Attached files
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EXCEL - IDEA: XBRL DOCUMENT - PURADYN FILTER TECHNOLOGIES INC | Financial_Report.xls |
EX-3.4 - CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION - PURADYN FILTER TECHNOLOGIES INC | pfti_ex3z4.htm |
EX-32.1 - CERTIFICATION - PURADYN FILTER TECHNOLOGIES INC | pfti_ex32z1.htm |
EX-31.2 - CERTIFICATION - PURADYN FILTER TECHNOLOGIES INC | pfti_ex31z2.htm |
EX-31.1 - CERTIFICATION - PURADYN FILTER TECHNOLOGIES INC | pfti_ex31z1.htm |
EX-32.2 - CERTIFICATION - PURADYN FILTER TECHNOLOGIES INC | pfti_ex32z2.htm |
EX-10.13 - AGREEMENT - PURADYN FILTER TECHNOLOGIES INC | pfti_ex10z13.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934 |
For the quarterly period ended: June 30, 2011 | |
Or | |
|
|
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934 |
For the transition period from: _____________ to _____________ |
COMMISSION FILE NUMBER: 001-11991
PURADYN FILTER TECHNOLOGIES INCORPORATED
(Name of registrant as specified in its charter)
DELAWARE | 14-1708544 |
(State or other jurisdiction | (I.R.S. Employer |
2017 HIGH RIDGE ROAD, BOYNTON BEACH, FL 33426
(Address of principal executive offices) (Zip Code)
(561) 547-9499
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ||||||||
| þ | Yes | ¨ | No | ||||
| ||||||||
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). | ||||||||
| þ | Yes | ¨ | No | ||||
| ||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. | ||||||||
|
| |||||||
Large accelerated filer | ¨ |
|
| Accelerated filer | ¨ |
| ||
Non-accelerated filer | ¨ | (Do not check if a smaller |
| Smaller reporting company | þ |
| ||
|
| reporting company) |
|
|
|
| ||
|
| |||||||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ||||||||
| ¨ | Yes | þ | No | ||||
|
| |||||||
Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 46,570,240 shares of common stock are issued and outstanding as of August 12, 2011. |
PURADYN FILTER TECHNOLOGIES INCORPORATED
TABLE OF CONTENTS
ii
OTHER PERTINENT INFORMATION
Our web site is www.puradyn.com. The information which appears on our web site is not part of this report.
When used in this report, the terms "Puradyn," the "Company," "we," "our," and "us" refers to Puradyn Filter Technologies Incorporated, a Delaware corporation, and our subsidiaries.
Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:
·
our history of losses and uncertainty that we will be able to continue as a going concern,
·
our ability to generate net sales in an amount to pay our operating expenses,
·
our need for additional financing and uncertainties related to our ability to obtain these funds,
·
our ability to repay the outstanding debt of $6.5 million at June 30, 2011 due our Chairman and CEO,
·
our reliance on sales to a limited number of customers,
·
our dependence on a limited number of distributors,
·
our ability to compete,
·
our ability to protect our intellectual property,
·
market overhang issues, and
·
the application of Penny Stock Rules to the trading in our stock.
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review our Annual Report on Form 10-K for the year ended December 31, 2010, including the risks described in Part I. Item 1A. Risk Factors, together with our subsequent filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
iii
PART I FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 AND DECEMBER 31, 2010
|
| June 30, 2011 |
| December 31, 2010 |
| ||
|
| (Unaudited) |
|
|
|
| |
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 70,483 |
| $ | 49,813 |
|
Accounts receivable, net of allowance for uncollectible |
|
| 181,940 |
|
| 166,367 |
|
Inventories, net |
|
| 810,942 |
|
| 774,818 |
|
Prepaid expenses and other current assets |
|
| 103,439 |
|
| 52,828 |
|
Total current assets |
|
| 1,166,804 |
|
| 1,043,826 |
|
Property and equipment, net |
|
| 106,026 |
|
| 123,506 |
|
Other noncurrent assets |
|
| 40,725 |
|
| 78,625 |
|
Deferred financing costs, net |
|
| 1,510 |
|
| 2,013 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 1,315,065 |
| $ | 1,247,970 |
|
|
|
|
|
|
|
|
|
Liabilities and stockholders deficit |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 353,251 |
| $ | 217,248 |
|
Accrued liabilities |
|
| 1,419,781 |
|
| 1,262,798 |
|
Current portion of capital lease obligation |
|
| |
|
| 1,989 |
|
Deferred revenue |
|
| 693 |
|
| 2,743 |
|
Notes Payable stockholders |
|
| 100,000 |
|
| |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 1,873,725 |
|
| 1,484,778 |
|
|
|
|
|
|
|
|
|
Notes Payable - stockholders |
|
| 6,611,914 |
|
| 6,361,914 |
|
|
|
|
|
|
|
|
|
Total Long Term Liabilities |
|
| 6,611,914 |
|
| 6,361,914 |
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 8,485,639 |
|
| 7,846,692 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit: |
|
|
|
|
|
|
|
Preferred stock, $.001 par value: Authorized shares 500,000; |
|
| |
|
| |
|
Common stock, $.001 par value: Authorized shares 100,000,000 |
|
| 46,571 |
|
| 46,071 |
|
Additional paid-in capital |
|
| 46,285,479 |
|
| 46,079,970 |
|
Notes receivable from stockholders |
|
| (756,250 | ) |
| (756,250 | ) |
Accumulated deficit |
|
| (52, 892,377 | ) |
| (52, 114,411 | ) |
Accumulated other comprehensive income |
|
| 146,003 |
|
| 145,898 |
|
|
|
|
|
|
|
|
|
Total stockholders deficit |
|
| (7,170,574 | ) |
| (6,598,722 | ) |
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
| $ | 1,315,065 |
| $ | 1,247,970 |
|
See accompanying notes to condensed consolidated financial statements.
