U.S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                 FORM 10--KSB/A

(Mark one)

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

                   For the fiscal year ended December 31, 2000
                                            -----------------------------------

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

    For the transition period from                     to
                                   -------------------    ----------------------
                       Commission file number      0-29192
                                             -----------------------------------

                    Puradyn Filter Technologies, Incorporated
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)


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



3020 High Ridge Road, Suite 100, Boynton Beach, Florida           33426
-------------------------------------------------------      ----------------
(Address of principal executive offices)                        (Zip Code)

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

Securities registered under Section 12(b) of the Exchange Act:

Title of each class                   Name of each exchange on which registered

-----------------------------------   ------------------------------------------

-----------------------------------   ------------------------------------------

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.001 par value
--------------------------------------------------------------------------------
                                (Title of class)


--------------------------------------------------------------------------------
                                (Title of class)

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


<PAGE>


Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. { X }

State issuer's revenues for its most recent fiscal year. $1,172,567

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.

Common stock, par value $.001 per share ("Common Stock"), was the only class of
voting stock of the Registrant outstanding on March 19, 1999. Based on the
closing price of the Common Stock quoted on the OTC Bulletin Board as reported
on March 20, 2001 ($4.31), the aggregate market value of the 7,224,218 shares of
the Common Stock held by the persons other than officers, directors and persons
known to the Registrant to be the beneficial owner (as that term is defined
under the rules of the Securities and Exchange Commission) of more than five
percent of the Common Stock on that date was approximately $31,136,000. By the
foregoing statements, the Registrant does not intend to imply that any of these
officers, directors or beneficial owners are affiliates of the Registrant or
that the aggregate market value, as computed pursuant to rules of the Securities
and Exchange Commission, is in any way indicative of the amount which could be
obtained for such shares of Common Stock.

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

Check whether the issuer has filed all documents and reports required to be
filed by Section12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.       Yes _____ No _____

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: March 20, 2001: 14,206,541 This
report contains a total of __ pages.





<PAGE>


                                     PART I

The term "company" or "Puradyn" refers to Puradyn Filter Technologies,
Incorporated, unless the context otherwise implies.

ITEM 1.    DESCRIPTION OF BUSINESS
-----------------------------------

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

The Company

Introduction
------------

The company owns the rights to manufacture, market and distribute worldwide the
Puradyn(R) by-pass oil filtration system ("Puradyn") for use with substantially
all internal combustion engines and hydraulic equipment that use lubricating
oil. The Puradyn cleans oil by continually removing solid and liquid
contaminants from the oil through a sophisticated and unique filtration and
evaporation process. The Puradyn has been used successfully to substantially
extend oil-drain intervals and to extend the time between engine overhauls to up
to three times longer than traditional intervals. The company also manufactures
and sells disposable replacement filter elements ("Element") for the Puradyn.

By keeping the oil continually clean, the Puradyn effectively extends engine
life and dramatically reduces new oil purchases as well as maintenance time and
the costs and environmental concerns involved in the storage and disposal of
waste oil. In addition, customer statements support improved fuel efficiency
from the use of utilizing continuously clean oil, which will reduce engine
energy loss due to friction.

Background and Formation of Puradyn Filter Technologies, Incorporated
---------------------------------------------------------------------

The patents issued on the oil filtration system that, after further development,
has evolved into the current Puradyn units, were issued in the early 1980's. The
owners of such patents attempted to market and sell the original system under
various other trade names, but were not successful. The factors to which that
could be attributed, include (a) the failure of potential customers to
understand the importance or possibility of continually clean oil and belief
that extended drain interval could be practical; (b) lack of consumer awareness
of the importance of the environmental benefits inherent in the Puradyn; (c) the
absence of acceptance and endorsement by engine and vehicle manufacturers; (d)
general disbelief that the product would perform as claimed and could provide
benefits in a cost-effective manner; (e) inadequate capitalization, and (f)
limited management experience.

                                        2

<PAGE>

         In 1987, T/F Systems, Inc., a Delaware corporation ("Systems"), of
which Richard C. Ford and Willard H. Taylor (deceased) were equal stockholders,
obtained certain limited distribution rights to the Puradyn, previously known as
the Purifiner in several states from Refineco Manufacturing Company, Inc.
("Refineco"), then located in Oakland Park, Florida (Byron Lefebvre, currently
an employee for the company, was then the President of Refineco). In 1988,
Systems obtained an option to acquire the exclusive manufacturing and marketing
rights to the Purifiner in the event Refineco, and subsequently, Purifiner
Distribution Corporation of Chicago, Illinois, were unable to meet their
commitments to supply Purifiners to Systems. As a result of a default, and a
failure of the manufacturer to meet his supply commitment, Systems obtained the
worldwide manufacturing and marketing rights to the Purifiner in 1990.

         In February 1988, Puradyn Filter Technologies, Incorporated was
incorporated in Delaware under the name "Econology Systems, Inc." On October 16,
1990, the name was changed to "T/F Purifiner, Inc." The company was inactive
until 1991, when it obtained the distribution and marketing rights to the
Purifiner by virtue of an assignment from Systems (at the time owned equally by
Messrs. Ford and Taylor). However, System's ownership of the rights to the
Purifiner were contested in court by other third parties who were also
manufacturing and marketing a device similar to the Purifiner and using the
Purifiner trademark. Eventually, the court ruled in favor of Systems with
respect to its manufacturing and marketing rights, and in May 1993 all appeals
by the other parties were exhausted. During the period of this litigation, the
company continued to market the Purifiner, but success was limited due to
various factors including the pending litigation and the actions by these other
parties in the marketplace.

         Prior to December 31, 1995, Puradyn Filter Technologies, Incorporated
was the exclusive distributor and Systems was the exclusive manufacturer of the
Purifiner. On December 31, 1995, in exchange for any claims Puradyn had in the
delay damage award, Puradyn purchased all operating assets and assumed all
operating liabilities of Systems, except for (a) any benefits and/or liabilities
related to a delay damage judgment awarded in December 1994 against the other
parties discussed above, and (b) liabilities related to certain stockholder
advances made to Systems by Ford and Taylor. Accordingly, Puradyn currently owns
all manufacturing and marketing rights previously owned by Systems.

     On February 4, 1998, the company filed a Certificate of Amendment to its
Certificate of Incorporation, which changed its name from T/F Purifiner, Inc. to
Puradyn Filter Technologies Incorporated.

         The company curtailed its operations and reduced its remaining
workforce to key personnel in March 1998, due to continuing operating losses and
negative cash flow. These actions were taken to reduce the amount of cash
required to maintain operations of the company. At the same time, the company
sought to arrange additional financing. In November 1999, the company formulated
a plan to convert all of its outstanding notes payable into common stock and to
sell additional common stock to raise cash in excess of $3,500,000.

On January 24, 2000, the company completed the conversion of $3,175,000 of
principal amount of debt of five notes payable (together with accrued interest
of $717,997 that had been added to principal of two of the notes payable) into
3,175,000 shares of its common stock. On February 28, 2000, the company
completed the sale of 4,172,000 shares of its Common Stock with net proceeds of
approximately $4,428,642 (of which $500,000 had been paid in December 1999.)
Furthermore, on September 26, 2000, the company completed the sale of an
additional 940, 935 shares of its Common Stock with net proceeds of
approximately $6,558,966, for a total of $10,987,608 of new funds.

Joint Venture
-------------

In 1996, the company entered into a joint venture agreement with Centrax, Ltd.
(with Puradyn owning 45%, Centrax owning 45%, and Albert N. Davies of Devon
U.K., owning the remaining 10%.) called TF Purifiner, Ltd. ("Ltd.") Ltd.
manufactured, distributed, and marketed the company's products in Europe,the
Middle East, the former Soviet Union, Egypt, and South Africa. The joint venture
had operating losses and negative net worth, and, consequently, the company had
no recorded investment in Ltd. Effective May 31, 2000, the company and Centrax
agreed to dissolve Ltd. with no obligation on the part of the company to have
any liability for, or to fund any part of, the dissolution.

At the time of the dissolution, Centrax sold to the company certain foreign
patents, inventory and factory equipment used in manufacturing products for the
joint venture. The patented products, consisting of a full-flow and a by-pass


                                       3


<PAGE>


oil filter, all housed in one Puradyn unit, as well as a side-by-side full-flow
and Puradyn by-pass filter are products designed primarily for original
equipment manufacturers (OEM.) The company is currently concluding its funding
operations in England under the name Puradyn Filter Technologies, Limited
("Ltd."), which performs certain manufacturing functions and primarily markets
the product to distributors in the countries formerly serviced by the joint
venture.

Products
--------

The Puradyn Oil Filtration System, formerly called the Purifiner Oil
Purification System, dramatically extends the life of lubricating oil in
internal combustion engines as well as hydraulic fluid used in industrial
machinery. The core product, the Puradyn, can be attached to any engine. In
essence, it works like a dialysis machine that filters blood to rid it of
impurities, so it keeps the oil in engines continually clean. Whenever the
engine or machinery is operating, the Puradyn is extracting from the oil solid
particles down to less than one micron (1/39 millionth of an inch), as well as
liquid contaminants (water and fuel.) As the Puradyn dramatically extends the
useful life of the oil, it also protects the engine or hydraulic equipment from
the harmful wear caused by contaminants in oil. Since the oil is continuously
clean, wear in the engine or hydraulic equipment is kept to a minimum resulting
in less down time for maintenance and longer engine life. Further, not only are
oil purchases drastically reduced but the need for and cost of disposal decline
dramatically.

Thus, the Puradyn reduces maintenance costs by decreasing oil consumption,
engine wear, and the necessity for overhauls and certain other types of general
maintenance as well as aiding increased fuel economy. All these savings are
achieved from utilizing the Puradyn which has a relatively short payback period,
which in some cases is less than one year. Accordingly, the Puradyn achieves
great savings and, therefore, increased profits for its end users.

The Puradyn is currently manufactured in six different sizes suitable for
placement on engines or equipment with oil sump capacities ranging from 8 to 240
quarts. A new generation of product, with an anticipated availability in May
2001 will be manufactured in nine different sizes with sump oil capacities
varying from 4 to 240 quarts (see "Manufacturing and Production.") The puraDYN
also can be used in multiples for larger oil sumps. Qualified personnel can
usually install the Puradyn on engines and other equipment in approximately 1
1/2 to 2 hours.

The company unveiled the next generation of its by-pass oil filtration systems
at the TMC show in Nashville, TN on March 11, 2001. Similar to the company's
previous units, the new Puradyn by-pass oil filters allow engines to operate for
hundreds of thousands of miles without the need for a traditional oil change to
save customers significant maintenance costs including up to a 90% reduction in
the need for new oil and the amount of oil for disposal.

 As with Puradyn's prior system, the new generation of filters clean, reduce and
maintain oil contaminants down to 0.25 micron (standard full-flow oil filters
maintain contaminants in the 15-40 micron range.) By continually removing
contaminates and replacing vital additives through its patented time-release
additive package, Puradyn's filters substantially extend intervals between oil
changes.

For its new filters, Puradyn has implemented patented technology that provides
several improvements over previous Puradyn filters including:

                           CGP(TM) a patent-pending process for chemical
                           grafting. This new technology improves the attraction
                           and retention of soot and other solid contaminants to
                           the packed cotton filter material.

                           Increased oil distribution within the filter: New
                           product engineering distributes oil more evenly
                           throughout the main filter element. This reduces the
                           effect of "channeling."

                           Ease of maintenance: The filter element of the new
                           filter can be replaced in a matter of seconds.

Puradyn developed the new filter technology over the past three years.
Field-testing was conducted over the past 30 months. The consolidated results
from across the country show that test vehicles averaged more than 160,000 miles
without the need for a traditional oil change. In addition, 1,800 hours of
in-house and independent testing have been conducted on the new filter. No oil
related problems were experienced during laboratory or field-testing.

                                       4
<PAGE>

The company also has developed and sells a Hydraulic Batch System ("HBS"), which
is mounted on a handcart for mobility. The HBS was developed to clean 55-gallon
drums of used hydraulic oils, which substantially reduces oil purchases as well
as the high costs of storing and disposing of used oil in compliance with
environmental regulations. The HBS consists primarily of two 60-quart Puradyns,
a preheater, a pump and other miscellaneous parts.

All Puradyns are compatible with virtually all standard and synthetic oils on
the market and they work with engines using gasoline, diesel, propane or natural
gas. Except for the HBS, the Puradyn cannot be used on engines without a
pressurized lubricating system, and neither can be used on any engines which mix
oil with the fuel.

The company also manufactures and distributes its replacement Elements for the
Puradyn. The company generally recommends that the Element be replaced at the
engine manufacturer's recommended/approved periodic oil change interval (with
one exception for one model currently used for gasoline applications only, the
company generally recommends that the Element be replaced every ten thousand
miles or 250 hours when used for gasoline powered automobiles and vans or as oil
analysis dictates). The company recently introduced a U.S. patented oil-flow
meter which enables the user to visually confirm that the oil is flowing through
the Puradyn. The useful life of oil and the Element is dependent on several
factors, including the quality of the oil used, type of fuel, condition of
engine, and the type and operating environment of the equipment. Accordingly,
the change intervals mentioned above may vary. Elements can be changed and an
oil sample taken in approximately five to fifteen minutes by the customer.

The company estimates that the current cost of an oil and full flow-filter
change (assuming a person does not do the oil change himself or herself) is
approximately $100 or more for heavy-duty trucks. The cost varies depending on,
among other things, the type of engine and application, labor and oil costs, and
costs of waste oil disposal. Depending on the size of theElement, the current
suggested prices for retail end-users of the Elements range from approximately
$10 to $35 and the cost of an oil analysis ranges from approximately $9.45 to
$15 per sample.

The company has received patents from the United States Patent Office and
certain other countries for a new Element (the "PFT Filter Plus"), in which
pelletized chemicals are added to the filtering media. The chemicals are
antioxidants which will reduce the amount of oxidation, stabilize the alkalinity
and further help reduce the acid build-up of the oil. This is especially
important on new engines built since enactment of the Clean Air Act of 1992,
which requires tighter specifications for diesel engines. As these engines
consume less oil, the amount of makeup oil that is added, which also replenishes
the consumed additives in older engines, has decreased. The PFT Filter Plus
helps compensate for this factor.

When the Element is changed, make-up oil is added to replace any oil retained in
the used Element or consumed in the normal engine combustion process. The
company's performance warranties for product used in the United States and
Canada require the user to take a small sample of the used oil for submission to
an oil testing laboratory at the same intervals that the OEM recommends/approves
for an oil change, but at least once a year. (See "Warranties.") The Puradyn has
an oil sample valve to expedite the taking of the oil sample. The company
warrants all parts free of defects in workmanship and materials for ten years
from date of installation, except the heating element, which is five years.

Users must maintain a record of the laboratory oil analysis results in order for
the company's warranties to remain in effect. Management believes that the risk
of losing the Puradyn's warranties encourages customers to complete the oil
analysis and replace Elements in a timely manner, making the Puradyn more
effective and stimulating recurring Element sales. In order to maintain the
company's performance guarantee, users must, among other things, change the full
flow filters once a year or every 50,000 to 60,000 miles or 1,500 hours,
depending on the particular application of the Puradyn. The oil analysis also
helps the company monitor customer satisfaction, and should a problem arise with
a particular application, the company and the customer can work together to
address the problem and find a solution on a timely basis. Through proper
analysis other problems occurring within the engine or equipment, apart from oil
contamination, can be diagnosed and corrected before incurring significant
problems. To date, there have been no material warranty claims, although there
can be no assurances that such a trend will continue.

The Puradyn has no moving parts and consequently requires no significant ongoing
maintenance. The Puradyn has an in-line pre-strainer to prevent the metering jet
from becoming clogged by large contaminant particles. As long as the Elements
are changed at the recommended/approved intervals, and other standard preventive
maintenance procedures are performed, the company believes that the Puradyn will
perform as designed. The cost of changing a full flow filter is part of the cost
of an oil change, as discussed above. Puradyns used for hydraulic

                                       5

<PAGE>

applications do not require as frequent Element changes since hydraulic oil
applications typically do not contain the level of contaminants as other oil
applications.

The company has received letters from Deere & Company, Detroit Diesel
Corporation, Caterpillar, Inc., Ford Motor Company, Mack Trucks, Inc., Cummins
Engine Company, Inc., DaimlerChrysler Corporation, Mercedes Benz of North
American, Inc. and others, who have all stated that the installation and use of
the Puradyn does not void their manufacturer's warranties unless an engine
failure is attributed to the Puradyn. Most engine manufacturers will accept oil
analyses as alternatives to their recommended oil change intervals. This is
standard industry practice endorsed by OEMs and various fleet maintenance
organizations. Management believes that the existence of other longer-life oils
in the marketplace which allow for extended oil drains has been and will
continue to exert pressure on the use of oil analysis as an acceptable
alternative to engine manufacturer's recommended oil change intervals, as will
the cost, environmental and other benefits obtained from extended oil drain
intervals.

Warranties.
-----------

The Puradyn carries a six-month performance guarantee, and is currently
generally warranted to the original user to be free of defects in material and
workmanship for ten years (previously five years), except for the heating
element which is currently warranted for five years (previously two years). The
company also offers limited 250,000-mile and 100,000-mile continuous oil
purification performance guarantees for Class VII and VIII trucks in the United
States and Canada, limited performance warranties for recreational vehicles,
including a twelve-month performance warranty, and some limited performance
warranties with a specific industrial user. Warranty costs to date during 2000
are estimated under $2,500.

Marketing
---------

The company's products are marketed to numerous market segments, including
trucking, marine, agricultural, bus, recreational vehicle, generator,
construction, mining, industrial and hydraulic applications, and other users of
engines or equipment that utilize up to 50 weight oil for lubrication.
Currently, the company's primary focus is on the on-highway fleet and original
equipment manufacturer segments.

