|                                   |           | 
|---------------------------------- | --------- | 
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|WASHINGTON, D.C.
 20549           
|                                  
|                                   |           | 
|                                   |           | 
|                                   | Form 10-Q | 
|                                   |           | 

|                                              |                                                                                         
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|                                              | (MARK ONE)                                                                              
|                                              |                                                                                         
|x                                             | QUARTERLY REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                              |                                                                                         
|FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
|                                             
|                                              | OR                                                                                      
|                                              |                                                                                         
|o                                             | TRANSITION REPORT UNDER SECTION 13
 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     

FOR THE TRANSITION PERIOD FROM __________________ TO __________________________COMMISSION FILE NUMBER: 0-29192

|                                                       |  | 
|------------------------------------------------------ |  | 
|                                                      
|PURADYN FILTER TECHNOLOGIES INCORPORATED              
|(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 14-1708544                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|2017 HIGH RIDGE ROAD, BOYNTON BEACH, FL                        |  | 33426                               
|(Address of
 principal executive offices)                      |  | (Zip Code)                          

|                                                                                   
|-----------------------------------------------------------------------------------
|(561)
 547-9499                                                                    
|(Registrants telephone number, including area code)                               
|                                                                                   
|NOT APPLICABLE                                                                     
|(Former name, former address and former fiscal year, if changed since
 last report)

| |  | 
| |  | 
| |  | 

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


Yes x No o


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


Yes o No o


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

|                                             |   |                            |  
|-------------------------------------------- | - | -------------------------- | -
|Large
 accelerated filer                     | o | Accelerated
 filer         | o
|Non-accelerated
 filer                       | o | Smaller reporting
 company | x
|(Do not
 check if smaller reporting company) |   |                            |  

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


Yes x No x


Indicate the
number of shares outstanding of each of the issuers classes of common stock,
as of the latest practicable date. 43,987,125 shares of common stock are issued
and outstanding as of May 24, 2010.





---



TABLE OF CONTENTS

|          |                                                                                                            |  |         
|--------- | ---------------------------------------------------------------------------------------------------------- |  | --------
|          |                                                                                                            |  | Page No.
|          | PART I. - FINANCIAL INFORMATION                                                                            |  |         
|Item
 1.  | Financial Statements                                                                                       |  |         
|          | Condensed Consolidated Balance Sheets  As
 of March 31, 2010 (unaudited) and December 31, 2009            |  | 3       
|          | Condensed Consolidated Statements of
 Operations  Three months ended March 31, 2010 and 2009 (unaudited)  |  | 4       
|          | Condensed Consolidated Statements of Cash
 Flows  Three months ended March 31, 2010 and 2009 (unaudited)  |  | 5       
|          | Condensed Consolidated Statement of
 Stockholders Deficit  Three months ended March 31, 2010 (unaudited) |  | 6       
|          | Notes to Condensed Consolidated Financial Statements                                                       |  | 7       
|Item
 2.  | Managements Discussion and Analysis of
 Financial Condition and Results of Operations.                    |  | 13      
|Item
 3.  | Quantitative and Qualitative Disclosures
 About Market Risk.                                               |  | 20      
|Item
 4T  | Controls and Procedures.                                                                                   |  | 20      
|          | PART II - OTHER INFORMATION                                                                                |  |         
|Item
 1.  | Legal Proceedings.                                                                                         |  | 21      
|Item
 1A. | Risk Factors.                                                                                              |  | 21      
|Item
 2.  | Unregistered Sales of Equity Securities and
 Use of Proceeds.                                              |  | 21      
|Item
 3.  | Defaults Upon Senior Securities.                                                                           |  | 21      
|Item
 4.  | (Removed and Reserved)                                                                                     |  | 21      
|Item
 5.  | Other Information.                                                                                         |  | 21      
|Item
 6.  | Exhibits.                                                                                                  |  | 21      

OTHER PERTINENT INFORMATION

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

When
used in this report, the terms Puradyn, the Company, we, our, and us
refers to Puradyn Filter Technologies Incorporated, a Delaware corporation, and
our subsidiaries. Pursuant to Item 10(f) of Regulation S-K, we have
elected to comply with the scaled disclosure requirements applicable to
smaller reporting companies throughout this Quarterly Report filed on Form
10-Q (Form 10-Q). Except as specifically included in this Form 10-Q, items
not required by the scaled disclosure requirements have been omitted.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain
statements in this report contain or may contain forward-looking statements
that are subject to known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking statements
were based on various factors and were derived utilizing numerous assumptions
and other factors that could cause our actual results to differ materially from
those in the forward-looking statements. These factors include, but are not
limited to, our ability to operate as a going concern and to raise sufficient
capital to fund our operations, acceptance of the Companys products, the
Companys dependence on distributors and a few significant customers, risks
associated with international operations and international distribution and
other factors. Most of these factors are difficult to predict accurately and
are generally beyond our control. You should consider the areas of risk
described in connection with any forward-looking statements that may be made
herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this report and
our Annual Report on Form 10-K for the year ended December 31, 2009 in their
entirety, including the risks described in Part I. Item 1A. Risk Factors.
Except for our ongoing obligations to disclose material information under the
Federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the
occurrence of unanticipated events. These forward-looking statements speak only
as of the date of this report, and you should not rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business.

2

---



PART I -
FINANCIAL INFORMATION

|        |                     
|------- | --------------------
|ITEM 1. | FINANCIAL STATEMENTS

Puradyn Filter Technologies Incorporated 
Condensed Consolidated Balance Sheets

|                                                                                                       |  |                            |             |                   |   |             |  
|------------------------------------------------------------------------------------------------------ |  | -------------------------- | ----------- | ----------------- | - | ----------- | -
|                                                                                                       |  | March 31, 2010
(Unaudited) |             | December 31, 2009 |   |            
|Assets:                                                                                                |  |                            |             |                   |   |             |  
|Current assets:                                                                                        |  |                            |             |                   |   |             |  
|Cash and cash equivalents                                                                              |  | $                          | 99,510      |                   | $ | 140,266     |  
|Accounts receivable, net of allowance for uncollectible accounts of
 $36,404 and $36,772, respectively |  |                            | 248,938     |                   |   | 97,072      |  
|Inventories, net                                                                                       |  |                            | 1,044,875   |                   |   | 851,069     |  
|Prepaid expenses and other current assets                                                              |  |                            | 113,608     |                   |   | 115,074     |  
|Total current assets                                                                                   |  |                            | 1,506,931   |                   |   | 1,203,481   |  
|Property and equipment, net                                                                            |  |                            | 131,005     |                   |   | 132,856     |  
|Other noncurrent assets                                                                                |  |                            | 40,725      |                   |   | 40,725      |  
|Deferred financing costs, net                                                                          |  |                            | 3,020       |                   |   | 4,027       |  
|Total other assets                                                                                     |  |                            |             |                   |   |            |  
|Total assets                                                                                           |  | $                          | 1,681,681   |                   | $ | 1,381,089   |  
|Liabilities and stockholders deficit                                                                  |  |                            |             |                   |   |             |  
|Current liabilities:                                                                                   |  |                            |             |                   |   |             |  
|Accounts payable                                                                                       |  | $                          | 361,373     |                   | $ | 177,032     |  
|Accrued liabilities                                                                                    |  |                            | 1,152,052   |                   |   | 1,148,318   |  
|Current portion of capital lease obligation                                                            |  |                            | 3,738       |                   |   | 3,271       |  
|Deferred revenue                                                                                       |  |                            | 64,111      |                   |   | 73,336      |  
|Total current liabilities                                                                              |  |                            | 1,581,274   |                   |   | 1,401,957   |  
|Notes Payable - stockholder                                                                            |  |                            | 5,932,414   |                   |   | 5,710,414   |  
|Capital lease obligation, less current portion                                                         |  |                            | 847         |                   |   | 1,989       |  
|Total Long Term Liabilities                                                                            |  |                            | 5,933,261   |                   |   | 5,712,403   |  
|Total Liabilities                                                                                      |  |                            | 7,514,535   |                   |   | 7,114,360   |  
|                                                                                                      
|Commitments and contingencies                                                                          |  |                            |             |                   |   |             |  
|Stockholders deficit:                                                                                 |  |                            |             |                   |   |             |  
|Preferred stock, $.001 par value:                                                                      |  |                            |            |                   |   |            |  
|Authorized shares  500,000;                                                                           |  |                            |             |                   |   |             |  
|None issued and outstanding                                                                            |  |                            |            |                   |   |            |  
|Common stock, $.001 par value:                                                                         |  |                            | 43,947      |                   |   | 43,371      |  
|Authorized shares  50,000,000                                                                         |  |                            |             |                   |   |             |  
|Issued and outstanding  43,947,125 and 43,370,935, respectively                                       |  |                            |             |                   |   |             |  
|Additional paid-in capital                                                                             |  |                            | 45,577,222  |                   |   | 45,407,337  |  
|Notes receivable from stockholders                                                                     |  |                            | (790,209    | )                 |   | (790,209    | )
|Accumulated deficit                                                                                    |  |                            | (50,809,422 | )                 |   | (50,540,355 | )
|Accumulated other comprehensive income                                                                 |  |                            | 145,608     |                   |   | 146,584     |  
|Total stockholders deficit                                                                            |  |                            | (5,832,854  | )                 |   | (5,733,272  | )
|Total liabilities and stockholders deficit                                                            |  | $                          | 1,681,681   |                   | $ | 1,381,089   |  