1
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Net sales |
| $ | 499,423 |
| $ | 761,341 |
| $ | 1,382,815 |
| $ | 1,435,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
| 397,146 |
|
| 536,655 |
|
| 986,319 |
|
| 938,153 |
|
Salaries and wages |
|
| 268,628 |
|
| 270,925 |
|
| 542,792 |
|
| 510,412 |
|
Selling and administrative |
|
| 243,475 |
|
| 349,055 |
|
| 549,122 |
|
| 614,099 |
|
|
|
| 909,249 |
|
| 1,156,635 |
|
| 2,078,233 |
|
| 2,062,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (409,826 | ) |
| (395,294 | ) |
| (695,418 | ) |
| (627,061 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1 |
|
| 270 |
|
| 1 |
|
| 327 |
|
Interest expense |
|
| (41,704 | ) |
| (41,199 | ) |
| (82,549 | ) |
| (78,555 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
| (41,703 | ) |
| (40,929 | ) |
| (82,548 | ) |
| (78,228 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| (451,529 | ) |
| (436,223 | ) |
| (777,966 | ) |
| (705,289 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (451,529 | ) | $ | (436,223 | ) | $ | (777,966 | ) | $ | (705,289 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
| $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
| 46,546,062 |
|
| 43,990,570 |
|
| 46,471,940 |
|
| 43,940,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
2
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(UNAUDITED)
|
| Six Months Ended June 30 |
| ||||
|
| 2011 |
| 2010 |
| ||
Operating activities |
|
|
|
|
|
|
|
Net loss |
| $ | (777,966 | ) | $ | (705,289 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 23,670 |
|
| 22,728 |
|
Provision for bad debts |
|
| 402 |
|
| (369 | ) |
Provision for obsolete and slow moving inventory |
|
| |
|
| (28,682 | ) |
Amortization of deferred financing costs included in interest expense |
|
| 503 |
|
| 1,007 |
|
Deferred compensation |
|
| 70,783 |
|
| 32,755 |
|
Compensation expense on stock-based arrangements with employees, consultants, investors and vendors |
|
| 106,009 |
|
| 63,471 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
| (15,975 | ) |
| (163,931 | ) |
Inventories |
|
| (36,125 | ) |
| (136,207 | ) |
Prepaid expenses and other current assets |
|
| (50,611 | ) |
| (44,274 | ) |
Other Assets |
|
| 37,900 |
|
| (5,618 | ) |
Accounts payable |
|
| 136,004 |
|
| 308,864 |
|
Accrued liabilities |
|
| 86,200 |
|
| 81,319 |
|
Deferred revenues |
|
| (2,050 | ) |
| (21,350 | ) |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (421,256 | ) |
| (595,576 | ) |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (6,190 | ) |
| (9,832 | ) |
Net cash used in investing activities |
|
| (6,190 | ) |
| (9,832 | ) |
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
Proceeds from sale of common stock |
|
| 100,000 |
|
| 102,100 |
|
Proceeds from issuance of notes payable to stockholders |
|
| 350,000 |
|
| 581,500 |
|
Payment of capital lease obligations |
|
| (1,989 | ) |
| (1,425 | ) |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 448,011 |
|
| 682,175 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 105 |
|
| (1,179 | ) |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 20,670 |
|
| 75,588 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 49,813 |
|
| 140,266 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
| 70,483 |
|
| 215,853 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 78,939 |
| $ | 122,447 |
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(UNAUDITED)
|
|
|
|
|
| Additional Paid-in Capital |
| Notes Receivable From Stockholders |
| Accumulated Deficit |
| Accumulated Other Comprehensive Income (Loss) |
| Total Stockholders' Deficit |
| |||||||
|
|
| ||||||||||||||||||||
Common Stock | ||||||||||||||||||||||
Shares |
| Amount | ||||||||||||||||||||
Balance at December 31, 2010 |
|
| 46,070, 076 |
| $ | 46,071 |
| $ | 46,079,970 |
| $ | (756,250 | ) | $ | (52,114,411 | ) | $ | 145,898 |
| $ | (6,598,722 | ) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 105 |
|
| 105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (777,966 | ) |
|
|
|
| (777,966 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (777,966 | ) |
| 105 |
|
| (777,861 | ) |
Common stock issued for private placement, net of issuance costs |
|
| 392,184 |
|
| 392 |
|
| 99,608 |
|
|
|
|
|
|
|
|
|
|
| 100,000 |
|
Issuance of shares and warrants to vendors |
|
| 107,619 |
|
| 108 |
|
| 25,892 |
|
|
|
|
|
|
|
|
|
|
| 26,000 |
|
Compensation expense associated with unvested option awards |
|
|
|
|
|
|
|
| 80,009 |
|
|
|
|
|
|
|
|
|
|
| 80,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011 |
|
| 46,570,240 |
| $ | 46,571 |
| $ | 46,285,479 |
| $ | (756,250 | ) | $ | (52,892,377 | ) | $ | 146,003 |
| $ | (7,170,574 | ) |
See accompanying notes to condensed consolidated financial statements.
4
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and six month periods ended June 30, 2011 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2011.
For further information, refer to Puradyn Filter Technologies Incorporateds (the Company) consolidated financial statements and footnotes thereto included in the Form 10-K for the year ended December 31, 2010.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Basic and Diluted Loss Per Share
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 260, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of outstanding stock options and warrants would be anti-dilutive and, accordingly, is excluded from the computation of diluted loss per share. The number of such shares excluded from the computation of loss per share totaled 6,759,777 for the three-month and six-month period ended June 30, 2011 and 6,492,608 for the three-month and six-month period ended June 30, 2010.
Stock Compensation
The Company adopted FASB ASC 718, Compensation Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005, recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the periods ended June 30, 2011 and June 30, 2010 have been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying Consolidated Financial Statements.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 718 and FASB ASC 505 Equity, including related amendments and interpretations. The related expense is recognized over the period the services are provided.
Inventories
Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending inventories at a rate based on estimated production capacity and any excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
5
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Inventories consisted of the following at June 30, 2011 and December 31, 2010, respectively:
|
| June 30, 2011 |
| December 31, 2010 |
| ||
Raw materials |
| $ | 965,217 |
| $ | 864,812 |
|
Work In Progress |
|
| 4,692 |
|
| 11,682 |
|
Finished goods |
|
| 112,122 |
|
| 169,413 |
|
Valuation allowance |
|
| (271,089 | ) |
| (271,089 | ) |
Inventory, net |
| $ | 810,942 |
| $ | 774,818 |
|
|
|
|
|
|
|
|
|
Deferred Financing Costs
The Company capitalizes financing costs and amortizes them using the straight-line method, which approximates the effective interest method, over the term of the related debt. Amortization of deferred financing costs is included in interest expense and totaled $251 and $504 the three-months ended June 30, 2011 and June 30, 2010 and $503 and $1,007 for the six-months ended June 30, 2011 and 2010, respectively. Accumulated amortization of deferred financing costs as of June 30, 2011 and 2010 was $679,640 and $678,130, respectively.
Revenue Recognition
The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectibility is reasonably assured in accordance with FASB ASC 605, Revenue Recognition, as amended and interpreted. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying condensed consolidated financial statements.
Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.
Product Warranty Costs
As required by FASB ASC 460, Guarantors Guarantees, the Company is including the following disclosure applicable to its product warranties.
The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience. The Company's warranty reserve is calculated as the gross sales multiplied by the historical warranty expense return rate.