Through 2000, the company has not expended any material amounts to advertise its
products in the marketplace and has relied upon editorials, trade shows and
other methods to promote its products. However, the company has incurred
significant losses in conjunction with its selling efforts.

Beginning in 2001, the company is planning to expend in excess of $600,000 on
advertising/shows/promotion in order to generate awareness and help stimulate
sales primarily with OEMs and on-highway fleets. Additionally, sales personnel
are being increased from four in 2000 to seven in 2001.

The company's products have achieved recognition from well-known sources,
including (i) certification (in 1994) and re-certification (in 1998) by the
California Environmental Protection Agency's Department of Toxic Substances as a
"Pollution Prevention Technology", (ii) receipt of the State of Florida's 1995
Governor' s New Product Award (Small Business Category), (iii) receipt of the
National Society of Professional Engineers' 1996 New Product Award "for
innovative use of engineering principals and materials, improved function and
savings in use and benefit to the national economy" (Small Business Category),
(iv) receipt of the World Trade Center's (Ft. Lauderdale, Florida) 1996 Award
for Outstanding Achievement in International Trade (Manufacturing Category), and
(v) being selected as one of the finalists in the 1998 Discover Magazine awards
for Technological Innovation and (vi) receipt of Lubricants World's 2001 Annual
Award in the Equipment Category for expected contribution "to the advancement
and enrichment of the lubricants industry." Management believes that such
recognition has and will continue to enable the company to increase the
credibility and acceptance of its products.

In February 1996, the Puradyn gained the support of the American Oceans Campaign
("AOC"), a not-for-profit organization devoted to ensuring the earth's waters
are kept free of contamination and pollution. Management believes that the
association with AOC and similar groups will be a cost-effective way to promote
the Puradyn and increase its sales. However, no assurance can be given that such
associations will be successful in promoting the Company's products.

In April 1996, the company made arrangements to help facilitate retrofit sales
of the product at the end-user level through Leasing Innovations, Incorporated
("LII") (formerly Leasing

                                       6

<PAGE>

Services, Incorporated), a national leasing company that will provide lease
financing to certain of the company's users, subject to normal credit
considerations with respect to the user. Many customers have found the up-front
cost of purchasing the Puradyn to be in excess of budgeted cash flow for
large-scale retrofits. Lease financing will enable the user to immediately
benefit from reduced maintenance expenses and to pay for the Puradyn from such
savings over variable terms. The company has no written agreement with LII,
receives no consideration from LII, and merely provides its customers with LII's
brochure which explains LII's services.

With this arrangement, the company and its distributor network are able to
provide to its customers a complete product package that includes the Puradyn,
installation assistance and third party financing. Management believes the
ability to provide a turnkey program should provide the company with a
competitive edge. However, no assurance can be given that this approach will
result in increased revenues to the company and to date this arrangement with
LSI has not resulted in any material increase in revenues.

The company relies on management's ability to determine the existence and extent
of available markets for its product. Company management and consultants have
considerable sales and marketing backgrounds and devoted a significant portion
of their time to sales related activities. The company has marketed its products
at various national trade shows, including the Workboat Show in New Orleans,
Louisiana, Mid-America Truck Show in Louisville, Kentucky, the Maintenance
Council Show in Nashville, Tennessee, the ConAgra Show in Las Vegas, Nevada and
others.

Management believes that the ultimate success of its product will depend on the
strong demand for the product by end-users, while complementing this action by
direct sales to OEMs and through their distribution networks. A number of
international and domestic engine and truck OEMs are currently evaluating the
company' s products, such as Mack Trucks, Ford Motor Company, Detroit Diesel
Corporation (engines), Freightliner Corporation, and General Motors Corporation.
There can be no assurance that these or other OEMs will accept the company's
products for standard original placement on their equipment or directly approve
the use of the Puradyn as an option with their equipment. To date, some company
customers have purchased and requested that the Puradyn be installed at a Volvo
USA factory (North Carolina), International Truck and Engine Corp. (formerly
Navistar International) factory, a Mack Truck factory, and a Freightliner
factory on a very limited number of vehicles.

Distribution
------------

The company currently distributes its products through several channels under
the Puradyn trademark.

The company has written distribution agreements with its domestic and Canadian
distributors. The company does require these domestic and Canadian distributors
to make an initial purchase of a minimum dollar amount of the company's
Products. All distributors (domestic and foreign) must pay in a timely fashion.
With substantially all its international distributors, the company has written
distribution agreements which typically memorialize the minimum dollar amount or
units to be purchased and the shipping terms.

The company has warehouse distributors located in the United States and Canada,
primarily in the heavy-duty trucking industry. The remaining distributors are
located primarily in South America, England (See "Distribution") and the Far
East. These distributors purchase product directly from the company and sell to
their existing or new customers. Late in 1997, the company decided to curtail
the use of substantially all U.S. manufacturers representatives, except for one
primarily industrial agent and two general agents (and two agents for the
recreational vehicle market), whose jobs are to establish and service warehouse
distributors and introduce the company's products to selected fleets and RV
owners. The company pays its manufacturer's representatives negotiated
commission rates, depending on the level of services provided. The manufacturers
representatives' contracts can be canceled by either party on 30 to 60 days
notice. Sales responsibilities are now performed primarily by direct employees
to enable the company's personnel to focus their efforts on the US OEM and
on-highway segments. The company will accept returns of products that are
defective at the time of sale to distributor or prove defective during the
warranty period. Subject to company approval, distributor may return once a
year, for credit against future purchase of product, an amount not to exceed 5%
of the distributor's net purchases during the preceding year. Returns are
subject to the following conditions: 1) company approval 2) shipped pre-paid to
company 3) product in salable condition, subject to company inspection before
acceptance, and subject to a 15% restocking charge. 4) credits for returns will
be issued at the distributor price in effect at the time the credit is issued,
less any applicable discounts.

                                       7

<PAGE>

         The Company's products are oil refining systems, substantially all of
which are sold to distributors and end users for use on transportation vehicles.
This could unfavorably affect the Company's overall exposure to credit risk in
as much as these customers could be affected by similar economic or other
conditions. During 2000, five customers accounted for approximately 39.1% of the
Company's net sales. The loss of business from one or a combination of the
Company's significant customers could adversely effect its operations.

         Puradyn Filter Technologies, Limited ("Ltd."), the succeeding company
to TF Purifiner, Ltd. (Centrax), and wholly-owned by Puradyn Filter
Technologies, Inc. (US), operates from the U.K. to generate distribution and
sales in Europe, the Middle East, the former Soviet Union, Egypt, and South
Africa. Certain manufacturing functions will be performed in the U.K. to modify
the product so as to comply with European usage standards. There can be no
assurance that such distributors will be successful in introducing the Puradyn
in their territories as they will face obstacles similar to those the company
and its other distributors have encountered in introducing an innovative
technology in their territories. Ltd. has also commenced or completed various
Puradyn evaluation programs, including that of a large international generator
manufacturer that has been approved and has begun purchasing the Puradyn.


Sales
-----
        Direct Sales. The company directly and/or with the assistance of its
manufacturer's representatives, warehouse distributors or other agents markets
its products directly to national accounts. Typically these larger customers,
and some smaller customers, have required an evaluation period, usually ranging
from three to twelve months, to ensure that the company's products perform as
advertised. Management believes that this evaluation period will continue to be
shortened as the company's products gain wider acceptance and support from
well-known customers and OEM's.

     Currently, the company' s products are being evaluated (with various stages
of progress) by numerous potential end users, including Kinsley Construction,
Anthony Crane Rental Co., Trinity Industries, I.E. Miller Co., City of Dallas,
Miami-Dade Water and Sewer G.S.A., Kirby Inland, Southwest Airlines (Dallas),
MidSouth Transportation, IBP, United Rental, and others.

         In July 1995, the company's products were issued National Stocking
Numbers by the General Services Administration pursuant to a contract which
expired in June 1998. The company negotiated a new contract which was received
in July 1999. This will enable the company to more efficiently sell its products
to the U.S. Government and its agencies.

         To date, purchasers of the company's products have included USF Dugan,
Cyprus Bagdad Corporation, Miami-Dade County Schools, Lee County Schools, Fort
Worth Carriers, Seaboard Marine, the Texas Department of Transportation, Vulcan
Chemicals and others.

         Late in 2000, Asplundh Tree Expert Company, the world's largest
vegetation management company with one of the nation's largest, privately-held
fleet of trucks and equipment, began purchasing the Puradyn for new equipment
including trucks, chippers and aerial devices.

         Recent sales efforts by the company have resulted in the following:
Contract negotiations with Florida school districts for Puradyn installation to
their buses; product purchases of approximately 1,000-1,500 units by Miami-Dade
County during 2001; negotiations are in process with an agency of a large state
for specification of Puradyn units as an option for their vehicles; a large
truck manufacturer began testing with Puradyn units; a major GM modification
company has placed Puradyn products as an equipment option in their customer
catalog; a major utility issued a $99,950 blanket purchase order for Puradyns;
the Texas Department of Transportation's General Services Division began
purchasing Puradyn product after an approximately two year test; a large
southwestern city has initiated purchasing for its Public Works and Solid Waste
Divisions; a major fire apparatus OEM has named the Puradyn as optional
equipment for its customers; the Environmental Division of the U.S. Navy for
purchasing Puradyn units for their many different types of vehicles and
equipment; after intensive testing, the U.S. Navy at the Puget Sound Naval
Shipyard purchased units for their large generators; the U.S. Navy Warfare
Center in Lakehurst, NJ as well as the U.S. Coast Guard also recently purchased
Puradyn units; and other numerous evaluations are in progress that management
feels should result in sales to these companies during 2001.

                                       8

<PAGE>

Also, the company was recently awarded aftermarket sales rights for
representation in the States of Michigan and Florida, and hired a marketing and
public affairs consultant to promote Puradyn to municipalities in Florida and
other specified states. Additionally, the company received approval for
Florida's State Negotiated Agreement Price Schedule (SNAPS) to allow easier
marketing of Puradyn to Florida's local and state government agencies at
discounted prices.

         International Sales. The company directly and/or with the assistance of
commission based manufacturer's representatives have established primarily
non-exclusive distributors in various countries, including Australia, Thailand,
Colombia, Panama, Pakistan, China, Hong Kong, and other countries. The majority
of these distributorships were established in 1995 and later. Therefore, the
ultimate success of these and other distributors depends upon, among other
things, their abilities to successfully introduce and sell the product in their
territories, including obtaining local evaluations, establishing distribution
and other factors similar to those faced by the company in the United States.
The company's sales to its Asia/Pacific distributors were $9,000 in 2000 and
$5,000 in 1999. Sales have been adversely affected by the weakened local
economies of these nations and future sales to these distributors may be
adversely affected due to these continuing economic and/or political problems.
Finally, sales to Latin America amounted to $129,000 versus $54,000 in 1999. Due
to focus by the company on the US marketplace and other factors, it is
anticipated that growth of sales in these and other international regions may be
limited.


Manufacturing and Production.
-----------------------------

         The Company subcontracts for the manufacture of component parts for its
Puradyn units and manufactures substantially all of its Filter Elements. The
component parts are assembled, packed and shipped from the company's facility in
Boynton Beach, Florida.

         The company currently single sources (i.e. purchases each raw material
and component part from a specific vendor) substantially all of its raw
materials and component parts from various vendors in the United States.
Substantially all the tools and dies used by certain of the company's vendors
are owned by the company. The company believes that there are alternative
sources of supply, and the company does not anticipate that the loss of any
single supplier would have a material long-term adverse effect on its business,
operations or financial condition. Management intends to obtain additional
tooling and dies and to upgrade certain of its existing manufacturing equipment
and may expand its vendor network for the purpose of limiting its exposure to
its single source suppliers.

The filter elements for the new generation of Puradyn filters have been designed
so they can also be used with all previous Puradyn units. Availability of the
new product is expected approximately May 15, 2001. The company is in the early
process of developing quality control systems in line with QS 9000 and ISO 14000
quality standards to ensure that the company's product quality will consistently
meet the requirements of the trucking and automotive industries.

Competition.
------------

         Although the company believes it is the largest supplier of bypass oil
purification systems (see "Legal Proceedings - Premo Litigation"), the company
effectively competes with other bypass oil filtration products such as the
Spinner II unit of T.F. Hudgins, Inc., and the bypass filter made by Premo
Lubrication Technologies, Incorporated, Luberfiner, Inc., Parker Hannifin
Corporation - Racor Division, and others. Recent results performed by a major
independent testing facility on the company's by-pass oil filtration system
demonstrated that its product surpassed the capacity, efficiency and overall
performance of its leading competition with an average efficiency of 92.05% for
Puradyn as compared with 67.47% for the Mann/Hummel "Centrifuge System." These
tests were performed at the request of one of the country's largest engine
manufacturers. The company's products tend to negatively affect the sales of
full-flow filters, maintenance services, replacement parts, original oil sales
and oil disposal, as well as sales of new engines.

         All of these products and services are provided by companies that have
significantly greater financial, marketing and operating resources than does the
company.

Patents and Trademarks.
-----------------------

        The company has pending patents for a redesigned Puradyn, the basis for
the next generation of the Puradyn products, and the TFP Filter Plus which have
been issued in the United States and certain other foreign countries in 1997
(See "Distribution - TF Purifiner

                                       9

<PAGE>

Ltd.). In 1997, the company obtained a U.S. patent for its new oil flow meter
which enables the user to visually determine that oil is flowing through the
Puradyn. A U.S. patent was issued in 1998 covering a method of introducing
additives into the oil. These patents expire from May, 2014 to October, 2016.
The company recently applied for a provisional patent application for improved
filtration efficiency using CGP, a patent-pending process for chemical grafting.
There can be no assurance that such patents withstand competitive threats to
their patentability or, in the case of the redesigned Puradyn, be developed into
commercially viable products.

         The company has a license and royalty agreement (See Item 3, "Legal
Proceedings") with the owner of two of the U.S. patents which covered most of
the company's existing Puradyns. One of these patents expired in September 1998
and the other patent under this agreement, used in a small number of the
company's products, expires in June 2008. This agreement also covers several
foreign issued and pending patents in several other countries, the earliest of
which will expire in June 2004. The term of the agreement is for the life of the
patents and any improvements thereto and requires the payment of a 5% royalty
based on the net sales price, as defined, of the covered products. This
agreement also covers the Purifiner trademark in the United States for which the
company pays a 1% royalty based on net Purifiner sales, as defined. The company
is primarily responsible for maintaining and defending the integrity of these
patents and the Purifiner trademark.

         As of March 26, 2001, Puradyn notified the owner of the aforementioned
remaining patent that the company is no longer producing or shipping this unit,
nor would the company be using the Purifiner name in the U.S. As such, no
further royalties under this patent would be paid.

        The company has registered the product trademark, "Purifiner" in
substantially all the countries of the industrialized world (other than in the
United States, where the company's licensor has registered the trademark) and is
registering the Puradyn trademark in the United States and other all countries
where the "Purifiner" is registered. Further, the company has filed a
provisional Patent Application for CGP(TM) (Chemical Grafting Process), its new
technology that enhances the attraction and retention of soot and other solid
contaminants in the Puradyn Filter Element.

        At the time of disbanding the joint venture with Centrax (see
Distribution), and the subsequent formation of Puradyn Filter Technologies,
Ltd., both in the U.K., the company acquired several foreign patents on Puradyn
technology which included a manifold type full-flow filter/by-pass filtration
unit (side-by-side.)

Governmental Approval.
----------------------

         The company's products typically do not require any governmental
approvals. As part of the certification process under the California
Environmental Protection Agency's Department of Toxic Substances, in July 1994,
and re-certification in July 1998, the company has obtained an Executive Order
issued by the State of California Air Resources Board stating that the Purifiner
(Puradyn) does not reduce the effectiveness of applicable vehicle pollution
control systems, and may be installed on all 1998 and older model year vehicles
with pressure oil systems.

Engineering and Development.
----------------------------

         The company has two engineers on staff to support the product line at
this time. One has the position of Director of Manufacturing/Product Development
and the other has the position of Project Engineer. The engineering department
is also testing additional design improvements that also may be candidates for
patents for the company. During the past two years the company's engineering
department has devoted resources to improve the products filtration efficiency
and abilities to meet the customers extended drain interval requirements with
the next generation of diesel engines. This required a complete redesign of the
existing product to make it easier to use by our customers. The improved product
eliminates the four mounting bolts/nuts required to hold Diffuser/Head/Heater
Assembly in place by moving those components to the bottom of the product to
improve efficiency. This allowed the designer to improve the filter cartridge
removal and replacement process by making a Lid Assembly that does not require
mounting bolts/nuts. Testing of the new product is ongoing and will continue to
insure our product is a leader in the industry.

                                       10

<PAGE>


Employees.
----------

         At March 20, 2001, the company including Ltd. had 34 employees, a11 of
whom were engaged in manufacturing, assembly, quality control, warehousing and
shipping; 7 in marketing and sales, 2 technical support and installation
assistance; 3 in engineering and development; 2 in finance, and 6 in
administrative positions. Operations in the U.K. account for 3 people; one
general manager, one salesperson, and one warehouse person. None of the
employees are represented by a labor union. The company believes its employee
relations are good.


ITEM 2.   DESCRIPTION OF PROPERTY.
          ------------------------

        Substantially all of the company's operations are conducted from its
14,500 square foot facility located in Boynton Beach, Florida. The facility was
leased for a term ending March 31, 2003 at a monthly rate of $9,800 through
March 31, 2002, and for the year through March 31, 2003 at $10,094 per month. In
order to support its operations in Europe as well as its expanding OEM sales
efforts in the Detroit area, the company has leased 3150 square feet in Devon,
England, with an annual lease renewal every September 1st at $650 per month; and
in Detroit, 225 square feet with a twelve month lease ending January 31, 2002 at
$1,395 per month (with a cancellation option by July 31, 2001.)