See accompanying notes to condensed consolidated financial
statements.

3

---



Puradyn Filter Technologies Incorporated 
Condensed Consolidated Statements of Operations 
(Unaudited)

|                                                              |  |                                      |            |      |   |            |  
|------------------------------------------------------------- |  | ------------------------------------ | ---------- | ---- | - | ---------- | -
|                                                              |  | For the Three Months Ended
 March 31 |           
|                                                              |  | 2010                                 |            | 2009 |  
|Net sales                                                     |  | $                                    | 674,261    |      | $ | 298,781    |  
|                                                              |  |                                      |            |      |   |            |  
|Costs and expenses:                                           |  |                                      |            |      |   |            |  
|Cost of products sold                                         |  |                                      | 401,498    |      |   | 360,491    |  
|Salaries and wages                                            |  |                                      | 239,486    |      |   | 239,669    |  
|Selling and administrative                                    |  |                                      | 265,044    |      |   | 342,628    |  
|Total Operating Costs                                         |  |                                      | 906,028    |      |   | 942,788    |  
|Loss from operations                                          |  | $                                    | (231,767   | )    | $ | (644,007   | )
|                                                              |  |                                      |            |      |   |            |  
|Other income (expense):                                       |  |                                      |            |      |   |            |  
|Interest income                                               |  |                                      | 56         |      |   | 177        |  
|Interest expense                                              |  |                                      | (37,356    | )    |   | (38,590    | )
|Total other income (expense)                                  |  |                                      | (37,300    | )    |   | (38,413    | )
|Net loss before income tax expense                            |  |                                      | (269,067   | )    |   | (682,420   | )
|Income tax expense                                            |  |                                      |            |      |   |           |  
|Net loss                                                      |  | $                                    | (269,067   | )    | $ | (682,420   | )
|Basic and diluted loss per common share                       |  | $                                    | (0.01      | )    | $ | (0.02      | )
|Basic and diluted weighted average common
 shares outstanding |  |                                      | 40,481,850 |      |   | 37,246,932 |  

See accompanying notes to condensed consolidated financial
statements.

4

---



Puradyn Filter Technologies Incorporated
Consolidated Statements of Cash Flows
(Unaudited)

|                                                                               |  |                                     |          |      |   |          |  
|------------------------------------------------------------------------------ |  | ----------------------------------- | -------- | ---- | - | -------- | -
|                                                                               |  | For the Three Months Ended March 31 |         
|                                                                               |  | 2010                                |          | 2009 |  
|Operating
 activities                                                          |  |                                     |          |      |   |          |  
|                                                                               |  |                                     |          |      |   |          |  
|Net loss                                                                       |  | $                                   | (269,067 | )    | $ | (682,420 | )
|Adjustments to reconcile
 net loss to net cash used in operating activities:   |  |                                     |          |      |   |          |  
|Depreciation and amortization                                                  |  |                                     | 11,220   |      |   | 11,980   |  
|Provision for bad debts                                                        |  |                                     | (368     | )    |   | 9,614    |  
|Provision for obsolete and slow moving inventory                               |  |                                     |         |      |   | 38,610   |  
|Amortization of deferred financing costs included in interest expense          |  |                                     | 1,007    |      |   | 1,373    |  
|Deferred compensation                                                          |  |                                     | 32,755   |      |   | 39,144   |  
|Compensation expense on stock-based arrangements with employees and
 vendors   |  |                                     | 15,906   |      |   | 98,663   |  
|Compensation expense on stock-based arrangements with investors and
 directors |  |                                     | 21,800   |      |   |         |  
|Changes in operating assets and liabilities:                                   |  |                                     |          |      |   |          |  
|Accounts receivable                                                            |  |                                     | (151,498 | )    |   | 20,020   |  
|Inventories                                                                    |  |                                     | (193,806 | )    |   | (79,689  | )
|Prepaid expenses and other current assets                                      |  |                                     | 1,466    |      |   | 18,662   |  
|Accounts payable                                                               |  |                                     | 184,340  |      |   | (23,706  | )
|Accrued liabilities                                                            |  |                                     | 3,734    |      |   | (7,493   | )
|Deferred revenues                                                              |  |                                     | (9,225   | )    |   | (11,380  | )
|Net cash used in operating
 activities                                         |  |                                     | (351,736 | )    |   | (566,622 | )
|                                                                               |  |                                     |          |      |   |          |  
|Investing
 activities                                                          |  |                                     |          |      |   |          |  
|Purchases of property and
 equipment                                           |  |                                     | (9,369   | )    |   |         |  
|Net cash used in investing
 activities                                         |  |                                     | (9,369   | )    |   |         |  
|                                                                               |  |                                     |          |      |   |          |  
|Financing
 activities                                                          |  |                                     |          |      |   |          |  
|Proceeds from sale of
 common stock                                            |  |                                     | 100,000  |      |   | 582,758  |  
|Proceeds from issuance of
 notes payable to stockholder                        |  |                                     | 222,000  |      |   |         |  
|Payment of notes payable to
 stockholder                                       |  |                                     |         |      |   | (100,000 | )
|Payment of capital lease
 obligations                                          |  |                                     | (675     | )    |   | (396     | )
|Net cash provided by
 financing activities                                     |  |                                     | 321,325  |      |   | 482,362  |  
|Effect of exchange rate
 changes on cash and cash equivalents                  |  |                                     | (976     | )    |   | 21,513   |  
|Net decrease in cash and
 cash equivalents                                     |  |                                     | (40,756  | )    |   | (62,747  | )
|Cash and cash equivalents
 at beginning of period                              |  |                                     | 140,266  |      |   | 116,802  |  
|Cash and cash equivalents
 at end of period                                    |  | $                                   | 99,510   |      | $ | 54,055   |  
|                                                                               |  |                                     |          |      |   |          |  
|Supplemental
 cash flow information:                                           |  |                                     |          |      |   |          |  
|Cash paid for interest                                                         |  | $                                   | 37,356   |      | $ | 41,278   |  
|                                                                               |  |                                     |          |      |   |          |  
|Noncash
 Investing and Financing:                                              |  |                                     |          |      |   |          |  
|February 5, 2009 Note
 Payable of $100,000 converted to stockholders equity   |  | $                                   |         |      | $ | 100,000  |  

See accompanying notes to condensed
consolidated financial statements.