The following table shows the changes in the aggregate product warranty liability for the six-months ended June 30, 2011:
Balance as of December 31, 2010 |
| $ | 38,787 |
|
Less: Payments made |
|
| (153 | ) |
Add: Provision for current period warranties |
|
| (325 | ) |
Balance as of June 30, 2011 |
| $ | 38,309 |
|
6
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Comprehensive Income
FASB ASC 220, Comprehensive Income establishes rules for reporting and displaying of comprehensive income and its components. Comprehensive income is the sum of net loss as reported in the consolidated statements of operations and other comprehensive income transactions. Other comprehensive income transactions that currently apply to the Company result from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary, Puradyn Filter Technologies, Ltd. (Ltd.). Comprehensive loss as of June 30, 2011 and 2010 is not shown net of taxes because the Companys deferred tax asset has been fully offset by a valuation allowance.
Comprehensive loss consisted of the following for the three and six-months ended June 30, 2011 and 2010:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (451,529 | ) | $ | (436,223 | ) | $ | (777,966 | ) | $ | (705,289 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (359 | ) |
| (203 | ) |
| 105 |
|
| (1,179 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
| $ | (451,888 | ) | $ | (436,426 | ) | $ | (777,861 | ) | $ | (706,468 | ) |
New Accounting Standards
In May 2011, FASB issued Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04), which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entitys use of a nonfinancial asset that is different from the assets highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. The Company is currently evaluating ASU 2011-04 and has not yet determined the impact that adoption will have on its consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05), which is effective for annual reporting periods beginning after December 15, 2011. Accordingly, the Company will adopt ASU 2011-05 on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on the Companys financial position or results of operations.
7
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2.
Going Concern
The Company's financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception and used net cash in operations of $421,256 and $595,577 during the six-months ended June 30, 2011 and 2010, respectively. As a result, the Company has had to rely principally on private equity investments, including the conversion of debt into stock, as well as stockholder loans to fund its activities to date.
These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from an institutional investor and current stockholder led the Companys independent registered public accounting firm, Webb & Company, P.A., to include a statement in its audit report relating to the Companys audited consolidated financial statements for the year ended December 31, 2010 expressing substantial doubt as to the Companys ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
The Company has been addressing the liquidity and working capital issues and continues to attempt to raise additional capital with institutional and private investors and current stockholders. Cost reductions were and continue to be implemented by the Company, including acquiring alternative suppliers for raw materials and volume purchase discounts when appropriate. The Company expects to see results from these reductions, as well as other cost reduction plans through 2011.
3.
Common Stock
On April 11, 2011, the Company issued to Emerging Markets, LLC, 60,000 shares of common stock valued at $0.30 per share as compensation per the month-to-month agreement for consultant work rendered during the three months ended March 31, 2011.
On May 27, 2011, pursuant to an obligation under an agreement dated May 19, 2011, for services rendered as financial public relations firm and media relations counsel, the Company issued to Monarch Communications, Inc., 13,333 shares of common stock valued at $0.30 per share. The recipient is an accredited investor and the issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
On June 20, the Company issued to Monarch Communications, Inc. 14,286 shares of common stock valued at $0.28 per share as partial compensation per the agreement for consultant work.
4.
Stock Options.
For the three months ended June 30, 2011 and June 30, 2010, respectively, the Company recorded stock-based compensation expense of $36,106 and $14,364, relating to unvested employee stock options.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation Stock Compensation. The related expense is recognized over the period the services are provided.
8
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
A summary of the Companys stock option plans as of June 30, 2011, and changes during the six-month period then ended is presented below:
A summary of the Companys stock option plans as of June 30, 2011, and changes during the three-month period then ended is presented below:
|
| Three Months Ended June 30, 2011 |
| |||
|
| Number of Options |
| Weighted Average Exercise Price |
| |
|
|
|
|
|
|
|
Options outstanding at March 31, 2011 |
| 2,981,583 |
| $ | .38 |
|
|
|
|
|
|
|
|
Options exercised |
| |
|
| |
|
Options cancelled |
| 40,000 |
|
| .25 |
|
Options at June 30, 2011 |
| 2,941,583 |
| $ | .38 |
|
Options exercisable at June 30, 2011 |
| 1,283,541 |
| $ | .54 |
|
Changes in the Companys unvested options for the six months ended June 30, 2011 are summarized as follows:
|
| Six Months Ended June 30, 2011 |
| |||
|
| Number of Options |
| Weighted Average Exercise Price |
| |
Non-Vested options at December 31, 2010 |
| 1,240,795 |
| $ | .23 |
|
Options granted |
| 820,000 |
|
| .28 |
|
Options vested |
| 362,753 |
|
| .23 |
|
Options cancelled |
| 40,000 |
|
| .25 |
|
Non-Vested options at June 30, 2011 |
| 1,658,042 |
| $ | .12 |
|
|
|
|
|
|
|
|
9
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Changes in the Companys unvested options for the three months ended June 30, 2011 are summarized as follows:
|
| Three Months Ended June 30, 2011 |
| |||
|
| Number of Options |
| Weighted Average Exercise Price |
| |
Non-Vested options at March 31, 2011 |
| 1,957,542 |
| $ | .14 |
|
Options granted |
| |
|
| |
|
Options vested |
| (259,500 | ) |
| .47 |
|
Options cancelled |
| (40,000 | ) |
| .25 |
|
Non-Vested options at June 30, 2011 |
| 1,658,042 |
| $ | .12 |
|
|
|
| Options Outstanding |
| Options Exercisable |
| ||||||||
Range of Exercise Price |
|
| Number Outstanding |
| Remaining Average Contractual Life (In Years) |
|
| Weighted Average Exercise Price |
| Number Exercisable |
|
| Weighted Average Exercise Price |
|
$ .14 $ 1.70 |
|
| 2,893,583 |
| 5.75 |
| $ | .27 |
| 1,235,541 |
| $ | .47 |
|
1.99 2.60 |
|
| 48,000 |
| 1.58 |
|
| 2.32 |
| 48,000 |
|
| 2.32 |
|
Totals |
|
| 2,941,583 |
| 4.98 |
| $ | .38 |
| 1,283,541 |
| $ | .54 |
|
5.
Warrants
At June 30, 2011, 4,598,194 warrants with an average exercise price of $0.96 remain outstanding and were fully vested.
