UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2020
TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                 TO
Commission File No. 000-24575
____________________
STABILIS ENERGY, INC.
(Exact name of registrant as specified in its charter)
____________________
Florida
59-3410234
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
10375 Richmond Avenue, Suite 700, Houston, TX 77042
(Address of principal executive offices, including zip code)
(832) 456-6500
(Registrant’s telephone number, including area code)
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $.001 par value per share
SLNG
The OTCQX Best Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (S. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: 
Large accelerated filer
 
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 30, 2020, there were 16,896,626 outstanding shares of our common stock, par value $.001 per share.
 



STABILIS ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q Index
For the Quarterly Period Ended March 31, 2020
 
 
Page
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 4.
 
 
Item 1.
Item 1A.
Item 5.
Item 6.

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document includes statements that constitute forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties. These statements may relate to, but are not limited to, information or assumptions about us, our capital and other expenditures, dividends, financing plans, capital structure, cash flow, our recent business combination, pending legal and regulatory proceedings and claims, including environmental matters, future economic performance, operating income, cost savings, and management’s plans, strategies, goals and objectives for future operations and growth. These forward-looking statements generally are accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect,” “should,” “seek,” “project,” “plan” or similar expressions. Any statement that is not a historical fact is a forward-looking statement. It should be understood that these forward-looking statements are necessarily estimates reflecting the best judgment of senior management, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described in Part II. “Item 1A. Risk Factors” in this document.
Forward-looking statements represent intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In addition to the risk factors and other cautionary statements described in Part II. “Item 1A. Risk Factors” in this document, the factors include:
our ability to execute our business strategy;
our limited operating history;
our ability to obtain additional financing to affect our strategy;
loss of one or more of our customers;
cyclical or other changes in the demand for and price of LNG and natural gas;
operational, regulatory, environmental, political, legal and economic risks pertaining to the construction and operation of our facilities;
the effects of current and future worldwide economic conditions and demand for oil and natural gas and power system equipment and services;
hurricanes or other natural or man-made disasters;
public health crises, such as the COVID-19 outbreak beginning in early 2020, which could impact economic conditions;
dependence on contractors for successful completions of our energy related infrastructure;
reliance on third party engineers;
competition from third parties in our business;
failure of LNG to be a competitive source of energy in the markets in which we operate, and seek to operate;
increased labor costs, and the unavailability of skilled workers or our failure to attract and retain qualified personnel;
major health and safety incidents relating to our business;
failure to obtain and maintain approvals and permits from governmental and regulatory agencies including with respect to our planned operational expansion in Mexico;
changes to health and safety, environmental and similar laws and governmental regulations that are adverse to our operations;
volatility of the market price of our common stock;
our ability to integrate successfully acquisitions in the expected timeframe; and
future benefits to be derived from our investments in technologies, joint ventures and acquired companies.
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements contained herein. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. All forward-looking statements included in this document are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
In this Quarterly Report on Form 10-Q, we may rely on and refer to information from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified it.

3


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,162

 
$
3,979

Accounts receivable, net
6,158

 
5,945

Inventories, net
127

 
209

Prepaid expenses and other current assets
2,379

 
3,583

Due from related parties
19

 

Total current assets
11,845

 
13,716

Property, plant and equipment, net
58,177

 
60,363

Right-of-use assets
849

 
965

Goodwill
4,453

 
4,453

Investments in foreign joint ventures
10,120

 
10,521

Other noncurrent assets
301

 
308

Total assets
$
85,745

 
$
90,326

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term notes payable - related parties
$
1,000

 
$
1,000

Current portion of finance lease obligation - related parties
3,319

 
3,440

Current portion of operating lease obligations
334

 
364

Short-term notes payable
321

 
558

Accrued liabilities
4,490

 
5,018

Accounts payable
3,283

 
4,728

Total current liabilities
12,747

 
15,108

Long-term notes payable, net of current portion - related parties
6,077

 
6,077

Finance lease obligations, net of current portion - related parties
1

 
648

Long-term portion of operating lease obligations
586

 
650

Deferred compensation
113

 

Deferred income taxes
28

 

Total liabilities
19,552

 
22,483

Commitments and contingencies (Note 13)


 


Equity:
 
 
 
Preferred Stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

Stockholders’ equity:
 
 
 
Common stock; $0.001 par value, 37,500,000 shares authorized, 16,835,318 and 16,800,612 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively (Note 14)
17

 
17

Additional paid-in capital
90,767

 
90,748

Accumulated other comprehensive loss
(910
)
 
(291
)
Accumulated deficit
(23,681
)
 
(22,631
)
Total stockholders’ equity
66,193

 
67,843

Total liabilities and equity
$
85,745

 
$
90,326

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
 
Three Months Ended
March 31,
 
2020
 
2019
Revenue
 
 
 
LNG product
$
9,131

 
$
10,254

Rental, service and other
4,707

 
2,721

Total revenues
13,838

 
12,975

Operating expenses:
 
 
 
Cost of LNG product
6,097

 
7,482

Cost of rental, service and other
2,918

 
1,414

Selling, general and administrative expenses
3,186

 
1,992

Depreciation expense
2,270

 
2,290

Total operating expenses
14,471

 
13,178

Loss from operations before equity income
(633
)
 
(203
)
Net equity loss from foreign joint ventures' operations:
 
 
 
Loss from equity investments in foreign joint ventures
(114
)
 

Foreign joint ventures' operations related expenses
(60
)
 

Net equity loss from foreign joint ventures' operations
(174
)
 

Loss from operations
(807
)
 
(203
)
Other income (expense):
 
 
 
Interest expense, net
(11
)
 
(3
)
Interest expense, net - related parties
(240
)
 
(309
)
Other income (expense)
38

 
(44
)
Gain from disposal of fixed assets
11

 

Total other income (expense)
(202
)
 
(356
)
Loss before income tax expense
(1,009
)
 
(559
)
Income tax expense
41

 

Net loss
(1,050
)
 
(559
)
Net income attributable to noncontrolling interests

 
179

Net loss attributable to Stabilis Energy, Inc.
$
(1,050
)
 
$
(738
)
 
 
 
 
Common Stock Data:
 
 
 
Net loss per common share:
 
 
 
Basic and diluted
$
(0.06
)
 
$
(0.06
)
Weighted average number of common shares outstanding:
 
 
 
Basic and diluted
16,819,681

 
13,178,750

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
 
Three Months Ended
March 31,
 
2020
 
2019
Net loss
$
(1,050
)
 
$
(559
)
Foreign currency translation adjustment
(619
)
 

Total comprehensive loss
(1,669
)
 
(559
)
Total comprehensive income attributable to noncontrolling interest

 
179

Total comprehensive loss attributable to Stabilis Energy, Inc.
$
(1,669
)
 
$
(738
)
The accompanying notes are an integral part of the condensed consolidated financial statements.