5

---



Puradyn Filter Technologies Incorporated
Condensed Consolidated Statements of Changes in
Stockholders Deficit 
For the Three Months Ended March 31, 2010
(Unaudited)

|                                                              |  |              |            |        |   |                              |  |                                       |            |                      |   |                                                  |   |                               |             |   |   |         |   |   |            |  
|------------------------------------------------------------- |  | ------------ | ---------- | ------ | - | ---------------------------- |  | ------------------------------------- | ---------- | -------------------- | - | ------------------------------------------------ | - | ----------------------------- | ----------- | - | - | ------- | - | - | ---------- | -
|                                                              |  |              |            |        |   | Additional Paid-
 in Capital |  | Notes
 Receivable
 From
 Stockholders |            | Accumulated
 Deficit |   | Accumulated
 Other
 Comprehensive
 Income (Loss) |   | Total
 Stockholders
 Deficit |            
|                                                              |  | Common Stock
|                                                              |  | Shares       |            | Amount
|Balance at
 December 31, 2009                                 |  |              | 43,370,935 |        | $ | 43,371                       |  | $                                     | 45,407,337 |                      | $ | (790,209                                         | ) | $                             | (50,540,355 | ) | $ | 146,584 |   | $ | (5,733,272 | )
|                                                              |  |              |            |        |   |                              |  |                                       |            |                      |   |                                                  |   |                               |             |   |   |         |   |   |            |  
|Foreign currency translation
 adjustment                      |  |              |           |        |   |                             |  |                                       |           |                      |   |                                                 |   |                               |            |   |   | (976    | ) |   | (976       | )
|Net loss                                                      |  |              |           |        |   |                             |  |                                       |           |                      |   |                                                 |   |                               | (269,067    | ) |   |        |   |   | (269,067   | )
|                                                              |  |              |            |        |   |                              |  |                                       |            |                      |   |                                                  |   |                               |             |   |   |         |   |   |            |  
|Total comprehensive loss                                      |  |              |           |        |   |                             |  |                                       |           |                      |   |                                                 |   |                               |            |   |   |        |   |   | (270,043   | )
|Stock issued for private
 placement                           |  |              | 476,190    |        |   | 476                          |  |                                       | 99,524     |                      |   |                                                 |   |                               |            |   |   |        |   |   | 100,000    |  
|                                                              |  |              |            |        |   |                              |  |                                       |            |                      |   |                                                  |   |                               |             |   |   |         |   |   |            |  
|Issuance of shares and
 warrants to vendors                   |  |              | 100,000    |        |   | 100                          |  |                                       | 54,455     |                      |   |                                                 |   |                               |            |   |   |        |   |   | 54,555     |  
|Compensation expense
 associated with unvested option expense |  |              |           |        |   |                             |  |                                       | 15,906     |                      |   |                                                 |   |                               |            |   |   |        |   |   | 15,906     |  
|Balance at
 March 31, 2010                                    |  |              | 43,947,125 |        | $ | 43,947                       |  | $                                     | 45,577,222 |                      | $ | (790,209                                         | ) | $                             | (50,809,422 | ) | $ | 145,608 |   | $ | (5,832,854 | )

See accompanying notes to condensed consolidated financial
statements.

6

---



Puradyn Filter Technologies Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

|   |                                                                                     
|-- | ------------------------------------------------------------------------------------
|1. | Basis of Presentation, Going Concern and Summary of Significant
 Accounting Policies

Basis of
Presentation

The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim information and with the instructions to Form 10-Q
and Regulation S-K. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments consisting of a normal and recurring nature considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2010 may not necessarily be indicative of
the results that may be expected for the year ending December 31, 2010.

For further
information, refer to Puradyn Filter Technologies Incorporateds (the
Company) consolidated financial statements and footnotes thereto included in
the Form 10-K for the year ended December 31, 2009.

Going Concern

The Companys
financial statements have been prepared on the basis that it will operate as a
going concern, which contemplates 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 led the
Companys independent auditors Webb & Company, P.A. to include a statement
in its audit report relating to the Companys audited consolidated financial
statements for the year ended December 31, 2009 expressing substantial doubt
about the Companys ability to continue as a going concern.

The Company
has been addressing the liquidity and working capital issues and continues to
attempt to raise additional capital with institutional and private investors
and current stockholders. We also continue to implement cost reductions in an
effort to improve margins, including securing alternative suppliers for raw
materials and manufacturing and anticipate these cost reductions will
positively impact our results of operations during the balance of 2010 and
beyond. As an ongoing measure, we review cost of material increases, some of
which were passed through to our customers as product price increases over the
past few years. Due to the declining economy affecting all our end-users,
management elected not to increase product prices in the first quarter of 2010;
however, we may revisit this issue at a later date in 2010 if the market
conditions are appropriate and raw material costs continue to increase.

Use of Estimates

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

Basic and
Diluted Loss Per Share

FASB ASC 260, Earnings Per Share, requires a dual
presentation of basic and diluted earnings per share. However, because of the
Companys net losses, the effect of outstanding stock options and warrants
would be anti-dilutive and, accordingly, is excluded from the computation of
diluted loss per share. The number of such shares excluded from the computation
of loss per share totaled 6,492,608 and 5,356,972 for the three months ended
March 31, 2010 and 2009, respectively.

7

---



Stock Compensation

The Company
adopted FASB ASC 718, Compensation  Stock
Compensation, effective January 1, 2006 using the modified
prospective application method of adoption which requires us to record
compensation cost related to unvested stock awards as of December 31, 2005,
recognizing the amortized grant date fair value in accordance with provisions
of FASB ASC 718 on straight line basis over the service periods of each award.
We have estimated forfeiture rates based on our historical experience. Stock
option compensation expense for the periods ended March 31, 2010 and March 31,
2009 have been recognized as a component of cost of goods sold and general and
administrative expenses in the accompanying Consolidated Financial Statements.

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

Inventories

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

Inventories
consisted of the following at March 31, 2010 and December 31, 2009,
respectively:

|                     |  |                |           |                   |  |          |  
|-------------------- |  | -------------- | --------- | ----------------- |  | -------- | -
|                     |  | March 31, 2010 |           | December 31, 2009 | 
|Raw
 materials       |  |                | 1,045,915 |                   |  | 942,135  |  
|Finished
 goods      |  |                | 166,889   |                   |  | 68,164   |  
|Valuation
 allowance |  |                | (167,929  | )                 |  | (159,230 | )
|                     |  |                | 1,044,875 |                   |  | 851,069  |  

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 $1,007 and $1,373 for the three-months ended March 31, 2010 and
2009, respectively. Accumulated amortization of deferred financing costs as of
March 31, 2010 and 2009 was $678,130 and $674,103, respectively.

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
FASB ASC 605, Revenue Recognition,
as amended and interpreted. Cash received by the Company prior to shipment is
recorded as deferred revenue. Sales are made to customers under terms allowing
certain limited rights of return and other limited product and performance
warranties for which provision has been made in the accompanying condensed consolidated
financial statements.

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

Product
Warranty Costs

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

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.

8

---



The following
table shows the changes in the aggregate product warranty liability for the
three-months ended March 31, 2010:

|                                              |  |   |        |  
|--------------------------------------------- |  | - | ------ | -
|Balance as of December 31, 2009               |  | $ | 40,000 |  
|Less: Payments made                           |  |   | (254   | )
|Add: Provision for current period
 warranties |  |   | 411    |  
|Balance as of March 31, 2010                  |  | $ | 40,157 |  

Comprehensive
Income

FASB ASC 220, Comprehensive Income establishes rules for
reporting and displaying of comprehensive income and its components. Comprehensive
income is the sum of net loss as reported in the consolidated statements of
operations and other comprehensive income transactions. Other comprehensive
income transactions that currently apply to the Company result from changes in
exchange rates used in translating the financial statements of its wholly owned
subsidiary, Puradyn Filter Technologies, Ltd. (Ltd.). Comprehensive loss as
of March 31, 2010 and 2009 is not shown net of taxes because the Companys
deferred tax asset has been fully offset by a valuation allowance.

Comprehensive
loss consisted of the following for the three-months ended March 31, 2010 and
2009:

|                                        |  |                              |          |      |   |          |  
|--------------------------------------- |  | ---------------------------- | -------- | ---- | - | -------- | -
|                                        |  | Three Months Ended
 March 31 |         
|                                        |  | 2010                         |          | 2009 |  
|Net loss                                |  | $                            | (269,067 | )    | $ | (682,420 | )
|Other
 comprehensive loss:              |  |                              |          |      |   |          |  
|Foreign currency translation adjustment |  |                              | (976     | )    |   | 21,672   |  
|Comprehensive
 loss                     |  | $                            | (270,043 | )    | $ | (660,748 | )

New Accounting
Standards

In June 2009,
the FASB issued ASC 105 Accounting Standards
CodificationTMand the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards CodificationTM
(the Codification) has become the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in accordance with Generally Accepted
Accounting Principles (GAAP). All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in
the Codification will not be authoritative. Rules and interpretive releases of
the SEC issued under the authority of federal securities laws, however, will
continue to be the source of authoritative generally accepted accounting
principles for SEC registrants. Effective September 30, 2009, all references
made to GAAP in our consolidated financial statements will include references
to the new Codification. The Codification does not change or alter existing
GAAP and, therefore, will not have an impact on our financial position, results
of operations or cash flows.