A summary of the Companys warrant activity as of June 30, 2011 and changes during the six month and three month periods then ended is presented below:
|
| Six Months Ended June 30, 2011 |
| |||
|
| Weighted Average Exercise |
| |||
|
| Warrants |
| Price |
| |
Warrants outstanding at December 31, 2010 |
| 4,558,975 |
| $ | .97 |
|
Granted |
| 39,219 |
|
| .50 |
|
Exercised |
| |
|
| |
|
Expired |
| |
|
| |
|
|
|
|
|
|
|
|
Warrants outstanding at June 30, 2011 |
| 4,598,194 |
| $ | .96 |
|
|
| Three Months Ended June 30, 2011 |
| |||
|
| Weighted Average Exercise |
| |||
|
| Warrants |
| Price |
| |
Warrants outstanding at March 31, 2011 |
| 4,598,194 |
| $ | .96 |
|
Granted |
| |
|
| |
|
Exercised |
| |
|
| |
|
Expired |
| |
|
| |
|
|
|
|
|
|
|
|
Warrants outstanding at June 30, 2011 |
| 4,598,194 |
| $ | .96 |
|
10
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
| Warrants Outstanding |
| |||||
Range of Exercise Price |
| Number Outstanding |
| Remaining Average Contractual Life (In Years) |
| Weighted Average Exercise Price |
| |
$0.50 $0.75 |
| 1,809,122 |
| 3.27 |
| $ | .52 |
|
$1.25 |
| 2,789,072 |
| 1.56 |
|
| 1.25 |
|
Totals |
| 4,598,194 |
| 2.38 |
| $ | .96 |
|
6.
Notes Payable to Stockholders
Beginning on March 28, 2002, the Company executed a binding agreement with one of its stockholders, who is also its CEO and a Board member, to fund up to $6.1 million. The original loan agreements, dated March 28, 2002 and March 14, 2003, were due and payable on December 31, 2003 and December 31, 2004.
On February 2, 2004, this executive officer, director and stockholder amended the original loan agreements to extend the maturity dates to December 31, 2005 and to waive the funding requirement mandating maturity terms until such time as the Company has raised an additional $7.0 million over the $3.5 million raised in the Companys private placement offering; or until such time as the Company is operating within sufficient cash flow parameters, as defined, to sustain its operations; or until a disposition of the Company occurs.
In April 2005, the maturity date of the loan agreement was extended to December 31, 2006. As consideration of this extension, this executive officer, director and stockholder was granted an additional 100,000 common stock purchase warrants at an exercise price equal to the closing market price of the Companys stock on the date of grant. In March of 2006 and in subsequent Marchs through 2010, the executive officer, director and stockholder extended the maturity date of the loan agreement annually. On February 24, 2011, the maturity date of the stockholder loan was extended from December 31, 2011 to December 31, 2012.
As of June 30, 2011, the Company had drawn the full funding amount under the agreement of approximately $6.1 million plus an additional $261,914. Additionally, the stockholder has loaned the Company $250,000 directly, for a total amount due of $6,611,914. Amounts drawn and received from direct borrowings bear interest at a weighted average between two facilities, one is based on a minimum of 2.75% or the prime rate minus one-half percent and the other is based on LIBOR plus 1.40 (a weighted average of 2.54% as of June 30, 2011) payable monthly and becoming due and payable on December 31, 2012, or upon a change in control of the Company or consummation of any other financing over $7.0 million. Previously, this executive officer, director and stockholder waived this funding requirement.
For the three-months ended June 30, 2011 and 2010, the Company recorded $40,769 and $39,971, respectively; and for the six-months ended June 30, 2011 and 2010, the Company recorded $81,190 and $75,679, respectively, of interest expense related to the notes payable to stockholder, which is included in interest expense in the accompanying condensed consolidated statements of operations.
7.
Commitments and Contingencies and Concentrations
On October 20, 2009, we entered into a consulting agreement with Boxwood Associates, Inc., whereby we pay $2,000 monthly for management and strategic development services performed. The contract will remain in effect until terminated by either party providing 30 days written notice. Mr. Telesco, a member of our board of directors, is the President of Boxwood Associates, Inc.
On April 28, 2011, the Company terminated the month-to-month agreement with Emerging Markets, LLC.
On May 19, 2011, we entered into a consulting agreement with Monarch Communications, Inc. for services rendered as public relations firm and media relations consultants for the Company. The term of the agreement is for twelve months. As compensation for their services, Monarch will receive a fee of $6,000 per month, payable as $2,000 cash and $4,000 in shares of common stock. Either party may terminate the agreement with 30 days notice.
11
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
On July 7, 2009 the Company filed a lawsuit against former Chief Executive Officer, Richard C. Ford, alleging non-payment of three promissory notes totaling $756,250 with interest at a rate of 5.63% per annum since July 25, 2001, the execution date of the notes. The case has been preliminary set for trial on February 22, 2012.
8.
Subsequent Events
On July 7, 2011 Puradyn Filter Technologies Incorporated filed a Certificate of Amendment to its Certificate of Incorporation increasing the number of authorized shares of its common stock from 50,000,000 shares to 100,000,000 shares effective close of business on July 26, 2011. The par value of the common stock did not change as a result of this charter amendment.
The Certificate of Amendment was adopted by our Board of Directors on May 23, 2011, and by the holders of a majority of our outstanding common stock by written consent dated July 1, 2011, as described in greater detail in our Definitive Information Statement on Schedule 14C as filed with the Securities and Exchange Commission on July 5, 2011.
On July 1, 2011, by written consent the holders of a majority of our outstanding common stock approved an Amendment, which was adopted by our Board of Directors on May 23, 2011, to the 2010 Stock Option Plan, increasing the number of shares of Common Stock covered by the Plan from 2,000,000 shares to 4,000,000 shares of Common Stock of the Corporation.
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements Regarding Forward Looking Information
Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause the Company's actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, the Company's ability to operate as a going concern and to raise sufficient capital to fund its operations, its ability to satisfy its obligations as they become due, acceptance of the Company's products, the Company's dependence on distributors and a few significant customers, risks associated with international operations and international distribution and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety. Except for the Company's ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
Overview
Sales of the Companys products, the puraDYN® bypass oil filtration system (the "Puradyn") and replaceable filter elements will depend principally upon end user demand for such products and acceptance of the Companys products by original equipment manufacturers (OEMs). The oil filtration industry has historically been competitive and, as is typically the case with innovative products, the ultimate level of demand for the Companys products is subject to a high degree of uncertainty. Developing market acceptance for the Companys existing and proposed products will require substantial marketing and sales efforts and the expenditure of a significant amount of funds to inform customers of the perceived benefits and cost advantages of its products. As a result of our limited resources, to date we have not had adequate funds available to undertake these necessary marketing efforts.
