NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1
— The Company and Summary of Significant Accounting Policies
The Company
Energy Recovery, Inc. (the “Company
,” “Energy Recovery,” “our,” “us,” and “we”) is an energy solutions provider to industrial fluid flow markets worldwide.
Our core competencies are fluid dynamics and advanced material science. Our products make industrial processes more operating and capital expenditure efficient. Our solutions convert wasted pressure energy into a reusable asset and preserve or eliminate pumping technology in hostile processing environments.
Our solutions are marketed and sold in fluid flow markets, such as water, oil & gas, and chemical processing, under the trademarks ERI
®
, PX
®
, Pressure Exchanger
®
, PX Pressure Exchanger
®
, AT™, AquaBold™, VorTeq™, IsoBoost
®
, and IsoGen
®
. Our solutions are owned, manufactured, and/or developed, in whole or in part, in the United States of America, (“U.S.”) and the Republic of Ireland.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. generally accept
ed accounting principles (“GAAP”) requires our management to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The accounting policies that reflect our more significant estimates and judgments and that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are revenue recognition, including percentage-of-completion accounting for oil & gas projects; allowance for doubtful accounts; allowance for product warranty; valuation of stock options; valuation and impairment of goodwill and acquired intangible assets; useful lives for depreciation and amortization; valuation adjustments for excess and obsolete inventory; deferred taxes and valuation allowances on deferred tax assets; and evaluation and measurement of contingencies. Those estimates could change, and as a result, actual results could differ materially from those estimates. For example, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. The Company’s estimate of undiscounted cash flows, at March 31, 2017 and December 31, 2016 indicated that such carrying amounts were expected to be recovered. Nonetheless, it is possible that the estimate of undiscounted cash flows may change in the future resulting in the need to write down those assets to fair value.
Basis of Presentation
The
condensed consolidated financial statements include the accounts of Energy Recovery, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The accompanying
condensed consolidated financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The December 31, 2016 condensed consolidated balance sheet was derived from audited financial statements, and may not include all disclosures required by GAAP; however, we believe that the disclosures are adequate to make the information presented not misleading. The March 31, 2017 unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2016 included in our Annual Report on Form 10-K filed with the SEC on March 10, 2017.
In the opinion of management, all adjustments, consisting of on
ly normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Recent
Accounting
Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606
).
The update requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The update also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 was originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On July 9, 2015, the FASB voted to approve a one-year deferral of the effective date of ASU 2014-09. Additionally, the FASB decided to permit early adoption, but not before the original effective date (that is, annual periods beginning after December 15, 2016).
In
March and April 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers (Topic 606
)
: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
and ASU No. 2016-10,
Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing,
respectively
.
The amendments in these updates are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The effective date and transition requirements for both ASU 2016-08 and ASU 2016-10 are the same as those for ASU 2014-09 as deferred.
We expect to adopt the guidance of ASU 2014-09 as of January 1, 2018. ASU 2014-09 permits the use of either the full retrospective or cumulative effect transition (modified retrospective) method. We formed a project team, which has operated since 2014, to evaluate internal processes and to implement the standard. We are still in the process of deciding whether we will use the full retrospective method or the modified retrospective method, and we have not yet selected a transition method.
We continue to evaluate the effect that ASU 2014-09 will have on our financial statements and related disclosures. For revenue streams related to water desalination products, we do not expect the impact to be material, however, for transactions accounted for under the percentage-of-completion method, as well as some long-term contracts, including our license and development revenue, there may be a material difference in the timing of revenue recognition under the new standard. At this time, we are still performing our analysis and we will continue to assess the impact on our revenue streams in 2017.
In January 2016, the F
ASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilitie
s
. ASU 2016-01 modifies certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. For public entities, ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842).
ASU 2016-02 impacts any entity that enters into a lease with some specified scope exceptions. The guidance updates and supersedes Topic 840, Leases. For public entities, ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. We are in the preliminary phases of assessing the effect of this guidance. While this assessment continues, we have not yet selected a transition date nor have we determined the impact of this guidance on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718).
ASU 2016-09 requires excess tax benefits and tax deficiencies (the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax expense or benefit in the income statement. Previously, these amounts were recognized directly to shareholder’s equity. The excess tax benefit from share-based compensation, previously classified as a financing activity, will be classified as an operating activity. Additionally, cash paid when directly withholding shares on an employee’s behalf for tax withholding purposes, is classified as a financing activity. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We adopted this guidance effective January 1, 2017. The adoption resulted in an increase to the net operating loss carryforward deferred tax asset and a corresponding increase in valuation allowance of $6.9 million attributable to excess tax benefits not previously recognized as they did not reduce income taxes payable. We elected to continue to estimate forfeitures as part of the recognition of cost associated with equity awards. We applied prospectively all excess tax benefits and tax deficiencies resulting from settlement of awards after the date of adoption. No adjustments were recorded for any windfall benefits previously recorded in additional paid-in capital. We withheld shares for tax withholding purposes during the three months ended March 31, 2017 of $0.2 million and reflected this in the cash flow statement as a financing activity.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230)
:
Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-15 impacts all entities that are required to present a statement of cash flows under Topic 230. The amendment provides guidance on eight specific cash flow issues. For public entities, ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted and should be applied using a retrospective transition method to each period presented. We do not expect the adoption of this standard to have a material impact on our financial statements.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires companies to defer the income tax effects of intra-entity asset transfers until the asset has been sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold. ASU 2016-16 is effective on January 1, 2018, with early adoption permitted. The update is required to be adopted on a modified retrospective basis with the cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. We do not expect the adoption of this standard to have a material impact on our financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash.
