Overview and Recent Events

Abtech Holdings, Inc. (“Abtech Holdings,” the “Company,” “we” or the “registrant”) was incorporated in Nevada on February 13, 2007 under the name “Laural Resources, Inc.” and was initially engaged in the business of acquiring and developing mineral properties. Subsequent to its fiscal year ended May 31, 2010, Laural Resources, Inc. decided to change its business focus to clean technology products and services, specifically in the water clean-up sector. In furtherance of its business objectives, effective June 14, 2010, Laural Resources, Inc. merged with its wholly-owned subsidiary, Abtech Holdings, Inc., for the purpose of effecting a name change to “Abtech Holdings, Inc.” On October 21, 2010, the Company’s Board of Directors changed the Company’s fiscal year end from May 31 to December 31.

On February 10, 2011, the Company closed a merger transaction with AbTech Industries, Inc. (“AbTech Industries” or “AbTech”), a Delaware corporation, pursuant to an Agreement and Plan of Merger by and among Abtech Holdings, Abtech Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of Abtech Holdings and AbTech Industries (the “Merger”).

As a result of the Merger, (i) Abtech Holdings acquired all of the issued and outstanding common stock of AbTech Industries (through a reverse acquisition transaction) in exchange for the common stockholders of AbTech Industries acquiring an approximate 78% ownership interest in Abtech Holdings, (ii) AbTech Industries became a majority-owned subsidiary of Abtech Holdings, and (iii) Abtech Holdings acquired the business and operations of AbTech Industries.

AEWS Engineering LLC (“AEWS”), a Delaware Limited Liability Company, was formed on October 31, 2011, as a subsidiary of Abtech Holdings. AEWS operated as an independent civil and environmental engineering firm that provided engineering and technology innovation to the water infrastructure sector. In 2015, the operations of AEWS were transferred to AbTech Industries and AEWS is now dormant.

The Company, through its operating subsidiary, AbTech Industries, provides solutions to water contamination issues that are caused by stormwater runoff, industrial processes, water produced in the extractive industries such as oil & gas drilling, and spills of oil-based fluids in marine environments. The Company’s total solutions and systems approach to addressing our customers’ needs results in the Company providing services for the design and selection of water treatment systems, sales of filtration and treatment systems, installation of the treatment technologies, and maintenance of the installed systems. Some of these activities are provided through subcontractors and on some projects the Company may act as a subcontractor to other entities.

AbTech Industries has developed a variety of products that leverage its cornerstone filtration media technology called Smart Sponge ^® . This patented technology’s oil absorbing capabilities make it highly effective as a filtration media to remove hydrocarbons and other pollutants from water. AbTech Industries is currently manufacturing its products and is marketing them into a variety of markets with thousands of products installed in 46 states within the United States and 15 other countries to date.

The Company’s business is subject to several significant risks, any of which could have a material adverse effect on its business, operating results, financial condition, and the actual outcome of matters as to which it makes forward-looking statements. See “Risk Factors” at page 19 of this Annual Report on Form 10-K and refer to “Forward-Looking Statements” on page ii of this Annual Report on Form 10-K.

Technologies

AbTech Industries maintains a core set of water treatment technologies with applications in all of its market sectors. While the Company has expanded to include a variety of services that are related to its “solutions” approach, it has maintained a strong focus on its heritage as an advanced technology company. Moreover, the Company is able to leverage its core technologies as discriminators to gain entry into markets where otherwise there would be prohibitive barriers to entry.

Smart Sponge ^®

AbTech Industries has developed and patented its core Smart Sponge technologies based on a proprietary blend of synthetic polymers aimed at the removal of hydrocarbons and oil derivatives from surface water. Smart Sponge products remove pollutants from water and encapsulate them so that they cannot be released, even under high pressure. The removal process starts with the physical contact between polymer and contaminant and the consequent adsorption (physical interaction, contaminant distributed on surface of adsorbing material) or absorption (contaminant distributed throughout the absorbing material). The absorption/adsorption process is determined by several polymer parameters (e.g., composition and structure, flexibility of the chain and molecular weight), as well as physical parameters (e.g., polymer physical form, contaminant molecule size and temperature). While polymer composition is the critical factor in defining the solubility, the polymer structure (amorphous or crystalline) is probably the most important factor in determining the process of absorption or adsorption.

AbTech Industries’ polymers are composed of amorphous products that are able to selectively absorb various hydrocarbons (contaminants) present in water, then stabilize and retain them in a gelified structure. Other traditional sorbent products, with more crystalline structures, can only adsorb the contaminants and don’t have the capability to totally retain them when the sorbent is removed from the water. AbTech Industries’ polymers, in order to selectively remove oil derivatives from water, are oleophilic (strong affinity for oils) and hydrophobic (repel water).

The adsorption/absorption process is also controlled by the physical size of the sorbent as diffusion is fairly proportional to the contact surface between fluid and sorbent. Finely powderized materials show the best absorption but, because of swelling, tend to gel quickly and block the contact of additional fluid with the remaining active sorbent, and are very difficult to handle. In order to overcome this problem and use the sorbent to the maximum capacity, AbTech Industries has developed a patented extrusion process that takes advantage of the different thermal behavior of the polymers used to create entanglements with the amorphous part of the other polymer, bonding the chains of the polymers in a flexible porous structure called Smart Sponge.

The porosity of the Smart Sponge allows the fluid containing the contaminant to penetrate into its structure, then the polymer chains selectively absorb the hydrocarbon contaminants and stably encapsulate them. Based on the level of contaminant, the entire structure begins to swell (but not collapse into a total gel) while maintaining absorption capabilities well beyond usual levels. Once reaching saturation, the Smart Sponge is easily recoverable and does not leach any of the absorbed contaminant, even in turbulent water or under pressure, giving it less expensive disposal options such as recycling through a waste-to-energy facility. The Smart Sponge can absorb up to 3 times its weight depending on the contaminant absorbed and remains buoyant permitting it to remain in place until fully saturated. The malleable nature of the Smart Sponge material allows it to be formed into a variety of shapes for optimum effectiveness in a wide variety of contaminated water filtration applications.