6


Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Non-controlling Interest
 
Total
Balance at December 31, 2019
16,800,612

 
$
17

 
$
90,748

 
$
(291
)
 
$
(22,631
)
 
$

 
$
67,843

Common stock issued
34,706

 

 

 

 

 

 

Stock-based compensation

 

 
19

 

 

 

 
19

Net loss

 

 

 

 
(1,050
)
 

 
(1,050
)
Other comprehensive loss

 

 

 
(619
)
 

 

 
(619
)
Balance at March 31, 2020
16,835,318

 
$
17

 
$
90,767

 
$
(910
)
 
$
(23,681
)
 
$

 
$
66,193

 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Non-controlling Interest
 
Total
Balance at December 31, 2018
13,178,750

 
$
13

 
$
68,244

 
$

 
$
(16,916
)
 
$
1,323

 
$
52,664

Net income (loss)

 

 

 

 
(738
)
 
179

 
(559
)
Balance at March 31, 2019
13,178,750

 
$
13

 
$
68,244

 
$

 
$
(17,654
)
 
$
1,502

 
$
52,105

The accompanying notes are an integral part of the condensed consolidated financial statements.

7


Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(1,050
)
 
$
(559
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
2,270

 
2,290

Deferred income tax expense
41

 

Stock-based compensation expense
19

 

Bad debt expense
144

 

Gain on disposal of fixed assets
(11
)
 

Loss from equity investment in joint venture
114

 

Change in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(356
)
 
(2,697
)
Due to (from) related parties
(19
)
 
482

Inventories
82

 
46

Prepaid expenses and other current assets
991

 
903

Accounts payable and accrued liabilities
(1,902
)
 
777

Other
26

 
(41
)
Net cash provided by operating activities
349

 
1,201

Cash flows from investing activities:
 
 
 
Acquisition of fixed assets
(112
)
 
(293
)
Proceeds on sales of fixed assets
11

 

Net cash used in investing activities
(101
)
 
(293
)
Cash flows from financing activities:
 
 
 
Payments on long-term borrowings from related parties
(768
)
 
(893
)
Proceeds from short-term notes payable

 
77

Payments on short-term notes payable
(237
)
 

Net cash used in financing activities
(1,005
)
 
(816
)
Effect of exchange rate changes on cash
(60
)
 

Net increase (decrease) in cash and cash equivalents
(817
)
 
92

Cash and cash equivalents, beginning of period
3,979

 
1,247

Cash and cash equivalents, end of period
$
3,162

 
$
1,339

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
251

 
$
309

Income taxes paid

 

The accompanying notes are an integral part of the condensed consolidated financial statements

8


STABILIS ENERGY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Overview and Basis of Presentation
Overview
Stabilis Energy, Inc. and its subsidiaries (the “Company”, “Stabilis”, “our”, “us” or “we”) produce, market, and sell liquefied natural gas (“LNG”). The Company also resells liquefied natural gas from third parties and provides services, transportation, and equipment to customers.
The Company is a supplier of LNG to the industrial, midstream, and oilfield sectors in North America and provides turnkey fuel solutions to help industrial users of propane, diesel and other crude-based fuel products convert to LNG, which may result in reduced fuel costs and improved environmental footprint. Stabilis opened its 100,000 gallons per day ("gpd") LNG production facility in George West, Texas in January 2015 to service industrial and oilfield customers in Texas and the greater Gulf Coast region. The Company owns a second liquefaction plant capable of producing 25,000 gpd that is being relocated and currently not in operation. Stabilis is vertically integrated from LNG production through distribution including cryogenic equipment rental and field services.
We also provide power delivery solutions through our subsidiary in Brazil, M&I Electric Brazil Sistemas e Servicios em Energia LTDA (“M&I Brazil”) and our 40% interest in a joint venture in China, BOMAY Electric Industries Co., Ltd. (“BOMAY”).
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements include our accounts and those of our subsidiaries and, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in the notes to condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. We believe that the presentation and disclosures herein are adequate to make the information not misleading. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) for a fair presentation of the interim periods. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K, as filed on March 16, 2020.
All intercompany accounts and transactions have been eliminated in consolidated. In the Notes to Condensed Consolidated Financial Statements (Unaudited), all dollar amounts in tabulations are in thousands, unless otherwise indicated.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is required to make certain disclosures if it concludes that there is substantial doubt about the entity’s ability to continue as a going concern within one year from the date of the issuance of these financial statements. The Company has incurred recurring operating losses and has negative working capital. The Company is subject to substantial business risks and uncertainties inherent in the current LNG industry. Additionally, the impact of the COVID-19 pandemic has created additional uncertainties regarding the future demand for LNG from our customers. There is no assurance that the Company will be able to generate sufficient revenues in the future to sustain itself or to support future growth.
These factors were reviewed by management to determine if there was substantial doubt as to the Company’s ability to continue as a going concern. Management concluded that its plan to address the Company’s liquidity issues would allow it to continue as a going concern. A number of cost control measures have been implemented, including headcount reductions, temporary salary reductions and other measures to adjust to anticipated activity levels and maintain adequate liquidity. Management concluded positive cash flows are attainable and are supported by the recent increase in utility and pipeline sales, the reduction of operating costs as a percent of sales, improved plant utilization, and the August 2019 cancellation of $7.0 million of Chart Industries indebtedness in exchange for Stabilis common stock. Accordingly, management believes the business will generate sufficient cash flows from its operations to fund the business for the next 12 months.
Use of Estimates