Currently no bypass oil filtration system has captured a substantial share of the estimated recurring $15 billion potential market, based upon figures supplied by The Rhein Report, a diesel engine industry consulting, publishing and market research company. We believe we are in a unique position to capitalize on the growing acceptance of bypass oil filtration given that our product and our Company are positioned as, including, but not limited to:
·
A competitively priced, value-added product, delivering cost savings, equipment life extension and down time reduction based on an advanced, patented technology;
·
An alternative solution to the rising costs and national concerns over dependence on foreign oil; and
·
Providing an operational maintenance solution to end users in conjunction with existing and reasonably foreseeable federal environmental legislation such as new regulation affecting diesel engines and diesel fuels, mandating cleaner diesel engines which first went into effect January 1, 2007, with additional and more stringent legislation in 2010.
We focus our sales strategy on direct sales and distribution efforts as well as on the development of a strong nationwide distribution network that will not only sell but also install and support our product. We currently have more than 100 active distributors in the U.S. and internationally. The number of distributors will constantly change as we add new distributors as well as when OEMs come onboard with their distribution network.
We continue to focus our sales and marketing efforts to target industries more open to innovative methods to reduce oil maintenance operating costs. These industries are searching for new and progressive ways, including bypass oil filtration, to maintain their equipment.
13
This strategy includes focus on:
·
The expansion of existing strategic relationships we have with John Deere, Avis, and others;
·
Continued development and expansion of our distribution network with distributors who are trained by us and stock inventory in order to establish a sales- and service-oriented nationwide infrastructure;
·
Continuing to target existing and new industrial/construction equipment fleets and major diesel engine and generator set OEMs;
·
Creating customer pull-through, a sustained level of request for our product on the OEM level; and
·
Converting customer evaluations into sales, both immediate and long term.
While this is a long-term and ongoing commitment, we believe we have achieved growing industry acceptance based on recent accomplishments:
·
Increased activity in South and Central America, Europe and Asia.
·
Increased activity in the open pit mining industry for bypass oil filtration.
·
Extended retrofit programs with domestic and international industrial service companies.
We believe that the renewed interest shown in the technology of bypass oil filtration as an economic alternative to significantly rising oil prices, dependence upon foreign oil, coupled with the added benefits of being environmentally beneficial and a means to conserve oil, has timely and favorably positioned the Company as a manufacturer of a cost efficient green product.
We also believe, drawing upon feedback received from potential customers, that industry acceptance will continue to grow in 2011, but at a slower pace than what we expected in the first quarter of 2011. There can be no assurance that any of our sales efforts or strategic relationships will meet managements expectations or result in actual revenues.
The Companys sales effort not only involves educating the potential customer on the benefits of our product, but also allowing the end-user to test and evaluate the Puradyn system on its fleet equipment. While set for a specific period of time, typically ranging from three to twelve months, evaluations are often influenced by a number of variables including equipment type and applications downtime or servicing, which may extend the evaluation period. Consequently, the sales cycle can be relatively long.
We believe international sales are especially well suited to our product given that much of the equipment is located in remote areas, therefore, due solely to logistics of manpower resources and physically being able to reach the equipment in a timely manner to perform the necessary oil related maintenance. In addition, in certain countries, fuel and emission regulations are not as stringent as in North America, causing engines to operate under more severe conditions. Certain applications representing a higher and more immediate return on investment are prevalent in use outside of North America and end-users consequently are more receptive to the total maintenance package including the use of oil analysis, which the Puradyn system requires to verify oil condition.
Our focus on specific industries, which began in 2009, has shown to pay dividends into 2011, with these certain niche industries representing over 50% of sales as compared to 20% in the base period in 2009.
Key to accomplishing our goals will be optimizing our limited resources and obtaining sufficient capital. We will need to remain focused on working with OEMs, continue developing the independent distributors we have onboard and maintain growth within the major accounts using our system. To accomplish these tasks, we will need to obtain capital funding and add appropriate sales and marketing support to be sure our distributors and customers are served. We will evaluate further manpower needs as we grow our OEM account list. The expansion into the OEM area is rewarding in the aspect that it provides a steady flow of material requirements for our manufacturing facility. Additionally, OEM business allows us more stability in retaining trained manufacturing personnel, a stronger supply chain with steady production, economies of scale, and the ability to better utilize our overhead with higher average material turn rates.
14
We continue to address our liquidity and working capital issues as we continue to seek additional capital from institutional and private investors and current stockholders. Historically, we have faced difficulties in raising adequate capital and we anticipate that those efforts will continue given the current uncertainties facing the capital markets in the U.S. We also continue to implement cost reductions in an effort to improve margins, including securing alternative suppliers for raw materials and manufacturing and anticipate these costs reductions will positively impact our results of operations during the balance of 2011 and beyond. To facilitate improved cost reductions, during the fourth quarter of 2010 we added a buyer whose focus is on better material acquisition costs and more efficient purchasing methods. Although our product costs have increased over the past few years, we have not fully passed on these cost increases. We announced a price increase effective in the third quarter of 2011, to recoup a portion of the increased costs we have previously absorbed.
Going Concern
Our financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred net losses each year since inception and have relied on the sale of our stock from time to time and loans from third parties and from related parties to fund our operations. These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from an institutional investor and current stockholder have led our independent registered public accounting firm Webb & Company P.A. to include a statement in its audit report relating to audited consolidated financial statements for the years ended December 31, 2010 and 2009 expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to generate profitable operations in the future. We plan to continue to provide for our capital requirements through the sale of equity securities, however, we have no firm commitments from any third party to provide this financing and we cannot assure you we will be successful in raising working capital as needed. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due, or generate positive operating results.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, financing operations, warranty obligations and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
15
Results of Operations for the Three-months Ended June 30, 2011 Compared to the Three-months Ended June 30, 2010
The following table sets forth the amount of increase or decrease represented by certain items reflected in our condensed consolidated statements of operations in comparing the three-months ended June 30, 2011 to the three-months ended June 30, 2010:
Net Sales
Net sales decreased 34.4% in the three months ending June 30, 2011 compared to the three months ending June 30, 2010. The decrease in sales was attributable to two international customers who scaled down their purchases to approximately 30% of their purchases for the same period in 2010.
Sales to four customers accounted for 13%, 13%, 13% and 12% (for a total of 51%) of net sales for the three-months ended June 30, 2011. Sales to two customers accounted for 28% and 17% (for a total of 45%) of net sales for the three-months ended June 30, 2010.
During the three months ended June 30, 2011, we experienced a decline in sales as companies indicated to us that they were postponing purchases to conserve resources. However, we believe that eventually these deferred purchase decisions will result in improved sales as strategic plans are changed by the management of our customers, although there can be no assurances that this will occur or, it it occurs, during which periods.