The advantages of Smart Sponge based products over competing products include:

Due to the ability of Smart Sponge to capture and retain hydrocarbons and other contaminants within its highly porous structure, its performance can best be measured by an in-depth look at the spent material to analyze its composition and the quantity of the various contaminants retained. This type of data cannot be gleaned from the customary random sampling events typically used to test filters. Such tests are often misleading or erroneous due to the non-homogenous concentrations of pollutants in stormwater and wastewater. Analyzing all contaminants entrapped in the filter over a period of time provides a better indicator of the filter’s true performance. Consequently, AbTech Industries took a more advanced approach and engaged a highly qualified, analytical laboratory to use complex analytical techniques to deconstruct used Smart Sponge polymer and selectively extract all the entrapped contaminants. This in-depth mapping and finger printing of contaminants (a first of its kind in stormwater treatment) is analogous to having a “Black Box” recording of the Ultra-Urban ^® Filter’s (“UUF’s”) filtration mechanisms and all the contaminants collected in the Smart Sponge material during the time that it is deployed. The results of this analysis were then compared to base tests performed on virgin Smart Sponge material. The difference between the two samples constitutes the contaminants collected by the field deployed Smart Sponge. By extrapolating these results, estimations were made of the total contaminants AbTech Industries’ products prevented from being discharged into open waters for entire installation projects such as those at Norwalk, Connecticut. In Norwalk, 275 UUFs using Smart Sponge filtration media were installed in storm drains to protect residential, commercial, waterside, and industrial manufacturing settings which flow into Norwalk Harbor. The deconstruction or meltdown of Smart Sponge media samples documented approximately 50 pounds per filter of total contaminants with the presence of several heavy metals (e.g., copper, titanium, and zinc) and a variety of hydrocarbons (about 32 pounds per filter), including solvents, oils and cosmetic product components as well as chemical plasticizers.

The grand total of contaminants including hydrocarbons and heavy metals removed, extrapolated for the 275 filters, is an estimated 13,530 pounds. Essentially, the installation of the filters prevented the equivalent of an oil spill of 1,200 gallons from entering the Long Island Sound. This analysis demonstrated the effectiveness of AbTech Industries’ products with quantifiable data and added substantially to data provided by other tests that merely tested the difference between influents and effluents.

Smart Sponge Plus

The Company has expanded the original capability of Smart Sponge technology by adding an antimicrobial agent that has proven to be effective in reducing coliform bacteria found in stormwater, industrial wastewater and municipal wastewater while maintaining its oil-absorbing capability. This expanded technology, known as Smart Sponge Plus, provides an effective solution to municipalities and other entities faced with beach closures and other hazards of bacteria-laden stormwater. The presence of bacteria in stormwater is a serious problem and poses significant health risks that increasingly result in the contamination of water bodies. Water quality standards for bacteria counts are very strictly monitored in most coastal areas and small increases in bacteria counts can trigger beach closures. The best potential to reduce this bacteria count during rain events is the control and treatment of the stormwater runoff. This control can be achieved by expensive, complex equipment, such as ultraviolet light or chlorine treatment systems, which become cost prohibitive for most municipalities. AbTech Industries has developed a set of cost-effective systems for retrofit into existing stormwater infrastructure, leveraging the antimicrobial capabilities of Smart Sponge Plus. These systems require no electricity or moving parts and create no downstream toxicity effect (a problem that must be mitigated in alternative chemical treatment approaches).

This antimicrobial capability differentiates Smart Sponge Plus products from competitive stormwater treatment devices. It can be engineered to treat massive amounts of water runoff in end-of-pipe applications, such as drainage vaults or other configurations. Because of its antimicrobial properties, Smart Sponge Plus is characterized as a pesticide and is required to be registered with the Environmental Protection Agency (the “EPA”). In July 2010, AbTech Industries received conditional approval of its application to register Smart Sponge Plus as a pesticide under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”). (See “Regulatory” below in this item.) Under the EPA registration, AbTech Industries is allowed to make the claim that Smart Sponge Plus is capable of reducing coliform bacteria found in stormwater, industrial wastewater and municipal wastewater.

The technological breakthrough in creating Smart Sponge Plus occurred when AbTech Industries, working with outside vendors, developed the process to bind an antimicrobial agent to its proprietary polymers, thereby modifying their surface and adding micro biostatic features while maintaining their oil absorbing capabilities. This enhanced filtration material provides a significant reduction in coliform bacteria and other pathogens frequently found in stormwater and other water streams. AbTech Industries believes that this breakthrough, coupled with additional advancements that have dramatically increased the antimicrobial strength of Smart Sponge Plus, will be key factors in penetrating the stormwater market. Accordingly, AbTech Industries has been issued three U.S. patents that protect the use of Smart Sponge Plus in stormwater filtration applications.

The anti-microbial agent used for this innovative technology is an organosilane derivative that is widely used in a variety of fields including medical, consumables, pool equipment and consumer goods. This anti-microbial agent is registered with the EPA for various applications and has been proven successful in those applications against a wide variety of microorganisms. As further discussed under “Regulatory” below in this item, AbTech Industries’ Smart Sponge Plus has received conditional registration approval from the EPA under FIFRA as an antimicrobial pesticide. Smart Sponge Plus will also act as a fungistatic to control fungus and mildew odor.

The anti-microbial mechanism of Smart Sponge Plus is based on the agent’s electromagnetic interaction with the microorganism cell membrane, causing the disruption of the cell wall of the microorganism, but no chemical or physical change in the agent. Consequently, the anti-microbial agent is not depleted over time, maintains its long-term effectiveness and unlike any other technology (with the exception of ultra-violet light), doesn’t release any chemical or by-product into the treated water.

In manufacturing the Smart Sponge Plus material, the anti-microbial agent is chemically and permanently bound to the polymer surface. In the development process, AbTech Industries has been successful in increasing the amount of anti-microbial agent bound to the polymer thus increasing its antimicrobial potency. In laboratory testing, the current generation of Smart Sponge Plus material has proven to be not only much more effective in destroying bacteria than the original generation of Smart Sponge Plus material, but also capable of reducing bacteria in a much shorter period of time (residence time), a very important factor in filtration applications where the contaminated water is in contact with the Smart Sponge material for just a few minutes versus the hours required in a sanitary sewer system.