ASU 2016-18 is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash on the Consolidated Statement of Cash Flows. ASU 2016-18 requires that the Consolidated Statement of Cash Flows explain the change in total cash and equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The standard also requires reconciliation between the total cash and equivalents and restricted cash presented on the Consolidated Statement of Cash Flows and the cash and cash equivalents balance presented on the Consolidated Balance Sheet. ASU 2016-18 is effective retrospectively on January 1, 2018, with early adoption permitted. We have not yet selected a transition date. Other than presentation, we do not expect the adoption of this standard to have a material impact on our financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 eliminates Step 2 of the goodwill impairment test and allows for the determination of impairment by comparing the fair value of the reporting unit with its carrying amount. The amendments in this updates should be applied on a prospective basis. For public entities which are Securities and Exchange Commission filers, this amendment is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for testing dates after January 1, 2017. We do not expect the adoption of this standard to have a material impact on our financial statements.
Note 2
— Goodwill and Other Intangible Assets
Goodwill
was $12.8 million as of March 31, 2017 and December 31, 2016, which was the result of our acquisition of Pump Engineering, LLC in December 2009. During the three months ended March 31, 2017, there were no changes in the recognized amount of goodwill, and there has been no impairment of goodwill to date.
The components of identifiable other intangible
assets, all of which are finite-lived, as of the dates indicated were as follows (in thousands):
|
|
March 31, 2017
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Impairment
Losses
|
|
|
Net
Carrying
Amount
|
|
Developed technology
|
|
$
|
6,100
|
|
|
$
|
(4,473
|
)
|
|
$
|
—
|
|
|
$
|
1,627
|
|
Non-compete agreements
|
|
|
1,310
|
|
|
|
(1,310
|
)
|
|
|
—
|
|
|
|
—
|
|
Backlog
|
|
|
1,300
|
|
|
|
(1,300
|
)
|
|
|
—
|
|
|
|
—
|
|
Trademarks
|
|
|
1,200
|
|
|
|
(180
|
)
|
|
|
(1,020
|
)
|
|
|
—
|
|
Customer relationships
|
|
|
990
|
|
|
|
(990
|
)
|
|
|
—
|
|
|
|
—
|
|
P
atents
|
|
|
585
|
|
|
|
(427
|
)
|
|
|
(42
|
)
|
|
|
116
|
|
Total
|
|
$
|
11,485
|
|
|
$
|
(8,680
|
)
|
|
$
|
(1,062
|
)
|
|
$
|
1,743
|
|
|
|
December 31, 2016
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Impairment
Losses
|
|
|
Net
Carrying
Amount
|
|
Developed technology
|
|
$
|
6,100
|
|
|
$
|
(4,321
|
)
|
|
$
|
—
|
|
|
$
|
1,779
|
|
Non-compete agreements
|
|
|
1,310
|
|
|
|
(1,310
|
)
|
|
|
—
|
|
|
|
—
|
|
Backlog
|
|
|
1,300
|
|
|
|
(1,300
|
)
|
|
|
—
|
|
|
|
—
|
|
Trademarks
|
|
|
1,200
|
|
|
|
(180
|
)
|
|
|
(1,020
|
)
|
|
|
—
|
|
Customer relationships
|
|
|
990
|
|
|
|
(990
|
)
|
|
|
—
|
|
|
|
—
|
|
P
atents
|
|
|
585
|
|
|
|
(422
|
)
|
|
|
(42
|
)
|
|
|
121
|
|
Total
|
|
$
|
11,485
|
|
|
$
|
(8,523
|
)
|
|
$
|
(1,062
|
)
|
|
$
|
1,900
|
|
Accumulated imp
airment losses at March 31, 2017 and December 31, 2016 include impairment charges for trademarks in 2012 and impairment charges for patents in 2007 and 2010.
Note 3
—
Loss
per Share
Basic and diluted net
loss per share is based on the weighted average number of common shares outstanding during the period. Potential dilutive securities are excluded from the calculation of loss per share, as their inclusion would be anti-dilutive.