In June 2009,
the FASB issued changes to the consolidation guidance applicable to a variable
interest entity (VIE). FASB ASC Topic 810, Consolidation, amends the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is, therefore, required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. The qualitative
analysis will include, among other things, consideration of who has the power
to direct the activities of the entity that most significantly impact the
entitys economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprises involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that
begin after November 15, 2009. We adopted the guidance in 2010 without material
impact on our consolidated financial statements.

In June 2009,
the FASB issued Financial Accounting Standards Codification No. 860 - Transfers
and Servicing. FASB ASC No. 860 improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement, if any, in transferred
financial assets. FASB ASC No. 860 is effective as of the beginning of each
reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. The adoption of FASB ASC No.
860 did not have a material impact on our financial position, results of
operations or cash flows.

9

---



Revenue Arrangements with Multiple
Deliverables

In
October 2009, the Financial Accounting Standards Board (FASB) issued an
Accounting Standard Update (ASU) No. 2009-13, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services separately rather than as a combined unit and modifies the manner
in which the transaction consideration is allocated across the separately
identified deliverables. The ASU significantly expands the disclosure
requirements for multiple-deliverable revenue arrangements. The ASU will be
effective for the first annual reporting period beginning on or after June 15,
2010, and may be applied retrospectively for all periods presented or prospectively
to arrangements entered into or materially modified after the adoption date.
Early adoption is permitted, provided that the guidance is retroactively
applied to the beginning of the year of adoption. The Company does not expect
the adoption of ASU No. 2009-13 to have any effect on its financial statements
upon its required adoption on January 1, 2011.

|   |                                                  
|-- | -------------------------------------------------
|2. | Issues Affecting Liquidity and Managements Plans

The
Companys financial statements have been prepared on the basis that it will
continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has
sustained losses since inception and used net cash in operations of
approximately $352,000 and $567,000 during the three-months ended March 31,
2010 and 2009, 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, Webb & Company,
P.A., to include a statement in its audit report relating to the Companys
audited consolidated financial statements for the year ended December 31, 2009
expressing substantial doubt about the Companys ability to continue as a going
concern.

The
Company has been addressing the liquidity and working capital issues and
continues to attempt to raise additional capital with institutional and private
investors and current stockholders. We also continue to implement cost
reductions in purchasing raw materials, overhead expenses and administrative
expenses in an effort to improve margins and operating efficiencies. We
anticipate these costs reductions will positively impact our results of
operations during the balance of 2010 and beyond.

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 has continued the process
of aggressively seeking to raise capital and continues to explore financing
availability and options with investment bankers, funds, private sources,
members of management and existing shareholders. The Company has implemented
measures to preserve its ability to operate, including organizational changes,
deferral of salaries, reduction in personnel and renegotiating creditor and
collection arrangements. There can be no assurance that we will be able to
raise the additional capital needed or reduce the level of expenditures in
order to sustain operations.

Beginning
on March 28, 2002, the Company executed a binding agreement with one of its
stockholders, who is also its CEO and a Board member, to fund up to $6.1
million. The original loan agreements, dated March 28, 2002 and March 14, 2003,
were due and payable on December 31, 2003 and December 31, 2004.

On
February 2, 2004, this executive officer, director and stockholder amended the
original loan agreements to extend the maturity dates to December 31, 2005 and
to waive the funding requirement mandating maturity terms until such time as
the Company has raised an additional $7.0 million over the $3.5 million raised
in the Companys 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
April 2005, the maturity date of the loan agreement was extended to December
31, 2006. As consideration of this extension, this executive officer, director
and 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. In March of 2006 and in subsequent
Marchs through 2010, the executive officer, director and stockholder extended
the maturity date of the loan agreement annually, which currently expires on
December 31, 2011. As of March 31, 2010, the Company had drawn a total of $5.9
million of the available funds, net of repayments.

10

---



The
Company anticipates increased cash flows from 2010 sales activity; however,
additional cash will still be needed to support operations. If additional
capital is not raised, budgeted sales levels are not achieved and/or significant
unanticipated expenditures occur, the Company will 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 2010. There can be no
assurance that the Company will be able to raise the additional capital needed
to continue as a going concern.

|   |             
|-- | ------------
|3. | Common Stock

During
January 2010, the Company received proceeds of $100,000 from the sale of
476,190 shares of common stock at $0.21 per share.

On
January 5, 2010 the Company agreed to pay to Emerging Markets, LLC, 60,000
shares of common stock valued at $0.23 per share plus 20,000 shares of the
Companys common stock payable at the end of each month while the agreement is
in effect during 2010.

|   |              
|-- | -------------
|4. | Stock Options

During
the three-month periods ended March 31, 2010 and March 31, 2009, the Company
recognized compensation expense of approximately $34,438 and $140,000,
respectively. On February 1, 2010, the Company awarded a consultant 176,508
non-qualified stock options to purchase shares of common stock at various
prices ranging from $0.18 per share to $0.30 per share for consultancy services
on behalf of the Company. The options expire on February 1, 2015. The Company
recorded an expense of approximately $32,755 for this award.

On
March 22, 2010, the Company awarded an employee 20,000 qualified incentive
stock options to purchase common stock at $0.20 per share. The options expire
March 22, 2015 and vest over a four year period, at the end of each year.

At
March 31, 2010, approximately 4,426,025 warrants with an average exercise price
of $0.99 remain outstanding and were fully vested.

For
the three months ended March 31, 2010 and March 31, 2009, respectively, the
Company recorded stock-based compensation expense of $15,906 and $4,431,
relating to unvested employee stock options.

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

A
summary of the Companys stock option plans as of March 31, 2010, and changed
during the three month period then ended is presented below:

|                                            |  |                                    |           |                                  |   |      | 
|------------------------------------------- |  | ---------------------------------- | --------- | -------------------------------- | - | ---- | 
|                                            |  | Three Months Ended
 March 31, 2010 |          
|                                            |  | Number of Options                  |           | Weighted Average
 Exercise Price |  
|Options outstanding at
 beginning of period |  |                                    | 1,910,075 |                                  | $ | 1.95 | 
|                                            |  |                                    |           |                                  |   |      | 
|Options granted                             |  |                                    | 196,508   |                                  |   | 0.21 | 
|Options exercised                           |  |                                    |           |                                  |   |      | 
|Options cancelled                           |  |                                    | 40,000    |                                  |   | 3.13 | 
|Options at end of period                    |  |                                    | 2,066,583 |                                  | $ | 1.76 | 
|Options exercisable at end
 of period       |  |                                    | 1,044,250 |                                  | $ | 3.23 | 

11

---



Changes in the
Companys unvested options for the three months ended March 31, 2010 are
summarized as follows:

|                                          |  |                                     |           |                                   |   |      | 
|----------------------------------------- |  | ----------------------------------- | --------- | --------------------------------- | - | ---- | 
|                                          |  | Three
 Months Ended
 March 31, 2010 |          
|                                          |  | Number
 of Options                  |           | Weighted
 Average
 Exercise Price |  
|Nonvested options at
 beginning of period |  |                                     | 857,075   |                                   | $ | 0.28 | 
|Options granted                           |  |                                     | 196,508   |                                   |   | 0.21 | 
|Options vested                            |  |                                     | 8,750     |                                   |   | 0.37 | 
|Options forfeited                         |  |                                     | 40,000    |                                   |   | 3.13 | 
|Nonvested options at end of
 period       |  |                                     | 1,022,333 |                                   | $ | 0.26 | 

| |                        |  |                     |           |                                                  |  |                               |  |                   |      |                               |  |           |  |   |      | 
| | ---------------------- |  | ------------------- | --------- | ------------------------------------------------ |  | ----------------------------- |  | ----------------- | ---- | ----------------------------- |  | --------- |  | - | ---- | 
| |                        |  | Options Outstanding |           | Options Exercisable                              | 
| | Range ofExercise Price |  | NumberOutstanding   |           | Remaining
 Average
 Contractual Life
 (In Years) |  | WeightedAverageExercise Price |  | NumberExercisable |      | WeightedAverageExercise Price | 
| | $0.21  $1.70          |  |                     | 1,718,583 |                                                  |  | 5.05                          |  | $                 | 0.44 |                               |  | 696,250   |  | $ | 0.70 | 
| | $1.99  $2.60          |  |                     | 48,000    |                                                  |  | 1.69                          |  |                   | 2.32 |                               |  | 48,000    |  |   | 2.32 | 
| | $9.25                  |  |                     | 300,000   |                                                  |  | 2.25                          |  |                   | 9.25 |                               |  | 300,000   |  |   | 9.25 | 
|
| | Totals                 |  |                     | 2,066,583 |                                                  |  | 5.13                          |  | $                 | 1.76 |                               |  | 1,044,250 |  | $ | 3.23 | 