Cost of Products Sold
Gross profit, as a percentage of sales, decreased from 29.6% in the three months ending June 30, 2010 to 20.5% in the three months ending June 30, 2011. The increase in cost of goods sold, which generates a lower gross profit, is primarily attributable to the fixed manufacturing overhead costs that arent absorbed under lower sales volumes. Other increases in cost of products sold included higher costs of raw materials (particularly steel and cotton), rework charges and increased wages and benefit costs. Further, for the three months ended June 30, 2010, there was an adjustment to inventory reserves that reduced cost of sales; there was no such adjustment during the same period in 2011. We have announced a price increase effective September 15, 2011, which we anticipate will improve our gross profit margins in the future.
Salaries and Wages
Salaries and wages decreased 0.8% for the three months ending June 30, 2011 compared to the three months ending June 30, 2010. This minor variance resulted from the addition of one engineer (a former consultant to the company) and a buyer that occurred after June 30, 2010, offset by the departure of one sales person in the first quarter of 2011 and accounting personnel changes that occurred in the second quarter of 2010.
16
Salaries and wages, as a percentage of sales, were 53.8% for the three months ending June 30, 2011 and 35.6% for the three months ending June 30, 2010. The increase in salaries and wages as a percentage of sales was due primarily to the decrease in sales for the three months ending June 30, 2011 compared to the same period in 2010.
Management does not anticipate any changes to our salaries and wages at our current sales volume.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 30.2% for the three months ended June 30, 2011 from the comparable period in 2010. The reduced expense resulted from restructuring the commission costs in 2011, write off in 2010 of sample units, conversion of a contract engineer to an employee in 2011 and reduced professional fees in 2011. These expense reductions were slightly offset by an increase in patent expenses for new patent applications.
The following table lists the major categories of expenses included in Selling and Administrative expenses:
|
| Three Months Ended June 30, |
| |||||||
|
| 2011 |
| 2010 |
| Change |
| |||
Employee Benefits |
| $ | 56,354 |
| $ | 49,455 |
| $ | 6,899 |
|
Travel & Marketing |
|
| 39,513 |
|
| 97,996 |
|
| (58,483 | ) |
Depreciation & Amortization |
|
| 9,172 |
|
| 8,929 |
|
| 243 |
|
Engineering |
|
| 1,451 |
|
| 22,623 |
|
| (21,172 | ) |
Professional Fees |
|
| 59,732 |
|
| 106,583 |
|
| (46,851 | ) |
Investor Relations |
|
| |
|
| 11,400 |
|
| (11,400 | ) |
Occupancy Expense |
|
| 26,178 |
|
| 23,922 |
|
| 2,256 |
|
Patent Expense |
|
| 34,121 |
|
| 21,471 |
|
| 12,650 |
|
Stock Compensation |
|
| 1,585 |
|
| 1,702 |
|
| (117 | ) |
Bad Debts |
|
| 164 |
|
| |
|
| 164 |
|
Other Expenses |
|
| 15,205 |
|
| 4,974 |
|
| 10,231 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 243,475 |
| $ | 349,055 |
| $ | (105,580 | ) |
Travel & Marketing expenses include the costs of providing evaluation units to potential customers. During 2010, we changed our policy requiring potential customers to purchase or place a deposit on test units. As a result of this change in policy, in 2010 we expensed units that were sent out for promotional and test purposes that we believe will not be returned. We did not have this cost in 2011. Additionally, during 2010 we incurred higher travel expenses in sending engineers to assist with installation issues, sales personnel travel to trade shows and international travel by sales and management to reach targeted niche industry customers.
Engineering expenses decreased substantially as a contract engineer was converted to an employee in the first quarter of 2011. The expense of this former contractor is currently included in Salaries and Wages and a reduction in contract engineering expense resulted from this change.
Professional fees decreased during the three months ended June 30, 2011 compared to 2010 primarily due to legal expenses that were incurred in 2010 which were associated with a former employees dispute on wages. Additionally, we incurred consulting expenses in the United Kingdom subsidiary in 2010 that were not incurred in 2011, and additional financial consulting fees during the three month period ending June 30, 2010.
We terminated the month to month agreement with our investor relations firm in March, 2011. Accordingly, we did not incur any investor relations expense during the three months ending June 30, 2011. Patent expenses increased 59% during the three months ending June 30, 2011 as compared to the three months ending June 30, 2010 as a result of US and international patent applications submitted during the first six months of 2011.
We anticipate expenses for the remainder of 2011 should be similar to those incurred in the three months ending June 30, 2011.
Interest Expense
Interest expense remained relatively constant for the three months ending June 30, 2011 compared to the three months ending June 30, 2010. The Company pays interest monthly on the notes payable to an executive officer, director and stockholder at prime rate less one-half percent, which was 2.54% as of June 30, 2011 as opposed to 2.64% as of June 30, 2010.
17
Results of Operations for the Six-months Ended June 30, 2011 Compared to the Six-months Ended June 30, 2010
The following table sets forth the amount of increase or decrease represented by certain items reflected in the condensed consolidated statements of operations in comparing the six-months ended June 30, 2011 to the six-months ended June 30, 2010:
|
| Six Months Ended June 30, |
| |||||||
|
| 2011 |
| 2010 |
| Change |
| |||
Net sales |
| $ | 1,382,815 |
| $ | 1,435,603 |
| $ | (52,788 | ) |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
| 986,319 |
|
| 938,153 |
|
| 48,166 |
|
Salaries and wages |
|
| 542,792 |
|
| 510,412 |
|
| 32,380 |
|
Selling and administrative |
|
| 549,122 |
|
| 614,099 |
|
| (64,977 | ) |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
| 2,078,233 |
|
| 2,062,664 |
|
| 15,569 |
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1 |
|
| 327 |
|
| (326 | ) |
Interest expense |
|
| (82,549 | ) |
| (78,555 | ) |
| (3,994 | ) |
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income |
|
| (82,548 | ) |
| (78,228 | ) |
| (4,320 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (777,966 | ) | $ | (705,289 | ) | $ | (72,677 | ) |
Net Sales
Net sales decreased 3.7% in the six months ending June 30, 2011 compared to the six months ending June 30, 2010. The majority of our sales decrease occurred in the months of April and June of this year as we believe this to be a result of our customers hesitation to commit their resources in an unknown economic environment. We anticipate that our future sales will also be influenced by the overall spending patterns of our major customers.
Sales to three customers individually accounted for 19%, 15% and 11% (for a total of 45%) for the six months ending June 30, 2011, while sales to two customers individually accounted for 22% and 19% (for a total 41%) of net sales for the six-months ended June 30, 2010.
Cost of Products Sold
Gross profit, as a percentage of sales, decreased from 34.7% in the six months ending June 30, 2010 to 28.7% in the six months ending June 30, 2011. Although sales decreased 3.7% as noted above, cost of products sold increased 5.1%. The increase in cost of goods sold, which generates a lower gross profit, is primarily attributable to the fixed manufacturing overhead costs that arent absorbed under lower sales volumes. Other increases in cost of products sold during the six months ended June 30, 2011 included rework charges and increased wages and benefit costs. Additionally, an adjustment to inventory reserves in the first quarter of 2010 reduced cost of sales; there was no adjustment recorded in 2011. We have announced a price increase effective September 15, 2011, which we anticipate will improve our gross profit margins in the future.