The following table shows the c
omputation of basic and diluted loss per share (in thousands, except per share data):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
N
umerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(433
|
)
|
|
$
|
(1,966
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
53,825
|
|
|
|
52,207
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
The following potential common shares were excluded from the computation of diluted loss per share because their effect would have been anti-dilutive (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock Options
|
|
|
5,561
|
|
|
|
7,432
|
|
Restricted
stock unit awards
|
|
|
313
|
|
|
|
205
|
|
Note 4
—
Other Financial Information
Restricted Cash
We have
pledged cash in connection with certain stand-by letters of credit and company credit cards. We have deposited corresponding amounts into accounts at several financial institutions for these items as follows (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Collateral for credit cards
|
|
$
|
702
|
|
|
$
|
—
|
|
Collateral for stand-by letters of credit
|
|
|
2,621
|
|
|
|
2,297
|
|
Current restricted cash
|
|
$
|
3,323
|
|
|
$
|
2,297
|
|
|
|
|
|
|
|
|
|
|
Collateral for credit cards
|
|
$
|
95
|
|
|
$
|
—
|
|
Collateral for stand-by letters of credit
|
|
|
1,426
|
|
|
|
2,087
|
|
Non-current restricted cash
|
|
$
|
1,521
|
|
|
$
|
2,087
|
|
Total restricted cash
|
|
$
|
4,844
|
|
|
$
|
4,384
|
|
Inventories
Our i
nventories are stated at the lower of cost (using the first-in, first-out method) or market and consisted of the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
1,581
|
|
|
$
|
1,783
|
|
Work in process
|
|
|
1,538
|
|
|
|
1,146
|
|
Finished goods
|
|
|
1,705
|
|
|
|
1,621
|
|
Inventories, net
|
|
$
|
4,824
|
|
|
$
|
4,550
|
|
Prepaid and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Interest receivable
|
|
$
|
227
|
|
|
$
|
272
|
|
Supplier advances
|
|
|
581
|
|
|
|
73
|
|
Other prepaid expenses and current assets
|
|
|
1,059
|
|
|
|
966
|
|
Total prepaid expenses and other current assets
|
|
$
|
1,867
|
|
|
$
|
1,311
|
|
Accrued Expenses and Other Current Liabilities
Accrued expense
s and other current liabilities consisted of the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Payroll and commissions payable
|
|
$
|
2,684
|
|
|
$
|
5,697
|
|
Accrued legal expenses
, current
|
|
|
185
|
|
|
|
122
|
|
Unbilled project costs
|
|
|
1,474
|
|
|
|
1,069
|
|
Other accrued expenses and current liabilities
|
|
|
1,533
|
|
|
|
2,131
|
|
Total a
ccrued expenses and other current liabilities
|
|
$
|
5,876
|
|
|
$
|
9,019
|
|
Accumulated Other Comprehensive
Loss
Changes in accumulated other comprehensive
loss by component for the three months ended March 31, 2017, were as follows (in thousands):
|
|
Foreign
Currency
Translation
Adjustments
Net of Tax
Benefit
|
|
|
Unrealized
Gains (Losses)
on
Investments
|
|
|
Total Accumulated
Other
Comprehensive
Loss
|
|
Balance, December 31, 201
6
|
|
$
|
(90
|
)
|
|
$
|
(28
|
)
|
|
$
|
(118
|
)
|
Net other comprehensive
income
|
|
|
10
|
|
|
|
1
|
|
|
|
11
|
|
Balance, March 31, 2017
|
|
$
|
(80
|
)
|
|
$
|
(27
|
)
|
|
$
|
(107
|
)
|
There were no reclassifications of amounts
out of accumulated other comprehensive loss, as there have been no sales of securities or translation adjustments that impacted other comprehensive loss during the quarter. The tax impact of the changes in accumulated other comprehensive loss were not material.
Note 5
— Investments
Our short-term investments are all classified as available-for-sale.
There were no sales of available-for-sale securities during the quarter ended March 31, 2017.
Available-for-s
ale securities as of the dates indicated consisted of the following (in thousands):
|
|
March 31, 201
7
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized
Holding Gains
|
|
|
Gross Unrealized
Holding Losses
|
|
|
Fair Value
|
|
Corporate notes and bonds
|
|
$
|
38,698
|
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
38,668
|
|
Total
short-term investments
|
|
$
|
38,698
|
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
38,668
|
|
|
|
December 31
, 201
6
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized
Holding Gains
|
|
|
Gross Unrealized
Holding Losses
|
|
|
Fair Value
|
|
Corporate notes and bonds
|
|
$
|
39,100
|
|
|
$
|
6
|
|
|
$
|
(33
|
)
|
|
$
|
39,073
|
|
Total
short-term investments
|
|
$
|
39,100
|
|
|
$
|
6
|
|
|
$
|
(33
|
)
|
|
$
|
39,073
|
|
G
ross unrealized losses and fair values of our investments in an unrealized loss position as of the dates indicated, aggregated by investment category and length of time that the security has been in a continuous loss position, were as follows (in thousands):
|
|
March 31, 201
7
|
|
|
|
Less than 12 months
|
|
|
12 months or greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
Corporate notes and bonds
|
|
$
|
36,878
|
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,878
|
|
|
$
|
(30
|
)
|
Total
|
|
$
|
36,878
|
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,878
|
|
|
$
|
(30
|
)
|
|
|
December
31, 201
6
|
|
|
|
Less than 12 months
|
|
|
12 months or greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
Corporate notes and bonds
|
|
$
|
29,667
|
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,667
|
|
|
$
|
(33
|
)
|
Total
|
|
$
|
29,667
|
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,667
|
|
|
$
|
(33
|
)
|
Expected
maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. The amortized cost and fair value of available-for-sale securities that had stated maturities as of March 31, 2017 are shown below by contractual maturity (in thousands):
|
|
March 31,
2017
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due
in one year or less
|
|
$
|
38,698
|
|
|
$
|
38,668
|
|
Total available-for-sale securities
|
|
$
|
38,698
|
|
|
$
|
38,668
|
|
Note 6
—
Long-Term Debt and
Line of Credit
Debt
In March 2015
, we entered into a loan agreement with a financial institution for a $55,000 fixed-rate installment loan carrying an annual interest rate of 6.35%. The loan is payable in equal monthly installments and matures on April 2, 2020. The note is secured by the asset purchased.