ITEM 3.   LEGAL PROCEEDINGS.
          ------------------

Malt Litigation
---------------

         On January 13, 1997, Robert C. Malt ("Malt"), as owner of certain
patents licensed to the company, filed an action against Puradyn Filter
Technologies, Incorporated and T/F Systems, Inc. (collectively the "Defendants")
in the Circuit Court of the 15the Judicial Circuit of Florida in Palm Beach
County alleging that the Defendants are in breach of their license agreement
with Malt. Malt was seeking a (1) permanent injunction to enjoin the Defendants
from manufacturing and marketing the covered Purifiner products and use of the
U.S. trademark and (2) approximately $21,000 for alleged past-due breaches of
the license agreements. Before trial, all but one of the Malt patents had
expired. That patent remains in effect until June 2008. The court ruled on March
2, 1999 that Malt was not entitled to any injunctive relief and was awarded a
total judgment of $20,169. That amount was paid by the company and the judgment
was released in the public records. Thereafter Malt filed a Motion for
additional damages and attorneys fees. On December 13, 2000, the Court found
that Malt was entitled to an additional judgment in the amount of $15,505 for
previously unpaid royalties and certain expenses for the first litigation. The
company has appealed that judgment but has paid the additional judgment. Pending
the outcome of the current appeal, the additional judgment may be returned to
the company. Thereafter on February 22, 2001, the trial court ordered the
company to pay the sum of $18,049 for the plaintiff's attorney's fees and court
costs. That order has also been appealed and will be combined with the first
appeal. The judgment for attorney's fees and court costs has not been paid and
the company has posted a surety bond to cover the judgment while the appeals are
pending.

Searcy, Denny, Scarola  et. al and Related Claims:
--------------------------------------------------

         On June 24, 1997, Searcy, Denny, Scarola, Barnhardt & Shipley, P.A.
("Plaintiff") filed an action in the Circuit Court of the Fifteenth Judicial
Circuit in and for Palm Beach County, Florida, against Systems, the company,
Richard C. Ford, individually, and Controlled Fuel Systems, Inc., an inactive
company controlled by Richard C. Ford ("Defendants") for unpaid legal fees and
costs of approximately $313,000 plus interest and attorney's fees.

In late 1990 and early 1991, the Plaintiff was engaged by Systems to represent
it in obtaining the manufacturing and marketing rights to the Purifiner and to
perform other general matters for Systems. The Plaintiff was ultimately
successful in assisting Systems in obtaining such rights. TFS was awaiting the
judgment of an appellate court which, if adjudicated in TFS's favor, would have
provided TFS with sufficient funds to pay such legal fees and other possible
legal fee claims aggregating approximately $75,000, and thereby remove the
possibility of the company being held liable for such fees. On February 26,
1997, the appellate court ruled against Systems and, accordingly, the funds
discussed above are not currently available to Systems to satisfy such claims
and the case involving these funds has been remanded to the trial court for a
retrial. Puradyn did not assume these obligations as part of its purchase of
Systems, and was indemnified by Systems with regard to these claims

                                       11

<PAGE>

and related expenses. Management believes such amounts are not the
responsibility of Puradyn Filter Technologies, Incorporated and intends to
vigorously defend against this action. However, Systems is an inactive company
whose only asset is the claim that was reversed on appeal and maybe retried by
Systems. Accordingly, the ability to collect such funds, as required, from
Systems is uncertain. The ultimate outcome of this litigation against the
company cannot be determined at this time. However, based on the opinion of
counsel, a favorable outcome is likely, as the only company who obtained legal
services from this law firm was T/F Systems.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         ----------------------------------------------------

         Not Applicable.


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
         ---------------------------------------------------------

         As of March 16, 2001, there were approximately 304 stockholders of
record of the company's stock. The closing bid price quoted on the OTC Bulletin
Board sheets for the company's Common Stock at March 16, 2001 was $4.50. The
company currently trades under the symbol "PFTI."

         The transfer agent for the company's Common Stock is Florida Atlantic
Stock Transfer, Inc., 5701 N. Pine Island Road, Tamarac, Florida 33321.

         The company has never declared or paid cash dividends on its Common
Stock. The company presently intends to retain future earnings, if any, to
finance the expansion of its business and does not anticipate any cash dividends
will be paid in the foreseeable future. The future dividend policy will depend
on the company's earnings, capital requirements, expansion plans, financial
condition and other relevant factors.


         The following table sets forth for the period indicated, the high and
low closing prices for the quarterly periods in 1999 and 2000.

                        2000 Sales Price            1999 Sales Price
                        -----------------           ------------------
                        High          Low           High          Low
                        ----          ---           ----          ---
   March 31            $11.81        $1.25        $1.75         $0.17
   June 30              19.50         7.69         1.03           .375
   September 30         10.19         7.53          .53           .22
   December 31           7.63         3.81         1.49           .25

         As of March 31, 2001, the high sales price for the quarter was $7.00
while the low for the quarter was $3.94. The above quotations reflect
winter-dealer prices, without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         ---------------------------------------------------------------
         RESULTS OF OPERATIONS
         ---------------------

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

General

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

         Through 1997, the company had been unable to significantly increase its
revenues through its distribution network which caused the company to change its

                                       12

<PAGE>

sales strategy. In 1998, it began to refocus its sales effort toward the
development of commercial relationships with original equipment manufacturers
("OEM's") and companies having medium to large size fleets of vehicles. The
sales effort not only involves educating the potential customer on the benefits
of the Puradyn, but also allowing the customer to test the Puradyn on its fleet
vehicles. Consequently the sales cycle is long. The company is currently working
with several large OEM's and a large number of companies which have large
vehicle fleets to enable them to evaluate the benefits of the Puradyn.

         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. Most recently, in March 2000,
the company completed the sale of 4,172,000 shares of its Common Stock with net
proceeds of approximately $3,429,990, and in September 2000, the company
completed the sale of an additional 940,935 shares of it Common Stock with net
proceeds of approximately $6,820,448.












                                       13

<PAGE>


Results of Operations

The following table sets forth the amounts in thousands the company's operating
information for the years indicated December 31, 2000 and 1999 (as restated):

                                    Year Ended December 31, (in thousands)
                                  -------------------------------------------
                                                      1999         Increase
                                       2000       (as restated)   (Decrease)
                                      ------      -------------   ---------
Net sales                            $ 1,172        $   586        $   586
                                                                   -------


Operating costs and expenses:
Cost of sales                          1,139            546            593
Selling expenses                       1,794            346          1,448
General and administrative             5,664            778          4,886
                                     -------        -------        -------
Total costs and expenses               8,597          1,670          6,927

Other income (expense)
Investment income                        421             --            421
Interest expense                         (85)        (2,706)         2,621
                                     -------        -------        -------
Total other income (expense)             336         (2,706)         3,042
                                     -------        -------        -------
Loss before extraordinary item
                                      (7,089)        (3,790)         3,299

Extraordinary item:
Gain on forgiveness of debt
                                          --            205           (205)
                                     -------        -------        -------
Net Loss                             $(7,089)       $(3,585)       $(3,504)
                                     =======        =======        =======

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Net Sales. Net sales increased by $586,000 from $586,000 in 1999 to
$1,172,000 in 2000. During 1998 and 1999, the company refocused its sales
efforts toward original equipment manufacturers ("OEMs") and companies having
large fleets of trucks and the effects of this change resulted in the
significant increase in sales in 2000. Significant customers in 2000 included
two school districts and a municipality using the Puradyn on their fleet
vehicles.

         Cost of Sales. Cost of sales increased by $593,000 from $546,000 in
1999 to $1,139,000 in 2000 related to the increase in sales. The company's gross
margin decreased from 0.7% in 1999 to negative -0.3% due to the continued effect
of the costs of excess manufacturing capacity together with a provision of
$31,101 for obsolete and slow moving inventory.

                                       14

<PAGE>

         Selling Expenses. Selling expenses increased by $1,448,000 from
$346,000 in 1999 to 1,794,000 in 2000. The company had curtailed all expenses
and reduced its personnel during the last two years due to its limited cash
resources. After receiving funds from selling additional stock in 2000, the
company increased its sales and support staffs. Wage and benefits increases
accounted for approximately $300,000 of the increase. Commission expense
increased by $55,000 and sales expenses include $552,780 for the value of
warrants given to sales representatives. Travel, entertainment and communication
expenses increased approximately $190,000 due to the increase efforts to reach
new customers. Other expenses that increased were in public relations.

         General and Administrative Expenses. General and Administrative
expenses increased by $4,886,000 from $778,000 in 1999 to $5,664,000 in 2000.
Approximately $4,305,379 of this increase is attributable to interest incurred
related to the beneficial conversion of debt and other compensatory common stock
issuances. As mentioned, the company had curtailed all expenses and reduced its
personnel during the last two years due to its limited cash resources. In 2000,
the company increased its executive and support staffs. Wage and benefits
increases accounted for approximately $501,000 of the increase. Compensation
expense related to stock options granted to employees, consultants and the board
of directors in 2000 was $2,568,639. Travel, entertainment and communication
expenses increased approximately $230,000 due to the increase efforts to reach
new customers. Other expenses that increased were in investor relations,
consulting and accounting.

         Investment Income. Interest income increased by $421,000 due to the
investment of funds totaling approximately $10,495,000 from the sale of
additional stock in 2000.

         Interest expense. Interest expense decreased by $2,621,485 from
$2,706,613 in 1999 to $85,000 in 2000 primarily related to the conversion of
approximately $3,175,000 in debt to stock in January, 2000.

         Forgiveness of Indebtedness. In 1999, the company realized a gain the
forgiveness of $205,000 in the payment of a note to a former shareholder

Liquidity and Capital Resources

         The company's capital requirements in connection with its business
activities have been and will continue to be significant. To fund its activities
since inception, the company has been dependent upon the proceeds of sales of
its securities and from time to time upon the proceeds from loans. In March,
2000, the company completed a private offering of its common stock at $1.00 per
with net proceeds of $3,429,990. The company completed a second private offering
in September, 2000 at $7.50 per share with net proceeds of $6,820,448. In
addition, the company received $261,000 from the exercise of stock options
during the year.

         At December 31, 2000, the company had working capital of $7,684,982 and
its current ratio (current assets to current liabilities) was 17.75 to 1, as
compared with negative working capital of $4,304,909 and a current ratio of .15
to 1 at December 31, 1999. The company believes it has sufficient cash for the
foreseeable future, and while the company believes it can attain profitable
operations in the future, there is no assurance that sales will increase to the
level required to generate profitable operations to provide positive cash flow
from operations, and there is no assurance that the company will not have to
seek additional financing in the future.

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

                                       15

<PAGE>

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

Impact of Inflation

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

Quarterly Fluctuations

         The company's operating results may fluctuate significantly from period
to period as a result of a variety of factors, including product returns,
purchasing patterns of consumers, the length of the company's sales cycle to key
customers and distributors, the timing of the introduction of new products and
product enhancements by the company and its competitors, technological factors,
variations in sales by product and distribution channel, and competitive pricing
and general economic conditions throughout the industrialized world.
Consequently, the company's product revenues may vary significantly by quarter
and the company's operating results may experience significant fluctuations.

Risk Factors Affecting Future Results of Operations.

         The company's future results of operations involve a number of risks
and uncertainties. The following paragraphs discuss a number of risks that could
impact the company's financial condition and results of operations.

Potential for continuing losses and accumulated deficit affects our outlook.

         Prior to 1995, Puradyn was engaged in limited sales activities.
Consequently, we have had a limited operating history upon which an evaluation
of our prospects and performance can be made. Puradyn's prospects must be
considered in light of risks, expenses, difficulties and delays frequently
encountered in connection with the formation and early phase of operation of a
new business, the development and commercialization of new products based on
innovative technology and the high level of competition in the industry in which
we operate. Puradyn has had significant losses in each year of its operations.
In addition, the company has an accumulated deficit, which amounted to
approximately $21,828,861 as of December 31, 2000. It is likely that losses will
continue until such time, as Puradyn is able to generate a level of revenue
sufficient of offset these continuing early-phase expenditures. While we are
optimistic that a market for the Puradyn will develop, there can be no assurance
that we will be able to successfully implement our business strategy, that our
revenues will increase substantially in the future, or that we will ever be able
to achieve significant profitable operations.

Our products may not satisfy our customers' needs.

         Our success will depend in part upon the ability of our products to
meet targeted performance and cost objectives, and will also depend upon their
timely introduction into the marketplace. We will be required to commit
considerable time, effort and resources to finalize development of our proposed
products and product enhancements. Although we anticipate that the development
of our products and technology will be successfully concluded, product
development efforts are subject to all of the risks inherent in the development
of new products and technology (including unanticipated delays, expenses and
difficulties). In addition, we can provide no assurance that our products will
satisfactorily perform the functions that our customers anticipate, that they
will meet applicable price or performance objectives or that unanticipated
technical or other problems will not occur which would result in increased costs
or material delays in their development.

We may not be able to obtain market acceptance for the Puradyn.

         To date, we have generated limited revenues from the sale of our
products, which have achieved limited market acceptance. Demand for our products
and proposed products will

                                       16

<PAGE>

depend principally upon consumer demand for the Puradyn. The oil filtration
industry has historically been competitive, and as is typically the case with
innovative products, the ultimate level of demand for our products is subject to
a high degree of uncertainty. Developing market acceptance for our products will
require substantial marketing and sales efforts and the expenditure of a
significant amount of funds to inform consumers of the benefits and cost
advantages of our products and achieve name recognition. We cannot assure you
that we will be able to penetrate existing markets on a wide scale basis or
position our products to appeal to mainstream consumer markets or that any
marketing efforts undertaken by us will result in increased demand for or market
acceptance of our products. Puradyn relies, and intends to continue to rely, in
part, on arrangements with third parties for the marketing of our products,
including arrangements with distributors and other strategic partners. We cannot
assure you that they or the company will be able to successfully market
Puradyn's products or that their efforts will result in any significant increase
in revenues.

We are dependent on suppliers and their loss could have a significant impact on
us.

         A substantial portion of the component parts of our products are
manufactured by various suppliers for assembly by Puradyn. We believe our
relationships with our suppliers are satisfactory and that alternative suppliers
are available if relationships falter or existing suppliers are unable to keep
up with the Puradyn's requirements. However, we cannot assure you that our
current or future suppliers will be able to meet our requirements on
commercially reasonable terms or within scheduled delivery times. An
interruption of Puradyn's arrangements with suppliers could cause a delay in the
production of our products for timely delivery to distributors and customers.
The absence of suitable manufacturing arrangements would have a material adverse
effect on our operations.

We are dependent on distributors and their loss could have a significant impact
on us.

         Puradyn currently sells a relatively small portion of its products
through distributors for resale to other distributors or customers, and is
dependent to some extent upon acceptance of its products by these distributors,
customers, and their active marketing and distribution efforts relating to
Puradyn's products. Most of the distributors to whom we sell products, including
those that are contractually obligated to purchase our products in order to
maintain their distribution territories, could discontinue carrying our products
at any time. Due to increasing competition, distributors are increasingly in a
stronger position to negotiate favorable terms of sale, including price
discounts and product return policies. We cannot assure you that Puradyn will be
able to increase or maintain its distribution, and as a result, our operating
results could be adversely affected.

Competition may adversely affect our operations.

         Although there is limited competition in the electric mobile oil
filtration system market, the market for full-flow oil filters, in general, and
by-pass oil filters, in particular, is characterized by intense competition. To
the extent that our products reduce oil consumption, full-flow oil filter sales
and disposal costs and extend engine life, Puradyn's products compete with, or
affect the sales of many well-established companies. These companies have
substantially greater financial, technical, personnel and other resources than
Puradyn and have established reputations for success in the development,
licensing and sale of their products and technology. Certain of these
competitors have the financial resources necessary to enable them to withstand
substantial price competition or downturns in their markets. In addition,
certain companies may be expected to develop technologies or products, which may
be functionally similar to some or all of those being developed by us. Industry
standards with respect to the markets for the technology and products being
developed by Puradyn may be characterized as evolving, which often results in
product obsolescence or short product life cycles. Accordingly, the ability of
Puradyn to compete will depend on its ability to complete development and
introduce into the marketplace in a timely manner its proposed products and
technology, to continually enhance and improve such products and technology, to
adapt its proposed products to be compatible with specific products manufactured
by others, and to successfully develop and market new products and technology.

We cannot assure you that Puradyn will be able to compete successfully, that its
competitors or future competitors will not develop technologies or products that
render our products and technology obsolete or less marketable or that Puradyn
will be able to successfully enhance its proposed products or technology or
adapt them satisfactorily.

We are dependent on key personnel and their loss would adversely affect our
operations.

                                       17

<PAGE>

         The success of Puradyn will be largely dependent on the efforts of the
members of the management of the company. Puradyn has not as yet entered into
employment agreements with some members of the management, and we cannot assure
you that these persons will continue their employment with Puradyn. The loss of
the services of one or more key personnel could have a material adverse effect
on our ability to maximize use of our products and technologies or to develop
related products and technologies. The success of Puradyn also is dependent upon
its ability to hire and retain qualified executive, engineering and marketing
personnel. We cannot assure you that Puradyn will be able to hire or retain such
necessary personnel. Puradyn does not presently have "key man" life insurance
with respect to members of its management.

We market a limited number of related products which make us vulnerable if our
products do not gain market acceptance.