A summary of
the Companys warrant activity as of March 31, 2010 and changed during the
three month period then ended is presented below:

|                                                     |  |                           |           |       |   |      | 
|---------------------------------------------------- |  | ------------------------- | --------- | ----- | - | ---- | 
|                                                     |  | 2010                      |          
|Three
 months ended March 31, 2010                   |  | Weighted Average Exercise |          
|                                                     |  | Options                   |           | Price |  
|Warrants
 outstanding at the beginning of the period |  |                           | 4,426,025 |       | $ | 0.99 | 
|Granted                                              |  |                           |          |       |   |     | 
|Exercised                                            |  |                           |          |       |   |     | 
|Expired                                              |  |                           |          |       |   |     | 
|Warrants
 outstanding at end of period               |  |                           | 4,426,025 |       | $ | 0.99 | 

|                       |  |                      |           |                                                  |  |                               |  |   |      | 
|---------------------- |  | -------------------- | --------- | ------------------------------------------------ |  | ----------------------------- |  | - | ---- | 
|                       |  | Warrants Outstanding |          
|Range ofExercise Price |  | NumberOutstanding    |           | Remaining
 Average
 Contractual Life
 (In Years) |  | WeightedAverageExercise Price | 
|$0.50  $0.99          |  |                      | 1,636,953 |                                                  |  | 4.02                          |  | $ | 0.55 | 
|1.00  1.25            |  |                      | 2,789,072 |                                                  |  | 2.81                          |  |   | 1.25 | 
|Totals                 |  |                      | 4,426,025 |                                                  |  | 3.25                          |  | $ | 0.99 | 

|   |                             
|-- | ----------------------------
|5. | Notes Payable to Stockholder

As
of March 31, 2010, the Company had drawn $5.9 million from the available
line-of-credit, which is provided by a stockholder of the Company (see Note 2).
Amounts drawn bear interest at a weighted average between two facilities, one
is based on a minimum of 2.75% or the prime rate minus one-half percent and the
other is based on Libor plus 1.40 (a weighted average of 2.441% as of March 31,
2010) payable monthly and becoming due and payable on December 31, 2011, or
upon a change in control of the Company or consummation of any other financing
over $7.0 million. Previously, this executive officer, director and stockholder
waived this funding requirement. On February 23, 2010, the maturity date of the
stockholder loan was extended from December 31, 2010 to December 31, 2011.

12

---



For
the three-months ended March 31, 2009 and 2008, the Company recorded
approximately $35,666 and $36,230, 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

Sales
to two customers individually accounted for approximately 28% and 15% (combined
total of 43%) for the three-months ended March 31, 2010.

On January 1,
2010, we entered into a consulting agreement with Emerging Markets Consulting,
LLC, (EMC) for design, development and dissemination of information about the
company to further its business and opportunities. The agreement is for a term
of twelve months. EMC is entitled to compensation in the amount of 60,000
restricted shares of common stock upon signing; thereafter 20,000 restricted
shares of common stock due at the end of each month during the term of the
agreement.

On October 20, 2009, we entered into a
consulting agreement with Boxwood Associates, Inc., whereby we pay $2,000 monthly for management and strategic
development services performed.  The contract will remain in effect until December 31, 2010, unless
terminated by either party providing 30 days written notice.  Mr. Telesco, a member of our board of directors,
is President of Boxwood Associates, Inc.

|   |                  
|-- | -----------------
|7. | Subsequent Events

On
May 3, 2010, the Company issued 20,000 shares of common stock to Emerging
Markets Consulting, LLC as per the terms of its agreement.

On
May 7, 2010, the Company received notice of a claim in the amount of $110,700
by its former CFO, Ms. Cindy Gimler, demanding payment of severance and accrued
vacation. Ms. Gimler has retained counsel relevant to her claim. Management
believes the claim to be without merit and accordingly has made no provision
for this claim.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS
 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements Regarding Forward
Looking Information

Certain
statements in this report contain or may contain forward-looking statements
that are subject to known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking statements
were based on various factors and were derived utilizing numerous assumptions
and other factors that could cause the Companys actual results to differ
materially from those in the forward-looking statements. These factors include,
but are not limited to, the Companys ability to operate as a going concern and
to raise sufficient capital to fund its operations, its ability to satisfy its
obligations as they become due, acceptance of the Companys products, the
Companys dependence on distributors and a few significant customers, risks
associated with international operations and international distribution and
other factors. Most of these factors are difficult to predict accurately and
are generally beyond our control. You should consider the areas of risk
described in connection with any forward-looking statements that may be made
herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this report in
its entirety. Except for the Companys ongoing obligations to disclose material
information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this report and you
should not rely on these statements without also considering the risks and uncertainties
associated with these statements and our business.

Overview

Sales of the
Companys products, the puraDYN®
bypass oil filtration system (the Puradyn)
and replaceable filter elements will depend principally upon 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 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. As a result of our
limited resources, to date we have not had adequate funds available to
undertake these necessary marketing efforts.

13

---



Currently no
bypass oil filtration system has captured a substantial share of the estimated
recurring $15 billion potential market, based upon figures supplied by The
Rhein Report, a diesel engine industry consulting, publishing and market
research company. We believe we are in a unique 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:

|  |                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A
 competitively priced, value-added product based on an advanced, patented
 technology;                                                                                                                                                                                                                                                                                               
| | An
 alternative solution to the rising costs and national concerns over
 dependence on foreign oil; and                                                                                                                                                                                                                                                                                
| | Providing an
 operational maintenance solution to end users in conjunction with existing
 and reasonably foreseeable federal environmental legislation such as new
 regulation affecting diesel engines and diesel fuels, mandating cleaner
 diesel engines which first went into effect January 1, 2007. Additional and
 more stringent legislation is anticipated in 2010 and beyond.

We focus our
sales strategy on direct sales and distribution efforts as well as on the
development of a strong nationwide distribution network that will not only sell
but also install and support our product. We currently have approximately 106
active distributors in the U.S. and internationally. The number of distributors
will constantly change as we add new distributors as well as when OEMs come
onboard with their distribution network.

We continue to
focus our sales and marketing efforts to target industries more open to
innovative methods to reduce oil maintenance operating costs. These industries
are searching for new and progressive ways, including bypass oil filtration, to
maintain their equipment.

This strategy includes focus on:

|  |                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 expansion of existing strategic relationships we have with John Deere, Avis,
 and others;                                                                                                               
| | Continued
 development and expansion of our distribution network with distributors who are
 trained by us and stock inventory in order to establish a sales- and
 service-oriented nationwide infrastructure;
| | Continuing
 to target existing and new industrial/construction equipment fleets and major
 diesel engine and generator set OEMs;                                                                             
| | Creating
 customer pull-through, a sustained level of request for our product on the
 OEM level; and                                                                                                       
| | Converting
 customer evaluations into sales, both immediate and long term.                                                                                                                                   

While this is
a long-term and ongoing commitment, we believe we have achieved growing
industry acceptance based on recent accomplishments:

|  |                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increased
 activity in South and Central America. Beginning in the last quarter of 2009
 through the first quarter of 2010, we received orders for approximately 600
 systems for a variety of applications.
| | Increased
 activity in the open pit mining industry for large haul trucks carrying
 upwards of 250 tons of material from the mine face.                                                                     
| | Extended
 retrofit programs with domestic and international industrial service
 companies.                                                                                                                  

We believe
that the renewed interest shown in the technology of bypass oil filtration as
an economic alternative to significantly rising oil prices, dependence upon
foreign oil, coupled with the added benefits of being environmentally
beneficial and a means to conserve oil, has timely and favorably positioned the
Company as a manufacturer of a cost efficient green product.