Ironwood and Smart Sponge HM

In 2014, AbTech Industries exclusively licensed a heavy metals removal technology from Synanomet, LLC (“Synanomet”). The technology was developed at the University of Arkansas Little Rock and Synanomet is a company formed primarily for the purposes of commercializing the technology. The technology is a novel carbon-based renewable material with attached nanostructures that are highly effective at removing phosphates, as well as heavy metals such as selenium, chromium, copper, iron, lead and zinc.

AbTech is targeting both point and non-point source applications of the technology. Discharge permit requirements for heavy metals are very stringent, typically requiring removal down to the parts per billion level. Many of the heavy metals, like selenium and lead, have well known risks to human health and the environment. These are all heavily regulated contaminants. Phosphorous, a nutrient, which is found in fertilizers, soaps and many day-to-day consumer products increasingly in higher concentrations, make their way into our rivers, lakes and oceans. Phosphorous, when combined with nitrogen, is an optimal food source for algae creating seasonal algae blooms that ultimately lead to “dead zones”. These dead zones are areas where the algae have consumed much of the available oxygen in the water, making the water uninhabitable for other marine species. The USEPA has identified high-priority areas of concern such as the Chesapeake Bay Watershed and the Great Lakes Watershed.

The heavy metals media in its raw form is referred to as “Ironwood” and uses a wood substrate and attaches a hematite magnetite nanoparticle, in high density, to the surface of the substrate. This iron-based particle is then able to chelate and adsorb the metal to the surface of the media. The process of chelation and adsorption is very fast, typically a matter of minutes. Metals other than iron may also be adhered to the substrate surface in order to more effectively attract cationic or anionic species of heavy metals. The media can be quickly regenerated through a simple pH adjustment process and then reused. Regeneration in the lab has been done over 100 times with no concomitant reduction in total adsorption capacity. The technology is protected by 13 issued patents.

AbTech Industries has also combined the Ironwood media with Smart Sponge, which is referred to as SmartSponge HM, in order to achieve enhanced hydraulic conductivity over the wood-based media alone. AbTech deploys the media both in its virgin Ironwood form and as Smart Sponge HM.

Smart Sponge versus Commonly Used Non-Advanced Media Filtration

AbTech Industries’ core technologies are highly-engineered advanced materials that are chemically selective towards contaminants and, in the case of the antimicrobial material, create biostatic fields to disrupt the cellular membranes of pathogens. These advanced materials enable an entire set of engineered deployment systems that otherwise would be less effective or entirely ineffective using non-advanced materials.

Smart Sponge material has a distinct advantage over traditional polypropylene material. In the case of oils and hydrocarbons, once oil comes in contact with the Smart Sponge material it is permanently encapsulated in the structure of the polymer and cannot be released under any amount of pressure. In comparison, polypropylene materials adsorb, or form a temporary attachment to, water as well as oil, thus making them much heavier and messier to remove and causing them to release both water and oil back into the environment.

Disposal Options

As local conditions, product use and exposure can vary widely, the end user must determine the most appropriate disposal method for spent Smart Sponge materials. Smart Sponge samples saturated with hydrocarbons both in the lab and in the field have been tested according to the EPA’s Toxicity Characteristic Leaching Procedure (“TCLP”) by the following independent testing facilities: ABC Laboratories, Inc., Aculabs, Inc. and Turner Laboratories, Inc. These tests show that Smart Sponge is a “non-leaching” product. In addition, used Smart Sponge material can be recycled as an energy source with a British thermal unit, or BTU, value ranging from 10,000 to 18,000 BTU/lb. based on the type of contaminant absorbed. As a result, Smart Sponge technology affords many cost effective and environmentally friendly disposal options. The following waste disposal and resource recovery industries have accepted spent Smart Sponge materials for disposal and/or recycling:

On-site Recycling. AbTech Industries has developed a method for recycling spent Smart Sponge and its solidified hydrocarbons, allowing for 100% recycling of the spent-media. This patented process converts solid Smart Sponge media and absorbed hydrocarbons into a liquid that can be sold to a refinery, eliminating disposal costs and generating additional revenue.

Waste-to-Energy Facilities (“WTE”). A specialized segment of the solid waste industry has used spent Smart Sponge material as an alternative fuel in the production of electricity. WTE is acknowledged at the federal level as a renewable energy source under the Federal Power Act, Title IV of the Clean Air Act and is a participant in the Department of Energy’s National Renewable Energy Program.

Cement Kilns. This industry has used the spent Smart Sponge material as an alternative fuel in the production process of Portland Cement. This process is considered a beneficial reuse of waste products. The BTU value of spent Smart Sponge material is consistently above the average acceptable levels set for this high temperature process.

Landfills. Used Smart Sponge products have been classified as a solid waste and are commonly accepted at Subtitle D Landfills.

Engineered Systems and Smart Sponge-based Products Being Sold

In conjunction with developing advanced filtration media, AbTech Industries engineers have also developed a variety of deployment systems that can be retrofitted into existing stormwater and wastewater infrastructure. This solves a major problem for municipalities where aging water infrastructure and increasing enforcement of water quality standards (a result of increased awareness of the detrimental environmental and public health effects) pose one of the largest infrastructure challenges in the coming decades. Municipalities have already determined in the vast majority of cases that so-called centralized solutions are cost-prohibitive or infeasible. These solutions include rerouting combined sewer overflow water and/or even stormwater to wastewater treatment plants for purification (which would also require the construction of new or additional sanitation treatment plant capacity) or building large central stormwater/wastewater treatment “tunnels” underneath municipalities. AbTech Industries’ products enable decentralized solutions at the point-of-entry (e.g. stormdrains, etc.) or at the end of stormwater/combined sewer overflow outfall pipes.

AbTech Industries has engineered a variety of point-of-entry systems that can be dropped into storm drains with little or zero infrastructure disruption and end-of-pipe treatment systems that can be built into the existing water lines to treat the flowing water as it passes through.

