1,775,000 in 2005.

Sales to two customers individually accounted for approximately 27% and 10% (for
a total of 37%) and 23% and 16% (for a total of 39%) of net sales for the nine
months ended September 30, 2005 and 2004, respectively. The UK subsidiary's
sales decreased by approximately $27,000 or 4% for the nine-month period ended
September 30, 2005 compared to the nine-month period ended September 30, 2004.

COST OF PRODUCTS SOLD

Cost of products sold decreased by approximately 8%, or $155,000, from
approximately $1,887,000 in 2004 to approximately $1,732,000 in 2005. In
addition to improving raw material outsourcing, the company issued price
increases on its core products. The domestic price increase was approximately
13% at the distributor level and was effective August 1, 2005. The international
price increase was approximately 19% at the distributor level and was effective
September 1, 2005.

                                       20

<PAGE>

SALARIES AND WAGES

Salaries and wages decreased approximately $178,000, or 15%. This decrease is
the result of a net reduction of three employees, representing approximately a
$164,000 decrease.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses decreased by approximately $145,00, or 13%
from approximately $1,148,000 for the nine-months ended September 30, 2004 to
approximately $1,003,000 for the nine-months ended September 30, 2005, due
primarily to a reduction in travel, entertainment and lodging expenses and audit
fees by approximately $77,000 and $91,000 respectively. These decreases were
offset by an increase in patent expenses of approximately $21,000.

STOCK-BASED COMPENSATION

The Company recorded approximately $40,000 and $76,000, respectively, of
stock-based compensation expense for the nine-month periods ended September 30,
2005 and 2004, related to certain variable equity awards and other stock-based
compensation. The stock price decreased slightly from $1.20 at December 31, 2004
to $1.15 at September 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2005, the Company had cash and cash equivalents of
approximately $184,000. For the nine-month period ended September 30, 2005, net
cash used in operating activities was approximately $1,489,000, which primarily
resulted from the net loss of approximately $2,345,000, partially offset by
changes in working capital items. Net cash used in investing activities was
approximately $22,000 for the purchase of property and equipment. Net cash
provided by financing activities was approximately $1,361,000 for the period,
due to net proceeds of $1.482 million in private placement offering and net
repayments of $121,000 on the stockholder loan.

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.

On March 28, 2002, the Company executed a binding agreement with one of its
stockholders, who is also a Board Member, 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 per annum
(6.75% at September 30, 2005) payable monthly and were to become due and payable
on December 31, 2003, or upon a change in control of the Company or consummation
of any other financing over $3.0 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, 2004, the Company had drawn
the entire $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 per annum (6.75% at
September 30, 2005) 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 $7.0 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, 2004, the Company had drawn $3.0 million of the available funds and repaid
$2.0 million of the loan on the second line. Both of the lines allow for
discretionary

                                       21

<PAGE>

principal payments, which add to the availability of additional funds that the
Company may draw. In July 2004, the Company drew an additional $500,000.

On February 2, 2004, the Company granted this same stockholder an additional
150,000 common stock purchase warrants at an exercise price equal to the closing
market price of the Company's stock on the date of grant in consideration for
extending the payback dates of the March 28, 2002 and March 14, 2003 agreements
from December 31, 2004 to December 31, 2005; for waiving the funding requirement
mandating payback terms until such time as the Company has raised an additional
$7.0 million over the amount raised during the Company's recent 2004 private
placement offering, the Company is operating within sufficient cash flow
parameters, as defined, or a disposition of the Company occurs; and for his
involvement in equity financing in 2003 and 2004, to date.

In April 2005, the payback dates of the March 28, 2002 and March 14, 2003
agreements were extended from December 31, 2005 to December 31, 2006. As
consideration of this extension, this shareholder was granted an additional
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, for a period of five
years.

During June and July 2005, the Company received cash proceeds of $1.48 million
from the sale of 4,820,665 shares of common stock from a private placement
offering. The funds will be used for corporate purposes and to reduce the
outstanding principle balance of the notes payable to stockholder. Additionally,
warrants in the amount of 400,000 and 80,000 were offered to two separate
participants in the private placement at a price of $0.80 per each share of
common stock with an exercise date of June 9, 2006, and an expiration date of
June 9, 2008.

On December 10, 2003, the Company completed the sale of 750,000 shares of its
common stock through its recent private placement to a third party investor,
initiated in November 2003, with gross proceeds of approximately $1.5 million,
all of which was used for capital equipment purchases, marketing, working
capital and general corporate purposes. In March 2004, the same investor
purchased an additional 1.0 million shares of common stock for $2.0 million. The
funds were used to reduce the outstanding balance of the notes payable to
stockholder. The Company will then draw amounts, per the terms of the
stockholder commitment letters dated March 28, 2002 and March 14, 2003, and
amendments thereto, as needed, for operating and capital expenditures. There can
be no assurance that the Company will raise any additional proceeds from future
private placements. Subscriptions for the current private placement expired on
April 30, 2004.

Furthermore, on December 18, 2003, the Company entered into an agreement with an
investment-banking firm in Boca Raton, Florida to assist in raising
approximately $3.0 to $5.0 million in equity capital. The Company has agreed to
pay a fee of 7% of any gross proceeds received by the Company as a result of
this firm's services, as well as all reasonable out-of-pocket fees, expenses and
costs incurred in connection with the performance of its services under the
agreement. The agreement excludes the above capital raised in December 2003 and
March 2004. No equity capital has been raised pursuant to this agreement through
the date of this filing.

At September 30, 2005, the Company had working capital of approximately $994,000
and its current ratio (current assets to current liabilities) was 1.99 to 1. The
Company anticipates increased cash flows from 2005 sales activity; however,
additional cash will still be needed to support operations. Management believes
that the commitments received from its stockholder and the recent private
placement offering, as well as cash from sales and current working capital will
be sufficient to sustain its operations at its current level through January 1,
2006. However, if budgeted sales levels are not achieved and/or significant
unanticipated expenditures occur, the Company may have to modify its business
plan, reduce or discontinue some of its operations or seek a buyer for all or
part of its assets to continue as a going concern through 2005.

The Company's wholly owned subsidiary, Ltd., moved to new office space in
September 2003 by assuming the existing lease, which expired in August 2004. The
company is in the process of negotiating a new lease.

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

                                       22

<PAGE>

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 ("OEMs"). 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 September 30, 2005, 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 September 30, 2005.

                                       23

<PAGE>

                           PART II. OTHER INFORMATION

ITEM  1. LEGAL PROCEEDINGS

         None

ITEM  2. UNREGISTERED SALES OF EQUITY 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

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

                                       24

<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/ Cindy Lea Gimler                       Date: November 14, 2005
-----------------------
Cindy Lea Gimler,
Chief Financial Officer

                                       25