9


The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates include the carrying amount of contingencies, valuation allowances for receivables, inventories, and deferred income tax assets, valuations assigned to assets and liabilities in business combinations, and impairments of long-lived assets. Actual results could differ from those estimates, and these differences could be material to the consolidated financial statements.
2. Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment”. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments of ASU No. 2017-04 were adopted by the Company effective January 1, 2020. The adoption of this standard had no impact on our condensed consolidated financial position or results of operations, as the adoption is applied on a prospective basis.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (ASU 2019-12), which simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, Income Taxes and also improves consistent application by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contract modifications, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU 2020-04 on our condensed consolidated financial statements.
3. Acquisitions
American Electric. On July 26, 2019, we completed the Share Exchange with American Electric and its subsidiaries and began operating under the name Stabilis Energy, Inc. Because the former owners of Stabilis LLC owned approximately 88.4% of the voting stock of the combined company immediately following the Effective Date and certain other factors, including that directors designated by LNG Investment, parent of Stabilis LLC, constituted a majority of the board of directors, Stabilis is treated as the acquiror of American Electric in the Share Exchange for accounting purposes. As a result, the Share Exchange is treated by American Electric as a reverse acquisition under the purchase method of accounting in accordance with US GAAP.
The aggregate consideration paid in connection with the Share Exchange was allocated to American Electric’s tangible and intangible assets and liabilities based on their fair market values at the time of the completion of the Share Exchange. The assets and liabilities and results of operations of American Electric are consolidated into the results of operations of Stabilis as of the completion of the Share Exchange.
Diversenergy, LLC (“Diversenergy"). On August 20, 2019, we completed our acquisition of privately held Diversenergy and its subsidiaries. We purchased all of the issued and outstanding membership interests of Diversenergy for total consideration of 684,963 shares of Company common stock valued as of the closing date and $2.0 million in cash, subject to adjustments for Diversenergy’s net working capital as of the closing date. Diversenergy specializes in virtual LNG distribution systems, providing LNG to customers which use it as a fuel in mobile high horsepower applications and to customers which do not have natural gas pipeline access. The completion of the acquisition will expand the Company's presence in the distributed LNG and compressed natural gas (“CNG”) markets in Mexico. 

10


Consistent with the purchase method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Diversenergy based on their estimated fair values as of the closing date. The excess of the purchase price over the fair value of the acquired assets and liabilities assumed is reflected as goodwill and is attributable to the strategic opportunities to grow the Company's LNG and CNG business in Mexico. All of the goodwill is assigned to the LNG segment and is not expected to be deductible for income tax purposes.
The assets and liabilities and results of operations of Diversenergy are consolidated into the results of operations of Stabilis as of the acquisition date.

Proforma Results from Acquisitions (unaudited)
The following unaudited consolidated pro forma information is presented as if the above acquisitions had occurred on January 1, 2019 (in thousands):

 
Three Months Ended
March 31,
 
2019
Revenue
$
14,370

Net loss
(1,054
)
This unaudited pro forma amounts above have been compiled from current and historical financial statements and is not necessarily indicative of the results that actually would have been achieved had the transaction occurred as of January 1, 2019 or of future operating results.
4. Revenue Recognition
Disaggregated Revenues
The table below presents revenue disaggregated by source, for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
LNG Product
$
9,131

 
$
10,254

Rental
2,890

 
2,244

Service
1,310

 
291

Other
507

 
186

 
$
13,838

 
$
12,975

See Note 5—Business Segments, below, for additional disaggregation of revenue.
Contract Liabilities
The Company recognizes contract liabilities upon receipt of payments for which the performance obligations have not been fulfilled at the reporting date, resulting in deferred revenue. Contract liabilities are included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The following table presents the changes in the Company’s contract liabilities for the periods ended March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020
 
December 31, 2019
Balance at beginning of period
$
185

 
$
93

Cash received, excluding amounts recognized as revenue
153

 
185

Amounts recognized as revenue
(117
)
 
(93
)
Balance at end of period
$
221

 
$
185

The Company has no other material contract assets or liabilities and contract costs.

11



5. Business Segments
The Company’s revenues are derived from two operating segments: LNG and Power Delivery. The LNG segment supplies LNG to the industrial, midstream, and oilfield sectors in North America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG. The Power Delivery segment provides power delivery solutions through our subsidiary in Brazil and in China through our 40% interest in BOMAY.
 
Three Months Ended March 31, 2020
 
 
 
(in thousands)
 
 
 
LNG
 
Power Delivery
 
Total
 
 
 
 
 
 
Revenues
$
12,528

 
$
1,310

 
$
13,838

Depreciation
2,235

 
35

 
2,270

Loss from operations before equity income
(199
)
 
(434
)
 
(633
)
Net equity income from foreign joint ventures' operations

 
(174
)
 
(174
)
Loss from operations
(199
)
 
(608
)
 
(807
)
Net loss
(480
)
 
(570
)
 
(1,050
)
 
March 31, 2020
 
 
 
(in thousands)
 
 
 
LNG
 
Power Delivery
 
Total
Total Assets
$
72,647

 
$
13,098

 
$
85,745

 
Three Months Ended March 31, 2019
 
 
 
(in thousands)
 
 
 
LNG
 
Power Delivery
 
Total
Revenues
$
12,975

 
$

 
$
12,975

Depreciation
2,290

 

 
2,290

Loss from operations before equity income
(203
)
 

 
(203
)
Net loss
(559
)
 

 
(559
)
 
December 31, 2019
 
 
 
(in thousands)
 
 
 
LNG
 
Power Delivery
 
Total
Total Assets
$
75,883

 
$
14,443

 
$
90,326


Our operating segments offer different products and services and are managed separately as business units. Cash, cash equivalents and investments are not managed centrally, so the gains and losses on foreign currency remeasurement, and interest and dividend income, are included in the segments’ results.

12


6. Prepaid Expenses and Other Current Assets
The Company’s prepaid expenses and other current assets consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Prepaid LNG
$
66

 
$
189

Prepaid insurance
458

 
698

Prepaid supplier expenses
318

 
229

Other receivables
1,209

 
1,655

Deposits
193

 
347

Other
135

 
465

Total prepaid expenses and other current assets
$
2,379

 
$
3,583

7. Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Liquefaction plants and systems
$
40,830

 
$
40,617

Real property and buildings
1,689

 
1,794

Vehicles and tanker trailers and equipment
46,490

 
46,597

Computer and office equipment
431

 
453

Construction in progress
410

 
409

Leasehold improvements
31

 
31

 
89,881

 
89,901

Less: accumulated depreciation
(31,704
)
 
(29,538
)
 