The products described below incorporate any of the Smart Sponge medias in one or more of their various forms and are each designed to meet specific market challenges. Each of these products is currently being marketed and sold by the Company. We manufacture the Smart Sponge material in our manufacturing facility using polymers procured from the petrochemical industry. We then use this material to complete the final assembly of each product using component parts produced in-house or to our specification by outside vendors. Each product has application in each of the Company’s targeted markets discussed further under “Markets” below in this item, although the UUFs and end-of-pipe systems are designed primarily for stormwater applications and the gravity and vessel filters have primary application in industrial and produced water markets.

Smart Sponge Popcorn

The Smart Sponge material can be formed into a variety of physical shapes to optimize its performance in a wide range of filtration applications. The Smart Sponge material is the cornerstone of AbTech Industries’ current products, and AbTech Industries continues to find new applications for its use. When produced in its “popcorn” form (clumps of polymer similar in shape to popcorn), Smart Sponge is an effective filtration media due to its high porosity and favorable hydraulic characteristics. The Smart Sponge material can also be sold to OEMs (original equipment manufacturers) and other users to be integrated into many different filtration pressure vessels or gravity flow structures.

Ultra-Urban® Filter

The UUF with Smart Sponge is an innovative low-cost Best Management Practice (“BMP”) that helps meet National Pollution Discharge Elimination System (“NPDES”) requirements with effective filtration, efficient application, and low maintenance. The UUF is a modular filtration unit (or Catch Basin Insert) designed in a variety of shapes and sizes for use in “curb opening” and “top down” storm drains and is used to treat stormwater runoff for new or retrofitted sites by absorbing oil and grease; adsorbing heavy metals and phosphates; and capturing trash and sediment.

The UUF is ideal for municipal, industrial and construction applications ensuring compliance with stormwater regulations. The filter comes in three designs: the Curb Opening, Drain Insert, and Customized Drain Insert. The unique micro porosity of Smart Sponge allows the standard sized CO1414 UUF filter a hydraulic flow rate of more than 200 gallons per minute and has proven effective in removing more than 80% of hydrocarbons and total suspended solids (“TSS”) (300 microns or greater).

The unique design of the Curb Opening Series allows crews to easily hang the appropriate number of filters in each drain on a simple mounting bracket. The product is designed with a lateral bypass to utilize each box as well as an overflow capability to eliminate the potential for street flooding in the event of a plugged filter.

The UUF Drain Insert Series offers the same filtration characteristics of the Curb Opening series for stormwater filtration of hydrocarbons, trash and sediment. The unique micro porosity of Smart Sponge allows the Drain Insert Series DI2020 UUF to have a hydraulic flow rate of more than 500 gallons per minute, and has proven effective in removing more than 80% of hydrocarbons and TSS (300 microns or greater). These units are designed to be suspended beneath a collar installed under the stormwater grates. This simple design allows easy access for maintenance while eliminating the potential for street flooding in the event of a plugged filter.

Customized drain inserts are available for those customers with shallow drains or requiring deeper bed depths. AbTech Industries’ engineers work with customers to understand the site characteristics, including hydraulics and contamination levels in order to confirm the appropriate Smart Sponge bed depth to achieve the project’s filtration goals.

End-of-Pipe Water Treatment Systems (using advanced filtration media like Smart Sponge)

AbTech Industries’ end-of-pipe water treatment systems, which include vaults, horizontal pipe systems and horizontal tank systems, use advanced filtration media such as Smart Paks ^® as an effective alternative to treating individual catch basins. These systems, which are typically pre-cast vaults, pipes and tanks, are easily retrofitted into existing stormwater systems and are ideal for stormwater treatment at or near the end of pipe. End-of-pipe system sizes can be adapted for various flow rates and contamination levels to solve a wide range of stormwater treatment issues.

AbTech Industries can engineer its end-of-pipe water treatment systems for large projects either as stand-alone applications or as part of a treatment train to polish water working in conjunction with retention ponds or hydrodynamic separators. These engineered solutions can be direct or radial flow, and can easily be adapted to treat the first flush while allowing the later flow of a major storm event to pass around the systems to achieve the hydraulic requirements of the watershed.

SMART PAK ^®

AbTech Industries' Smart Pak is designed for use in new or existing end-of-pipe systems such as vaults. Smart Paks may be specified with Smart Sponge, Smart Sponge Plus or Smart Sponge HM, to target the contaminants of concern such as oil and grease, trash, debris, sediment, heavy metals, phosphorous and coliform bacteria. Smart Paks help users meet and/or exceed stormwater NPDES permit requirements with effective filtration, absorption, life expectancy and maintenance costs. Smart Pak products are constructed out of AbTech Industries' patented Smart Sponge medias which are nonhazardous materials, and can be specified for a variety of applications. AbTech Industries' Smart Pak allows Smart Sponge technology to be scaled to virtually any size required in an easy-to-maintain form.

Absorbent Boom and Line Skimmer

AbTech Industries' Tubular Absorbent Booms and Line Skimmers employ the Smart Sponge absorptive technology which rejects water while absorbing even sheen levels of hydrocarbons in low energy flow environments. Tubular Absorbent Booms and Line Skimmers are designed to absorb and permanently encapsulate hydrocarbons resulting in no dewatering of oily water during removal. These products remain completely buoyant, even after being saturated, allowing long term deployment and conveniently scheduled removal.

Passive Skimmer

The Passive Skimmer is designed to absorb and encapsulate hydrocarbons by floating directly on the water in catch basins, sumps, oil/water separators, and marine fueling stations. Passive Skimmers are made with Smart Sponge, are packaged in flexible mesh containers, and are available in a variety of sizes.

Bilge Skimmer

The Smart Sponge Non-Leaching Bilge Skimmer is engineered and designed for permanently encapsulating the petroleum hydrocarbons that appear as oily sheen in the engine compartment during normal boat operation. The Bilge Skimmer will absorb the contaminant and allow the boater to discharge clean water from the bilge pump.