Salaries and Wages
Salaries and wages increased 6.3% for the six months ending June 30, 2011 compared to the six months ending June 30, 2010. This increase was primarily due to the addition of a buyer in November 2010 and, as previously described, the conversion of a contract engineer to employee status. Salaries and wages, as a percentage of sales, were 39.3% for the six months ending June 30, 2011 and 35.6% for the six months ending June 30, 2010. Management does not anticipate any changes to our salaries and wages at our current sales volume.
18
Selling and Administrative Expenses
Selling and administrative expenses decreased 10.6% for the six months ending June 30, 2011 compared to the six months ending June 30, 2011. The following table represents the major components of Selling and Administrative expenses for the six months ended June 30, 2011 and 2010 and the change of those components over their respective periods:
|
| Six Months Ended June 30, |
| |||||||
|
| 2011 |
| 2010 |
| Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
Employee Benefits |
| $ | 120,603 |
| $ | 87,245 |
| $ | 33,358 |
|
Travel & Marketing |
|
| 76,506 |
|
| 143,413 |
|
| (66,907 | ) |
Depreciation & Amortization |
|
| 18,365 |
|
| 17,635 |
|
| 730 |
|
Engineering |
|
| 4,103 |
|
| 32,845 |
|
| (28,742 | ) |
Professional Fees |
|
| 114,592 |
|
| 154,421 |
|
| (39,829 | ) |
Investor Relations |
|
| 18,013 |
|
| 33,195 |
|
| (15,182 | ) |
Occupancy Expense |
|
| 53,801 |
|
| 52,071 |
|
| 1,730 |
|
Patent Expense |
|
| 110,505 |
|
| 35,267 |
|
| 75,238 |
|
Stock Compensation |
|
| 3,285 |
|
| 36,139 |
|
| (32,854 | ) |
Bad Debts |
|
| 164 |
|
| 25 |
|
| 139 |
|
Other Expenses |
|
| 29,185 |
|
| 21,843 |
|
| 7,342 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 549,122 |
| $ | 614,099 |
| $ | (64,977 | ) |
In February 2011 we issued stock options to employees, which accounts for the majority of the increased employee benefits costs for the six months ending June 30, 2011 compared to the same period in 2010. Increased medical insurance premiums also contributed to the increase in employee benefits for the six months ending June 30, 2011 compared to the six months ending June 30, 2010.
Travel & Marketing decreased 47% for the six months ending June 30, 2011 compared to the six months ending June 30, 2010. As previously mentioned, the write off of promotional units in 2010 increased our marketing expenses during the six months ending June 30, 2010 compared to the six months ending June 30, 2011. Additionally, we changed the commission structure during 2010 which resulted in lower sales and marketing costs in the six months ending June 30, 2011 when compared to the same period in 2010.
Engineering expenses decreased substantially as a contract engineer was converted to an employee in the first quarter of 2011. The expense of this former contractor is currently included in Salaries and Wages and a reduction in contract engineering expense resulted from this change. Additionally, we reduced travel and trade show attendance during 2011 compared to the same period in 2010.
Professional fees decreased 25.8% for the six months ending June 30, 2011 compared to the six months ending June 30, 2010. We incurred higher professional fees in 2010 as a result of legal expenses associated with former employees. We also incurred additional accounting fees in 2010 relating to our United Kingdom subsidiary which was closed in 2009. During 2010 we incurred additional expenses as a result of higher utilization of outsourced services, such as accounting and finance support.
Our investor relations expense decreased as a result of the cancellation of our contract with Emerging Markets. We are currently evaluating our investor relations program to identify what areas provide the most benefit to our shareholders. We anticipate that our expenses for investor relations will remain at or below 2010 levels for the remainder of the current year.
Patent expense for the six months ending June 30, 2011 compared to the six months ending June 30, 2010 was substantially higher as a result of several new patent applications and submission of certain existing patents for international recognition. We anticipate that these costs will remain at 2010 levels for the balance of the year.
In February, 2010 we paid a consultant for services with stock options. During 2011 we did not have this expense, and accordingly, there was a reduction in stock compensation during the six months ending June 30, 2011 compared to the six months ending June 30, 2010. In May 2011 we entered into an agreement with Monarch Communications, Inc., to pay a portion of our public relations firm fees in stock. This amount has been reported as a
19
marketing expense. Amounts reported as stock compensation for 2011 represent the value of options issued to Directors pursuant to our 2000 Non-Employee Directors Stock Option Plan. We do not anticipate issuing stock for services other than for those marketing services and Director compensation through the end of the current year.
Interest Expense
Interest expense remained relatively constant for the period ending June 30, 2011 as compared to the period ending June 30, 2010 and was incurred primarily on the outstanding balance of the notes payable to an executive officer, director and stockholder. The Company pays interest monthly on the notes payable at the prime rate less one-half percent, which was a weighted average of 2.54% as of June 30, 2011 as opposed to 2.64% as of June 30, 2010.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to meet its obligations. As of June 30, 2011, the Company had cash and cash equivalents of $70,483, as compared to $49,813 at December 31, 2010. At June 30, 2011, we had negative working capital of ($706,921) and our current ratio (current assets to current liabilities) was 0.62 to 1. At December 31, 2010 we had negative working capital of ($440,952) and our current ratio was 0.70 to 1. The increase in our working capital deficit and the decrease in our current ratio is primarily attributable to the increase in accounts payable, notes payable to stockholders and accrued liabilities.
We have incurred net losses each year since inception and at June 30, 2011 we had an accumulated deficit of $52,892,377. Our net sales are not sufficient to fund our operating expenses. Historically, we have relied on the sale of our stock from time to time and loans from third parties and from related parties to fund our operations. During 2010, we raised a total of $445,100 in capital from an institutional investor and current stockholders and during the six months ended June 30, 2011 we raised an additional $100,000. In addition, as of June 30, 2011, we owed our stockholder approximately $6.6 million for funds he has advanced to us from time to time for working capital under a line of credit facility. In addition, a Director has advanced $100,000 due October 1, 2011 which bears interest at 5% per annum. Interest expense on both loans totaled $81,190 for the six months ended June 30, 2011.