$
58,177

 
$
60,363

Depreciation expense for both the three months ended March 31, 2020 and 2019 totaled $2.3 million, of which all is included in the unaudited condensed consolidated statements of operations as its own and separate line item.
8. Investments in Foreign Joint Ventures
BOMAY. The Company holds a 40% interest in BOMAY Electric Industries Company, Ltd. (“BOMAY”) which builds electrical systems for sale in China. The majority partner in this foreign joint venture is Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation), who owns 51%. The remaining 9% is owned by AA Energies, Inc.
The Company made no sales to its joint venture in the three months ended March 31, 2020.
Below is summary financial information for BOMAY at March 31, 2020 and December 31, 2019 and operational results for the three months ended March 31, 2020 in U.S. dollars (in thousands, unaudited):

13


 
March 31,
2020
 
December 31, 2019
Assets:
 
 
 
Total current assets
$
66,465

 
$
81,247

Total non-current assets
5,646

 
5,775

Total assets
$
72,111

 
$
87,022

Liabilities and equity:
 
 
 
Total liabilities
$
43,971

 
$
58,176

Total joint ventures’ equity
28,140

 
28,846

Total liabilities and equity
$
72,111

 
$
87,022

 
Three Months Ended
March 31,
 
2020
Revenue
$
8,556

Gross Profit
896

Earnings
(284
)
The following is a summary of activity in our investment in BOMAY for the three months ended March 31, 2020 in U.S. dollars (in thousands, unaudited):
 
March 31, 2020
Investments in BOMAY (1) (2)
 
Balance at the beginning of the year
$
9,333

Undistributed earnings:
 
Balance at the beginning of the year
1,257

Equity in earnings
(114
)
Dividend distributions

Balance at end of period
1,143

Foreign currency translation:
 
Balance at the beginning of the year
(69
)
Change during the period
(287
)
Balance at end of period
(356
)
Total investment in BOMAY at March 31, 2020
$
10,120

________
(1)
Accumulated statutory reserves in equity method investments of $2.71 million at March 31, 2020 and December 31, 2019 is included in our investment in BOMAY. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
(2)
The Company’s initial investment in BOMAY differed from the Company’s 40% share of BOMAY’s equity as a result of applying fair value accounting pursuant to ASC 805. The basis difference of approximately $1.0 million will be accreted over the remaining nine year life of the joint venture. The Company accreted $43 thousand during the three months ended March 31, 2020 which is included in loss from equity investments in foreign joint ventures in the accompanying condensed consolidated statement of operations. As of March 31, 2020, accumulated accretion totaled $97 thousand.
The Company accounts for its investment in BOMAY using the equity method of accounting. Under the equity method, the Company’s share of the joint venture operations earnings or losses is recognized in the condensed consolidated statements of operations as equity income (loss) from foreign joint venture operations. Joint venture income increases the carrying value of the joint venture

14


and joint venture losses reduce the carrying value. Dividends received from the joint venture reduce the carrying value. In accordance with our long-lived asset policy, when events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests long-lived assets for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment adjustment is necessary at March 31, 2020.
9. Accrued Liabilities
The Company’s accrued liabilities consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Compensation and benefits
$
2,359

 
$
2,641

Professional fees
234

 
131

LNG fuel and transportation
1,366

 
1,582

Accrued interest
59

 
134

Contract liabilities
221

 
185

Other taxes payable
192

 
163

Other operating expenses
59

 
182

Total accrued liabilities
$
4,490

 
$
5,018


10. Debt
The Company’s carrying value of debt consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Secured term note payable - related party
$
2,077

 
$
2,077

Secured promissory note - related party
5,000

 
5,000

Insurance and other notes payable
321

 
558

Less: amounts due within one year
(1,321
)
 
(1,558
)
Total long-term debt
$
6,077

 
$
6,077

During the three months ended March 31, 2020, the Company recorded interest expense of $25 thousand, $215 thousand and $11 thousand related to the secured term note payable - related party, secured promissory note - related party and insurance and other notes payable, respectively.
Certain of the agreements governing our outstanding debt have certain covenants with which we must comply. As of March 31, 2020, we were in compliance with all of these covenants.

15


11. Leases
The following table summarizes the supplemental balance sheet information related to lease assets and lease liability obligations as of March 31, 2020 and December 31, 2019 (in thousands):
 
Classification
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
 
Operating lease assets
Operating lease right-of-use assets
 
$
849

 
$
965

Finance lease assets
Property and equipment, net of accumulated depreciation
 
9,009

 
9,302

Total lease assets
 
 
$
9,858

 
$
10,267

Liabilities
 
 
 
 
 
Current
 
 
 
 
 
Operating
Current portion of operating lease obligations
 
$
334

 
$
364

Finance
Current portion of finance lease obligation
 
3,319

 
3,440

Noncurrent
 
 
 
 
 
Operating
Operating lease liabilities
 
586

 
650

Finance
Finance lease obligations—related parties, net of current portion
 
1

 
648

Total lease liabilities
 
 
$
4,240

 
$
5,102

The following table summarizes the components of lease expense for the three months ended March 31, 2020 and 2019 (in thousands, unaudited):
Lease Cost
 
Classification
Three Months Ended March 31,
2020
 
2019
Operating lease cost
 
Cost of sales
$
39

 
$
39

Operating lease cost
 
Selling, general and administrative expenses
91

 
67

Finance lease cost
 
 
 
 
 
Amortization of leased assets
 
Depreciation
293

 
934

Interest on lease liabilities
 
Interest expense
161

 
174

Net lease cost
 
 
$
584

 
$
1,214

The following schedule presents the future minimum lease payments for our operating and finance obligations at March 31, 2020 (in thousands):
 
Operating
Leases
 
Finance
Leases
 
Total
Remainder 2020
$
321

 
$
2,919

 
$
3,240

2021
237

 
651

 
888

2022
176

 

 
176

2023
145

 

 
145

2024
149

 

 
149

Thereafter
25

 

 
25

Total lease payments
1,053

 
3,570

 
4,623

Less: Interest
(133
)
 
(250
)
 
(383
)
Present value of lease liabilities
$
920

 
$
3,320

 
$
4,240


16


Lease term and discount rates for our operating and finance lease obligations are as follows:
Lease Term and Discount Rate
 
March 31, 2020
Weighted-average remaining lease term (years)
 
 
Operating leases
 
3.5

Finance leases
 
0.8

Weighted-average discount rate
 
 
Operating leases
 
7.3
%
Finance leases
 
9.1
%
The following table summarizes the supplemental cash flow information related to leases as of March 31, 2020:
Other information
 
