Abtech Holdings, Inc. Reports Third Quarter 2015 Financial Results

SCOTTSDALE, Ariz., Nov. 16, 2015 /PRNewswire/ -- Abtech Holdings, Inc. (OTC QB: ABHD) ("AbTech" or the "Company"), a full-service environmental technologies and engineering firm dedicated to providing innovative solutions to communities, industry and governments addressing issues of water pollution and contamination, today reported financial results for its third quarter and nine month periods ended September 30, 2015. 

Key 9-month Year-Over-Year Financial Results Summary

• Revenues were about the same as the prior year's 9 month revenues at $372,000.
• Gross profit was also consistent with the prior year 9-month period at approximately $29,000 or 8% gross margin.
• Operating expenses increased by 6.5% in first 9 months of 2015 over the prior year to $4.5 million due to high legal fees. 
• Operating loss for the 9-month period in 2015 increased 6.6% over the same period of prior year to $4.4 million.
• During the first three quarters of 2015, the Company raised approximately $2,600,000 from the issuance of secured promissory notes.
• Two executives with commercial successes joined AbTech's management team: Upen Bharwada transitioned from AbTech's Advisory Board to become Chief Technology Officer (May 8) and Jeffrey Gutierrez joined as VP Sales and Business Development (August 3).
• Subsequent to third quarter end – November 4, 2015 – the Company executed documents with existing investors and note holders for a significant financial transaction aimed at strengthening the balance sheet and providing working capital.  Once completed, the Company will receive $2.5 million in cash and $10.8 million of AbTech's outstanding debt and accrued interest will be converted into common stock for a total transaction value of approximately $13.3 million.  Post transaction, the Company will have approximately 500 million shares outstanding.

"We have persevered through an extremely challenging time, which triggered changes in our company that are creating dynamic improvements in our business.  We began to see the early signs of success of these improvements develop in the third quarter and this trend is continuing in the fourth quarter," commented Jonathan Thatcher, COO of AbTech.   "There is no doubt that the events surrounding the federal investigation of the New York State Senate Majority Leader and the related suspension of AbTech's contract with Nassau County have been costly in time, money and, in certain respects, our reputation.  However, with the support of our board, employees, consultants and noteholders, we have been able to implement changes that make our company much stronger.  During the year we have scrutinized our expenses and have reduced our monthly operating expenses, excluding legal fees, by approximately 26% to $360,000; refocused our business on our higher margin product sales, thereby lowering our revenue breakeven and have hired proven business development and sales experts with strong customer relationships specific to the water filtration industry.  These changes alone have altered the dynamics in our company and have led to a far more diverse market reach beginning in the third quarter. And now, with the financial transaction announced in November, we will have eliminated the majority of our debt and strengthened our cash position." 

During the previous two quarterly conference calls, five areas of focus for the business were discussed: 1) aggressively grow the stormwater and industrial product sales business, 2) launch in third quarter an integrated stormwater program for commercial customers, 3) accelerate the time-to-market of our heavy metals technology, 4) seek out a new partner for our public/private partnership model stormwater strategy and 5) opportunistically complete transactions that accrete revenue, enhance our technology base and broaden our offerings.  These five areas of priority continue to drive our business and allocation of available resources.

The stormwater products sales began to show improvement between second quarter and third quarter with a 53% increase in revenue.  This increase has largely been achieved through increased management and accountability of the sales efforts.  The Company continues to work with the regulators in California to receive registration of its Smart Sponge^® Plus technology.  With the addition of Jeff Gutierrez as vice president of sales and business development, the Company has seen a significant increase in opportunity for industrial wastewater treatment sales.  Jeff joined the Company on August 3, 2015 and his first opportunities are making their way through the treatability testing, pilot scale and final engineered system process.  The Company has tasked some existing resources to support this significant increase in activity.   Subsequent to the third quarter, the Company signed an exclusive distribution agreement with KLIMA Projects, S.A.S based in Bogota, Colombia on October 29, 2015 to introduce the Smart Sponge^® technologies to the region.  The principles of KLIMA Projects have diverse holdings in the region ranging from real estate, construction, food and beverage, and resort properties.  The agreement was executed after they completed a six-month market study identifying initial opportunities with the oil and gas, industrial, and food and beverage market sectors.

The Company began launching its integrated stormwater program in third quarter; however we have delayed any additional investment into that opportunity until 2016.  The increased opportunity in the industrial wastewater sector, the somewhat unexpected strong interest in the heavy metals technology and the current lack of an AbTech physical presence in the initial target markets for the program resulted in allocating AbTech's finite resources to the opportunities with the greatest perceived near-term value.

AbTech has been accelerating its commercial development of the heavy metals technology.  The initial sales efforts have been very positive both in the U.S. and internationally with our U.K. distributor.  There are currently more than five significant projects that are making their way through the treatability testing, pilot scale demonstration and final engineering system process.  Almost all of these projects are focused on adding the technology on the backend of an existing process to polish the water of heavy metal contaminants in order to reliably meet current and pending enhanced discharge requirements.  In third quarter of 2015, the Company selected and successfully trialed the process equipment necessary to manufacture the heavy metal media, proving that we will be able to manufacture the media in commercial scale quantities while meeting required quality and efficacy goals.