         Although Puradyn has taken steps to broaden its product offerings,
sales of the Puradyn and related products and enhancements are expected to
continue to account for a substantial portion of our sales for the foreseeable
future. Future growth will depend upon acceptance of the Puradyn by a broader
group of customers. If we fail to achieve broader acceptance of our products,
this will have a material adverse effect on our financial condition and results
of operations. In addition, any factors adversely affecting the Puradyn, such as
the introduction of superior products or shifts in the needs of the
marketplace,would have a material adverse effect on our financial condition and
results of operations.

There are risks associated with our international operations and international
distribution.

         In 2000, we formed a subsidiary in England for distribution throughout
Europe, Africa and the Middle East. These foreign operations are subject to a
number of risks, including longer payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burden of
complying with a variety of foreign laws, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, currency
fluctuations and political and economic instability. Additionally, the
protection of our intellectual property may be more difficult to enforce outside
of the United States. In the event that we are unsuccessful in expanding our
international operations, the imposition of exchange or price controls or other
restrictions on foreign currencies could materially affect our business,
operating results and financial condition.

Our intellectual property rights may not provide meaningful protection for us.

         Puradyn's success is heavily dependent upon its proprietary technology.
Puradyn relies on a combination of contractual rights, patents, trade secrets,
trademarks, non-disclosure agreements and technical measures to establish and
protect its proprietary rights.

         We cannot assure you that the steps taken by Puradyn to protect its
proprietary rights will be adequate to prevent misappropriation of the
technology or independent development by others of products with features based
upon, or otherwise similar to, those of our products. In addition, although we
believe that its technology has been independently developed and does not
infringe on the proprietary rights of others, we cannot assure you that
Puradyn's technology does not and will not infringe or that third parties will
not assert infringement claims against Puradyn in the future. In the case of
infringement, Puradyn would, under certain circumstances, be required to modify
its products or obtain a license. We cannot assure you that Puradyn would be
able to do either in a timely manner, or upon acceptable terms and conditions,
and this failure could have a material adverse effect on us. In addition, the
company may not have the resources to defend a patent infringement or other
proprietary rights infringement action.

         Certain of our patents will expire in June 2008. We have patents for a
redesigned Puradyn (the basis for the next generation of the Puradyn products),
and the TFP Filter Plus which h have been issued in the United States and
certain other foreign countries in 1997, a U.S. patent for its new oil flow
meter and a U.S. patent issued in 1998 on another method of introducing
additives into the oil. These patents expire from May 2014 to October 2016.
Also, we recently filed a provisional application for our new chemical grafting
process (CGP), a technology designed to enhance the filtration efficiency of
specified media. These patents may not withstand competitive threats to their
patentability or, in the case of the redesigned Puradyn, be developed into
commercially viable products. The expiration of these patents may have an
adverse competitive effect on us and patents pending for these new

                                       18

<PAGE>


products in various foreign countries may not be issued and may not provide
meaningful proprietary protection.

We will likely experience possible fluctuations in operating results which will
expose us to greater uncertainties.

         Puradyn's operating results may fluctuate significantly from period to
period as a result of a variety of factors, including product returns,
purchasing patterns of consumers, the length of Puradyn's sales cycle to key
customers, distributors and other strategic partners, the timing of the
introduction of new products and product enhancements by Puradyn and its
competitors, technological factors, variations and effectiveness in sales by
product, salesperson, and distribution channel, and competitive pricing.
Consequently, product revenues may vary significantly by quarter, and our
operating results may experience significant fluctuations.


Our ability to raise capital to fund operations is limited.

         Our operating results to date have been net losses and have required
cash from investors and loans from third parties and from related parties. Our
ability to raise capital to fund future operations is limited and cannot be
relied upon if present working capital funds and investments are depleted.

There is only a limited market for our common stock.

         There is currently only a limited trading market for the common stock
of Puradyn. Our common stock trades on the OTC Bulletin Board under the symbol
"PFTI", and this market is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ System. While Puradyn
has applied for inclusion of its common stock on NASDAQ (Small Cap), we cannot
assure you that our common stock will ever qualify for inclusion within the
NASDAQ System or that more than a limited market will ever develop for our
common stock.





                                       19
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page
                                                                       ----
Report of Independent Certified Public Accountants....................  F-2

Consolidated Financial Statements:

     Consolidated Balance Sheets - December 31, 2000 and 1999.........  F-3

     Consolidated Statements of Operations - Years ended
         December 31, 2000 and 1999...................................  F-4

     Consolidated Statements of Changes in Stockholders' Equity
         (Deficiency) - Years ended December 31, 2000 and 1999........  F-5

     Consolidated Statements of Cash Flows - Years ended
         December 31, 2000 and 1999...................................  F-6

     Notes to Consolidated Financial Statements.......................  F-8









                                       20
<PAGE>


                                    PART III

ITEM 8.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
         ------------------------------------------------------------

         The following table sets forth the names, positions with the company
and ages of the directors, executive officers and significant employees and
directors of the company. Directors will be elected at the company's annual
meeting of stockholders and serve for one year or until their successors are
elected and duly qualified. Officers are elected by the Board and their terms of
office are, except to the extent governed by employment contract, at the
discretion of the Board.


Directors and Executive Officers
--------------------------------

         Name             Age    Position
         ----             ---    --------

Joseph V. Vittoria        65     Chairman of the Board of Directors
Richard C. Ford           57     Chief Executive Officer and Director
Kevin C. Kroger           49     President, Chief Operating Officer and Director

Alan J. Sandler           62     Vice President, Secretary, Chief
                                   Financial Officer, and Director
Peter H. Stephaich        45     Director
Ottavio Serena            48     Director
Michael Castellano        60     Director

JOSEPH V. VITTORIA was appointed to the Board of Directors and appointed as
Chairman on February 8, 2000. Mr. Vittoria was Chairman and Chief Executive
Officer of Travel Services International, Inc. where he served since 1998. From
1987 to 1997, Mr. Vittoria served as Chairman and Chief Executive Officer of
Avis, Inc. and was President and Chief Operating Officer of Avis, Inc. from 1982
to 1987. Mr. Vittoria also serves on the Boards of Directors of Sirius Satellite
Radio, Inc., Carey International, Inc., ResortQuest International, Inc. and
Membertek International, Inc.

RICHARD C. FORD has been a Director of the company since its inception in 1988.
He served as President of the company from its inception in 1988 until April
1997 and as Chief Executive Officer and Treasurer until June 1997. He also
served as Secretary of the Company from its inception until August 1996. Mr.
Ford returned to the company in April 1998 and in January 1999, Mr. Ford was
elected Chairman of the Board of Directors and appointed Chief Executive
Officer. Mr. Ford was also a Director of TF Purifiner Ltd. through July 17, 1997
at which time he resigned, and was re-appointed as a Director in 1999.

                                       21

<PAGE>

KEVIN C. KROGER joined the company July 3, 2000 as President, Chief Operating
Officer, and was appointed to the Board of Directors. Mr. Kroger was with
Detroit Diesel Corporation from 1989 to the time he joined the company, serving
in various executive positions prior to his appointment in 1998 to the position
of Vice President and General Manager of Series 30/40 Product. From 1987 to 1989
he was Vice President of R.E.S. Leasing and of VE Corporation. Prior to this,
from 1971 to 1987, he held several management positions with Caterpillar
Corporation.

ALAN J. SANDLER joined the company in June 1998 as President, Chief Operating
Officer, Secretary, Chief Financial Officer, and Director. In January 2000, he
became Vice President and resigned from the positions of President and Chief
Operating Officer. In March 2001, he resigned as Chief Financial Officer. From
1995 until 1997 Mr. Sandler served as President and Chief Executive Officer to
Hood Depot, Inc., a national restaurant supply manufacturer/distributor. From
1979 to 1995 he was President and Chief Executive Officer of Sandler & Sons
Dental Supply Company, a regional dental supply and equipment distributor.
Previous to this position he was a Vice President of Gardner Advertising
Company, a national advertising agency. Mr. Sandler was appointed as a Director
of TF Purifiner Ltd. in 1999.

PETER H. STEPHAICH was appointed to the Board of Directors at its meeting June
12, 2000. Mr. Stephaich is currently Chairman, Chief Executive Officer and
President of Blue Danube Incorporated, a private holding company engaged in the
river transportation industry on the Upper Ohio River. Mr. Stephaich has been on
its Board of Directors since 1982 and has held the titles of Chief Executive
Officer and President since 1995. Prior to 1995, Mr. Stephaich worked for
various financial institutions, including four years at Banker Trust Company
where he provided international financial advisory services to the
transportation and aerospace industries.

OTTAVIO SERENA was appointed to the Board of Directors at it meeting June 12,
2000. Mr. Serena is a principal of The Lynx Partners, a private equity
consulting firm. He is also President of The Explorer and Fiber Group, and is a
director and Vice President of Financial Performance Corporation, a publicly
traded financial company. From 1993 to 1999, Mr. Serena was with Citicorp
Venture Capital, a leveraged buyout company. Mr. Serena co-founded and was
managing director of The Lynx Partners from 1987 to 1993.

MICHAEL CASTELLANO was appointed to the Board of Directors at its January 24,
2001 meeting. Mr. Castellano retired in 1997. From 1995 to 1997, Mr. Castellano
was Chief Administrative Officer of Kobren Insight Group, a mutual fund company,
and in 1994, he was Executive Vice President of Wall Street Access, a discount
brokerage firm. Prior to that, from 1988 to 1993, Mr. Castellano was Senior Vice
President and Corporate Controller for Fidelity Investments.

During 2000, Puradyn's board of directors met on three occasions. Puradyn has an
audit committee and a compensation committee.

Audit Committee
The audit committee of the board of directors is composed of three independent
directors and operates under a written charter adopted by the board of
directors. The committee members are Michael Castellano (chairperson), Peter H.
Stephaich and Joseph V. Vittoria.

The audit committee reviews our financial reporting process on behalf of the
board of directors. Management has the primary responsibility for the financial
statements and the reporting process including the system of internal controls.

In this context, the chairperson has met and held discussions with management
and the independent auditors. Management represented to the committee that
Puradyn's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the committee has reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The committee discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees).

In addition, the committee has discussed with the independent auditors the
auditor's independence from the company and its management, including the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1 (Independence Discussions With Audit Committees).

The committee discussed with our independent auditors the overall scope and
plans for their respective audit. The committee meets with the independent
auditors with and without

                                       22

<PAGE>

management present, to discuss the results of their examinations, the
evaluations of Puradyn's internal controls, and the overall quality of our
financial reporting.

In reliance on the reviews and discussions referred to above, the committee
recommended to the board of directors, and the board has approved, that the
audited consolidated financial statements be included in Puradyn's Form 10-KSB
for the year ended December 31, 2000, for filing with the Securities and
Exchange Commission.

Submitted by the audit committee of the board of directors:

Michael Castellano        Peter H. Stephaich        Joseph V. Vittoria

Compensation Committee
The compensation committee provides overall guidance for officer compensation
programs, including salaries and other forms of compensation including all
employee stock option grants and warrant grants to non-employees. The
compensation committee consists of Peter Stephaich (chairperson), Joseph V.
Vittoria and Ottavio Serena.


ITEM 9.   EXECUTIVE COMPENSATION
          ----------------------

Cash Compensation
-----------------

         The following table shows, for the three year period ended December 31,
2000, the cash and other compensation paid by the company to its former
President and Chief Executive Officer and to each of the executive officers of
the company who had annual compensation in excess of $100,000.

<TABLE>
<CAPTION>
                                Summary Compensation Table

Name and                                         Other Annual             Number of   LTIP     All Other
Principal Position     Year   Salary         Bonus    Compensation(2)     Options    Payouts  Compensation(3)
------------------     -----  ------         -----    ---------------     -------    -------  -------------
<S>                    <C>    <C>           <C>          <C>            <C>             <C>    <C>
Richard C. Ford (4)    2000   $200,000      $150,000     $1,644                --       --     $12,000
CEO and Director       1999    145,608 (1)     1,000      1,171         1,064,510       --       9,000
                       1998     79,000 (1)        --      1,800           300,000       --      16,000

Kevin Kroger           2000     83,000        50,000     12,289           300,000       --       6,000
President, COO and
Director
</TABLE>

(1)      Mr. Ford elected to defer payment of $53,000 included in his 1998
         salary which he received in 2000. Richard C. Ford's salary in 1999
         includes stock options granted at a nominal exercise price in lieu of
         cash compensation for Mr. Ford (114,510 options having a value of
         $50,163).

(2)      This amount represents payments made by the company for health
         insurance premiums and, in the case of Mr. Kroger, also for life
         insurance and disability insurance premiums.

(3)      This amount represents payments made to Mr. Ford for consulting
         services in 1998, and a car allowance in 1999 and 2000. For Mr. Kroger,
         this amount represents a car allowance.

(4)      Mr. Ford served as Secretary of the company until August 1996. Mr. Ford
         served as President of the company until April 1, 1997 and served as
         Chief Executive Officer, Treasurer and Chief Financial Officer until
         June 19, 1997. Mr. Ford left the employment of the company on July 17,
         1997 and provided consulting services under an with the company until
         April 1, 1998 when he rejoined the company. In February 2000, Mr. Ford
         resigned as Chairman of the Board of Directors, but remained as a
         Director. (See Item 12, Certain Relationships and Related
         Transactions).

                                       23

<PAGE>

Option Grants in Last Fiscal Year
         The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended December
31, 2000 to each person named in the Summary Compensation Table.

<TABLE>
<CAPTION>

                           Number of        % of total
                          Securities         Options
                           Underlying       Granted to       Exercise or
                           Options          Employees in     Base Price       Market Price   Expiration
Name                       Granted (#)      Fiscal year      ($ / Share)      ($ / Share)         Date
----                       -----------      -----------      -----------      -----------    -----------
<S>                         <C>                <C>              <C>              <C>         <C>
Kevin Kroger                300,000            24.28            $9.25            $9.25       July 3, 2010
President, COO and
Director
</TABLE>

(1)      Kevin Kroger received 300,000 options with an exercise of $9.25 per
         share exercise-able in the amount of 75,000 per year at July 3, 2001,
         2002, 2003 and 2004, respectively.


Incentive and Non-qualified Stock Option Plans
        The Board of Directors adopted the 2000 Non-Employee Directors' Plan
(the "Directors' Plan") on November 8, 2000 under which options to purchase
400,000 shares have been authorized for issuance. The Directors' Plan will
provide a means to attract and retain highly qualified persons to serve as
non-employee directors and advisory directors of the company.

         Each member of the Board of Directors will be automatically granted
5,000 options at the date of commencement of the Directors' Plan and upon the
subsequent initial election of new members to the Board of Directors. Each
director receives and an additional 5,000 options at the close of each annual
meeting of stockholders. Additionally, each director automatically receives
2,500 options for each committee of the Board on which the director serves.
Options are granted at a price equal to the fair market value of the stock on
the date of grant, are exercise-able commencing one year following grant, and
will expire five years from the date of grant. In the event a person ceases to
serve on the Board of Directors, the outstanding options expire one year from
the date of cessation of service. The Directors' Plan will be administered by
the Board of Directors.

         The company's 1999 Stock Option Plan (the "1999 Plan") and the 1996
Stock Option Plan (the "1996 Plan"), adopted on September 15, 1999 and amended
in June 2000 and July 31, 1996, respectively, will work to increase proprietary
interest in the company of the employees, Board of Advisors, consultants, and
non-employee Directors and to align more closely their interests with the
interests of the company's stockholders. The Plans will also maintain the
company's ability to attract and retain the services of experienced and highly
qualified employees and non-employee directors.

                                       24
<PAGE>

        Under the 1999 Plan and 1996 Plan, the company had reserved an aggregate
of 3,000,000 and 2,200,000 shares, respectively, of common stock for issuance
pursuant to options granted under the Plans ("Plan Options"). The Board of
Directors or a Committee of the Board of Directors (the "Committee") of the
company will administer the Plans including, without limitation, the selection
of the persons who will be granted Plan Options under the Plans, the type of
Plan Options to be granted, the number of shares subject to each Plan Option and
the Plan Option price.

         Options granted under the 1996 and 1999 Plans may either be options
qualifying as incentive stock options ("Incentive options") under Section 422 of
the Internal Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plans also allow for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plans must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee, provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of the company's
common stock, no more than five years after the date of the grant.

         The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee and cannot be less than the par value of the
company's Common Stock.

                                       25

<PAGE>

         The per share purchase price of shares subject to Plan Options granted
under the Plans may be adjusted in the event of certain changes in the company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.

         Officers, directors, key employees and consultants of the company and
its subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plans. Only officers, directors and employees of
the Company who are employed by the company or by any subsidiary thereof are
eligible to receive Incentive Options.

        All Plan Options are generally nonassignable and nontransferable, except
by will or by the laws of descent and distribution, and during the lifetime of
the optionee, may be exercised only by such optionee. If an optionee's
employment is terminated for any reason, other than his death or disability or
termination for cause, or if an optionee is not an employee of the company but
is a member of the company's Board of Directors and his service as a Director is
terminated for any reason, other than death or disability, the Plan Option
granted to him generally shall lapse to the extent unexercised on the earlier of
the expiration date or one year following the date of termination. If the
optionee dies during the term of his employment, the Plan Option granted to him
generally shall lapse to the extent unexercised on the earlier of the expiration
date of the Plan Option or the date one year following the date of the
optionee's death. If the optionee is permanently and totally disabled within the
meaning of Section 22 (c) (3) of the Internal Revenue Code of 1986, the Plan
Option granted to him generally lapses to the extent unexercised on the earlier
of the expiration date of the option or one year following the date of such
disability.