Long-term debt consisted of the following (in thousands)
:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Loan
payable
|
|
$
|
36
|
|
|
$
|
38
|
|
Less: current portion
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Total long-term debt
|
|
$
|
25
|
|
|
$
|
27
|
|
Future minimum principal payments due under long-term debt arrangements consist of the following (in thousands):
|
|
March 31,
2017
|
|
2017 (remaining 9 months)
|
|
$
|
9
|
|
2018
|
|
|
11
|
|
2019
|
|
|
12
|
|
2020
|
|
|
4
|
|
Total long-term debt
|
|
$
|
36
|
|
Line
of Credit
In June
2012, we entered into a loan agreement with a financial institution. The loan agreement was amended in June 2015, (as amended, the “Loan Agreement”). The Loan Agreement provided for a total available credit line of $16.0 million. Under the Loan Agreement, we were allowed to draw advances not to exceed the lesser of the $16 million credit line or the credit line minus all outstanding revolving loans. Revolving loans could be in the form of a base rate loan that bore interest equal to the prime rate or a Eurodollar loan that bore interest equal to the adjusted LIBOR rate plus 1.25%. Stand-by letters of credit were subject to customary fees and expenses for issuance or renewal. The unused portion of the credit facility was subject to a facility fee in an amount equal to 0.25% per annum of the average unused portion of the revolving line. The Loan Agreement also required us to maintain a cash collateral balance equal to 101% of all outstanding advances and all outstanding stand-by letters of credit collateralized by the line of credit. This Loan Agreement was terminated on January 24, 2017. With the termination of the Loan Agreement, the cash collateral requirement was increased to 105% on all outstanding stand-by letters of credit and all outstanding corporate credit cards that survived the termination.
At
March 31, 2017 and December 31, 2016, there were no advances drawn under the Loan Agreement. Stand-by letters of credit collateralized by restricted cash totaled $2.9 million and $3.1 million as of March 31, 2017 and December 31, 2016, respectively. Total cash restricted related to these stand-by letters of credit totaled $3.1 million and $3.1 million as of March 31, 2017 and December 31, 2016, respectively.
On
January 27, 2017, we entered into a loan and pledge agreement (the “Loan and Pledge Agreement”) with another financial institution. The Loan and Pledge Agreement provides for a committed revolving credit line of $16.0 million and an uncommitted revolving credit line of $4.0 million. Under the Loan and Pledge Agreement we are allowed to borrow and request letters of credit against the eligible assets held from time to time in the pledged account maintained with the financial institution. Stand-by letters of credit are secured by pledged U.S. investments and there is no cash collateral balance required. Stand-by letters of credit are subject to fees, in an amount equal to 0.7% per annum of the face amount of the letter of credit, that are payable quarterly and are non-refundable. Revolving loans incur interest per annum at a base rate equal to the LIBOR rate plus 1.5%. Any default bears the aforementioned interest rate plus an additional 2%. The unused portion of the credit line is subject to a fee equal to the product of 0.2% per annum multiplied by the difference, if positive, between $16.0 million and the average daily balance of all advances under the committed facility plus aggregate average daily undrawn amounts of all letters of credit issued under the committed facility during the immediately preceding month or portion thereof.
The Loan and Pledge Agreement was amended
on March 17, 2017 to increase the amount of allowable stand-by letters of credit held with other financial institutions from $4.1 million to $5.1 million. At March 31, 2017 and December 31, 2016, we had stand-by letters of credit at this financial institution totaling $3.0 million and $0.3 million, respectively. Total cash restricted related to these stand-by letters of credit totaled $0 and $0.3 million at March 31, 2017 and December 31, 2016, respectively.
At March 31, 2017 and December 31, 2016, we also had stand-by letters of credit
collateralized by restricted cash at another financial institution totaling $1.0 million and $1.0 million, respectively. Total cash restricted related to these stand-by letters of credit totaled $1.0 million and $1.0 million as of March 31, 2017 and December 31, 2016, respectively.
Restricted cash related to all stand-by letters of credit at March 31, 2017 and December 31, 2016 totaled $4.1 million and $4.4 million, respectively.
Note
7
— Equity
Stock Repurchase Program
In March 2017, our Board of Directors authorized a stock repurchase program under which the Company, at the discretion of management, could repurchase up to $15.0 million in aggregate cost of our outs
tanding common stock through September 30, 2017. As of March 31, 2017 no shares had been repurchased under the authorization. We account for stock repurchases using the cost method. Cost includes fees charged in connection with acquiring the outstanding common stock.