March 31, 2020
 
 
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
109

Financing cash flows from finance leases
 
768

Interest paid
 
131

Noncash activities from right-of-use assets obtained in exchange for lease obligations:
 
 
Operating leases
 
$
1,172

12. Related Party Transactions
Other Purchases and Sales
During the three months ended March 31, 2020 and 2019, the Company paid Applied Cryo Technologies, Inc. (“ACT”), a company owned 51% by Crenshaw Family Holdings International, Inc., $33 thousand and $49 thousand, respectively, for equipment repairs and services. The Company had no sales of LNG to ACT during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020 and December 31, 2019, the Company had $4 thousand and $4 thousand, respectively, due from ACT included in accounts receivable on the condensed consolidated balance sheets. As of  March 31, 2020 and December 31, 2019 the Company had $28 thousand and $24 thousand, respectively, due to ACT included in accounts payable on the condensed consolidated balance sheets.
The Company purchases supplies and services from a subsidiary of The Modern Group. Casey Crenshaw is the beneficial owner of 25% of the Modern Group and is deemed to jointly control The Modern Group with family members. During the three months ended March 31, 2020 and 2019, the Company made purchases of supplies and services from a subsidiary of The Modern Group totaling $33 thousand and $14 thousand, respectively. There was no receivable due from The Modern Group as of March 31, 2020 and December 31, 2019. As of March 31, 2020 and December 31, 2019 the Company had $125 thousand and $22 thousand, respectively, due to The Modern Group included in accounts payable on the condensed consolidated balance sheets.
During the three months ended March 31, 2020, purchases from Chart E&C totaled $10 thousand. The Company made no purchases during the three months ended March 31, 2019. As of March 31, 2020 and December 31, 2019 the Company had $10 thousand and $8 thousand, respectively, due to Chart E&C included in accounts payable on the condensed consolidated balance sheets.
13. Commitments and Contingencies
Environmental Matters
The Company is subject to federal, state and local environmental laws and regulations. The Company does not anticipate any expenditures to comply with such laws and regulations that would have a material impact on the Company’s condensed consolidated financial position, results of operations or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state and local environmental laws and regulations.

17


Litigation, Claims and Contingencies
The Company may become party to various legal actions that arise in the ordinary course of its business. The Company is also subject to audit by tax and other authorities for varying periods in various federal, state and local jurisdictions, and disputes may arise during the course of these audits. It is impossible to determine the ultimate liabilities that the Company may incur resulting from any of these lawsuits, claims, proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities, if any. If these matters were to ultimately be resolved unfavorably, it is possible that such an outcome could have a material adverse effect upon the Company’s condensed consolidated financial position, results of operations, or liquidity. The Company, does not, however, anticipate such an outcome and it believes the ultimate resolution of these matters will not have a material adverse effect on the Company’s condensed consolidated financial position, results of operations, or liquidity. Additionally, the Company currently expenses all legal costs as they are incurred.
In October 2018, American Electric received notification of a potential liability of $4.3 million associated with an asset purchase agreement to sell substantially all of its U.S. business assets and operations to Myers Power Products, Inc. ("Myers"). The contractual terms of the agreement included a provision for true-up of the net working capital, estimated as of the date of closing, to actual working capital as calculated by Myers and agreed to by American Electric. Any difference in the actual (conclusive) net working capital in relation to the estimated working capital at closing results in an adjustment to the purchase price. American Electric received notification from Myers of their actual working capital calculation. In the notification, Myers communicated a decrease of approximately $4.3 million in net working capital, in comparison to the estimated working capital used at contract closing. The contractual terms of the transaction provided that in the event Myers and American Electric could not agree to a conclusive net working capital adjustment, then all items remaining in dispute shall be submitted by either one of the parties within thirty (30) calendar days after the expiration of the resolution period to a national or regional independent accounting firm mutually acceptable to Myers and American Electric (the "Neutral Arbitrator"). The Neutral Arbitrator shall act as an arbitrator to determine the conclusive net working capital. The conclusive net working capital, once determined, may result in a purchase price adjustment due to Myers or to the Company. As of March 31, 2020, there have not been any updates to the potential liability. The Company is working with legal counsel to resolve the matter.
In January of 2020, the Company received notification that its Subsidiary, M&I Electric Industries, Inc. (“M&I”) has been named as a defendant in a class action lawsuit “Pelton Ray Barrett, et al. v. Arkema, Inc., et al.” as the result of a fire on August 31, 2017, on a site owned or operated by Arkema, Inc. allegedly resulting in chemical exposure. Other defendants in the suit, including M&I are alleged to have been responsible for the installation, repair, design, and/or maintenance of the electrical, refrigeration and environmental systems required to mitigate damages from the release of chemicals. The Company, through its insurance providers, has engaged outside legal counsel to defend against these claims. The Company believes the ultimate resolution of this matter will not have a material adverse impact of the Company’s condensed consolidated financial position, results of operations, or liquidity.
14. Stockholders’ Equity
Issuances of Common Stock
The Company is authorized to issue up to 37,500,000 shares of Common Stock, $0.001 par value per share.
In February 2020, the Company issued 34,706 shares of common stock to former directors as payment for services rendered as members of the American Electric Board of Directors (see Note 15—Stock-Based Compensation for further discussion).
Issuances of Warrants
As of March 31, 2020, the Company had outstanding Warrants to purchase 103,125 shares of our common stock as follows:
Date of Issuance
 