                                       26
<PAGE>

        The Board of Directors or the Committee may amend, suspend or terminate
the Plans at any time, except that no amendment shall be made which (i)
increases the total number of shares subject to the Plans or changes the minimum
purchase price therefor (except in either case in the event of adjustments due
to changes in the company's capitalization), (ii) extends the term of any Plan
Option beyond ten years, or (iii) extends the termination date of the Plan.
Unless the Plans shall theretofore have been suspended or terminated by the
Board of Directors, the 1996 Plan shall terminate on July 31, 2006 and the 1999
Plan shall terminate on September 15, 2009. Any such termination of the Plans
shall not affect the validity of any Plan Options previously granted thereunder.

        As of December 31, 2000, under the Directors' Plan, options to purchase
220,000 shares of common stock were outstanding. As of December 31, 2000, under
the 1996 Plan, incentive stock options to purchase 193,557 shares of common
stock were outstanding and non-qualified options to purchase 1,260,691 shares of
common stock were outstanding and, under the 1999 Plan, incentive stock options
to purchase 1,763,750 shares of common stock were outstanding and non-qualified
options to purchase 220,000 shares of common stock were outstanding.

Options Granted to Officers and Directors
-----------------------------------------

        On July 3, 2000, Kevin Kroger was granted 300,000 qualified options at
$9.50 per share, which become exercise-able at 75,000 per year beginning July 3,
2001. On October 23, 2000 directors Joseph Vittoria, Peter Stephaich and Ottavio
Serena were granted 200,000, 10,000 and 7,500 options, respectively, at $5.88
per share. These options become exercise-able two years from the date of grant.

        On January 7, 1999 Richard C. Ford was granted 100,000 non-qualified
options at $.21 per share which were immediately vested and exercisable. On
April 1, 1999, Mr. Ford was granted 175,000 non-qualified options at $.94 per
share of which 100,000 were immediately vested and exercisable and 75,000 vested
on April 1, 2000. On April 14, 1999 Mr. Ford was granted 100,000 non-qualified
options at $.56 per share which vest on April 14, 2001. From June 18, 1999 to

September 24, 1999 Mr. Ford was granted 114,510 non-qualified options at a zero
exercise price compared to market prices of from $.31 to .51 per share in lieu
of cash compensation. All vested and were exercisable immediately. On December
20, 1999, Mr. Ford was granted 275,000 qualified options at $1.10 per share
which were immediately vested and exercisable. Also, on December 20, 1999, Mr.
Ford was granted 300,000 qualified options at $1.10 per share of which 150,000
vested on December 20, 2000 and 150,000 will vest on December 20, 2001.

        On July 8, 1998, Richard C. Ford was granted 300,000 stock options to
purchase shares of the company's Common Stock at $.38 per share. Of these
options, 150,000 vested on July 8, 1998 and 150,000 vested on July 7, 1999.

        On August 2, 1996, the company granted Richard C. Ford Incentive Plan
Options to purchase an aggregate of 50,000 shares of common stock at $2.20 per
share through August 2, 2001, of which 25,000 vested on August 2, 1996, 12,500
vested on August 2, 1997, and 12,500 vested on August 2, 1998. Mr. Ford
surrendered these options for cancellation in 1999. On August 2, 1996, the
company granted Richard C. Ford non-qualified options to purchase an aggregate
of 200,000 shares of Common Stock at $2.00 per share through August 2, 2004, of
which 100,000 vested on August 2, 1996, 50,000 vested on August 2, 1997, and
50,000 vested on August 2, 1998. Mr. Ford also surrendered these 200,000 options
for cancellation in 1999.

                                       27

<PAGE>

Option Exercises and Holdings
-----------------------------

         The following table sets forth information with respect to the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 2000 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of the 2000 fiscal year.


               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                     Number of                     Securities       Value of Unexercised
                                     Shares                        Underlying           in-the-Money
                                     Acquired       Options/SARS   Unexercised          Options/SARs
                                     On Exercise      Value        at FY-End (#)        at FY-End ($)
                                     Realized       Exercsiable/   Exercisable/         Exercissable/
                                       (#)             ($)        Unexercisable         Unexercisable (1)
                                     ----------     ------------  --------------    ---------------------
<S>                                  <C>                 <C>     <C>                 <C>
Richard C. Ford-                     114,510             (2)     1,000,000/250,000   $3,516,188/$808,750
Chief Executive Officer and
Director

Kevin Kroger                              --              --             -/300,000               -/(3)
President, COO and Director
</TABLE>

(1)      In accordance with the Securities and Exchange Commission's rules,
         values are calculated by subtracting the exercise price from the fair
         market value of the underlying common stock. For purposes of this
         table, fair market value is deemed to be $4.06, the closing price
         reported on December 31, 2000.

(2)      From June 18, 1999 to September 24, 1999, Mr. Ford was granted 114,510
         non-qualified options at a zero exercise price compared to market
         prices of from $.31 to $.51 per share in lieu of cash compensation.

(3)      The closing price at December 31, 2000 of $4.06 is less than the
         exercise price of the options.


ITEM 10.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

         The following table sets forth certain information regarding the
company' s Common Stock beneficially owned on March 23, 2001 for (i) each
stockholder known by the Company to be the beneficial owner of five (5%) percent
or more of the company's outstanding Common Stock, (ii) each of the company's
executive officers and directors, and (iii) all officers and directors as a
group. In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire ownership within sixty (60) days. At March 23,
2001, there were 14,217,041 shares of Common Stock outstanding. The address of
each of the persons set forth below is 3020 High Ridge Road, Suite 100, Boynton
Beach, Florida 33426, except as otherwise noted.


                                       28

<PAGE>

<TABLE>
<CAPTION>
                                                                                                 Percent of
Name and Address or                                                of Common Stock               Beneficial
Identity of Group                                                 Beneficially Owned              Ownership
-----------------                                                 ------------------              ---------
<S>                                                                 <C>                               <C>
Quantum Industrial Partners LDC ("QIP") (1)                         4,570,000                         28.2%
Richard C. Ford (2)                                                 2,171,451                         13.4%
Kevin Kroger (3)                                                       20,000                           .1%
Alan J. Sandler (4)                                                   191,538                          1.6%
Joseph V. Vittoria (5)                                              1,000,000                          7.8%
Peter Stephaich (6)                                                   100,000                           .6%
Ottavio Serena (6)                                                    120,000                           .7%
Michael Castellano (6)                                                  9,000                          -

All Officers and Directors as a group (7 persons)                   3,807,323                         23.5%
</TABLE>


(1)      Address is c/o Curacao Corporation Company, N.V., Kaya Flamboyan,
         Willenstad Curacao, Netherlands, Antilles.

(2)      Mr. Ford serves as Chief Executive Officer and as a Director. Excludes
         320,500 shares owned by Catherine Ford, Mr. Ford's wife who is
         separated from Mr. Ford and for which Mr. Ford disclaims beneficial
         ownership. Also includes options to purchase (i) 300,000 shares of
         Common Stock at $.38 per share through July 7, 2003, options to
         purchase 100,000 shares at $.21 per share through January 7, 2004,
         options to purchase 175,000 shares at $.94 per share through April 1,
         2004, options to purchase 50,000 shares at $1.00 per share through
         August 2, 2001, 200,000 shares at 1.10 per share through August 2,
         2004, options to purchase 25,000 shares at $1.10 per share through
         December 3, 2004; and options to purchase 150,000 shares at $1.10 per
         share through December 20, 2004. This number does not include options
         held by Mr. Ford to purchase 150,000 shares at $1.10 per share which
         have not vested at this date.

(3)      Mr. Kroger is President, Chief Operating Officer, and a Director.

(4)      Mr. Sandler serves as Vice President, Chief Financial Officer,
         Secretary and Director. Includes options to purchase 195,000 shares of
         Common Stock at $.38 per share and does not include 65,000 options
         which have not vested at this date.

(5)      Mr. Vittoria serves as Chairman of the Board of Directors.

(6)      Mr. Stephaich, Mr. Serena, and Mr. Castellano serve as Directors.


Beneficial Ownership Reporting Compliance
-----------------------------------------

         Section 16 (a) of the Exchange Act requires the company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the company. Officers, directors and greater than
ten percent (10%) stockholders are required by Commission regulation to furnish
the company with copies of all Section 16 (a) forms they file.\

                                       29

<PAGE>

         To the company's knowledge, based solely on a review of the copies of
such reports furnished to the company and written representations that no other
reports were required, during the year ended December 31, 2000, all Section 16
(a) filing requirements applicable to its officers, directors and greater than
ten percent (10%) beneficial owners were completed and filed on a timely basis,
except that reports for, Richard C. Ford, Chief Executive Officer and a
Director, and Alan J. Sandler, Vice President and a Director, were not filed on
a timely basis.


ITEM 11.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Loans by Richard C. Ford to the Company On May 21, 1998 and on June 24,
1998, Richard C. Ford, Chairman of the Board of Directors and a major
stockholder of the company, loaned the company $110,000 and $40,000,
respectively. For each loan, the company issued notes payable due one year from
the date of issuance, at 12% interest, and secured by accounts receivable and
inventories. The principal and interest accrued to December 31, 1999 totaling
$24,300 was not been paid. On January 24, 2000, Mr. Ford converted these loans
and the related interest totaling approximately $30,000 into 150,000 shares of
common stock.

         On August 21, 1998, the company borrowed $250,000 from its bank under a
revolving note payable due one year from the date of issuance. The bank note
payable was increased to $350,000 on January 21, 1999 and to $525,000 on March
25, 1999. The revolving line of credit was secured by certificates of deposit in
the name of Richard C. Ford and held by the bank. The company borrowed the full
amount of $525,000. On January 24, 2000, Mr. Ford and his daughter, Traci Ford,
personally repaid the bank and simultaneously converted the loan into 525,000
shares of the company's Common Stock.

         During 1998, the Company and Quantum Industrial Partners LDC ("QIP")
entered into a Note Exchange Agreement whereby a $2,000,000 promissory note
issued in 1997 to QIP was exchanged for a $2,000,000, 12% Senior Subordinated
Convertible Note due 2003. In addition, during 1998, the Company and QIP entered
into a Note Purchase Agreement whereby the Company issued QIP a 12% Senior
Subordinated Convertible Note in the aggregate principal amount of $500,000
under the same terms and conditions as the $2,000,000 note. Interest was payable
quarterly beginning April 1, 1998, however, under provisions of the agreement,
the Company elected to add the unpaid interest to the principal balance each
quarter through December 31, 1999. Such unpaid interest then bore interest at
15% per annum and was payable on demand. Total accrued interest at December 31,
1999 was $691,086. The notes were senior to all indebtedness of the Company
except bank or financial institution debt. The notes could be convertible at the
option of QIP on or after the earlier of January 1, 2001, or the date on which
the Company raised cash proceeds aggregating $10 million from the sale of debt
or equity securities or assets, based upon a conversion price of $2.75 per
share. The notes contained restrictive covenants including prohibiting the
payment of any dividends, purchase, redemption or acquisition any of its common
stock, retirement of its existing indebtedness other than existing required
periodic payments, and entering into transactions with any affiliate.

         In connection with the $2,000,000 promissory note originally issued to
QIP on June 19, 1997, the Company issued a Common Stock Purchase Warrant to QIP
for the purchase of 500,000 shares of the Company's Common Stock, exercisable at
$2.75 per share and expiring on December 31, 2000. The original promissory note
was recorded at a discounted amount of $1,600,000 and the warrants were recorded
at $400,000. The discount on the original note was amortized over the original
term ending on December 19, 1997.

                                       30

<PAGE>

         On December 31, 1999, the Company and QIP entered into an agreement for
QIP to convert the outstanding principal amount payable to QIP into 2,500,000
shares of the Company's common stock at a conversion rate of $1 per share. As a
result of the modification of the conversion terms, the Company recognized
interest expense in 1999 totaling $2,115,909, equal to the fair market value of
the additional shares to be received by QIP resulting from the modification,
pursuant to SFAS No. 84, Induced Conversions of Convertible Debt. On January 24,
2000, QIP converted the principal balance of the notes, totaling $2,500,000, and
foregave the related accrued interest totaling $717,997, into 2,500,000 shares
of the Company's common stock.

        The company believes that the transactions referred to above were on
terms no less favorable to the company than terms which could have been obtained
from unrelated third parties.

Private Offering Investment by Directors
----------------------------------------

         During the company's private offering memorandum of $1.00, concluding
in March 2000, the following Directors participated:
                               Joseph V. Vittoria                 $1,000,000
                               Peter Stephaich                    $  100,000
                               Ottavio Serena                     $   20,000

For the company's private offering memorandum of $7.50 concluding in September
2000, the following Directors participated:
                               Joseph V. Vittoria                 $1,000,000
                               Kevin G. Kroger                    $  150,000



                                       31

<PAGE>

ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

A)       Index to Exhibits

Exhibits          Description of Documents
--------          ------------------------
3.1               Amended and Restated Certificate of Incorporation of T/F
                  Purifiner, Inc. dated December 30, 1996 (2).

3.1(a)            Certificate of Amendment to Certificate of Incorporation dated
                  February 3, 1998 (4)

3.2               Bylaws of T/F Purifiner, Inc. (1).

3.3               Memorandum and Articles of Association of TF Purifiner Ltd.
                  (1).

4.1               Amendment No. 1 to Registration Rights Agreement (4).

10.1              Stock Option Plan (1).

10.2              Agreement between T/F Systems, Inc. and T/F Purifiner, Inc.
                  dated March 1, 1991 (with exhibits) (1).

10.3              Asset Purchase Agreement between T/F Systems, Inc. and T/F
                  Purifiner, Inc. dated December 31, 1995 (1).

10.4              Stock Exchange Agreement between D.B. Filters, Inc., Byron
                  Lefebvre and Robert Meyer, and T/F Purifiner, Inc. (with
                  exhibits) (1).

10.5              Joint Venture Agreement between T/F Purifiner, Inc. T/F
                  Systems, Inc., Centrax Limited, The Barr Family and A.N.
                  Davies (1).

10.6              Lease Agreement between Papeyco Trading International, Inc.
                  and T/F Purifiner, Inc. dated August 23, 1993 (1).

10.7              Master Distributor Agreement dated April 6, 1995 between KLC
                  Corporation and the Company (1).

10.8              Exclusive Distributor Agreement / Colombia Effective Date
                  March 1, 1996, between Al Pacific Cali and the Company (1).

10.9              Exclusive Agreement for Distributorship in Singapore dated
                  February 6, 1996 between Kian Seng Hardware Trading Pte. Ltd.
                  and the Company (1).

10.10             Exclusive Agreement for Distributorship in Malaysia dated
                  February 5, 1995 between Kian Seng Hardware Trading Pte. Ltd.
                  and the Company (1).

10.11             Exclusive Agreement for Distributorship in Thailand dated
                  November 17, 1995 between N.Haven Group International Co. Ltd.
                  and the Company (1).

10.12             Exclusive Agreement for Distributorship in Indonesia dated
                  February 5, 1996 between PT Hista Bayhu and the Company (1).

10.13             Master Distributor Agreement dated January 11, 1995 between
                  Trimex Korea and the Company (1).

10.14             Promissory Note dated December 21, 1995 between the Company,
                  Richard C. Ford, individually, T/F Systems, Inc. as maker and
                  Bassett Boat Company of Florida in the principal amount of
                  $200,000 (1).

                                       32
<PAGE>

10.15             Securities Purchase Agreement and Exhibits thereto (3)

10.16             Note Exchange Agreement dated as of January 26, 1998 (4).

10.17             12% Senior Subordinated Convertible Note in the principal
                  amount of $2,000,000 (4).

10.18             Note Purchase Agreement dated January 26, 1998 (4)

10.19             12% Senior Subordinated Convertible Note in the principal
                  amount of $500,000 (4).

10.20             Stock Option Plan (5)

10.21             2000 Non-Employee Directors' Plan (10)

24.1              Consent of Independent Certified Public Accountants (10)

99.1              Final Judgment in T/F Systems, Inc. v. Southeast Capital
                  Financing, Inc., Case No. CL 90-12772AE in the Circuit Court
                  of the 15th Judicial Circuit in and for Palm Beach County,
                  Florida (1).
--------------
(1)      Incorporated by reference from the Exhibits to the company's Form 10-SB
         Registration Statement, as amended, as filed with the Securities and
         Exchange Commission.

(2)      Incorporated by reference from the Exhibit to the company's Form 8-K,
         January 9, 1997, as filed with the Securities and Exchange Commission.

(7)      Incorporated by reference from the Exhibit to the company's Form 8-K,
         June 19, 1997, as filed with the Securities and Exchange Commission.

(8)      Incorporated by reference from the Exhibit to the company's Form 8-KA,
         February 11, 1998, as filed with the Securities and Exchange
         Commission.

(9)      Incorporated by reference from Form S-8, September 15, 1999, as filed
         with the Securities and Exchange Commission.

(10)     Filed herewith.

B)       Report on Form 8-K filed December 13, 2000, reporting a change in the
         company's independent public accountant.



                                       33

<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                      Puradyn Filter Technologies, Incorporated
                                                                    (Registrant)


Date: April 6, 2001                         By: /s/ Richard C. Ford
                                                --------------------------------
                                                   Richard C. Ford
                                                   Chief Executive Officer


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.