Industrial Process Water Systems

For the past several years, AbTech Industries has been working on solutions for the industrial process water and wastewater systems market. These systems utilize a combination of components including pretreatment, membranes and ion exchange to purify makeup water (well or surface) streams for various different plant requirements. Some systems may utilize AbTech’s core Smart Sponge technology in the pretreatment, depending upon the contaminants in the source water. With the recently added focus to the industrial sector, AbTech Industries has added personnel with extensive experience in process water systems. The Company has collaborative relationships with engineering contractors and third party manufacturers to provide the best quality systems for its customers.

Produced Water Products

AbTech Industries has developed de-oiling solutions for the produced water market.  These solutions generally are combined with other treatment systems to address the full range of the problematic contaminants present at a given site. AbTech’s de-oiling solutions are designed to remove hydrocarbons as both a pre-filter to protect the other treatment systems in the treatment train, or as polishing agent at the end of the treatment process. One solution for the removal of free oil in produced water is AbTech Industries’ contactor(s) in a pretreatment position.  These consist of contactor tanks that are sized based on flow rate, influent concentration of contaminant, the desired media change out schedule, and space or size constraints.  The contactors used are widely available vessels, including ASME certified pressure vessels that are filled with loose Smart Sponge popcorn media. These systems can be implemented ranging from 300 to 3,000 gallons per minute. While AbTech Industries has field tested several different configurations of these treatment systems, it has not yet sold any of these systems commercially. Over the past several years, AbTech Industries’ focus has been on a new evaporative technology to treat produced water. It is also experimenting with its heavy metal technology to develop cost effective solutions for the treatment of produced water.

Markets

AbTech Industries targets three major markets: stormwater/wastewater, industrial wastewater/process water, and produced water applications for the oil & gas industry. The Company’s products also have application in the spill prevention and control markets (including marine environments), although the Company is not currently focused on this market as a priority.

Stormwater and Wastewater Market

This market consists of municipalities and private sector entities that for regulatory or other reasons are seeking to control the quality of water and other fluids that run off roads and other paved surfaces during wet weather, cleaning or oil spill events. Current customers include municipalities, state agencies, federal agencies, commercial and private developers, industrial facilities and businesses. Stormwater discharges are generated during a rainfall event by runoff from land and impervious areas such as paved streets, parking lots and building rooftops. The runoff water picks up a variety of pollutants, in particular bacteria hydrocarbons and heavy metals in quantities that can adversely affect water quality, and carries those pollutants into nearby rivers, lakes and oceans.

Regulation of stormwater is a relatively new occurrence. The first phase of the NPDES program was promulgated in 1990, but the permit requirement was limited to only select regulated entities. The second phase of the NPDES program expanded the permit requirement significantly but did not start until 2003.

Combined Sewer Overflows also must comply with the Clean Water Act and present an opportunity for AbTech Industries’ engineered treatment solutions. Combined sewer systems serve roughly 772 communities in the United States serving 40 million people. In periods of rainfall or snowmelt, the combined stormwater and wastewater volume in a combined sewer system can exceed the capacity of the sewer system or treatment plant. This leads to the direct discharge of untreated sewage and other pollutants to the environment.

Enforcement of stormwater/CSO standards have increased, with EPA compelling installation of stormwater control measures and water quality treatment systems through consent decrees. In recent years, billions of dollars of mandated spending on stormwater/CSO systems has been created through consent decrees.

Industrial Wastewater and Process WaterMarket

The industrial market serves manufacturers seeking to control and clean wastewater generated in various processes. The market is comprised of both heavy industry such as oil refineries, steel mills, chemical plants, pulp and paper plants and more localized concerns such as mid-size manufacturers, refuse sites and shipping/receiving areas. This market also includes private developers, gas stations and owners of developed sites (i.e., parking lots) of over one acre.

Companies in the industrial market are placing increased emphasis on water recovery and reuse in order to conserve and protect scarce water resources and the environment. These efforts create the need for effective products and services to treat the water to reduce bacteria and remove unwanted contaminants such as oil derivatives and hydrocarbons.

Industrial companies are also required to comply with increasingly stringent discharge regulations, creating the need for products to treat runoff water or discharge water before it leaves an industrial facility. The EPA has classified over 3,000 industrial and electric utility facilities as water pollution dischargers. Each of these facilities provides its own wastewater treatment prior to discharge into an open body of water. The size of many of these plants is equal to or greater than those of many municipalities, and in many instances their processes are more complex than those provided by a municipality because of the nature of the chemical pollutants being treated. The largest industrial user of wastewater treatment processes is the chemical and petrochemical sector. There are more than 12,000 chemical/petrochemical plants in the United States and approximately 90% treat wastewater on-site. In addition, there are approximately 30 to 40 independent industrial off-site plants, most of which handle chemical and petrochemical wastewater, principally from medium-sized and small companies.

Within these vertical markets exist opportunities for AbTech Industries, including phosphorus and heavy metals discharge.  Phosphorus is regulated to ultra-low levels to prevent eutrophication in receiving waters such as rivers, lakes, and other large bodies of water. Many industrial plants deploy biological waste treatment to destroy their organic contaminants.  Phosphorus is a nutrient used in this process, and at times carries over into the discharge.  Selenium is another contaminant of concern within several verticals such as mining, power and oil & gas.  Selenium is known to cause problems to aquatic life and is thus being regulated to ultra-low levels.  Other heavy metals such as mercury, copper, cadmium, arsenic, zinc, iron and chromium, have various discharge limits to which AbTech Industries is focusing its efforts to treat with Ironwood or Smart Sponge HM media.

Produced Water and Frack Water Applications in the Oil & Gas Industry

Oil and gas exploration and production activities result in the production of significant volumes of contaminated water. On average, there is five times as much contaminated water generated as oil or gas. Approximately 75% of this water is re-injected into the formation to maintain pressure or deep well re-injected at another site. In a traditional oil production field this water is called “produced water.” In fracking operations this can include “frac flowback water” and in gas fields this could include “gas condensate water.” Approximately 25% of all water generated from the exploration and production activities must be treated for either reuse in operations or for discharge to the environment under an NPDES permit. According to the EPA, the Clean Water Act prohibits the discharge of oil or oily waste into or upon the navigable waters of the United States or the waters of the contiguous zone if such discharge causes a film or sheen upon the surface of the water. Violators are subject to a monetary penalty. The attributes of AbTech Industries’ Smart Sponge technology and its ability to remove “oily sheen” make it especially suited to service this market. Smart Sponge can be used as a pretreatment system to remove diesel range organics and free oils prior to additional treatment by downstream technologies to remove or reduce contaminants such as volatile organic compounds, dissolved solids, bacteria, heavy metals and phosphates.