No. of Warrants
 
Exercise Price
 
Expiration Date
May 2, 2012
 
15,625
 
$21.76
 
May 22, 2020
May 2, 2012
 
25,000
 
$25.36
 
May 22, 2020
Nov. 13, 2017
 
62,500
 
$18.08
 
Nov. 13, 2022

15. Stock-Based Compensation

18


Independent directors receive 50% of their retainer fee as Restricted Stock Awards ("RSAs"). The RSAs are issued immediately upon grant and are subject to a one year vesting period and other restrictions.
During the three months ended March 31, 2020, the Company granted 61,308 Restricted Stock Awards (“RSAs”) to independent directors under the 2019 Plan. The fair value of the RSAs on the date of grant was $225 thousand based on the previous day closing price of our common stock as reported on the OTCQX Best Market on the grant date. The Company recognized $19 thousand in stock-based compensation costs, which is included in general and administrative expenses in the condensed consolidated statements of operations.
As of March 31, 2020, the Company had $131 thousand of unrecognized compensation costs related to our Board of Directors grants, which is expected to be recognized over a weighted average period of one year.
16. Income Taxes
The Company records income taxes for interim periods based on an estimated annual effective tax rate. The estimated annual effective tax rate is recomputed on a quarterly basis and may fluctuate due to changes in forecasted annual operating income, positive or negative changes to the valuation allowance for net deferred tax assets, and changes to actual or forecasted permanent book to tax differences.
The Company’s effective tax rate for the three months ended March 31, 2020 and 2019 was 4.7% and 0.0%, respectively, which reflects state income taxes and the Company’s deferred federal income tax benefit generated from an expected net operating loss, offset by a change in the valuation allowance on net deferred tax assets.
17. Subsequent Events
The impact of the COVID-19 crisis in the current quarter was largely limited to operations in our Power Delivery segment. Our Chinese joint venture, BOMAY, closed its manufacturing facility for approximately four weeks. The shut down of BOMAY’s manufacturing facility and related supply chain disruptions contributed to a $0.2 million loss in the current quarter, compared to $1.1 million net income in the preceding quarter. BOMAY has resumed operations. Our Brazilian subsidiary experienced activity declines beginning in March and we anticipate these will continue at least through mid-2020.
Our LNG segment, which is focused on North America, did not experience a material impact from the crisis during the current quarter. However, we anticipate a significant activity decline with our upstream oil and gas customers, including hydraulic fracturing, frac sand mines, and related activities beginning in the second quarter due to current oil prices. We have redeployed sales personnel to non-oilfield related opportunities and are seeing some success in replacing oilfield related revenues with other projects. To what extent we will be able to replace all oilfield revenues in the short-term remains uncertain.
We have implemented a number of cost control measures including headcount reductions, temporary salary reductions and other measures to adjust to anticipated activity levels and maintain adequate liquidity.

19


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and the consolidated financial statements included in the 2019 Annual Report on Form 10-K filed on March 16, 2020. Historical results and percentage relationships set forth in the condensed consolidated statements of operations and cash flows, including trends that might appear, are not necessarily indicative of future operations or cash flows.
Overview
Stabilis is a vertically integrated provider of small-scale LNG production, distribution and fueling services to multiple end markets in North America. Our diverse customer base utilizes LNG as a fuel source in a variety of applications in the industrial, energy, mining, utilities and pipelines, commercial, and high horsepower transportation markets. Our customers use LNG as an alternative to traditional fuel sources, such as diesel, fuel oil, and propane, and as a means to lower fuel costs and reduce their environmental footprint. Our customers also use LNG as a “virtual pipeline” solution when natural gas pipelines are not available or are curtailed.
Stabilis seeks to provide our customers with safe, reliable and cost effective LNG fueling and power delivery solutions. We provide multiple products and services to our customers, including:
LNG Production and Sales—Stabilis builds and operates cryogenic natural gas processing facilities, called “liquefiers”, that convert natural gas into LNG through a multiple stage cooling process. We currently own and operate a liquefier that can produce up to 100,000 LNG gallons (379 cubic meters) per day. We also purchase LNG from third-party production sources which allows us to support customers in markets where we do not own liquefiers. We define “small-scale” LNG production to include liquefiers that produce less than 1,000,000 LNG gallons per day (3,788 cubic meters per day).
Transportation and Logistics Services—Stabilis offers our customers a “virtual natural gas pipeline” by providing them with turnkey LNG transportation and logistics services in North America. We deliver LNG to our customers’ work sites from both our own production facility and our network of 25 third-party production sources located throughout North America. We own a fleet of LNG fueled trucks and cryogenic trailers to transport and deliver LNG. We also outsource similar equipment and transportation services from qualified third-party providers as required to support our customer base. We define “small-scale” LNG distribution to include distribution by trailer or tank container (up to 15,000 LNG gallons) or marine vessels that carry less than 8,000,000 LNG gallons (approximately 30,000 cubic meters).
Cryogenic Equipment Rental—Stabilis owns and operates a rental fleet of approximately 150 mobile LNG storage and vaporization assets, including: transportation trailers, electric and gas-fired vaporizers, ambient vaporizers, storage tanks, and mobile vehicle fuelers. We also own several stationary storage and regasification assets. We believe this is one of the largest fleets of small-scale LNG equipment in North America. Our fleet consists primarily of trailer-mounted mobile assets, making delivery to and between customer locations more efficient. We deploy these assets on job sites to provide our customers with the equipment required to transport, store, and consume LNG in their fueling operations.
Engineering and Field Support Services—Stabilis has experience in the safe, cost effective, and reliable use of LNG in multiple customer applications. We have also developed many processes and procedures that we believe improve our customers’ use of LNG in their operations. Our engineers help our customers design and integrate LNG into their fueling operations and our field service technicians help our customers mobilize, commission and reliably operate on the job site.
Stabilis generates revenue by selling and delivering LNG to our customers. We also generate revenue by renting cryogenic equipment and providing engineering and field support services. We sell each product and service separately or as a bundle depending on the customer’s needs. LNG pricing depends on market pricing for natural gas and competing fuel sources (such as diesel, fuel oil, and propane among others), as well as the customer’s purchased volume, contract duration and credit profile.
Stabilis’ customers use natural gas in their operations for multiple reasons, including lower fuel cost, more stable fuel costs, reduced environmental emissions, and improved operating performance. We serve customers in a variety of end markets, including industrial, energy, mining, commercial, utilities and pipelines, and high horsepower transportation. We believe that LNG consumption will continue to increase in these end markets in the future.