We also
believe that industry acceptance will continue to grow in 2010 as evidenced by
increased sales activity in the first quarter 2010; 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 end-user to test and evaluate the Puradyn system on its fleet equipment.
While set for a specific period of time, typically ranging from three to twelve
months, evaluations are often influenced by a number of variables including
equipment type and applications downtime or servicing, which may extend the
evaluation period. Consequently, the sales cycle can be relatively long.

14

---



We believe
international sales are especially well suited to our product given that much
of the equipment is located in remote areas, therefore, due solely to logistics
of manpower resources and physically being able to reach the equipment in a
timely manner to perform the necessary oil related maintenance. In addition, in
certain countries, fuel and emission regulations are not as stringent as in
North America, causing engines to operate under more severe conditions. Certain
applications representing a higher and more immediate return on investment are
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 requires
to verify oil condition. In the first three months of 2010, total international
sales accounted for approximately 29% of the Companys consolidated net sales
as compared to 34% for the first three months of 2009.

Our focus on
specific industries throughout 2009 has begun to pay dividends in the first
quarter of 2010, with these certain niche industries representing nearly 50% of
sales as compared to 20% in the comparable period in 2009.

Optimizing our
limited resources and obtaining sufficient capital will be key to accomplishing
our goals. We will need to remain focused on working with OEMs, continue
developing the independent distributors we have onboard and maintain growth
within the major accounts using our system. To accomplish these tasks, we will
need to obtain capital funding and add appropriate sales and marketing support
to be sure our distributors and customers are served. In early 2010, we hired
an additional sales person and anticipate the need for at least one more sales
person plus one sales support person. We also added an application engineer in
the last quarter of 2009 and will need a product engineer as we grow our OEM
account list. The expansion into the OEM area is rewarding in the aspect that
it provides a steady flow of material requirements for our manufacturing
facility. Additionally, OEM business allows us more stability in retaining
trained manufacturing personnel, a stronger supply chain with steady
production, economies of scale, and the ability to better utilize our overhead
with higher average material turn rates.

We continue to
address our liquidity and working capital issues as we continue to seek additional
capital from institutional and private investors and current stockholders.
Historically, we have faced difficulties in raising adequate capital and we
anticipate that those efforts will continue given the current uncertainties
facing the capital markets in the U.S. We also continue to implement cost
reductions in an effort to improve margins, including securing alternative
suppliers for raw materials and manufacturing and anticipate these costs
reductions will positively impact our results of operations during the balance
of 2010 and beyond. As an ongoing measure, we review cost of material
increases, some of which were passed through to our customers as product price
increases, ranging from 3% to 7%, beginning January in each of the past few
years. However, due to the declining economy affecting all of our end-users,
management elected not to increase product prices in the first quarter of 2010;
however, we may revisit this issue at a later date in 2010 if market conditions
are appropriate and raw material costs increase.

Going Concern

Our
financial statements have been prepared on the basis that we will operate as a
going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. We have incurred net losses each
year since inception and have relied on the sale of our stock from time to time
and loans from third parties and from related parties to fund our operations.
These recurring operating losses, liabilities exceeding assets and the reliance
on cash inflows from an institutional investor and current stockholder have led
our independent registered public accounting firm Webb & Company P.A. to
include a statement in its audit report relating to ours audited consolidated financial
statements for the years ended December 31, 2009 and 2008 expressing
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern is dependent upon our ability to obtain the
necessary financing to meet our obligations and repay our liabilities when they
become due and to generate profitable operations in the future. We plan to
continue to provide for our capital requirements through the sale of equity
securities, however, we have no firm commitments from any third party to
provide this financing and we cannot assure you we will be successful in
raising working capital as needed. There are no assurances that we will have
sufficient funds to execute our business plan, pay our obligations as they
become due, or generate positive operating results.

Critical Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to product returns, bad debts, inventories, financing operations,
warranty obligations and contingencies and litigation. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

15

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We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.

Allowance for doubtful accounts

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

The
policy for determining past due status is based on the contractual payment
terms of each customer, which is generally net 30 or net 60 days. Once
collection efforts by us and our collection agency are exhausted, the
determination for charging off uncollectible receivables is made.

Estimation of Product Warranty Cost

We
provide for the estimated cost of product warranties at the time revenue is
recognized. While we engage in product quality programs and processes,
including actively monitoring and evaluating the quality of our component
suppliers, our 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 our estimates, revisions to the estimated warranty
liability would be required.

Inventory and estimation of inventory obsolescence

Inventories are valued at the lower of cost
or market using the first in, first out (FIFO) method. Valuation allowances for obsolete and excess
inventory and shrinkage are also recorded. Shrinkage is estimated as a percentage of sales for the period
from the last physical inventory date to the end of the applicable period. Such estimates are based on
experience and the most recent physical inventory results. The valuation allowances for obsolete and
excess inventory in multiple stages of processing, requires management judgment and estimates that may
impact the ending inventory valuation and valuation allowances that may affect the reported gross margin for the period.

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

Impairment of long-lived assets

We
periodically evaluate the recoverability of the carrying amount of our
long-lived assets under the guidelines of FASB ASC 360, Property, Plant and Equipment. Factors
that we consider in making this evaluation include estimating the undiscounted
net cash flows estimated to result from the assets over their remaining useful
life. Should our estimates of these factors change, our results of operations
and financial condition could be adversely impacted.

Revenue recognition

Revenue
is recognized when earned. Our revenue recognition policies are in compliance
with the provisions issued in FASB ASC 605, Revenue
Recognition. Revenue from product sales to customers, distributors
and resellers is recorded when products that do not require further services or
installation by us are shipped, when there are no uncertainties surrounding
customer acceptance and for which collectibility is reasonably assured. We
provide for sales returns based on an historical analysis of returns. The estimate
is updated for current return activity and the provision is adjusted
accordingly. Should actual returns exceed managements estimates, the provision
may require further adjustment and accordingly, net sales may decrease.

16

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Results of Operations for the Three-months
Ended March 31, 2010 Compared to the Three-months Ended March 31, 2009

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 March 31, 2010 to the
three-months ended March 31, 2009:

|                              |  |                              |      |      |   |        |   |   |     |  
|----------------------------- |  | ---------------------------- | ---- | ---- | - | ------ | - | - | --- | -
|(In thousands)                |  | Three Months Ended March 31, |     
|                              |  | 2010                         |      | 2009 |   | Change |  
|Net sales                     |  | $                            | 674  |      | $ | 299    |   | $ | 375 |  
|                              |  |                              |      |      |   |        |   |   |     |  
|Costs and expenses:           |  |                              |      |      |   |        |   |   |     |  
|Cost of products sold         |  |                              | 402  |      |   | 360    |   |   | 42  |  
|Salaries and wages            |  |                              | 239  |      |   | 240    |   |   | (1  | )
|Selling and administrative    |  |                              | 265  |      |   | 343    |   |   | (78 | )
|Total costs and expenses      |  | $                            | 906  |      |   | 943    |   | $ | (37 | )
|                              |  |                              |      |      |   |        |   |   |     |  
|Other (expense) income:       |  |                              |      |      |   |        |   |   |     |  
|Interest income               |  |                              |     |      |   |       |   |   |    |  
|Interest expense              |  |                              | (37  | )    |   | (38    | ) |   | 1   |  
|Total other (expense)
 income |  |                              | (37  | )    |   | (38    | ) |   | 1   |  
|Net loss                      |  | $                            | (269 | )    | $ | (682   | ) | $ | 413 |  

Net Sales

Net sales
increased $375,000 or 125% in the first quarter of 2010 as compared to the
first quarter of 2009. This increase resulted from three factors. These factors
were our focus, beginning in late 2009, on niche industries; our focus on
international customers and our customers need to end deferred maintenance
used as a tool for cost savings in prior periods.