Spill Prevention and Control Market

There are a number of applications related to rivers, lakes and oceans that call for the use of floating or in-line filtration products to control and reduce the presence of hydrocarbons in the water or on board transiting vessels. Customers include the cruise ship industry, recreational boaters, marina owners, port authorities, spill response organizations and commercial shippers.

This market also comprises airports, airport fueling facilities, U.S. Department of Defense bases, transfer stations, and others concerned about oil spills. Under the Federal Clean Water Act, the EPA has issued the Spill Prevention, Control and Countermeasure (“SPCC”) rule, which requires owners or operators of facilities that store, use, process, transfer, distribute or consume oil and oil products, including airports and military bases, to have minimum preventative systems in place. The risks of not adequately implementing such countermeasures are regulatory violations, fines and potential releases that result in contamination, clean-up and additional fines. The impact of these issues can result in significant costs to a facility owner/operator. There are more than 250 medium and large sized airports in the United States and approximately 300 U.S. military facilities.

AbTech Industries’ systems can be deployed for the oil and fuel contamination problems facing airports and military facilities. These systems can not only be used to address such problems as stormwater runoff, but also provide effective SPCC solutions to limit potential liabilities to customers by providing a last line of defense or perimeter protection for fuel spills.

Sales, Distribution, and Marketing Support

Historically, the Company has generated revenues by selling its products directly to end customers, through distributors in key geographic markets and, in recent years, through alliances to penetrate key market segments such as municipal stormwater, federal facilities and industrial process water. The Company pursued contracts that would enable it to bring its stormwater expertise to all phases of rebuilding projects, including the design, installation and operation of water treatment systems. The Company signed its first contract for such a project with the County of Nassau in October 2013. After more than a year of work on this project which progressed slowly and was hampered by many delays, the contract was suspended by Nassau County in May 2015, following the announcement of the federal investigation of a state senator, Dean Skelos, and his son Adam Skelos, who had acted as a consultant to the Company. As a consequence of the negative publicity for the Company surrounding these events, the Company began to direct a greater portion of its sales efforts towards non-stormwater applications of its products in commercial and industrial markets, while continuing to support stormwater product sales through direct sales staff and through distributors in domestic and international markets. In 2015 and 2016, the Company hired a team of seasoned sales professionals with extensive experience in industrial markets. Through its research and development efforts the Company has made strides to develop new products and refine existing products for these new markets intended to provide effective solutions for the treatment of produced water in the mining and drilling (fracking) industries, filtration of process water used in industrial applications and the filtration of heavy metals from water in a variety of applications. This is a time consuming process that requires significant testing in the lab and in the field to demonstrate efficacy.

Stormwater and Wastewater Market

AbTech Industries’ approach to the stormwater/wastewater market is now focused on product sales in the commercial, industrial and public (municipalities and cities) markets. The Company is primarily using a direct sales approach with its own sales staff to identify and address market opportunities in the United States. It also uses distributors and manufacturer representatives in specific geographic market areas. In markets outside the United States, the Company uses distributors with exclusive and non-exclusive marketing rights in specific geographic areas.

Industrial Wastewater Market

The industrial wastewater market is focused on the treatment of oily wastewater from industrial processes for either reuse or discharge. This market is serviced by many regional chemical and equipment supply companies that offer a catalog of solutions. Solutions may require little to no individual engineering, up to custom engineered solutions to address a customer need. AbTech Industries services this market by selling direct to industrial customers and providing engineering and sales support services to industrial chemical suppliers, equipment suppliers and consulting engineers. The Company also intends to engage manufacturer’s representatives and distributors to sell the Company’s products in specific markets or for specific applications.

Oil & Gas Market

Treatment of contaminated produced water for the oil & gas industry focuses on the water produced during oil and gas exploration and production. Oil services companies, oil and gas producers, and engineering firms are the main customers. Applications for this market are generally engineered solutions. AbTech Industries services this market with direct AbTech Industries’ sales representatives and engineering resources, including external engineering design resources when necessary. The Company’s attempts to collaborate with other entities that provide complimentary technologies to meet the specific needs of customers have not been successful to date in part due to economic factors affecting the oil & gas market, which has resulted in the prolonged depression of oil and gas prices. The Company is currently focusing most of its efforts in this market on the development of an evaporative technology which is not yet ready for commercialization.

Collaboration With Consulting Firms, Academic Institutions and Public Advocacy Groups

AbTech Industries, both on its own, and with its distributors, has been active in seeking out and cooperating with a number of academic institutions and private groups that have interests that may advance the use of AbTech Industries’ products.

AbTech Industries’ products have been assessed by several consultants and institutions. The tests performed by these entities, along with the extensive testing completed by the Company, have involved various types of contaminants, contaminant concentrations, flow rates, filter residence times and other factors. These tests, conducted over many years, have led the Company to design its products for the applications where Smart Sponge material performs best and have provided the data needed to validate performance claims for each of the various applications for which such products are currently being marketed. Testing is an ongoing process for the Company as we continue to seek new ways to improve performance and expand efficacy. Consultants used in the past to assess our products include:

Competition

Industrial Markets

There are three key areas of industrial focus, which include oil removal, phosphorus and heavy metals reduction and process water systems.

1.  Oil Reduction .  AbTech’s Smart Sponge media is designed to be applied in oil and grease polishing applications within the Oil & Gas and Food & Beverage industries.  The competition consists of mechanical removal unit processes like Dissolved Air Flotation and gravity sedimentation, in addition to filtrations systems such as walnut shell filtration, media filters and ultra-filtration.