20


Power Delivery Solutions—As a result of the business combination with American Electric, Stabilis provides power delivery services and products for the oil and gas, marine vessel, power generation and broad industrial market segments in Brazil, and builds electrical systems for sale in China through our 40% interest in BOMAY.
Recent Developments
On July 26, 2019, the Share Exchange transaction with American Electric and its subsidiaries was completed. The Share Exchange and its related proposals, which included a company name change and a reverse stock split, were approved by American Electric stockholders at a Special Meeting of Stockholders on July 17, 2019. On July 29, 2019, the Company began operating under the name Stabilis Energy, Inc. and our common stock began trading under the ticker symbol “SLNG”. Because the former owners of Stabilis LLC owned approximately 90% of the voting stock of the combined company at the completion of the Share Exchange and certain other factors including that directors designated by LNG Investment constitute a majority of the board of directors, Stabilis LLC was treated as the acquiror of American Electric in the Share Exchange for accounting purposes. As a result, the Share Exchange was treated by American Electric as a reverse acquisition under the purchase method of accounting in accordance with United States generally accepted accounting principles (“US GAAP”). In addition, the Company’s shares outstanding now reflect a one-for-eight reverse split. Unless otherwise noted, any share or per share amounts give retroactive effect to the reverse stock split.
The financial information represents the historical results of Stabilis for periods prior to the Share Exchange. The operations of American Electric are included in our financial statements from the completion of the Share Exchange on July 26, 2019.
On August 5, 2019, we entered into an exchange agreement (the “Exchange Agreement”) with Chart Energy & Chemicals, Inc. (“Chart E&C”), Stabilis LLC, and Stabilis LNG EF for the satisfaction of indebtedness of Stabilis LNG to Chart E&C in the principal amount of $7 million (the “Exchanged Indebtedness”) in exchange for unregistered shares of our common stock (such transactions, the “Chart Transaction”). We issued to Chart E&C 1,470,807 shares of Company common stock, based on the per share price of Company common stock of 90% of the average of the dollar volume-weighted average prices per share of the common stock as calculated by Bloomberg for each of the five consecutive trading days ending on and including the third trading day immediately preceding the closing date, which took place on August 30, 2019. At closing, Stabilis LNG EF also paid to Chart E&C an amount in cash equal to the accrued and unpaid interest on the Exchanged Indebtedness due through the closing, plus a cash amount to be paid in lieu of the issuance of fractional shares of our Common Stock.
On September 11, 2019, we entered into Amendment No. 1 to the Exchange Agreement, which eliminated the right of Chart E&C to elect an additional exchange of all or any portion of the balance of the unpaid principal amount of the Note. The Exchange Agreement previously provided for Chart E&C to elect an additional exchange, on a second closing date, of all or any portion of the balance of the unpaid principal amount of the Note, for additional shares of our common stock based on the foregoing pricing calculation related to the closing date.
On August 20, 2019, we completed our acquisition of Diversenergy, LLC (“Diversenergy”) and its subsidiaries, creating what we believe will be one of the leading LNG marketing and distribution companies in Mexico. Diversenergy specializes in virtual LNG distribution systems, providing LNG to customers who use it as a fuel in mobile high horsepower applications and to customers who do not have natural gas pipeline access. We purchased all of the issued and outstanding membership interests of Diversenergy for total consideration of 684,963 shares of Company common stock and $2.0 million in cash. The completion of the acquisition will expand the Company's presence in the distributed LNG and compressed natural gas (“CNG”) markets in Mexico.
On August 20, 2019, we established Energía Superior Gas Natural LLC (“Energía Superior”) as a joint venture with CryoMex Investment Group LLC (“CryoMex”), to pursue investments in distributed natural gas production and distribution assets in Mexico (the “Joint Venture”). CryoMex is led by Grupo CLISA, a Monterrey, Mexico-based developer and operator of businesses in multiple end markets including energy.
The Joint Venture plans to invest in LNG and compressed natural gas production, transportation, storage, and regasification assets that serve multiple end markets throughout Mexico, including the industrial, mining, pipeline, utility, marine, and over-the-road transportation markets.
The market in which we operate has been impacted by the recent downturn in the energy market as well as the outbreak of COVID-19 and its progression into a pandemic in March 2020. As the COVID-19 pandemic develops, governments, corporations and other authorities may continue to implement restrictions or policies that adversely impact consumer spending, the economy and our business, operations and share price. The ultimate extent and long-term effects of the pandemic are difficult to determine, but a prolonged period of market fluctuations and weak general economic conditions may have a material adverse effect on the Company’s financial results.

21


The impact of the COVID-19 crisis in the current quarter was largely limited to operations in our Power Delivery segment. Our Chinese joint venture, BOMAY, closed its manufacturing facility for approximately four weeks. The shut down of BOMAY’s manufacturing facility and related supply chain disruptions contributed to a $0.2 million loss in the current quarter, compared to $1.1 million net income in the preceding quarter. BOMAY has resumed operations. Our Brazilian subsidiary experienced activity declines beginning in March and we anticipate these will continue at least through mid-2020.
Our LNG segment, which is focused on North America, did not experience a material impact from the crisis during the current quarter. However, we anticipate a significant activity decline with our upstream oil and gas customers, including hydraulic fracturing, frac sand mines, and related activities beginning in the second quarter due to current oil prices. We have redeployed sales personnel to non-oilfield related opportunities and are seeing some success in replacing oilfield related revenues with other projects. To what extent we will be able to replace all oilfield revenues in the short-term remains uncertain.
We have implemented a number of cost control measures including headcount reductions, temporary salary reductions and other measures to adjust to anticipated activity levels and maintain adequate liquidity.
On March 27, 2020, the President of the United States signed into law the CARES Act. The CARES Act among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improved property.
The Company continues to examine the impact that the CARES Act and other relief measures taken by the U.S. may have on our business. Currently, the Company is unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity.

22


Results of Operations
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
The following table reflects line items from the accompanying Consolidated Statements of Operations for the three months ended March 31, 2020 (the “Current Quarter”) as compared to the three months ended March 31, 2019 (the “Prior Year Quarter”):
Stabilis Energy, Inc.
Condensed Consolidated Statements of Operations
 
Three Months Ended March 31,
 
Change
 
% Change
 
2020
 
2019
 
 
(unaudited)
 
 
 
 
 
(In thousands, excluding percentages)
Revenue:
 
 
 
 
 
 
 
LNG product
$
9,131

 
$
10,254

 
$
(1,123
)
 
(11.0
)%
Rental, service and other
4,707

 
2,721

 
1,986

 
73.0

Total revenues
13,838

 
12,975

 
863

 
6.7

Operating expenses:
 
 
 
 
 
 
 
Costs of LNG product
6,097

 
7,482

 
(1,385
)
 
(18.5
)
Costs of rental, service and other
2,918

 
1,414

 
1,504

 
106.4

Selling, general and administrative
3,186

 
1,992

 
1,194

 
59.9

Depreciation
2,270

 
2,290

 
(20
)
 
(0.9
)
Total operating expenses
14,471

 
13,178

 
1,293

 
9.8

Loss from operations before equity income
(633
)
 
(203
)
 
(430
)
 
211.8

Net equity loss from foreign joint ventures' operations:
 