The public/private partnership, or P3, model for the stormwater market continues to be of interest to the Company, but we believe that that model will not impact our business until at least late 2016 or 2017.  The Company will provide updated information in the future if our efforts are successful.

Opportunistically, AbTech has pursued development of onsite vaporization technology.  This technology is currently being manufactured, tested and trialed, with the objective of availability of the technology in late fourth quarter of this year.  Presales efforts contingent on successful demonstration of the technology have been strong.

AbTech reported third quarter 2015 revenues of $101,000 compared to revenue of $114,000 for the comparable three-month period of 2014 and $67,000 for the second quarter of 2015.   The May 12, 2015 suspension of the project in Nassau County, contributed to the 11% decrease in year over year revenue for the third quarter, and led the Company to renew its immediate focus on Smart Sponge^® product sales.  In addition, the Company hastened its efforts to expand its revenue base by bringing new technologies to market for treating produced water in the Oil & Gas industry, developing its integrated stormwater program for commercial customers and developing new product technologies, including products to treat water contaminated by heavy metals.

AbTech reported a net loss attributable to controlling interest of $(1.8) million or $(0.03) per basic share for the third quarter of 2015, compared to the previous year's third quarter net loss attributable to controlling interest of $(1.6) million or $(0.02) per basic share and the second quarter 2015 net loss attributable to controlling interest of $(1.8) million or $(0.03) per basic share.  During the third quarter 2015, AbTech reported a loss from operations of $(1.6) million, compared to a loss from operations of $(1.5) million during the prior year's third quarter and $(1.6) million during second quarter of 2015. 

AbTech's gross profit on revenue in the third quarter of 2015 totaled approximately $7,000, yielding a gross margin of approximately 7%, compared to a negative gross profit of $(5,800) during third quarter of 2014 and a negative $(60,000) in the second quarter of 2015. The improving gross margin is the direct result of an increase in higher margin product sales as compared to the lower margin revenue related to the Nassau County contract that contributed to the previous quarters.    

Selling, general and administrative (SG&A) expenses during the third quarter of 2015 totaled $1.4 million, an increase of approximately $391,000 or 39% from the third quarter of 2014 and an increase of $117,000 or 9% from second quarter 2015. The increase in expenses was primarily attributed to legal fees, incurred in response to the Federal investigations regarding a New York State Senator's involvement with the Nassau County project and a related investigation by the SEC.  These legal fees totaled $578,000 in the third quarter of 2015 and $466,000 in the second quarter of 2015.  Excluding such legal fees, SG&A expenses were roughly consistent with the second quarter of 2015 and decreased by approximately $187,000 for the three months ended September 30, 2015 as compared to the same period in 2014, primarily reflecting a $168,000 reduction in consulting fees and investor relations expenses partially offset by a $49,000 increase in recruiting fees.

Research and development ("R&D") expenses totaled $246,000 during the third quarter of 2015, a $38,000 decrease from second quarter of 2015 and approximately $188,000 (43%) less than the third quarter of 2014 due primarily to costs associated with the oil & gas field validation work, the majority of which was completed in 2014.  Also impacting the lower R&D was a decrease in University sponsored research projects as well as a reduction in consulting expenses for the development of the evaporator technology targeted for the treatment of landfill leachate, a program which has since been suspended. These expense reductions were partially offset by an increase of $12,000 for payroll expenses in the third quarter of 2015 due to staffing changes, including the hiring of a new Chief Technology Officer.

Interest expense for the three months ended September 30, 2015 totaled $403,000, an increase of $126,000 as compared to the same period of the prior year and an increase of $22,000 compared to the second quarter of 2015. The increase in year over year interest expense is due to the interest expense accrued on the additional debt incurred since September 30, 2014.  Interest expense in the third quarter of 2015 includes $218,000 for the stated interest accrued on outstanding notes payable, $136,000 for the amortization of note discounts resulting from warrants and beneficial conversion features issued with the notes and $49,000 for the amortization of deferred finance costs for the debt offerings. 

For the nine months ended September 30, 2015, AbTech reported revenues of $372,000 and gross profit of $29,000, consistent with the same period in 2014.  Given the low levels of production and the consequent costs of underutilized manufacturing capacity, the Company's gross margin for both years' 9 month periods was approximately 8%.

Excluding the legal fees of approximately $1.0 million associated with the investigations mentioned above, the Company reduced its selling, general and administrative expenses by $396,000 or 13% for the nine-months ended September 30, 2015 compared to the same period in 2014 as it rationalized its operating expenses reducing outside consultant fees by $367,000, travel and entertainment expenses by $67,000, investor relations expenses by $27,000 and government affairs expenses by $22,000.  These cost savings were offset by an increase of $78,000 for recruiting fees, $20,000 for liability insurance and $21,000 for public relations fees.   