Date: April 6, 2001


By: /s/   Richard C. Ford
        -------------------------------------------
          Richard C. Ford
          Principal Executive Officer and Director


By: /s/   Alan J. Sandler
        -------------------------------------------
          Alan J. Sandler
          Vice President, Director and Principal
          Financial and Accounting Officer


By: /s/   Joseph V. Vittoria
        -------------------------------------------
          Joseph V. Vittoria
          Chairman of the Board of Directors

By: /s/  Kevin G. Kroger
        -------------------------------------------
         Kevin G. Kroger, President and Principal
         Operating Officer and Director

By: /s/  Michael Castellano
        -------------------------------------------
         Michael Castellano, Director

By: /s/  Peter Stephaich
        -------------------------------------------
         Peter Stephaich, Director

By: /s/  Ottavio Serena
        -------------------------------------------
         Ottavio Serena, Director

                                       34
<PAGE>


                    Puradyn Filter Technologies, Incorporated

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page
                                                                       ----
Report of Independent Certified Public Accountants....................  F-2

Consolidated Financial Statements:

     Consolidated Balance Sheets - December 31, 2000 and 1999.........  F-3

     Consolidated Statements of Operations - Years ended
         December 31, 2000 and 1999...................................  F-4

     Consolidated Statements of Changes in Stockholders' Equity
         (Deficiency) - Years ended December 31, 2000 and 1999........  F-5

     Consolidated Statements of Cash Flows - Years ended
         December 31, 2000 and 1999...................................  F-6

     Notes to Consolidated Financial Statements.......................  F-8







<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Puradyn Filter Technologies Incorporated

We have audited the accompanying consolidated balance sheets of Puradyn Filter
Technologies, Incorporated (the Company) as of December 31, 2000 and 1999, and
the related consolidated statements of operations, changes in stockholders'
equity (deficiency) and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Puradyn Filter
Technologies, Incorporated at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.

We also audited the adjustments described in Note 20 that were applied to
restate the balance sheet at December 31, 1998, which was previously audited by
other independent certified public accountants. The 1999 consolidated financial
statements were also previously audited by other independent certified public
accountants and were restated as described in Note 20. In our opinion, such
adjustments are appropriate and have been properly applied.

                                                               Ernst & Young LLP

West Palm Beach, Florida
April 6, 2001

                                       F-2




<PAGE>


                    Puradyn Filter Technologies, Incorporated

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                                     December 31
                                                                         -----------------------------------
                                                                            2000                   1999
                                                                         ------------           ------------
                                                                                                (as restated)
<S>                                                                      <C>                    <C>
Assets
Current assets:
Cash and cash equivalents                                                $    479,158           $     71,045
   Short-term investments                                                   6,685,138                     --
   Accounts receivable, net of allowance for uncollectible
    accounts of $61,163 and $11,256 at December 31, 2000 and
    1999, respectively                                                         79,880                 56,881
   Notes receivable, related party                                            150,000                     --
   Inventories                                                                284,040                168,203
   Accrued interest receivable                                                193,459                     --
   Prepaid expenses and other current assets                                  272,041                 10,122
                                                                         ------------           ------------
Total current assets                                                        8,143,716                306,251

Long-term investments                                                         452,630                     --
Property and equipment, net                                                   228,369                114,541
Deferred financing costs, net of accumulated
   amortization of $132,500 at December 31, 1999                                   --                 39,000
Deferred offering costs                                                            --                114,000
Other noncurrent assets                                                         9,800                  4,100
                                                                         ------------           ------------
Total assets                                                             $  8,834,515           $    577,892
                                                                         ============           ============

Liabilities and stockholders' equity (deficiency) Current liabilities:
   Accounts payable-trade                                                $    156,999           $    263,185
   Accounts payable and accrued expenses-related parties                       24,340                265,444
   Accrued payroll                                                             33,299                 70,262
   Other accrued expenses                                                     179,495                 82,891
   Deferred revenue                                                            54,227                 45,690
   Current portion of capital lease obligations                                10,374                 17,602
   Note payable to bank                                                            --                525,000
   Note payable to stockholder                                                     --                150,000
   Note payable to QIP, a stockholder, and related accrued
     interest                                                                      --              3,191,086
                                                                         ------------           ------------
Total current liabilities                                                     458,734              4,611,160

Capital lease obligations, less current portion                                11,705                     --
                                                                         ------------           ------------
                                                                              470,439              4,611,160
Commitments and contingencies

Stockholders' equity (deficiency):
   Preferred stock, $.001 par value:
     Authorized shares-500,000; none issued and outstanding                        --                     --
Common stock, $.001 par value,
     Authorized shares-20,000,000;
     Issued and outstanding-14,206,541 in 2000 and 5,998,628
       in 1999                                                                 14,207                  5,999
   Additional paid-in capital                                              30,226,556             10,827,643
   Unearned compensation expense                                              (29,326)               (66,511)
   Stockholder notes receivable                                               (21,506)               (60,931)
   Accumulated deficit                                                    (21,828,861)           (14,739,468)
   Accumulated other comprehensive income                                       3,006                     --
                                                                         ------------           ------------
Total stockholders' equity (deficiency)                                     8,364,076             (4,033,268)
                                                                         ------------           ------------
Total liabilities and stockholders' equity (deficiency)                  $  8,834,515           $    577,892
                                                                         ============           ============
</TABLE>


                             See accompanying notes

                                       F-3

<PAGE>

                    Puradyn Filter Technologies, Incorporated

                      Consolidated Statements of Operations



                                                      Year ended December 31
                                                  -----------------------------
                                                      2000            1999
                                                  ------------     ------------
                                                                   (as restated)


Net sales                                         $  1,172,567     $    586,860

Costs and expenses:
   Cost of products sold                             1,139,507          545,539
   Selling expenses                                  1,794,280          346,388
   General and administrative                        5,664,529          778,104
                                                  ------------     ------------
Total costs and expenses                             8,598,316        1,670,031
                                                  ------------     ------------
                                                    (7,425,749)      (1,083,171)

Other income (expense):
   Investment income                                   421,484               --
   Interest expense                                    (85,128)      (2,706,613)
                                                  ------------     ------------
Total other income (expense)                           336,356       (2,706,613)
                                                  ------------     ------------
Loss before extraordinary item                      (7,089,393)      (3,789,784)
Extraordinary item:
   Gain on forgiveness of debt
      to former stockholder                                 --          204,756
                                                  ------------     ------------
Net loss                                          $ (7,089,393)    $ (3,585,028)
                                                                   ============

Basic and diluted loss per common share:
   Loss before extraordinary item                 $       (.55)    $       (.72)
   Extraordinary item                                       --              .04
                                                  ------------     ------------
   Net loss                                       $       (.55)    $       (.68)
                                                  ============     ============
Weighted average common shares outstanding          12,984,296        5,300,189
                                                  ============     ============


                            See accompanying notes.

                                       F-4


<PAGE>


                    Puradyn Filter Technologies, Incorporated
     Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>

                                          Common Stock           Additional      Unearned
                                    -------------------------      Paid-In     Compensation
                                      Shares        Amount         Capital        Expense
                                    ----------   ------------   ------------    ------------
<S>                               <C>            <C>            <C>             <C>
Balance, December 1998 as
   previously reported               5,223,493   $      5,223   $  7,309,201    $     (2,560)
   Restatement (Note 20)                    --             --         33,080           2,560
                                  ------------   ------------   ------------    ------------

Balance, January 1, 1999,
   as restated                       5,223,493          5,223      7,342,281              --
Exercise of stock options              193,795            195         63,491              --
Proceeds from sale of
   common stock                        500,000            500        499,500              --
Issuance of compensatory
   stock options to employees               --             --         92,190         (10,950)
Issuance of stock options to
   stockholders for services
   relating to debt financing               --             --        171,500              --
Issuance of stock options
   to vendors for services                  --             --         31,856              --
Issuance of common stock
   to vendors for services              81,340             81         81,259              --
Issuance of stock purchase
   warrants to agent relating
   to planned equity offering               --             --        114,000              --
Interest expense associated
   with modification of terms
   on note payable to QIP to
   induce conversion                        --             --      2,115,909              --
Compensation expense associated
   with outstanding variable
   option awards                            --             --        315,657         (55,561)
Net loss                                    --             --             --              --
                                  ------------   ------------   ------------    ------------

Balance, December 31, 1999
   as restated                       5,998,628          5,999     10,827,643         (66,511)
Foreign currency translation
   adjustment                               --             --             --              --
Net unrealized gain on
   available-for-sale
   securities                               --             --             --              --
Net loss                                    --             --             --              --
                                  ------------   ------------   ------------    ------------
Total Comprehensive Income
Proceeds from sale of common
   stock, net of offering
  costs of $229,715                  4,612,935          4,613     10,494,674              --
Collections on stockholder
   notes receivable                         --             --             --              --
Exercise of stock options              394,978            395        260,406              --
Issuance of common stock to
   employees and vendors for
   services                             25,000             25        289,368              --
Conversion of notes payable
   and related accrued
   interest into common
   stock                             3,175,000          3,175      5,602,826              --
Issuance of stock purchase
   warrants to vendors for
   services                                 --             --        552,780              --
Issuance of compensatory stock
   options to nonemployee
   directors                                --             --      1,260,000              --
Compensation expense associated
   with outstanding variable
   option awards                            --             --        938,859          33,133
Compensation expense associated
   with outstanding fixed
   option awards                            --             --             --           4,052
                                  ------------   ------------   ------------    ------------
                                    14,206,541   $     14,207   $ 30,226,556    $    (29,326)
                                  ============   ============   ============    ============
[RESTUBBED]
<CAPTION>

                                                                  Accumulated
                                   Stockholder                       Other         Stockholders'
                                      Notes        Accumulated   Comprehensive        Equity
                                    Receivable       Deficit          Income       (Deficiency)
                                   ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>
Balance, December 1998 as
   previously reported            $    (22,931)   $(10,876,114)   $         --    $ (3,587,181)
   Restatement (Note 20)               (38,000)       (278,326)             --        (280,686)
                                  ------------    ------------    ------------    ------------

Balance, January 1, 1999,
   as restated                         (60,931)    (11,154,440)             --      (3,867,867)
Exercise of stock options                   --              --              --          63,686
Proceeds from sale of
   common stock                             --              --              --         500,000
Issuance of compensatory
   stock options to employees               --              --              --          81,240
Issuance of stock options to
   stockholders for services
   relating to debt financing               --              --              --         171,500
Issuance of stock options
   to vendors for services                  --              --              --          31,856
Issuance of common stock
   to vendors for services                  --              --              --          81,340
Issuance of stock purchase
   warrants to agent relating
   to planned equity offering               --              --              --         114,000
Interest expense associated
   with modification of terms
   on note payable to QIP to
   induce conversion                        --              --              --       2,115,909
Compensation expense associated
   with outstanding variable
   option awards                            --              --              --         260,096
Net loss                                    --      (3,585,028)             --      (3,585,028)
                                  ------------    ------------    ------------    ------------

Balance, December 31, 1999
   as restated                         (60,931)    (14,739,468)             --      (4,033,268)
Foreign currency translation
   adjustment                               --              --          (2,581)         (2,581)
Net unrealized gain on
   available-for-sale
   securities                               --              --           5,587           5,587
Net loss                                    --      (7,089,393)             --      (7,089,393)
                                  ------------    ------------    ------------    ------------
Total Comprehensive Income                          (7,089,393)          3,006      (7,086,387
Proceeds from sale of common
   stock, net of offering
  costs of $229,715                         --              --              --      10,499,287
Collections on stockholder
   notes receivable                     39,425              --              --          39,425
Exercise of stock options                   --              --              --         260,801
Issuance of common stock to
   employees and vendors for
   services                                 --              --              --         289,393
Conversion of notes payable
   and related accrued
   interest into common
   stock                                    --              --              --       5,606,001
Issuance of stock purchase
   warrants to vendors for
   services                                 --              --              --         552,780
Issuance of compensatory stock
   options to nonemployee
   directors                                --              --              --       1,260,000
Compensation expense associated
   with outstanding variable
   option awards                            --              --              --         971,992
Compensation expense associated
   with outstanding fixed
   option awards                            --              --              --           4,052
                                  ------------    ------------    ------------    ------------
                                  $    (21,506)   $(21,828,861)   $      3,006    $  8,364,076
                                  ============    ============    ============    ============
</TABLE>

                            See accompanying notes.

                                       F-5


<PAGE>


                    Puradyn Filter Technologies, Incorporated

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                    Year ended December 31
                                                                 --------------------------
                                                                    2000           1999
                                                                 -----------    -----------
<S>                                                              <C>            <C>
Operating activities
Net loss                                                         $(7,089,393)   $(3,585,028)
Adjustments to reconcile net loss to net cash used in
   operating activities:
     Depreciation and amortization                                    59,936         98,720
     Provision for bad debts                                          49,907         41,788
     Amortization of deferred financing costs included in
       interest expense                                               39,000        132,500
     Forgiveness of accounts payable recorded as a reduction
       of general and administrative expenses                         (9,836)      (119,603)
     Interest expense associated with modification of terms
       of note payable to QIP to induce conversion                        --      2,115,909
     Extraordinary item, gain on forgiveness of debt to
       former stockholder                                                 --       (204,756)
     Interest accrued on note payable to QIP and note payable
       to stockholder                                                 28,094        387,690
     Loss on disposal of property and equipment                       83,664          9,484
     Amortization of discount on investment securities               (65,236)            --
     Compensation expense on stock-based arrangements with
       employees and vendors                                       4,765,717        454,532
     Changes in operating assets and liabilities:
         Accounts receivable                                         (54,558)      (104,380)
         Accrued interest receivable                                (193,459)            --
         Inventories                                                (257,151)        95,739
         Prepaid expenses and other assets                          (267,619)        (9,913)
         Accounts payable                                            (53,081)      (121,074)
         Accrued payroll                                             (36,967)        (6,417)
         Other accrued expenses                                       34,991        (50,050)
         Deferred revenue                                              8,537         (2,926)
         Accounts payable and accrued expenses-related parties
                                                                    (241,104)       199,680
                                                                 -----------    -----------
Net cash used in operating activities                             (3,198,558)      (668,105)

Investing activities
Proceeds from sale of investments                                    600,000             --
Purchases of investments                                          (7,666,945)            --
Purchases of property and equipment                                  (98,261)            --
                                                                 -----------    -----------
Net cash used in investing activities                             (7,165,206)            --
</TABLE>


Continued on next page

                                       F-6



<PAGE>



                    Puradyn Filter Technologies, Incorporated

                Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>

                                                                                Year ended December 31
                                                                             ----------------------------
                                                                                 2000            1999
                                                                             ------------    ------------
<S>                                                                            <C>                <C>
Financing activities
Proceeds from sale of common stock, net of offering costs                      10,487,608         500,000
Proceeds from exercise of stock options                                           260,801          63,686
Proceeds from note payable to bank                                                     --         275,000
Repayment of note payable to former stockholder                                        --         (90,000)
Collection on stockholder notes receivable                                         39,425              --
Payment of capital lease obligations                                              (13,376)         (9,536)
                                                                             ------------    ------------
Net cash provided by financing activities                                      10,774,458         739,150
Effect of exchange rate changes on cash                                            (2,581)             --
                                                                             ------------    ------------
Increase in cash and cash equivalents                                             408,113          71,045
Cash and cash equivalents at beginning of year                                     71,045              --
                                                                             ------------    ------------
Cash and cash equivalents at end of year                                     $    479,158    $     71,045
                                                                             ============    ============

Supplemental cash flow information
Cash paid for interest                                                       $      6,810    $     38,398
                                                                             ============    ============
Non cash investing and financing activities
Equipment purchased under a capital lease                                    $     17,853    $         --
                                                                             ============    ============

Fair value of stock purchase warrants issued to agent for services in 1999
   relating to 2000 equity offering and
   netted against proceeds in 2000                                           $   (114,000)   $    114,000
                                                                             ============    ============
Unrealized gains on investments                                              $      5,587    $         --
                                                                             ============    ============
Conversion of notes payable to stockholder and notes payable
   to QIP, and related accrued interest, into common stock                   $  3,918,501    $         --
                                                                             ============    ============
Sale of common stock by issuance of note receivable which was
   collected in January 2001                                                 $    150,000    $         --
                                                                             ============    ============
Issuance of stock options to stockholder for deferred
   financing costs                                                           $         --    $     71,500
                                                                             ============    ============
</TABLE>



                            See accompanying notes.

                                       F-7


<PAGE>

                    Puradyn Filter Technologies Incorporated
                   Notes to Consolidated Financial Statements
                                December 31, 2000

1.  Accounting Policies

Organization. Puradyn Filter Technologies Incorporated ("Puradyn" or the
"Company"), a Delaware corporation, is engaged in the manufacturing,
distribution and sale of oil purification systems under the trademarks
Purifiner(R) and Puradyn(TM) primarily to original vehicle equipment
manufacturers and to companies having large fleets of vehicles. The Company
holds the exclusive worldwide manufacturing and marketing rights for the
Purifiner products pursuant to licenses for two patents and through direct
ownership of various patents.

Adoption of New Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, which is required to be adopted
in years beginning after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.

In December 2000, the Company adopted the provisions of Securities and Exchange
Commission (SEC) Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. SAB No. 101 provides guidance on applying generally
accepted accounting principles to revenue recognition in financial statements.
The adoption of SAB No. 101 in the fourth quarter of the Company's year ended
December 31, 2000 did not have a material effect on the Company's financial
statements.

Principles of consolidation. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Puradyn Filter
Technologies Ltd, formed during 2000. All significant intercompany transactions
and balances have been eliminated.

Revenue recognition. The Company recognizes revenue upon shipment of its
products that do not require further services or installation at the customer's
site in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements. Cash received by the Company prior to
shipment is recorded as deferred revenue. Sales are made to certain customers
under terms allowing certain limited rights of return and other limited product
and performance warranties for which provision has been made in the accompanying
financial statements. Management believes, based on past experience and future
expectations, that such limited return rights and warranties will not have a
material adverse effect on the Company's financial statements.

Use of estimates. The preparation of 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 consolidated financial statements. Actual results could differ from those
estimates.

Cash and cash equivalents. Cash and cash equivalents include all highly liquid
investments with a maturity of three months or less at the time of purchase.

Investments. All investments are classified as available-for-sale securities.
Available-for-sale securities are stated at fair value with unrealized gains and
losses reported in other comprehensive income. Interest on securities classified
as available-for-sale are included in investment income. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income.