In January 2016, our Board of Directors authorized a stock repurchase program under which the Company, at the discretion of management, could repurchase up to $6.0 million in aggregate cost of our outstanding common stock through June 30, 2016 (the “January Authorization”). In May 2016, our Board of Directors rescinded the January Authorization and authorized a new stock repurchase program under which the Company, at the discretion of management, could repurchase up to $10.0 million in aggregate cost of our outstanding common stock through October 31, 2016 (the “May Authorization”). At December 31, 2016, 673,700 shares, at an aggregate cost of
$4.1 million, had been repurchased under the January Authorization and 568,500 shares, at an aggregate cost of $5.3 million, had been repurchased under the May Authorization. The May Authorization expired in October 2016 and there was no repurchase authorization in place at December 31, 2016.
S
hare-B
ased Compensation Expense
For the
three months ended March 31, 2017 and 2016, we recognized share-based compensation expense related to employees and consultants as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cost of revenue
|
|
$
|
49
|
|
|
$
|
38
|
|
General and administrative
|
|
|
567
|
|
|
|
884
|
|
Sales and marketing
|
|
|
237
|
|
|
|
159
|
|
Research and development
|
|
|
260
|
|
|
|
107
|
|
Total share-based compensation expense
|
|
$
|
1,113
|
|
|
$
|
1,188
|
|
Stock Option Plan
In June 2016, our stockholders approved the 2016 Incentive Plan (the “Plan”), that permits the grant of stock options, stock appreciation rights (“SAR
s”), restricted stock (“RS” or “RSA”), stock units (“RSUs”), performance units, performance shares, and other stock-based awards to employees, officers, directors, and consultants. Prior to the approval of the Plan, we maintained the Amended and Restated 2008 Equity Incentive Plan (the “Prior Plan”). Stock-based awards granted under the Plan and the Prior Plan, generally vest over four years and expire no more than ten years after the date of grant. Subject to adjustments, as provided in the Plan, the number of shares of common stock initially authorized for issuance under the Plan was 4,441,083 (which consist of 3,830,000 new shares plus 611,083 shares that were authorized and unissued under the Prior Plan) plus up to 7,635,410 shares that were set aside for awards granted under the Prior Plan that are subsequently forfeited. The Plan supersedes all previously issued stock incentive plans (including the Prior Plan) and is currently the only available plan from which equity awards may be granted.
Stock Option Activity
The following table summarizes the stock option activity under the Plan and includes options granted under all previous plans.
|
|
Options Outstanding
|
|
|
|
Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic Value
(2)
|
|
Balance December 31, 2016
|
|
|
5,882,861
|
|
|
$
|
4.81
|
|
|
|
6.3
|
|
|
$
|
32,683,000
|
|
Granted
|
|
|
519,986
|
|
|
$
|
10.12
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(733,826
|
)
|
|
$
|
4.08
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(108,230
|
)
|
|
$
|
5.09
|
|
|
|
—
|
|
|
|
—
|
|
Balance March 31, 2017
|
|
|
5,560,791
|
|
|
$
|
5.39
|
|
|
|
6.9
|
|
|
$
|
17,588,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of March 31, 2017
|
|
|
3,307,584
|
|
|
$
|
4.59
|
|
|
|
5.8
|
|
|
$
|
12,413,000
|
|
Vested and exercisable as of March 31, 2017 and expected to vest thereafter
(1)
|
|
|
5,127,558
|
|
|
$
|
5.24
|
|
|
|
6.8
|
|
|
$
|
16,787,000
|
|
|
(1)
|
Options that are expect
ed to vest are net of estimated future option forfeitures in accordance with the provisions of ASC 718. “
Compensation – Stock Compensation.”
|
|
(2)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of our common stock as of March 31, 2017 and December 31, 2016 of $8.32 and
$10.35 per share respectively.
|
As of March 31, 2017, total unrecognized compensation cost related to non-vested
option awards, net of estimated forfeitures, was $6.1 million, which is expected to be recognized as expense over a weighted average period of approximately 3.0 years.
Restricted Stock Unit Activity
The following table summarizes the restricted stock unit activity under the Plan and includes restricted stock units granted under all previous plans.
|
|
Units
|
|
|
Weighted Average Grant-Date Fair
Value
Per Unit
|
|
Unvested at December 31, 2016
|
|
|
213,514
|
|
|
$
|
8.65
|
|
Awarded
|
|
|
161,415
|
|
|
$
|
10.15
|
|
Vested
|
|
|
(51,122
|
)
|
|
$
|
8.52
|
|
Forfeited
|
|
|
(10,681
|
)
|
|
$
|
8.52
|
|
Unvested at March 31, 2017
|
|
|
313,126
|
|
|
$
|
9.45
|
|
As of March 31, 2017, total unrecognized compensation cost related to non-vested restricted stock units, net of estimated forfeitures,
was $2.1 million, which is expected to be recognized as expense over a weighted average period of approximately 3.4 years.