The increase in sales for the first quarter of 2010
came from one new customer and increased purchases from existing customers.
We anticipate that our customer purchases for the three months ending March 31, 2010
will remain throughout the balance of the year. Our sales increases are based on multiple
orders that we anticipate will continue as potential customers complete their testing
phase of our product and roll it out to their fleet.

During the
period ending March 31, 2010, the sales returns and allowances decreased 70%
from the first quarter of 2009 due to a decrease in the cumulative historical
rate of returns. Overall, historical return rates have continued to decline as
improvements have been made to the products.

Sales to two
customers accounted for approximately 28% and 15%, respectively, of the
consolidated net sales for the three-months ended March 31, 2010. For the
three-months ended March 31, 2009, sales to the same two customers accounted
for 22% and 12%, respectively, of the consolidated net sales.

Cost of Products Sold

Cost of
products sold, as a percentage of sales, decreased from 121% in the first
quarter of 2009 to 60% in the first quarter of 2010. The decrease in cost of
goods sold as a percentage of sales, is primarily attributable to the
significant increase in sales and allocation of fixed and variable factory
costs over those higher sales. Other reductions in cost of products sold
included reduced warranty expense, lower scrap expenses, lower costs of raw
materials and elimination of temporary labor costs. We anticipate that future
periods will experience the same lower scrap expenses and elimination of
temporary labor costs.

Salaries and Wages

Salaries and
wages were relatively consistent during the quarter ended March 31, 2010
compared to March 31, 2009. Two engineers were hired during 2009; one in August
and the other in November. This increase in Engineering payroll was offset by
the departure of a production manager in February, 2009 and an operations
manager in September, 2009. Subsequent to March 31, 2010, we hired a sales
associate and our chief financial officer departed. We do not anticipate a
material impact on our salary expense by these changes in future periods.

17

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Selling and Administrative Expenses

Selling and
administrative expenses decreased by 23% for the three months ended March 31,
2010 from the comparable period in 2009. This decrease was due to decreases in
stock based compensation expense, exchange rate losses and a reduction of
outside computer consulting services. These decreases were partially offset by
increases in research and development costs, travel and show/exhibit costs. As
we increase our reach to international customers and develop more specialized
products for niche industries, we anticipate that selling, travel and research
and development costs will increase.

Interest Expense

Interest
expense remained relatively constant for the period ending March 31, 2010 as
compared to the period ending March 31, 2009 and was incurred primarily on the
outstanding balance of the stockholder notes payable. The Company pays interest
monthly on the notes payable to the stockholder at the prime rate less one-half
percent, which was a weighted average of 2.44% as of March 31, 2010 as opposed
to 2.4% as of March 31, 2009.

Liquidity and Capital Resources

As of March
31, 2010, the Company had cash and cash equivalents of approximately $99,510,
as compared to $54,000 at December 31, 2009. At March 31, 2010, we had negative
working capital of ($74,300) and our current ratio (current assets to current
liabilities) was 0.95 to 1. At December 31, 2009 we had negative working
capital of ($198,500) and our current ratio was 0.86 to 1. The increase in
working capital and current ratio is primarily attributable to the increase in
accounts receivable and an increase in inventories, offset by increases in
accounts payable and a decrease in cash.

We have
incurred net losses each year since inception and at March 31, 2010 we had an
accumulated deficit of $50,809,422. Our net sales are not sufficient to fund
our operating expenses. Historically, we have relied on the sale of our stock
from time to time and loans from third parties and from related parties to fund
our operations. During 2009, we raised a total of $1.983 million in capital
from an institutional investor and current stockholders and during the three
months ended March 31, 2009 we raised an additional $100,000. In addition, as
of March 31, 2010, we owe our stockholder $5.9 million for funds he has
advanced to us from time to time for working capital. Interest expense on this
loan was $35,666 for the three months ended March 31, 2010.

We do not
currently have any commitments for capital expenditures. Currently, without
additional equity investments, we expect our operating cash flows will suffice
through September 2010. While we anticipate cash flows from 2010 sales
activity, our operations continue to require more cash than they produce. As a
result of this deficiency, additional cash will still be needed to support
operations, meet our working capital needs and satisfy our obligations as they
become due. While we are actively seeking additional equity investments, we
have no firm commitments from any third parties and there are no assurance we
will be successful in attracting additional capital. In addition, as set forth
above, we owe our stockholder $5.9 million which is due on December 31, 2011 or
(i) at such time as we have raised an additional $7 million over the $3.5
million raised in prior offerings, or (ii) at such time as we are operating
within sufficient cash flow parameters to sustain operations, or (iii) until a
disposition of our company, such as an acquisition or merger, occurs. We do not
have sufficient funds to pay this loan when it becomes due and there are no
assurances the note holder will extend the due date.

We have implemented
measures to preserve our ability to operate, including organizational changes,
a reduction and/or deferral of salaries, reduction in personnel and
renegotiating creditor and collection arrangements. If we are not successful in
raising additional capital in the near future, it is possible we will be
required to accelerate our contingent plans to more aggressively reduce
spending, including drastic reductions in our work force, severe cutbacks in
our production facilities and elimination of overhead costs that do not
contribute to our level of sales activity. If budgeted sales levels are not
achieved and/or significant unanticipated expenditures occur, or if we are not
able to raise additional investment capital, we may have to modify our business
plan, reduce or discontinue some of our operations or seek a buyer for part of
its assets to continue as a going concern through 2010. There can be no
assurance that we will be able to raise additional capital or that sales will
increase to the level required to generate profitable operations to provide
positive cash flow from operations. In that event, it is possible that
stockholders could lose their entire investment in our company. These factors
raise substantial doubt about our ability to continue as a going concern.

Cash Flows

Operating activities

For the
three-month period ended March 31, 2010 net cash used in operating activities
was $351,736, which primarily resulted from the net loss of $269,067. The
utilization of cash in operations is primarily attributable to the increase in
accounts receivable in the amount of $151,498, an increase in inventories in
the amount of $193,806 offset by an increase in accounts payable of $184,340.

18

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For the
three-month period ended March 31, 2009 net cash used in operating activities
was $567,000, which primarily resulted from the net loss of $682,000. The
decrease in working capital is primarily attributable to the increase in
inventory in the amount of $80,000, a decrease in cash of $63,000, and a
decrease in accounts in accounts payable of $24,000; offset by increases in the
inventory allowance of $39,000, decrease in accounts receivable of $20,000 and
decreases in prepaid expenses in the amount of $19,000.

Investing activities

For the three
months ending March 31, 2010, $9,369 was used in investing activities for the
purchase of equipment. We did not have a comparable expense in the three months
ending March 31, 2009.

Financing activities

Net cash
provided by financing activities was $321,325 for the period, composed of
$100,000 in proceeds received from stock issued for cash and $222,000 in
advances under the line of credit from our stockholder as described above. Net
cash provided by financing activities was $482,000 for the period, composed of
$583,000 of net proceeds received from stock issued for cash offset by a
$100,000 reduction of the stockholder loan.

New Accounting Standards

In June 2009,
the FASB issued ASC 105 Accounting Standards
CodificationTMand the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards CodificationTM
(the Codification) has become the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in accordance with Generally Accepted
Accounting Principles (GAAP). All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in
the Codification will not be authoritative. Rules and interpretive releases of
the SEC issued under the authority of federal securities laws, however, will
continue to be the source of authoritative generally accepted accounting
principles for SEC registrants. Effective September 30, 2009, all references
made to GAAP in our consolidated financial statements will include references
to the new Codification. The Codification does not change or alter existing
GAAP and, therefore, will not have an impact on our financial position, results
of operations or cash flows.

In June 2009,
the FASB issued changes to the consolidation guidance applicable to a variable
interest entity (VIE). FASB ASC Topic 810, Consolidation, amends the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is, therefore, required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. The qualitative
analysis will include, among other things, consideration of who has the power
to direct the activities of the entity that most significantly impact the
entitys economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprises involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that
begin after November 15, 2009. This will not have an impact on the Companys
financial position, results of operations or cash flows.

In June 2009,
the FASB issued Financial Accounting Standards Codification No. 860 - Transfers
and Servicing. FASB ASC No. 860 improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement, if any, in transferred
financial assets. FASB ASC No. 860 is effective as of the beginning of each
reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. The Company is evaluating the
impact the adoption of FASB ASC No. 860 will have on its financial statements.