                                       F-8

<PAGE>

Fair value of financial instruments. The fair value of current assets, long-term
investments in debt securities and current liabilities approximate their
reported carrying amounts. In the opinion of management the carrying value of
capital lease obligations approximates market value based on market interest
rates for similar instruments.

Inventories. Inventories are stated at the lower of cost or market. Production
costs are applied to ending inventories at a rate based on estimated production
capacity, and any excess production costs are charged to cost of products sold.

Property and equipment. Property and equipment are stated on the basis of cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets, except for assets held under capital leases,
for which the Company records depreciation based on the shorter of the assets
useful life or the term of the lease. The estimated useful lives of property and
equipment range from 3 to 5 years. Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from their respective accounts, and the
resulting gain or loss is included in the results of operations. Repairs and
maintenance charges, which do not increase the useful lives of the assets, are
charged to operations as incurred.

Comprehensive income. Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") establishes rules for reporting and
display of comprehensive income and its components. Comprehensive income is the
sum of net income as reported in the Consolidated Statement of operations and
other comprehensive income transactions reported in the Consolidated Statement
of Changes in Stockholders' Equity (Deficiency). Other comprehensive income
transactions that currently apply to the Company result from changes in the
market value of Available-For-Sale securities and changes in holding value
resulting from foreign currency translation adjustments. These transactions are
not the culmination of the earnings process, but result from periodically
adjusting historical balances to fair value. Gains or losses are realized when
the securities available for sale are sold.

Advertising costs. Advertising costs are expensed as incurred. During the years
ended December 31, 2000 and 1999, such costs totaled $13,000 and $12,000,
respectively, included in selling expenses in the accompanying statements of
operations.

Engineering and development. Engineering and development costs totaling $252,551
and $71,793 in 2000 and 1999, respectively, are expensed as incurred and
included in general and administrative costs in the accompanying statements of
operations.

Foreign Currency Translation. The financial statements of the Company's foreign
subsidiary for the year ended December 31, 2000 have been translated into U.S.
dollars in accordance with FASB Statement No. 52, Foreign Currency Translation.
All balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Income statement amounts have been translated
using an appropriately weighted average exchange rate for the year. The gains
and losses resulting from the changes in exchange rates during 2000 have been
reported in other comprehensive income. The effect on the consolidated
statements of operations for 2000 of transaction gains and losses is
insignificant.

Income taxes. The Company accounts for income taxes under FASB Statement No.
109, Accounting for Income Taxes. Deferred income tax assets and liabilities are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.


                                       F-9


<PAGE>

Impairment. Management reviews long-lived assets and intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable, in accordance with Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of". If such indicators are present,
recoverability of these assets is determined by comparing the forecasted
undiscounted net cash flows estimated to be generated by those assets over the
remaining life to the asset's carrying amount. If the estimated undiscounted net
cash flows are less than the carrying amount, the assets would be adjusted to
their fair value, based on the present value of the undiscounted net cash flows.
Management believes that no impairment adjustments are required at December 31,
2000 and 1999.

Stock-based compensation. The Company generally grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and related Interpretations because the Company believes the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (FAS No. 123) requires the use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded, however to the extent the exercise price on
the date of grant is less than market price, a corresponding amount of
compensation is recorded. 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 FAS No. 123 and EITF 96-18, Accounting for Equity
Investments That are Issued to Other Than Employees for Acquiring or in
Conjunction with Selling Goods or Services. The related expense is recognized
over the period the services are provided.

Compensatory Stock Options. The Company accounts for the difference between the
Grant Price of compensatory stock options and fair value as unearned
compensatory options, which the company charges to Operations over their vesting
period.

Credit risk. The Company minimizes the concentration of credit risk associated
with cash and cash equivalents by maintaining its cash and cash equivalents with
a high quality federally insured financial institution. The Company performs
ongoing evaluations of its significant trade accounts receivable customers and
generally does not require collateral. An allowance for doubtful accounts is
maintained against trade accounts receivable at levels which management believes
is sufficient to cover probable credit losses.

Basic and diluted loss per share. The Company has adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share (FAS 128) which requires a dual
presentation of basic and diluted earnings per share. However, because of the
Company's net losses, the effect of stock options, warrants and convertible debt
would be anti-dilutive and, accordingly, are excluded from the computation of
earnings per share. The number of such shares excluded from the computation of
loss per share totaled approximately 3,192,189 in 2000 and 2,821,396 in 1999.


                                      F-10

<PAGE>


2.  Investments


Investments at December 31, 2000 were as follows:
<TABLE>
<CAPTION>

                                   Amortized      Gross          Gross         Estimated
                                      Cost      Unrealized     Unrealized        Fair
                                     Basis        Gains         (Losses)         Value
                                  -----------   -----------    -----------    -----------
<S>                               <C>           <C>            <C>            <C>
Short term investments:
  Corporate debt securities       $ 4,690,003   $     6,676    $    (2,241)   $ 4,694,438
  Foreign government securities     1,793,181            --         (2,481)     1,790,700
  Certificates of deposit             200,000            --             --        200,000
                                  -----------   -----------    -----------    -----------
                                    6,683,184         6,676         (4,722)     6,685,138

Long-term investments:
  Corporate debt securities           248,997         3,633             --        252,630
  Certificates of deposit             200,000            --             --        200,000
                                  -----------   -----------    -----------    -----------
                                      448,997         3,633             --        452,630
                                  -----------   -----------    -----------    -----------
                                  $ 7,132,181   $    10,309    $    (4,722)   $ 7,137,768
                                  ===========   ===========    ===========    ===========
</TABLE>

The contractual maturity date of long-term corporate debt securities is May 1,
2006.

During fiscal 2000, the Company sold investments in corporate debt securities
with an amortized cost basis of $598,853 at a sale price of $600,000 resulting
in a realized gain of $1,147.

Inventories

At December 31, inventories consist of the following:
                                                    2000                1999
                                                    ----                ----
                  Raw materials                   $200,170            $152,185
                  Finished goods                    83,870              16,018
                                                  --------            --------
                                                  $284,040            $168,203
                                                  ========            ========

4.  Property and Equipment

At December 31, 2000 and 1999, property and equipment consists of the following:

                                                          2000         1999
                                                          ----         ----
                  Machinery and equipment             $  587,547      $ 414,909
                  Furniture and fixtures                  50,495         47,193
                                                      ----------      ---------
                  Total property and equipment           638,042        462,102
                  Less accumulated depreciation
                      and amortization                  (409,673)      (347,561)
                                                      ----------      ---------
                    Net property and equipment        $  228,369      $ 114,541
                                                      ==========      =========

Amortization of equipment held under capital leases is included in depreciation
expense.

5.  Leases

The Company's primary manufacturing, warehouse and office facilities in Boynton
Beach, Florida are leased under a three year lease which extends to March 31,
2003. The Company has additional office facilities in Livonia, Michigan under a
lease which extends through January 31, 2002 and in Devon, England under a lease
which extends through March 31, 2001. The lease on the Company's Boynton Beach
facilities contains no renewal options and the Michigan office can be renewed

                                      F-11

<PAGE>

for an additional year under the same terms unless changed by notice from the
landlord 60 days prior to end of the initial term. The lease on the Devon office
can be renewed annually under the same terms unless changed by notice from the
landlord 60 days prior to end of the initial term. Total rent expense was
approximately $132,000 and $107,000 for 2000 and 1999, respectively.

The Company also has entered into several obligations for certain office and
manufacturing equipment which have been accounted for as capital leases with
terms of four years.

At December 31, 2000, future minimum commitments under these non-cancelable
leases are as follows:
<TABLE>
<CAPTION>


                                                                          Capital          Operating
                                                                          Leases            Leases
                                                                          ------            ------
<S>               <C>                                                   <C>                <C>
                  2001                                                  $  11,562          $117,600
                  2002                                                      5,496           120,200
                  2003                                                      5,496            30,300
                  2004                                                      2,748                --
                                                                         --------          --------
                  Total minimum lease payments                             25,302          $268,100
                                                                         --------          ========
                  Less amount representing interest                        (3,223)
                                                                         --------
                  Present value of minimum lease payments
                    (including current portion of $10,374)                $22,079
                                                                          =======
</TABLE>


6.  Accounts Payable Forgiveness

During 2000 and 1999, the Company settled certain accounts payable with
unrelated parties totaling $9,836 and $119,603, respectively, which was recorded
as a reduction of general and administrative expenses.

7.  Note Payable to Stockholder

During 1998, Richard C. Ford, who was, at the time, Chairman of the Board of
Directors and a major stockholder of the Company, loaned the Company $150,000
for which the Company issued notes payable due one year from the date of
issuance, bearing interest at 12%, and secured by accounts receivable and
inventories. The interest accrued as of December 31, 1999 totaled $24,300. On
January 24, 2000, Mr. Ford converted the loan and the related accrued interest
totaling $175,504 into 150,000 shares of common stock. See Note 8 for discussion
concerning compensation expense resulting from this and other conversions.

8.  Note Payable to Bank

During 1998, the Company borrowed $250,000 from its bank under a revolving note
payable due one year from the date of issuance, bearing interest at 8.75%,
payable monthly. The note was collateralized by substantially all assets of the
Company. On January 21,1999, the Company converted its loan to a $350,000
revolving line of credit, due on demand, with interest at the bank's prime rate
(7.75% at inception). The revolving line of credit was secured by certificates
of deposit in the name of Richard C. Ford and held by the bank. On January 21,
1999, the Company borrowed an additional $100,000 under the new revolving line
of credit. Both the initial loan and the revolving line of credit were
personally guaranteed by Richard C. Ford. On March 25, 1999, the Company
increased the line of credit from $350,000 to $525,000. The additional $175,000
was drawn down during March 1999.


                                      F-12


<PAGE>


In exchange for Mr. Ford's personal guarantee of the Company's borrowings, the
Board of Directors granted Mr. Ford 175,000 options. The fair value of the
options, estimated to be $171,500 using the Black-Scholes valuation model, was
recorded as a deferred financing cost and has been amortized to interest expense
over the term of the initial loan. Included in interest expense in the
accompanying Statements of Operations for 2000 and 1999 is amortization of such
deferred financing costs of $39,000 and $132,500, respectively.

On January 24, 2000, Mr. Ford and his daughter personally repaid the bank on
behalf of the Company and simultaneously converted their loans totaling $525,000
into 525,000 shares of the Company's common stock. As a result of this
conversion, and the conversion discussed in Note 7, the Company recorded
compensation expense in 2000 totaling approximately $1,687,500 which represents
the excess of the fair market value of the common stock received by Mr. Ford and
his daughter over conversion price at the date of the conversion.

9. Note Payable to Former Stockholder

Arising out of a settlement with the estate of a former stockholder, the Company
owed the estate $294,756. This obligation, which was declared in default by the
estate, was settled on December 28, 1999, by payment to the estate of $90,000.
The remaining balance owed at the time of settlement totaling $204,756 was
forgiven and is reflected as an extraordinary item in the accompanying 1999
Statement of Operations.

10. Notes Payable to QIP, a Stockholder

In connection with the $2,000,000 promissory note originally issued to QIP on
June 19, 1997, the Company issued a Common Stock Purchase Warrant to QIP for the
purchase of 500,000 shares of the Company's Common Stock, exercisable at $2.75
per share and expiring on December 31, 2000. The original promissory note was
recorded at a discounted amount of $1,600,000 and the warrants were recorded at
$400,000. The discount on the original note was amortized over the original term
ending on December 19, 1997.

During 1998, the Company and Quantum Industrial Partners LDC ("QIP") entered
into a Note Exchange Agreement whereby a $2,000,000 promissory note issued in
1997 to QIP was exchanged for a $2,000,000, 12% Senior Subordinated Convertible
Note due 2003. In addition, during 1998, the Company and QIP entered into a Note
Purchase Agreement whereby the Company issued QIP a 12% Senior Subordinated
Convertible Note in the aggregate principal amount of $500,000 under the same
terms and conditions as the $2,000,000 note. Interest was payable quarterly
beginning April 1, 1998, however, under provisions of the agreement, the Company
elected to add the unpaid interest to the principal balance each quarter through
December 31, 1999. Such unpaid interest then bore interest at 15% per annum and
was payable on demand. Total accrued interest at December 31, 1999 was $691,086.
The notes were senior to all indebtedness of the Company except bank or
financial institution debt. The notes could be convertible at the option of QIP
on or after the earlier of January 1, 2001, or the date on which the Company
raised cash proceeds aggregating $10 million from the sale of debt or equity
securities or assets, based upon a conversion price of $2.75 per share. The
notes contained restrictive covenants including prohibiting the payment of any
dividends, purchase, redemption or acquisition any of its common stock,
retirement of its existing indebtedness other than existing required periodic
payments, and entering into transactions with any affiliate.



                                      F-13


<PAGE>




On December 31, 1999, the Company and QIP entered into an agreement for QIP to
convert the outstanding principal amount payable to QIP into 2,500,000 shares of
the Company's common stock at a conversion rate of $1 per share. As a result of
the modification of the conversion terms, the Company recognized interest
expense in 1999 totaling $2,115,909, equal to the fair market value of the
additional shares to be received by QIP resulting from the modification,
pursuant to SFAS No. 84, Induced Conversions of Convertible Debt. On January 24,
2000, QIP converted the principal balance of the notes, totaling $2,500,000, and
foregave the related accrued interest totaling $717,997, into 2,500,000 shares
of the Company's common stock.

11.  Royalties

In connection with the Company being granted worldwide manufacturing and
marketing rights for certain of the Purifiner products, a royalty agreement was
entered into with a term which mirrors the life of the related patents or any
improvements thereto. Pursuant to this royalty agreement, the owner of the
patents will receive 5% of the net unit sale price of all covered Purifiner
products, as defined. Additionally, 1% of the net sales price of replacement oil
filter elements will be paid as a royalty for the use of the Purifiner U.S.
trademark.

In May 1994, the Company and the patent owner entered into a settlement
agreement relating to royalties under which the patent owner was entitled to a
minimum annual royalty of $24,000, payable in monthly installments of $2,000. In
February 1997, the patent owner filed an action against the Company for
nonpayment of approximately $21,000 of royalties claimed by him, seeking a
permanent injunction against the Company's manufacturing and selling of the
covered Purifiner products. On March 2, 1999, the trial court ruled that the
patent owner was not entitled to any injunctive relief but was entitled to
$20,169 in past royalties which the Company paid. The patent owner filed a
motion for additional damages and attorney fees and on December 13, 2000 the
Court found the patent owner was entitled to an additional $15,505. The Company
appealed that judgment but has paid the additional judgment. Thereafter, on
February 22, 2001, the trial court ordered the Company to pay the sum of
$18,049, included in Other Accrued Expense in the accompanying 2000 Balance
Sheet, for the patent owner's attorney's fees and court costs. That order has
been appealed and will be combined with the first appeal. The judgment for
attorney's fees and court costs has not been paid and the Company has posted a
surety bond to cover the judgment while the appeals are pending. Management does
not expect the ultimate resolution of this matter to have a significant effect
on the company's financial position or results of operations.

12.  Income Taxes

Income Taxes
The United States and foreign components of income from continuing operations
before income taxes are as follows:

<TABLE>
<CAPTION>

                                                                   2000               1999
                                                               -----------------------------
<S>                                                            <C>               <C>
          United States.....................................   $(6,913,052)      $(3,585,028)
          Foreign...........................................      (176,341)               --
                                                               -----------       -----------
               Total........................................   $(7,089,393)      $(3,585,028)
                                                               ===========       ===========
</TABLE>


                                      F-14



<PAGE>



The significant components of the Company's deferred tax assets and liabilities
consisted of the following at December 31:
<TABLE>
<CAPTION>

                                                                    2000          1999
                                                                -----------    -----------
<S>                                                             <C>            <C>
                 Deferred tax assets:

                      Net operating loss carryforwards ......   $ 5,550,742    $ 3,466,875
                      Depreciation and amortization .........        74,673         74,385
                      Accrued expenses and reserves .........        55,535         25,052
                      Compensatory stock options and warrants       197,032        427,583
                      Other .................................        15,206         11,177
                                                                -----------    -----------
                 Total deferred tax assets ..................     5,893,188      4,005,072
                           Valuation allowance ..............    (5,893,188)    (4,005,072)
                                                                -----------    -----------
                 Net deferred tax assets ....................   $        --    $        --
                                                                ===========    ===========
</TABLE>


SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a valuation allowance of $5,893,188 and $4,005,072 is necessary
as of December 31, 2000 and 1999, respectively. The change in valuation
allowance for the year ended December 31, 2000 is $1,888,116.

At December 31, 2000, the Company has approximately $16,033,000 of U.S. net
operating loss carryforwards remaining, which expire beginning in 2011. The
Company will record the benefit of $1,293,000 of the net operating loss
carryforwards through additional paid-in capital if and when the net operating
loss carryforwards are utilized.

As a result of certain ownership changes, the Company may be subject to an
annual limitation on the utilization of its U.S. net operating loss
carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to
determine the effects of this change has not been undertaken.

For the year ended December 31, 2000, the Company's United Kingdom subsidiary
generated a net operating loss of approximately $176,000.