Note
8
— Income Taxes
The effective tax rate for the
three months ended March 31, 2017 and 2016 was 14.6% and 9.4%, respectively. As of December 31, 2016, a valuation allowance of approximately $21.1 million had been established to reduce our deferred income tax assets to the amount expected to be realized. The tax benefit recognized for the three months ended March 31, 2017, was primarily related to losses in our Ireland subsidiary.
Note
9
— Commitments and Contingencies
Operating Lease Obligations
We
lease facilities under fixed non-cancellable operating leases that expire on various dates through July 2021. Future minimum lease payments consist of the following (in thousands):
|
|
March 31,
2017
|
|
2017 (remaining 9 months)
|
|
$
|
1,294
|
|
2018
|
|
|
1,662
|
|
2019
|
|
|
1,460
|
|
2020
|
|
|
59
|
|
2021
|
|
|
34
|
|
Total future minimum lease payments
|
|
$
|
4,509
|
|
Product Warranty
The following table summarizes the activity related to the product warranty liability d
uring the three months ended March 31, 2017 and 2016 (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of period
|
|
$
|
406
|
|
|
$
|
461
|
|
Warranty costs charged to cost of revenue
|
|
|
55
|
|
|
|
—
|
|
Release of accrual for expired warranties
|
|
|
(63
|
)
|
|
|
(33
|
)
|
Balance, end of period
|
|
$
|
398
|
|
|
$
|
428
|
|
Purchase Obligations
We
enter into purchase order arrangements with our vendors. As of March 31, 2017, there were open purchase orders for which we had not yet received the related goods or services. These arrangements are subject to change based on our sales demand forecasts, and we have the right to cancel the arrangements prior to the date of delivery. As of March 31, 2017, we had approximately $7.3 million of cancellable open purchase order arrangements related primarily to materials and parts.
Guarantees
We
enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with customers. Under these provisions, we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities, generally limited to personal injury and property damage caused by our employees at a customer’s desalination plant in proportion to the employee’s percentage of fault for the accident. Damages incurred for these indemnifications would be covered by our general liability insurance to the extent provided by the policy limitations. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements is not material. Accordingly, we have no liabilities recorded for these agreements as of March 31, 2017 and December 31, 2016.
In certain cases,
we issue warranty and product performance guarantees to our customers for amounts generally equal to 10% or less of the total sales agreement to endorse the execution of product delivery and the warranty of design work, fabrication, and operating performance. These guarantees are generally stand-by letters of credit that typically remain in place for periods ranging up to twenty-four (24) months, and in some cases up to sixty-eight (68) months. All stand-by letters of credit at March 31, 2017 and December 31, 2016, totaled $6.9 million and $4.4 million, respectively.
Litigation
The Company is named in and subject to various proceedings and claims in connection with our business. We are contesting the allegations in these claims, and we believe that there are meritorious defenses in each of these matters. The outcome of matters we have been and currently are involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on our results of operations in any future period and a significant judgment could have a material adverse impact on our financial condition, results of operations and cash flows. We may in the future become involved in additional litigation in the ordinary course of our business, including litigation that could be material to our business. Based on currently available information and review with outside counsel, management does not believe that the currently known actions or threats against the Company will result in any material adverse effect on our financial condition, results of operations, or cash flows.
On September 10, 2014, the Company terminated the employment of its Senior Vice President, Sales, Borja Blanco, on the basis of breach of duty of trust and conduct leading to conflict of interest. On October
24, 2014, Mr. Blanco filed a labor claim against ERI Iberia in Madrid, Spain, challenging the fairness of his dismissal and seeking compensation (“Case 1”). A hearing was held on November 13, 2015, after which the labor court ruled that it did not have jurisdiction over the matter. Mr. Blanco has appealed and the Company has filed statements of counter appeal. Based on currently available information and review with outside counsel, the Company has determined that an award to Mr. Blanco is not probable. While a loss may be reasonably possible, an estimate of loss, if any, cannot reasonably be determined at this time.
On November 24, 2014, Mr. Blanco filed a second action based on breach of contract theories in the same court as Case 1, but the cases are separate. In Case 2, Mr. Blanco seeks payment of an unpaid bonus, stock options, and non-compete compensation. The court ruled that this case is stayed until a final ruling is issued in Case 1. Based on currently available information and review with outside counsel,
the Company has determined that an award to Mr. Blanco is not probable. While a loss may be reasonably possible, an estimate of loss, if any, cannot reasonably be determined at this time.
O
n January 20 and 27, 2015, two stockholder class action complaints were filed against the Company in the United States District Court of the Northern District of California, on behalf of Energy Recovery stockholders under the captions,
Joseph Sabatino v. Energy Recovery, Inc. et al
.
, Case No. 3:15-cv-00265 EMC
,
and
Thomas C. Mowdy v. Energy Recovery, Inc
,
et al
., Case No. 3:15-cv-00374 EMC. The complaints have now been consolidated under the caption,
In Re Energy Recovery Inc. Securities Litigation
, Case No. 3:15-cv-00265 EMC
.
The consolidated complaint alleges violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of 1934 based upon alleged public misrepresentations and seeks the recovery of unspecified monetary damages. On October 12, 2016, the Company and the attorneys representing the class reached an agreement in principle to settle all outstanding claims in the case. As part of the settlement agreement, the Company has agreed to pay the class an undisclosed sum, the entirety of which will be borne by the Company’s insurer. On April 11, 2017, the United States District Court of the Northern District of California granted preliminary approval of the settlement agreement and set a final hearing date of August 24, 2017.