We do not currently have any commitments for capital expenditures. Our current cash position is insufficient to cover our current operating needs. While we anticipate cash flows from 2011 sales activity, additional cash will still be needed to support operations, meet our working capital needs and satisfy our obligations as they become due. While we are actively seeking additional equity investments, we have no firm commitments from any third parties and there are no assurances we will be successful in attracting additional capital. In addition, as set forth above, we owe our stockholder $6.6 million which is due on December 31, 2012 or (i) at such time as we have raised an additional $7 million over the $3.5 million raised in prior offerings, or (ii) at such time as we are operating within sufficient cash flow parameters to sustain operations, or (iii) until a disposition of our company, such as an acquisition or merger, occurs. We do not have sufficient funds to pay this loan when it becomes due and there are no assurances the note holder will extend the due date.
We have implemented measures to preserve our ability to operate, including organizational changes, a reduction and/or deferral of salaries, reduction in personnel and renegotiating creditor and collection arrangements. If we are not successful in raising additional capital in the near future, it is possible we will be required to accelerate our contingent plans to more aggressively reduce spending, including drastic reductions in our work force, severe cutbacks in our production facilities and elimination of overhead costs that do not contribute to our level of sales activity. If budgeted sales levels are not achieved and/or significant unanticipated expenditures occur, or if we are not able to raise additional investment capital, we may have to modify our business plan, reduce or discontinue some of our operations or seek a buyer for part of our assets to continue as a going concern through 2011. There can be no assurance that we will be able to raise additional capital or that sales will increase to the level required to generate profitable operations to provide positive cash flow from operations. In that event, it is possible that stockholders could lose their entire investment in our company. These factors raise substantial doubt about our ability to continue as a going concern.
20
Operating activities
For the six-month period ended June 30, 2011 net cash used in operating activities was $421,256, which primarily resulted from the net loss of $777,966. The negative effect of the net loss on working capital is offset by an increase in accounts payable in the amount of $136,004, an increase in accrued liabilities of $86,200 and a positive effect on working capital resulted from a decrease in prepaid expenses in the amount of $50,611.
Investing activities
For the six months ending June 30, 2011, $6,190 cash was used in investing activities for the purchase of property and equipment.
Financing activities
Net cash provided by financing activities was $448,011 for the six months ending June 30, 2011, composed of $100,000 of net proceeds received from stock issued for cash and $350,000 in advances under the line of credit from our stockholder as described above less $1,989 in payment of capital lease obligations.
Critical Accounting Policy
General
The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 1 to the consolidated financial statements included elsewhere.
Impact of Inflation and Foreign Currency Translation
Inflation has not had a significant impact on the Company's operations. However, any significant decrease in the price for oil or labor, environmental compliance costs, and engine replacement costs could adversely impact the Company's end users cost/benefit analysis as to the use of the Company's products. While we no longer have operations in Great Britain, we maintain a small amount of cash on deposit in a bank account related to Ltd.s previous operations and we continue to collect outstanding accounts receivable. These activities resulted in a minor foreign currency translation adjustment during the six month period ending June 30, 2011. The impact of fluctuations in foreign currency has not been significant during the six month period ended June 30, 2010. The exchange rate, the Great British pound to the U.S. dollar fluctuated from 1.59 on December 31, 2010 to 1.60 on June 30, 2011.
Off Balance Sheet Financing
None. The Company has not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties, nor has it entered into any derivative contracts that are indexed to our shares and classified as stockholders equity or that are not reflected in our consolidated financial statements. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing or hedging services with us.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.
21
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, which includes our CEO and our Vice President who serves as our principal financial officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") as of the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this report, our CEO and our Vice President who also serves as our principal financial officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Vice President who serves as our principal financial officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
As previously reported, on July 7, 2009 the Company filed a lawsuit in the Circuit Courts in 15th Judicial District in and for Palm Beach County, Florida, styled Puradyn Filter Technologies, Inc. versus Richard C. Ford case number 502009CA023128XXXXMB. The case has been preliminary set for trial on February 22, 2012.
ITEM 1A.
RISK FACTORS.
Risk factors describing the major risks to our business can be found under Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2010. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On April 11, 2011, the Company issued to Emerging Markets, LLC, 60,000 shares of common stock valued at $0.30 per share as compensation per the month-to-month agreement for consultant work pursuant to the terms of an agreement entered into with that firm in January 2011. On April 28, 2011, the Company terminated the month-to-month agreement with Emerging Markets, LLC. The recipient was an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The recipient had access to business and financial information concerning our company. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
On May 19, 2011, we entered into a consulting agreement with Monarch Communications, Inc. for services rendered as public relations firm and media relations consultants for the Company. The term of the agreement is for twelve months. As compensation for their services, Monarch will receive a fee of $6,000 per month, payable as $2,000 cash and $4,000 in shares of common stock, valued at the closing price on the date of issue. Either party may terminate the agreement with 30 days notice.
On May 27, 2011, the Company issued to Monarch Communications, Inc., 13,333 shares of common stock valued at $0.30 per share as compensation for its services during the month of May 2011, and on June 20, 2011 the Company issued Monarch Communications, Inc. 14,286 shares of its common stock valued at $0.28 per share as compensation for services in June 2011. The recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. The issuance of the shares is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
ITEM 3.
DEFAULT UPON SENIOR SECURITIES.
None
ITEM 4.
(REMOVED AND RESERVED.)
ITEM 5.
OTHER INFORMATION.
Between February 9, 2011 and April 5, 2011, the Company received loans in various amounts totaling $250,000, from an executive officer, director and stockholder, as advances for working capital needs. The loans bear interest at the same rate of interest as the credit facility provided by the stockholder under the note dated March 28, 2002. These advances do not have a specific due date but are to be paid based on Managements determination of the Companys ability to pay and cash flow. We are using the proceeds for working capital.
On May 23, 2011, the Company received a loan in the amount of $100,000 from one of our Board members, Mr. Dominic Telesco, as advances for working capital needs. The loan bears interest at 5% per annum and is due October 1, 2011.
23
ITEM 6.
EXHIBITS.
3.4 |
| Certificate of Amendment to the Certificate of Incorporation |
|
|
|
10.13 |
| Agreement Monarch Communications, Inc. |
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer |
|
|
|
31.2 |
| Rule 13a-14(a)/15d-14(a) certificate of principal financial officer |
|
|
|
32.1 |
| Section 1350 certification of Chief Executive Officer |
|
|
|
32.2 |
| Section 1350 certification of principal financial officer |
|
|
|
101.INS |
| XBRL Instance Document |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 15, 2011
| PURADYN FILTER TECHNOLOGIES INCORPORATED | |
|
|
|
|
|
|
| By: | /s/ Joseph V. Vittoria |
|
| Joseph V. Vittoria, Chairman and Chief Executive Officer |
|
|
|
Date: August 15, 2011
| By: | /s/ Alan J. Sandler |
|
| Alan J. Sandler, Secretary to the Board, |
25