A reconciliation of the Company's income taxes to amounts calculated at the
statutory federal rate is as follows:
<TABLE>
<CAPTION>

                                                                           2000        1999


<S>                                                                      <C>         <C>
          Federal statutory taxes......................................  (34.00)%    (34.00)%
          State income taxes, net of federal tax benefit...............   (2.63)      (1.50)
          Nondeductible items..........................................    9.32       19.95
          Change in valuation allowance................................   27.31       15.55
                                                                          -----       -----
                                                                             -- %         -- %
                                                                          =====       -----
</TABLE>


                                      F-15

<PAGE>


13.  Other Contingencies

TF Systems, Inc. ("Systems"), a related party (previously under common ownership
with the Company), formerly owned the manufacturing and marketing rights to the
Purifiner and transferred or sold such rights to the Company in 1995. In June,
1997, the former law firm of Systems filed a complaint against the Company,
Systems, Richard C. Ford, individually and an inactive company controlled by
Richard C. Ford, demanding payment of approximately $313,000 of legal fees and
other costs, plus interest and attorney fees, related primarily to obtaining the
manufacturing and marketing rights to the Purifiner for Systems and the Company.
Systems was awaiting a judgment of an appellate court which, if adjudicated in
Systems' favor, would have provided it with sufficient funds to pay such legal
fees and other possible claims aggregating approximately $75,000. On February
26, 1997, the appellate court ruled against Systems and, accordingly, the funds
discussed above are not currently available to Systems to satisfy such claims.
Puradyn did not assume these obligations as part of its purchase of Systems in
1995 and management believes such amounts are not the responsibility of the
Company. However, Systems is an inactive company whose only asset is the claim
that was reversed on appeal and maybe retried by Systems. Accordingly, the
ability to collect such funds from Systems is uncertain. The ultimate outcome of
this litigation cannot be determined at this time. However, management has
determined, based upon the opinion of the Company's counsel, that an adverse
judgment against the Company is unlikely. Accordingly, no accrual has been
recorded for these claims in the accompanying balance sheets since management
believes that it is not probable that the Company has incurred any loss
associated with these matters.

During 1999 and 2000, the Company did not make certain disclosure filings
relative to non-cash payments to third parties. As a result, the Company could
be subject to penalties and assessments which are not estimable at this time.

14. Stock Options

The Company has three stock option plans, one adopted in 1996 and amended in
July, 1997 (the "1996 Option Plan"), one adopted in September 1999 and amended
in June 2000 (the "1999 Option Plan"), and one adopted on November 8, 2000 (the
"Directors' Plan"). The 1996 Option Plan provides for the granting of up to
2,200,000 options, the 1999 Option Plan provides for the granting of up to
3,000,000 options and the Directors' Plan provides for the granting of up to
400,000 options.

Each of the 1996 and 1999 Plans provides for the granting of both incentive and
non-qualified stock options to key personnel, including officers, directors,
consultants and advisors to the Company, based upon the determination of the
Board of Directors. Each plan limits the exercise price of the options to be no
less than fair value of the common stock on the date of grant for incentive
stock options and the option term may not exceed five or ten years. Generally,
under both plans, options to employees vest over four years at 25% per annum,
except for certain grants to employees which vested 50% upon grant with
remaining amounts over two years at 25% per annum. The Directors' Plan provides
for the granting of non-qualified options to members of the Board of Directors
at no less than the fair market value of the common stock on the date of grant
for a term expiring at the earlier of five years or the date the individual
ceases to serve as a Director. Such options may be exercised commencing two
years from the date of grant.



                                      F-16


<PAGE>



At December 31, 2000 and 1999, 4,765,053 and 3,760,031 shares of common stock
have been reserved for issuance under the aforementioned plans. Additional
information concerning the activity in the option plans is as follows:
<TABLE>
<CAPTION>

                                                                 2000                        1999
                                                                 ----                        ----

                                                                     Weighted                   Weighted
                                                                      Average                    Average
                                                                     Exercise                   Exercise
                                                          Options      Price       Options        Price
                                                          -------      -----       -------        -----
<S>                                                       <C>          <C>         <C>            <C>
         Outstanding, at the beginning of the year        2,994,581    $1.19       1,634,355      $2.03
              Granted                                     1,455,750     7.57       2,040,970        .80
              Exercised                                   (394,978)      .66       (196,994)        .01
              Canceled                                    (395,355)     7.48       (483,750)       2.90
                                                          ---------                ---------
         Outstanding, at the end of the year              3,659,998     1.31       2,994,581       1.19
                                                          =========                =========

         Exercisable at the end of the year:              1,835,688    $1.43       1,617,957      $1.42

         Options available for grant at the
         end of the year                                  1,105,055                  765,450

</TABLE>

Summarized information with respect to options outstanding under the three plans
at December 31, 2000 is as follows:
<TABLE>
<CAPTION>

                                 Options Outstanding                            Options Exercisable
                   ---------------------------------------------------        ---------------------------
                                               Weighted Average              Weighted          Weighted
                                          Remaining           Average                          Average
Range of             Number              Contractual        Exercise          Number           Exercise
Exercise Price      Outstanding         Life (in Years)      Price          Exercisable         Price
--------------      -----------     -------------------    ------------------------------    -------------
<S>        <C>      <C>                     <C>              <C>           <C>                 <C>
 $ .21 -   $1.10    2,280,278               5.4              $ .77         1,503,218           $  .73
  2.00 -    4.50      297,470               6.6               1.55           207,220             2.23
  5.88 -    6.81      375,375               6.8               3.68             3,375             6.00
  8.50 -   10.00      706,875               8.9               1.65           121,875             8.66
</TABLE>

Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for the Company's stock options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for 2000 and
1999, respectively: risk free interest rates of 6.4% and 5.5%; volatility
factors of the expected market price of the Company's common stock of 4.5 and
5.5; and a weighted average expected life of 5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.



                                      F-17
<PAGE>


For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:

                                                    2000             1999
                                                    ----             ----

         Pro forma net loss                    $(7,614,639)      $(5,866,241)
               before extraordinary item
         Extraordinary item                             --           204,756
                                               -----------       -----------
         Pro forma net loss                     (7,614,639)       (6,070,997

         Basic and diluted pro forma
              loss per common share:
         Pro forma net loss                    $      (.59)     $      (1.15)
               before extraordinary item
         Extraordinary item                           (.00)              .03
         Pro forma net loss                           (.59)            (1.18)

During 2000, 220,000 options were issued to nonemployee Directors and were
recorded at their estimated fair value of approximately $1,260,000.

During 2000 and 1999, approximately $972,000 and $316,000 respectively, of
compensation expense was recognized relating to variable option awards
outstanding. At December 31, 2000, cumulative compensation expense recognized
for variable awards totaled $1,288,000. At December 31, 2000, approximately
292,000 awards subject to variable accounting remain outstanding with an average
exercise price of $.57.

15. Warrants

At December 31, 2000 and 1999, 269,067 and 100,000 shares of common stock have
been reserved for issuance under outstanding warrants. Information concerning
activity of the Company's warrants is as follows:
<TABLE>
<CAPTION>

                                                               2000                    1999
                                                               ----                    ----
                                                                    Weighted                 Weighted
                                                                     Average                  Average
                                                                    Exercise                 Exercise
                                                        Warrants      Price      Warrants      Price

<S>                                                       <C>        <C>           <C>          <C>
         Outstanding, at the beginning of the year        100,000    $1.00         835,000      $2.54
              Granted                                     169,067     3.92         100,000       1.00
              Exercised                                        --       --              --          -
              Canceled                                         --       --        (835,000)      2.54
                                                        ---------                ---------
         Outstanding, at the end of the year              269,067    $2.84         100,000      $2.48
                                                       ==========               ==========
</TABLE>


During 1999, the Company granted 100,000 warrants to a promoter. Such warrants
were recorded at the fair value of $114,000 and recorded as a deferred offering
cost at December 31, 1999 and reflected as an adjustment of the net proceeds
from the sale of common stock in 2000.

During 2000, the Company granted 369,067 warrants to vendors for services. Such
warrants were recorded at the fair value of approximately $553,000 as selling,
general and administrative expense for the year ended December 31, 2000.

16. Joint Venture and Formation of Subsidiary Company

In 1996, the Company entered into a joint venture agreement to create a company,
TF Purifiner Ltd. ("Ltd"), to sell and distribute the Company's product in
Europe, the Middle East and certain African countries. The Company had an
approximate 45% interest (50% voting interest) and accounted for Ltd using the
equity method. At December 31, 1999, the Company's share of the net losses
exceeded its original investment in the joint venture and accordingly, the
Company's investment was written down to zero. Effective May 31, 2000 the
Company and the other principal venture partner (Centrax Ltd.) agreed to
dissolve the joint venture with no liability on the part of the Company to fund
the excess of liabilities over net assets of the joint venture. In connection
with the dissolution, the Company acquired from Centrax certain foreign patents,
inventory and equipment used by it in the manufacture of goods for the joint
venture for $38,600, to the patents it received on Puradyn products in certain
foreign countries.


                                      F-18

<PAGE>



Upon dissolution of the joint venture, the Company formed a wholly-owned
subsidiary company, Puradyn Filter Technologies, Ltd. (PFTL), effective June 1,
2000 to continue the sale and distribution of the Company's products in Europe,
the Middle East and certain African countries. The results of operations of PFTL
have been consolidated with the Company since June 1, 2000.

17. Major Customers and Export Sales

The Company's products are oil refining systems, substantially all of which are
sold to distributors and end users for use on transportation vehicles. This
could unfavorably affect the Company's overall exposure to credit risk in as
much as these customers could be affected by similar economic or other
conditions. During 2000, five customers accounted for approximately 39.1% of the
Company's net sales. The loss of business from one or a combination of the
Company's significant customers could adversely effect its operations.

18. Other Related Party Transactions

In January 2000, Richard C. Ford was repaid approximately $200,000 for amounts
owed for cash advances to the Company and for expenses incurred by the Company
and paid by Mr. Ford on behalf of the Company.

In December 2000, the Company sold 20,000 shares of its common stock to an
executive for $150,000 through the issuance of a note. Such note was repaid by
the executive in January 2001.

19. Geographic information

The Company has one line of products which it manufactures and distributes from
one location in the U.S. and beginning in 2000, one location in the United
Kingdom. Information with respect to sales activity and long-lived assets in the
U.S. and foreign markets in which the Company operates is as follows:
<TABLE>
<CAPTION>

                                             U.S.                U.K.           Consolidated
                                          Operations          Operations            Total
                                          ----------          ----------            -----
<S>                                     <C>                     <C>            <C>
Net sales                               $1,073,767              $98,800        $1,172,567
Property and Equipment, net                177,469               50,900           228,369
</TABLE>

                                      F-19

<PAGE>


20. Restatement

The stockholders' deficiency at December 31, 1998, as previously reported, has
been restated to reflect certain adjustments made to the December 31, 1998
balance sheet, necessary for a fair presentation in conformity with accounting
principles generally accepted in the United States. These adjustments included
approximately $83,000 to reduce inventories to their net realizable value,
$18,000 to correct revenue recognition errors, $48,000 to accrue for general and
administrative costs incurred by the Company and paid for by a stockholder on
behalf of the Company, $62,000 to adjust property and equipment for depreciation
and to write-off assets that no longer existed or provided no benefit to the
Company, and $69,000 for other selling, general and administrative costs
incurred prior to the balance sheet date. The following table summarizes the
impact of these adjustments on total assets, liabilities and stockholders'
deficiency at December 31, 1998:
<TABLE>
<CAPTION>
                                                As
                                            Previously                                    As
                                             Reported           Adjustments            Restated
                                         --------------        ------------           ---------
<S>                                        <C>                  <C>                 <C>
At December 31, 1998
--------------------
Total assets                               $  678,956           $   (194,664)       $  484,292
Total liabilities                           4,266,137                 86,022         4,352,159
Total stockholders' deficiency              3,587,181                280,686         3,867,867
</TABLE>

The 1999 financial statements, as previously reported, have been restated to
reflect certain adjustments, necessary for a fair presentation in conformity
with accounting principles generally accepted in the United States. These
adjustments included approximately $2,116,000 of interest expense relating to
the modification of the conversion terms on the note payable to QIP (see Note
10), $467,000 of compensation expense to employees and vendors for stock-based
awards, $42,000 to correct revenue recognition errors, $48,000 to accrue for
selling, general and administrative costs incurred by the Company prior to the
balance sheet date, $18,000 to adjust depreciation expense and $8,000 to accrue
for costs incurred by the Company and paid by a stockholder on behalf of the
Company. These adjustments were offset by other miscellaneous adjustments, net
of the turnaround effect of certain adjustments recorded to the restate the 1998
stockholders' deficiency. The following table summarizes impact of these
adjustments on the total assets, liabilities and stockholders' deficiency at
December 31, 1999 and the results of operations and earnings per share for the
year then ended:

                                      F-20



<PAGE>
<TABLE>
<CAPTION>

                                                 As
                                             Previously                                  As
At December 31, 1999                          Reported            Adjustment          Restated
--------------------                        ------------        -------------      -------------
<S>                                        <C>                  <C>                <C>
Total assets                               $     493,142        $      84,750      $     577,892
Total liabilities                              4,409,746              201,414          4,611,160
Total stockholders' deficiency                 3,916,604              116,664          4,033,268

For the year ended December 31, 1999
    Sales, net                             $    580,480         $       6,380      $     586,860
         Cost of products sold                 (585,658)               40,119           (545,539)
                                           ------------         -------------      -------------
                                                 (5,178)               46,499             41,321
   Selling, general and administrative
     expenses                                   (919,062)            (205,430)        (1,124,492)
   Interest expense                             (435,736)          (2,270,877)        (2,706,613)
   Extraordinary item, gain on
     foregiveness of debt                        347,020             (142,264)           204,756
                                          --------------        -------------      -------------
   Net loss                               $   (1,012,956)       $  (2,572,072)     $  (3,585,028)

   Basic and diluted loss per common share:
   Loss before extraordinary item         $         (.26)                          $        (.72)
   Extraordinary item                                .07                                     .04
                                          --------------                           -------------
   Net loss                               $         (.19)                          $        (.68)
</TABLE>


                                      F-21

<PAGE>


                                Index to Exhibits


Exhibits          Description of Documents
--------          ------------------------
3.1               Amended and Restated Certificate of Incorporation of T/F
                  Purifiner, Inc. dated December 30, 1996 (2).

3.1(a)            Certificate of Amendment to Certificate of Incorporation dated
                  February 3, 1998 (4)

3.2               Bylaws of T/F Purifiner, Inc. (1).

3.3               Memorandum and Articles of Association of TF Purifiner Ltd.
                  (1).

4.1               Amendment No. 1 to Registration Rights Agreement (4).

10.1              Stock Option Plan (1).

10.2              Agreement between T/F Systems, Inc. and T/F Purifiner, Inc.
                  dated March 1, 1991 (with exhibits) (1).

10.3              Asset Purchase Agreement between T/F Systems, Inc. and T/F
                  Purifiner, Inc. dated December 31, 1995 (1).

10.4              Stock Exchange Agreement between D.B. Filters, Inc., Byron
                  Lefebvre and Robert Meyer, and T/F Purifiner, Inc. (with
                  exhibits) (1).

10.5              Joint Venture Agreement between T/F Purifiner, Inc. T/F
                  Systems, Inc., Centrax Limited, The Barr Family and A.N.
                  Davies (1).

10.6              Lease Agreement between Papeyco Trading International, Inc.
                  and T/F Purifiner, Inc. dated August 23, 1993 (1).

10.7              Master Distributor Agreement dated April 6, 1995 between KLC
                  Corporation and the Company (1).

10.8              Exclusive Distributor Agreement / Colombia Effective Date
                  March 1, 1996, between Al Pacific Cali and the Company (1).

10.9              Exclusive Agreement for Distributorship in Singapore dated
                  February 6, 1996 between Kian Seng Hardware Trading Pte. Ltd.
                  and the Company (1).

10.10             Exclusive Agreement for Distributorship in Malaysia dated
                  February 5, 1995 between Kian Seng Hardware Trading Pte. Ltd.
                  and the Company (1).

10.11             Exclusive Agreement for Distributorship in Thailand dated
                  November 17, 1995 between N.Haven Group International Co. Ltd.
                  and the Company (1).

10.12             Exclusive Agreement for Distributorship in Indonesia dated
                  February 5, 1996 between PT Hista Bayhu and the Company (1).

10.13             Master Distributor Agreement dated January 11, 1995 between
                  Trimex Korea and the Company (1).

10.14             Promissory Note dated December 21, 1995 between the Company,
                  Richard C. Ford, individually, T/F Systems, Inc. as maker and
                  Bassett Boat Company of Florida in the principal amount of
                  $200,000 (1).

10.15             Securities Purchase Agreement and Exhibits thereto (3)

<PAGE>

10.16             Note Exchange Agreement dated as of January 26, 1998 (4).

10.17             12% Senior Subordinated Convertible Note in the principal
                  amount of $2,000,000 (4).

10.18             Note Purchase Agreement dated January 26, 1998 (4)

10.19             12% Senior Subordinated Convertible Note in the principal
                  amount of $500,000 (4).

10.20             Stock Option Plan (5)

10.21             2000 Non-Employee Directors' Plan (10)

24.1              Consent of Independent Certified Public Accountants as of
                  December 31, 2000 (10)

 99.1             Final Judgment in T/F Systems, Inc. v. Southeast Capital
                  Financing, Inc., Case No. CL 90-12772AE in the Circuit Court
                  of the 15th Judicial Circuit in and for Palm Beach County,
                  Florida (1).

--------------
(1)      Incorporated by reference from the Exhibits to the company's Form 10-SB
         Registration Statement, as amended, as filed with the Securities and
         Exchange Commission.

(2)      Incorporated by reference from the Exhibit to the company's Form 8-K,
         January 9, 1997, as filed with the Securities and Exchange Commission.

(3)      Previously filed

(4)      Previously filed

(5)      Previously filed

(6)      Previously filed

(7)      Incorporated by reference from the Exhibit to the company's Form 8-K,
         June 19, 1997, as filed with the Securities and Exchange Commission.

(8)      Incorporated by reference from the Exhibit to the company's Form 8-KA,
         February 11, 1998, as filed with the Securities and Exchange
         Commission.

(9)      Incorporated by reference from Form S-8, September 15, 1999, as filed
         with the Securities and Exchange Commission.

(10)     Filed herewith.