On February 18, 2016, a complaint captioned
Goldberg v
.
Rooney, et al
., HG 16804359, was filed in the Superior Court for the State of California, County of Alameda, naming as defendants Thomas Rooney, Alexander J. Buehler, Joel Gay, Ole Peter Lorentzen, Audrey Bold, Arve Hanstveit, Fred Olav Johannessen, Robert Yu Lang Mao, Hans Peter Michelet, Maria Elisabeth Pate-Cornell, Paul Cook, Olav Fjell, and Dominique Trempont (“Individual Defendants”) and naming the Company as a nominal defendant. The complaint is styled as a derivative action being brought on behalf of the Company and generally alleges breach of fiduciary duty, abuse of control, gross mismanagement, and unjust enrichment causes of action against the Individual Defendants. Based on currently available information and review with outside counsel, the Company is not able to estimate a potential loss, if any, due to the early stage of the matter. While a loss may be reasonably possible, an estimate of loss, if any, cannot reasonably be determined at this time.
On July 27, 2016, a complaint captioned
G
erald McManiman
v
.
Gay
, et al
., RG 16824960, was filed in the Superior Court for the State of California, County of Alameda, naming as defendants Joel Gay, Chris Gannon, Hans Peter Michelet, Alexander Buehler, Arve Hanstveit, Dominique Trempont, Robert Yu Lang Mao, Thomas S. Rooney, Jr., Borja Sanchez-Blanco, Audrey Bold, Paul M. Cook, Marie-Elisabeth Pate -Cornell, Fred Olav Johannessen
(“Individual Defendants”) and naming the Company as a nominal defendant. The complaint is styled as a derivative action being brought on behalf of the Company and generally alleges breach of fiduciary duties and violations of laws against the Individual Defendants. Based on currently available information and review with outside counsel, the Company is not able to estimate a potential loss, if any, due to the early stage of the matter. While a loss may be reasonably possible, an estimate of loss, if any, cannot reasonably be determined at this time.
Note
10
— Business Segment and Geographic Information
We manufacture and sell high-efficiency energy recovery devices and pumps as well as related products and services.
Our chief operating decision-maker (“CODM”) is the chief executive officer (“CEO”).
Our reportable operating segments consist of the Water Segment and the Oil & Gas Segment. These segments are based on the industries in which the products are sold, the type of energy recovery device sold, and the related products and services. The Water Segment consists of revenue associated with products sold for use in reverse osmosis water desalination, as well as the related identifiable expenses. The Oil & Gas Segment consists of
product revenue associated with products sold for use in gas processing, chemical processing, and hydraulic fracturing and license and development revenue associated with hydraulic fracturing, as well as related identifiable expenses. Operating income for each segment excludes other income and expenses and certain expenses managed outside the operating segment. Costs excluded from operating income include various corporate expenses such as income taxes and other separately managed general and administrative expenses not related to the identified segments. Assets and liabilities are reviewed at the consolidated level by the CODM and are not accounted for by segment. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss).
The following summari
zes financial information by segment for the periods presented (in thousands):
|
|
Three Months Ended
March 31, 201
7
|
|
|
Three Months Ended
March
31, 201
6
|
|
|
|
Water
|
|
|
Oil &Gas
|
|
|
Total
|
|
|
Water
|
|
|
Oil &Gas
|
|
|
Total
|
|
Product
revenue
|
|
$
|
10,716
|
|
|
$
|
1,545
|
|
|
$
|
12,261
|
|
|
$
|
10,051
|
|
|
$
|
—
|
|
|
$
|
10,051
|
|
Product c
ost of revenue
|
|
|
3,522
|
|
|
|
1,088
|
|
|
|
4,610
|
|
|
|
3,674
|
|
|
|
—
|
|
|
|
3,674
|
|
Product g
ross profit
|
|
|
7,194
|
|
|
|
457
|
|
|
|
7,651
|
|
|
|
6,377
|
|
|
|
—
|
|
|
|
6,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and development revenue
|
|
|
—
|
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
—
|
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
318
|
|
|
|
349
|
|
|
|
667
|
|
|
|
219
|
|
|
|
188
|
|
|
|
407
|
|
Sales and marketing
|
|
|
1,499
|
|
|
|
641
|
|
|
|
2,140
|
|
|
|
1,129
|
|
|
|
807
|
|
|
|
1,936
|
|
Research and development
|
|
|
262
|
|
|
|
2,246
|
|
|
|
2,508
|
|
|
|
359
|
|
|
|
2,297
|
|
|
|
2,656
|
|
Amortization of intangibles
|
|
|
158
|
|
|
|
—
|
|
|
|
158
|
|
|
|
157
|
|
|
|
—
|
|
|
|
157
|
|
Total o
perating expenses
|
|
|
2,237
|
|
|
|
3,236
|
|
|
|
5,473
|
|
|
|
1,864
|
|
|
|
3,292
|
|
|
|
5,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
4,957
|
|
|
$
|
(1,529
|
)
|
|
|
3,428
|
|
|
$
|
4,513
|
|
|
$
|
(2,042
|
)
|
|
|
2,471
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
4,055
|
|
|
|
|
|
|
|
|
|
|
|
4,620
|
|
Consolidated operating loss
|
|
|
|
|
|
|
|
|
|