2.  Phosphorus and Metals Reduction .  AbTech’s Ironwood and Smart Sponge HM medias are designed to remove phosphorus and heavy metals in polishing applications within multiple vertical markets.  The competition consists of conventional precipitation followed by gravity sedimentation or media filtration, or ion exchange, adsorptive media, zero valent iron and ultrafiltration.

3.  Process Water Systems .  AbTech provides process water systems as a non-core technology.  There are a number of competitors that supply process water systems.  Requirements of a project usually dictate which competitors will be bidding.  For example, some projects call for an open specification, which allows for the vendor to supply its pre-engineered standard equipment.  This approach keeps the CAPEX lower.  Other projects have specific requirements that must meet the plant’s site specifications.  AbTech can provide both types of solutions for its customers.  Suppliers of process water systems include GE, Evoqua, Veolia, Aquatech, Suez and H2O Innovation.

Competitive Position – Industrial

AbTech’s competitive strategy is to lead first with its innovative core-technologies, and then sell process water systems to the same customer base.  The medias are promoted specifically as polishers with superior results.  Testing through treatability and/or piloting, provides customers with the confidence to meet their project goals. The market reach is promoted through experienced regional salespersons, manufacturer’s representatives and distributors.  AbTech’s competitive goal is to be a customer centric organization. 

Stormwater Products

Four key factors differentiate AbTech Industries’ stormwater products from other filters in the stormwater market:

There are three general categories of solutions to deal with the treatment of stormwater: hydrodynamic separators (“HDS”), catch basin inserts and water retention or infiltration systems, also known as green infrastructure. To give a complete competitor profile, a brief explanation of HDS systems is given below as HDS systems are more often considered an alternative to catch basin inserts in new construction projects.

Not only are HDS systems expensive, they also require significant maintenance to remove the trapped pollutants and ensure that the system continues to function properly. Another limiting factor of HDS systems is that the filtered contaminants, when removed from the HDS, are often considered hazardous waste and must be disposed of accordingly. In addition, HDS systems, while capable of handling large quantities of water, are frequently unable to remove sufficient contaminants from the effluent to meet acceptable discharge limits. Some HDS vendors have purchased AbTech Industries’ Smart Sponge products to be used in conjunction with the HDS units to absorb the oil that is separated from the water, thus enhancing the performance of the systems and reducing the required maintenance. Another drawback of HDS systems is that they are designed to retain standing water after a rain or water flow event. Consequently, the HDS vaults become breeding grounds for mosquitoes (carrier of West Nile Virus), mold, mildew, bacteria and other undesirables.

The primary vendors of HDS systems are: ConTech (CDS Technologies, Vortechs), Stormceptor and Baysaver Technologies.

Competitive Position – Stormwater

AbTech Industries has a strong competitive position in the stormwater marketplace within the United States due to its product offerings. There is significant competition for stormdrain insert filters in the marketplace, though AbTech has a competitive advantage due to the strength of its hydrocarbon absorption technology. This competitive advantage extends to customers such as industrial facilities, marinas/ports, airports, fueling stations, and any area where vehicle maintenance occurs. AbTech has a highly unique antimicrobial technology that requires EPA registration. Since the development of antimicrobial technology is complex, AbTech's approach is patented, and the EPA registration process is extensive and costly, there are high barriers to entry for competitors. This antimicrobial technology has enabled new engineering approaches towards water quality treatment. AbTech faces competitive forces from traditional approaches towards antimicrobial treatment. It is unclear whether AbTech's unique engineering and technology approach will gain significant market penetration.

Intellectual Property, Research, and Development

Intellectual Property

Patents

AbTech Industries endeavors to protect the intellectual property it develops through its research and development efforts. The United States Patent Office has issued AbTech Industries and its subsidiary 18 patents related to the Smart Sponge technology and products including a patent issued on March 6, 2018, involving the process to recycle spent Smart Sponge and its solidified hydrocarbons. Additionally, three of the patent applications have been pursued internationally with patents issued in Australia, Canada, China, France, Great Britain, Italy, Japan, Korea, Mexico and Singapore. AbTech Industries is pursuing patent protection for other technologies that it believes are patentable and intends to pursue patent protection for new patentable technologies that it may develop. AbTech Industries’ success depends, in part, on its ability to maintain trade secrecy protection and operate without infringing on the proprietary rights of third parties. The table below lists the unexpired patents issued to the Company as of December 31, 2017 and their duration. Several of these patents have or will expire in 2018.

Trademarks

AbTech Industries has registered three trademarks with the U.S. Patent and Trademark Office: (i) Smart Sponge ^® , which denotes the Smart Sponge material itself in its various shapes and sizes; (ii) Ultra-Urban ^® Filter, which denotes AbTech Industries’ line of storm drain filtration devices; and (iii) SMART PAK ^® , which describes Smart Sponge material compacted into blocks, bricks or other pre-shaped forms. AbTech Industries also trademarked, but does not currently use, the name OARS ^® , which denotes an oil aquatic recovery system encompassing Smart Sponge products.

Trade Secrets

In order to protect its trade secrets and un-patented proprietary information arising from its development activities, AbTech Industries requires its employees, consultants and contractors to enter into agreements providing for confidentiality, non-disclosure and Company ownership of any trade secret or other un-patented proprietary information developed by employees, consultants or contractors during their employment or engagement by AbTech Industries. AbTech Industries also requires all potential collaborative partners and distributors to enter into confidentiality or non-disclosure agreements.

Research and Development

The current Smart Sponge technology has prompted the development of a robust line of products. However, to ensure future growth, new products and technologies must be developed. The Company attempts to focus its research and development efforts on projects with reasonable commercial potential, both in terms of revenue and in terms of profit margins, where the resulting products would be inherently differentiated from competing products, if any, or allow AbTech Industries to fill a critical gap in its products offering. In addition, the development time to achieve the new technology or product must be reasonable. For the fiscal years ended December 31, 2017 and 2016, the Company spent $937,991 and $1,145,950, respectively, on research and development activities, none of which was borne directly by customers.