Revenue Arrangements with Multiple
Deliverables

In October
2009, the Financial Accounting Standards Board (FASB) issued an Accounting
Standard Update (ASU) No. 2009-13, which addresses the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services separately rather than as a combined unit and modifies the manner in
which the transaction consideration is allocated across the separately
identified deliverables. The ASU significantly expands the disclosure
requirements for multiple-deliverable revenue arrangements. The ASU will be
effective for the first annual reporting period beginning on or after June 15,
2010, and may be applied retrospectively for all periods presented or
prospectively to arrangements entered into or materially modified after the
adoption date. Early adoption is permitted, provided that the guidance is
retroactively applied to the beginning of the year of adoption. The Company
does not expect the adoption of ASU No. 2009-13 to have any effect on its
financial statements upon its required adoption on January 1, 2011.

19

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Impact of
Inflation and Foreign Currency Translation

Inflation has
not had a significant impact on the Companys operations. However, any
significant decrease in the price for oil or labor, environmental compliance
costs, and engine replacement costs could adversely impact the Companys end
users cost/benefit analysis as to the use of the Companys products. While we
no longer have operations in Great Britain, we maintain a small amount of cash
on deposit in a bank account related to Ltd.s previous operations and we
continue to collect outstanding accounts receivable. These activities resulted
in a minor foreign currency translation adjustment during the three month
period ending March 31, 2010. The impact of fluctuations in foreign currency
has been significant during the three-month period ended March 31, 2009. The
exchange rate, the Great British pound to the U.S. dollar fluctuated from 1.45
on December 31, 2008 to 1.42 on March 31, 2009.

Off Balance
Sheet Financing

None.

|        |                                                             
|------- | ------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
 MARKET RISK.

Not
applicable for a smaller reporting company.

|         |                        
|-------- | -----------------------
|ITEM 4T. | CONTROLS AND PROCEDURES

Our
management, which includes our CEO and our Vice President who serves as our
principal financial officer, have conducted an evaluation of the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-14(c)
promulgated under the Securities and Exchange Act of 1934, as amended) as of a
date (the Evaluation Date) as of the end of the period covered by this
report. Our management does not expect that our disclosure controls and
procedures will prevent all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will be met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period
covered by this report, our CEO and our Vice President who also serves as our principal
financial officer have concluded that our disclosure controls and procedures were not
effective such that the information relating to our company, required to be disclosed
in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and our Vice President
who serves as our principal financial officer, to allow timely decisions regarding required
disclosure as a result of material weaknesses in our internal controls over financial reporting.
In its assessment of the effectiveness of internal control over financial reporting as of
December 31, 2009, our management determined that there were control deficiencies that constituted
material weaknesses attributable to managements ability to override standard processes and
policies. This material weakness in internal control over financial reporting has been remediated
subsequent to March 31, 2010 through additional policies and procedures installed that serve to
prevent managements ability to override standard processes and policies. These additional policies
and procedures include a hierarchal reporting process to terminate any action that would result in
managements ability to override a standard process or procedure.  However, as these changes
in our internal controls over financial reporting were not implemented until after March 31, 2010,
the material weaknesses at December 31, 2009 continued at March 31, 2010.

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

20

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Part II. OTHER
INFORMATION

|        |                    
|------- | -------------------
|ITEM 1. | LEGAL
 PROCEEDINGS.

On
July 7, 2009 the Company filed a lawsuit in the Circuit Court in 15th Judicial
District in and for Palm Beach County, Florida, styled Puradyn Filter
Technologies, Inc. versus Richard C. Ford case number 502009CA023128XXXXMB. In
this action against Mr. Ford, our former Chief Executive Officer, the Company
is alleging non-payment of three promissory notes totaling $756,250 with
interest at a rate of 5.63% per annum since July 25, 2001, the execution date
of the notes. As of November 13, 2009 interest on all three notes amounts to
$353,796, for an aggregate amount owing of $1,110,046. At the time of the
execution of these promissory notes, Mr. Ford was Chief Executive Officer of
the Company and was responsible for these instruments. The Company is seeking
payment of the promissory notes and accrued interest. On August 7, 2009, Mr. Ford
responded by filing a Motion to Disqualify the Companys legal counsel, Gary E.
Susser and request a staying action until such time as the Company obtains new
legal counsel. The hearing for this motion has not been scheduled in court. On
September 16, 2009 a hearing on Order to Show Cause occurred. On October 26,
2009 a ruling was issued, denying the Companys request for custody of the
collateral. On November 5, 2009 Richard Ford filed a motion to stay proceeding
pending payment of documentary stamps and amendment of the complaint and relief
from prior orders relating to production of information pertaining to the sale
of stock. On November 5, 2009, the Company filed a Motion for Rehearing on
Plaintiffs Request for Possession to obtain custody of the collateral. This
was heard on November 12, 2009, and the Company is awaiting a ruling. On March
2, 2010, the court ordered a stay on all further discovery pending a ruling on
Mr. Fords motion to disqualify the Companys counsel. On April 16, 2010 Mr.
Ford filed a counter claim to our lawsuit. The Companys legal counsel has
filed a motion to dismiss along with a request for sanctions under the counter
claim filing of Mr. Ford.

|         |               
|-------- | --------------
|ITEM 1A. | RISK
 FACTORS.

Risk
factors describing the major risks to our business can be found under Item 1A,
Risk Factors, in our Annual Report on Form 10-K for the year ended December
31, 2009. There has been no material change in our risk factors from those
previously discussed in the Annual Report on Form 10-K.

|        |                                                             
|------- | ------------------------------------------------------------
|ITEM 2. | UNREGISTERED
 SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 5,
2010 the Company received proceeds of $100,000 from the sale of 476,190 shares
of common stock at a price of $0.21 per share to an existing stockholder. The
investor was an accredited investor and the transaction was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act. The Company did not incur commissions or
fees related to this transaction

On January 1,
2010, we entered into a consulting agreement with Emerging Markets Consulting,
LLC, for design, development and dissemination of information about the company
to further its business and opportunities. The agreement is for a term of 12
months. As compensation for their services, we agreed to issue 60,000 shares of
common stock valued at $12,600 upon execution of the agreement and thereafter
issue to them an additional 240,000 shares of common stock valued at $50,400 at
the rate of 20,000 shares of common stock at the end of each month during the
term of the agreement, while the agreement is in effect. Either party may terminate the agreement with 30 days
notice. The recipient was an accredited or otherwise sophisticated investor who
had such knowledge and experience in business matters and was capable of
evaluating the merits and risks of the prospective investment in our
securities. The recipient had access to business and financial information
concerning our company. The issuance of the shares is exempt from registration
under the Securities Act of 1933 in reliance on an exemption provided by
Section 4(2) of that act.

|        |                                  
|------- | ---------------------------------
|ITEM 3. | DEFAULTS
 UPON SENIOR SECURITIES.

None.

|        |                        
|------- | -----------------------
|ITEM 4. | (REMOVED AND
 RESERVED)
|        |                        
|ITEM 5. | OTHER
 INFORMATION.    
|        |                        
|ITEM 6. | EXHIBITS.              

|     |                                                                     
|---- | --------------------------------------------------------------------
|31.1 | Rule
 13a-14(a)/15d-14(a) certification of Chief Executive Officer  
|31.2 | Rule
 13a-14(a)/15d-14(a) certificate of principal financial officer
|32.1 | Section 1350
 certification of Chief Executive Officer              
|32.2 | Section 1350
 certification of principal financial officer          

21

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SIGNATURES

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

|                    |                                                                     
|------------------- | --------------------------------------------------------------------
|                    | PURADYN
 FILTER TECHNOLOGIES INCORPORATED                           
|                    |                                                                     
|Date: May
 24, 2010 | By /s/
 Joseph V. Vittoria                                          
|                    | Joseph V.
 Vittoria, Chairman and Chief Executive Officer, principal
|                    | executive
 officer                                                  
|                    |                                                                     
|Date: May
 24, 2010 | By /s/ Alan
 J. Sandler                                             
|                    | Alan J.
 Sandler, Secretary to the Board, Vice President and        
|                    | principal
 financial officer                                        

22

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