|
(627
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,149
|
)
|
Non-operating
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(2,171
|
)
|
The following geographic information includes net revenue to
our domestic and international customers based on the customers’ requested delivery locations, except for certain cases in which the customer directed us to deliver our products to a location that differs from the known ultimate location of use. In such cases, the ultimate location of use, rather than the delivery location, is reflected in the table below (in thousands, except percentages):
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Domestic
product revenue
|
|
$
|
287
|
|
|
$
|
185
|
|
International
product revenue
|
|
|
11,974
|
|
|
|
9,866
|
|
Total
product revenue
|
|
$
|
12,261
|
|
|
$
|
10,051
|
|
|
|
|
|
|
|
|
|
|
Product revenue by country:
|
|
|
|
|
|
|
|
|
Oman
|
|
|
34
|
%
|
|
|
*
|
%
|
India
|
|
|
13
|
%
|
|
|
*
|
%
|
Saudi Arabia
|
|
|
13
|
%
|
|
|
1
|
%
|
Egypt
|
|
|
11
|
%
|
|
|
1
|
%
|
United States
|
|
|
2
|
%
|
|
|
2
|
%
|
Qatar
|
|
|
*
|
%
|
|
|
39
|
%
|
Spain
|
|
|
4
|
%
|
|
|
11
|
%
|
Others**
|
|
|
23
|
%
|
|
|
46
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
**
|
Includes remaining countries not separately disclosed. No country in this line item accounted for more than 10% of our product revenue during the periods presented.
|
A
ll of our long-lived assets were located in the United States at March 31, 2017 and December 31, 2016.
Note 1
1
— Concentrations
Customers accounting for 10%
or more of our accounts receivable and unbilled receivables were as follows:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Customer A
|
|
|
27
|
%
|
|
|
*
|
%
|
Customer B
|
|
|
23
|
%
|
|
|
16
|
%
|
Customer C
|
|
|
10
|
%
|
|
|
6
|
%
|
Customer D
|
|
|
*
|
%
|
|
|
13
|
%
|
Revenue from customers representing 10% or more of
product revenue varies from period to period. For the periods indicated, customers representing 10% or more of product revenue were:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Customer A
|
|
|
34
|
%
|
|
|
*
|
%
|
Customer B
|
|
|
13
|
%
|
|
|
*
|
%
|
Customer E
|
|
|
*
|
%
|
|
|
41
|
%
|
No other customer accounted for more than 10% of our product revenue during any period presented.
One customer, Customer F, accounts for
100% of our license and development revenue for the three months ended March 31, 2017 and 2016.
Vendors accounting for 10% or more of our accounts payable were as follows:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Vendor A
|
|
|
*
|
%
|
|
|
18
|
%
|
Note 1
2
— Fair Value Measurements
The
authoritative guidance for measuring fair value provides a hierarchy that prioritizes the inputs to valuation techniques used in measuring fair value as follows:
Level 1
— Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2
— Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level
3 — Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.
The carrying
values of cash and cash equivalents, restricted cash, accounts receivable, unbilled receivables, accounts payable, and other accrued expenses approximate fair value due to the short-term maturity of those instruments. For our investments in available-for-sale securities, if quoted prices in active markets for identical investments are not available to determine fair value (Level 1), then we use quoted prices for similar assets or inputs other than quoted prices that are observable either directly or indirectly (Level 2). The investments included in Level 2 consist of corporate agency obligations.
The fair value of financial assets and liabilities measured on a recurring basis
for the indicated periods was as follows (in thousands):
|
|
March 31,
2017
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
vailable-for-sale securities
|
|
$
|
38,668
|
|
|
$
|
—
|
|
|
$
|
38,668
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
38,668
|
|
|
$
|
—
|
|
|
$
|
38,668
|
|
|
$
|
—
|
|
|
|
December 31,
201
6
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
vailable-for-sale securities
|
|
$
|
39,073
|
|
|
$
|
—
|
|
|
$
|
39,073
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
39,073
|
|
|
$
|
—
|
|
|
$
|
39,073
|
|
|
$
|
—
|
|
Note 13
—
Related Party Transactions
In the first quarter of 2017
, the Company extended an employee loan to one of its employees for $21,786. The loan is repayable to the Company monthly over six months and is non-interest bearing. As of March 31, 2017 the loan balance was $21,786.
Note 14 -
S
ubsequent Events
On April 5, 2017, the Company a
nnounced a licensing agreement with Alderley plc. The 10-year licensing agreement grants Alderley the exclusive right to sell and promote the Company’s centrifugal line of products, comprised of the IsoBoost and IsoGen systems, for gas processing and pipeline applications in the Gulf Cooperation Council and Middle East region. Energy Recovery will receive a royalty payment for each IsoBoost and IsoGen unit sold.