One of AbTech Industries’ most active development programs is focused on the treatment and removal of heavy metals, naturally occurring radioactive materials (NORMs) and phosphates from contaminated water. In 2014, AbTech Industries signed an exclusive license agreement for a highly effective heavy metals removal media that can be used to target heavy metal contamination in the stormwater and mining industries, including removal of selenium VI, a highly toxic heavy metal. This technology can be used in its raw form (referred to as “Ironwood”) or combined with Smart Sponge media to form a Smart Sponge HM product. In 2016, AbTech Industries produced its first batches of the raw Ironwood media at its manufacturing facility in Phoenix, Arizona. In 2017, AbTech Industries installed a more permanent system for manufacturing the Ironwood media in the same facility and continued testing the media in a variety of commercial applications. The Company expects to continue testing the heavy metal technology in various configurations and commercial applications during 2018 and has begun selling Smart Sponge HM products for some applications.

AbTech Industries is also involved in the development of an evaporative technology designed to treat produced water, including frac flowback water, on-site by evaporating the water and reducing the volume of water by more than 80%. This solution reduces the volume of water that needs to be trucked to reinjection wells and returns the vast majority of the water, in the form of clean water vapor, back to the environment. The technology uses thin film direct convection in a closed reaction chamber. This thermal process can use as its energy source the flare gas or well head gas available at the oil and gas production site. The technology is designed to be straightforward and robust in order to be reliable under very difficult operating conditions. Unlike AbTech’s other products, this product does not use Smart Sponge in any form. During 2016 and 2017, this technology was improved and refined as it underwent various tests in the lab and in the field. The Company believes that this technology holds great promise and is continuing its development efforts in 2018. However, even at this advanced stage of development, there can be no assurance that a commercially viable product will be available for sale in the near term.

AbTech Industries also has ongoing projects to evaluate Smart Sponge and other polymers to determine absorption performance under varying conditions and with a variety of contaminants. This testing not only provides independent verification of product performance but also allows AbTech Industries to provide more reliable information to customers about the product’s performance under various field conditions. In addition, AbTech Industries is evaluating various polymer combinations as the field of polymer science continues to evolve.

AbTech Industries’ strategy on all of these projects is to partner with third parties (universities, engineering companies and other commercial partners) for experimentation and validation of proposed concepts. AbTech Industries has worked cooperatively with North Carolina State University, University of North Carolina Coastal Studies Institute, West Virginia University National Environmental Service Center, Millsaps College, California State University at Fullerton, Alden Labs, APEX Laboratories, Brooks Rand, ABC Labs, NAMSA and Hydroqual, Inc. (now HDR, Inc.), on various projects and is looking at other qualified partners for specific projects.

Manufacturing and Engineering

The polymer raw materials used by the Company to manufacture Smart Sponge are readily available from the petrochemical industry. These polymers are used extensively in other non-related consumer products, road paving materials and various component parts in the auto industry. The Company’s primary suppliers of these polymers are Harwick Standard Distribution Corp., LCY Elastomers, SK Global Chemicals and JS Tech, Ltd. The Company’s supplier of corrugated plastic used in the manufacture of UUFs is Numatech West (KMP) LLC. The antimicrobial agent used by the Company in manufacturing Smart Sponge Plus material was procured from Apollo Chemical Company although no purchases of this material were made in either 2017 or 2016.

AbTech Industries currently plans to handle the production of its Smart Sponge products at its 13,000 square foot manufacturing facility in Phoenix, Arizona. The Company made its first attempt at manufacturing the Ironwood heavy metal media at its Phoenix facility in 2016 on a relatively small scale with a temporary setup. In 2017 the Company installed equipment and infrastructure to establish a more permanent capability for the production of Ironwood and has conducted trial runs with the newly installed equipment. Currently, the Company intends to outsource the manufacture of its evaporative technology products to an outside vendor. As demand for Smart Sponge products increases, AbTech Industries, while maintaining its core engineering and manufacturing competencies, may begin to develop a manufacturing outsourcing network capable of supplying existing and future products around the world although there are no current plans for such a network. For now, AbTech Industries will fully utilize its internal manufacturing capabilities. While maximizing the capacity of its current facility, AbTech Industries may, in the future, search out and train outsourcing partners in the United States and other regions. As production volumes increase, AbTech Industries intends to further evaluate the value proposition of outsourcing the manufacture of all components and most of the finished products, focusing on total quality and consistency. Due to the very atypical process and equipment used in AbTech Industries’ manufacturing, it is unclear at this time if a suitable manufacturing partner exists.

Regulatory

In 2009, AbTech Industries filed an application with the EPA for registration of Smart Sponge Plus under FIFRA. In July 2010, AbTech Industries received notice of a time-limited registration under FIFRA from the EPA that contained certain conditions requiring AbTech Industries to submit additional acute aquatic toxicity data regarding the active ingredient in Smart Sponge Plus to the EPA. Subsequently, the EPA granted various extensions of the time-limited registration to December 31, 2014. In December 2014, the Company received notice from the EPA that the conditional registration for its Smart Sponge Plus products was no longer subject to a time limitation and the pending submission of additional data, as required by the EPA’s original time-limited conditional registration approval, will not be required from AbTech until the agency requires all registrants of similar products to submit such data. Under the current registration, the Company is allowed to sell its Smart Sponge Plus products for the intended uses with EPA approved labeling. The EPA registration number for Smart Sponge Plus is 86256-1. The Company has also registered Smart Sponge Plus in many states within the United States of America. In the state of California, the Company’s application for the registration of Smart Sponge Plus has been denied and the Company currently is not able to sell Smart Sponge Plus products in the state of California. While the Company is continuing its efforts to obtain regulatory approval in the state of California, there is no assurance that such approval will be granted.

Employees

As of March 30, 2018, we had 13 full-time employees and no part-time employees. Six of these individuals are involved in sales and marketing; three in production; one in engineering and three in administrative functions.

Where You Can Find More Information

We are required to file Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the Securities and Exchange Commission (the “SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549, by calling the SEC at 1-800-732-0330, or by accessing the SEC’s website at http://www.sec.gov . Links to these reports can also be found on our website at www.abtechindustries.com, under the INVESTORS section of the website.