During the first three quarters of 2015, the Company's research and development expenses decreased by 32% to $803,000 due primarily to the substantially completed field testing work conducted with the Company's mobile, produced water treatment system in Texas during 2014. These expense reductions were partially offset by $161,000 spent on development of the landfill leachate treatment technology, which has subsequently been suspended, and $69,000 of fees predominately associated with the continued development of the heavy metals technology. 

Interest expense during the first nine months of 2015 increased by 77% over the same period of the prior year to approximately $1.2 million due to the additional debt incurred by AbTech during 2014 and 2015.  AbTech reported a net loss attributable to controlling interest for the nine months ended September 30, 2015 of $(5.1) million or $(0.07) per basic share compared to $(4.3) million or $(0.06) per basic share for the same period in 2014.

At September 30, 2014, the Company reported a cash and cash equivalents balance of $4,800, accounts receivable of $66,000 and inventory of $441,000.  Total assets during the first nine months of 2015 decreased by 67% to approximately $662,000 as of September 30, 2015, as cash was consumed for operations.  The monthly cash burn from operations during the third quarter of 2015 averaged approximately $341,000.  On September 30, 2015, long term debt totaled approximately $9.7 million, net of discounts, including $9.2 million of current debt reclassified as long term debt due to its expected conversion to common stock in the fourth quarter.  Short term debt totaled approximately $1.4 million, net of discounts, at September 30, 2015.  During the first three quarters of 2015, the Company secured funding totaling approximately $2.9 million comprised of $2.6 million of 7.5% secured short term debt issued during the first half of 2015 and $300,000 of cash advances provided by investors during third quarter 2015 as prefunding to the November 2015 financing transaction.  The Company repaid approximately $875,000 of debt maturing in April 2015 plus accrued interest on that debt of approximately $71,000.  Subsequent to September 30, 2015 quarter end, the Company announced a significant financing transaction that will result in the conversion of approximately $10.8 million of debt and accrued interest into common stock and the receipt of proceeds by the Company of $2.5 from the issuance of common stock.   AbTech also has a $2 million equity line of credit it secured on June 25, 2013, and as of June 30, 2015, the Company had made no draws on the equity line of credit.

As of September 30, 2015, AbTech had approximately 68.9 million shares of common stock outstanding, an increase of 400,000 shares compared to year-end 2014 due to shares of common stock issued to a consultant for services rendered to the Company during the period. The Company's fully diluted share count remained little-changed over the second quarter of 2015 and increased by approximately 3.0 million shares as compared to year end 2014 to approximately 104.0 million shares (inclusive of all options, warrants and convertible debt) due largely to 1,325,000 performance-based stock options granted to directors and officers of the Company that only vest if certain performance objectives are met during 2015, and warrants for 2.9 million shares issued with debt financings, offset by the expiration of options for approximately 1.1 million shares during the first nine months of 2015. 

Conference Call:  Given the Company's continued cooperation with authorities concerning the ongoing prosecution of a New York State Senator which have prevented the company during the prior two quarters from taking questions directly from investors, a quarterly conference call will not be held for the third quarter of 2015.

ABOUT ABTECH HOLDINGS, INC. (OTC QB: ABHD) AND ABTECH INDUSTRIES, INC.

AbTech Industries, Inc. (a subsidiary of Abtech Holdings, Inc.) is a full-service environmental technologies and engineering firm dedicated to providing innovative solutions to communities, industry and governments addressing issues of water pollution and contamination. Its products are based on polymer technologies capable of removing hydrocarbons, sediment and other foreign elements in stormwater runoff (ponds, lakes and marinas), flowing water (curbside drains, pipe outflows, rivers and oceans), and industrial process and wastewater. AbTech's offerings include the ground-breaking new antimicrobial technology called Smart Sponge® Plus. This technology is effective in reducing coliform bacteria found in stormwater, industrial wastewater, and municipal wastewater. Smart Sponge^® Plus is registered with the Environmental Protection Agency (Registration #86256-1). AbTech's teams of water treatment technology experts, civil and environmental engineers, and field operations specialists develop solutions to improve the quality of our limited water resources. For more information please visit www.abtechindustries.com.

This news release contains "forward-looking statements" which are not purely historical and include any statements regarding beliefs, plans, expectations or intentions regarding the future. Such forward-looking statements include, among other things, the development, costs and results of new business opportunities. Actual results could differ from those projected in any forward-looking statements due to numerous factors. Such factors include, among others, the inherent uncertainties associated with new projects. These forward-looking statements are made as of the date of this news release, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Although we believe that any beliefs, plans, expectations and intentions contained in this press release are reasonable, there can be no assurance that any such beliefs, plans, expectations or intentions will prove to be accurate. Investors should consult all of the information set forth herein and should also refer to the risk factors disclosure outlined in our annual report on Form 10-K for the most recent fiscal year, our quarterly reports on Form 10-Q and other periodic reports filed from time-to-time with the Securities and Exchange Commission.

*** Financial Statements Follow ***

SOURCE Abtech Holdings, Inc.

Related Links

http://www.abtechindustries.com