 
 
 
 
 
 
Loss from investments in foreign joint ventures
(114
)
 

 
(114
)
 
100.0

Foreign joint venture's operations related expenses
(60
)
 

 
(60
)
 
100.0

Net equity income from foreign joint ventures' operations
(174
)
 

 
(174
)
 
100.0

Loss from operations
(807
)
 
(203
)
 
(604
)
 
297.5

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(11
)
 
(3
)
 
(8
)
 
266.7

Interest expense, net - related parties
(240
)
 
(309
)
 
69

 
(22.3
)
Other income (expense)
38

 
(44
)
 
82

 
(186.4
)
Gain (loss) from disposal of assets
11

 

 
11

 
100.0

Total other income (expense)
(202
)
 
(356
)
 
154

 
(43.3
)
Loss before income tax expense
(1,009
)
 
(559
)
 
(450
)
 
80.5

Income tax expense
41

 

 
41

 
100

Net loss
(1,050
)
 
(559
)
 
(491
)
 
87.8

Net income (loss) attributable to noncontrolling interests

 
179

 
(179
)
 
(100.0
)
Net loss attributable to Stabilis Energy, Inc.
$
(1,050
)
 
$
(738
)
 
$
(312
)
 
42.3
 %

23


Segment Results
The Company’s revenues are derived from two operating segments: LNG and Power Delivery. The Company evaluates the performance of its segments based primarily on segment operating income.
LNG Segment
Our LNG segment supplies LNG to the industrial, midstream, and oilfield sectors in North America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG.
 
Three Months Ended
March 31,
 
Change
 
% Change
 
2020
 
2019
 
 
(unaudited)
 
 
 
 
 
(In thousands, excluding percentages)
Revenue:
 
 
 
 
 
 
 
LNG product
$
9,131

 
$
10,254

 
$
(1,123
)
 
(11.0
)%
Rental, service and other
3,397

 
2,721

 
676

 
24.8

Total revenues
12,528

 
12,975

 
(447
)
 
(3.4
)
Operating expenses:
 
 
 
 
 
 
 
Costs of LNG product
6,097

 
7,482

 
(1,385
)
 
(18.5
)
Costs of rental, service and other
1,671

 
1,414

 
257

 
18.2

Selling, general and administrative
2,724

 
1,992

 
732

 
36.7

Depreciation
2,235

 
2,290

 
(55
)
 
(2.4
)
Total operating expenses
12,727

 
13,178

 
(451
)
 
(3.4
)
Loss from operations before equity income
$
(199
)
 
$
(203
)
 
$
4

 
2.0
 %

24


Power Delivery Segment
Our Power Delivery segment provides power delivery solutions to the global energy industry through our subsidiary in Brazil and our joint venture in China.
 
Three Months Ended
March 31,
 
Change
 
% Change
 
2020
 
2019
 
 
(unaudited)
 
 
 
 
(In thousands, excluding percentages)
Revenue:
 
 
 
 
 
 
 
Rental, service and other
$
1,310

 
$

 
$
1,310

 
%
Total Revenues
1,310

 

 
1,310

 

Operating Expenses:
 
 
 
 
 
 
 
Costs of revenue (exclusive of depreciation as shown separately):
 
 
 
 
 
 
 
Costs of rental, service and other
1,247

 

 
1,247

 

Selling, general and administrative
462

 

 
462

 

Depreciation
35

 

 
35

 

Total operating expenses
1,744

 

 
1,744

 

Loss from operations before equity income
(434
)
 

 
(434
)
 

Net equity loss from foreign joint ventures' operations:
 
 
 
 
 
 
 
Loss from equity investments in foreign joint ventures
(114
)
 

 
(114
)
 

Foreign joint venture's operations related expenses
(60
)
 

 
(60
)
 

Net equity loss from foreign joint ventures' operations
(174
)
 

 
(174
)
 

Loss from operations
$
(608
)
 
$

 
$
(608
)
 
%
Revenue
LNG Product Revenue. During the Current Quarter LNG Product revenues decreased $1.1 million or 11.0% versus the Prior Year Quarter primarily due to reduced activity levels with certain oil and gas customers and lower average gas prices.
Rental, Service, and Other Revenue. Rental, service and other revenues increased by $2.0 million or 73.0% in the Current Quarter compared to Prior Year Quarter primarily due to the completion of the Share Exchange transaction with American Electric, which contributed $1.3 million, and higher equipment rentals with peaking customers.

25


Operating Expenses
Cost of LNG Product. Cost of LNG Product in the Current Quarter decreased $1.4 million or 18.5%. As a percentage of LNG Product Revenue, overall cost of product decreased from 73% to 67% due to improved utilization of the George West Plant and a higher percentage of total gallons sold being sourced from the plant.
Cost of Rental, Service, and Other Revenue. This cost increased $1.5 million or 106.4% in the Current Quarter. The increase in costs is primarily a result of the completion of the Share Exchange with American Electric. Costs related to the acquired business of $1.2 million are included in our results of operations in the Current Quarter. Costs related to the LNG segment also increased by $0.3 million, consistent with the increased equipment rental to winter peaking customers.
Selling, general and administrative. Selling, general and administrative expense increased $1.2 million or 59.9% during the Current Quarter as compared to the Prior Year Quarter. The increase results primarily from the consolidation of American Electric and Diversenergy and additional costs related to the Company’s transition to a public company, all of which occurred subsequent to the Prior Year Quarter.
Depreciation. Depreciation expense was $2.3 million during both the Current Quarter and Prior Year Quarter.
Net Equity Loss From Foreign Joint Ventures' Operations
Loss from Investments in Foreign Joint Ventures. Loss from investments in foreign joint ventures was $0.1 million in the Current Quarter as a result of the Share Exchange with American Electric which occurred subsequent to the Prior Year Quarter. There was no income or loss from investment in foreign joint ventures in the Prior Year Quarter.
Operating expenses related to foreign joint ventures. Operating expenses related to BOMAY were $0.1 million in the Current Quarter. There were no Operating Expenses in the Prior Year Quarter.
Other Income (Expense)
Interest expense, net. Interest expense in the Current Quarter was consistent with the Prior Year Quarter.
Interest expense, net - related parties. Interest expense decreased $0.1 million during the Current Quarter as compared to the Prior Year Quarter primarily due to the cancellation of Chart Industries indebtedness in exchange for Stabilis common stock subsequent to the Prior Year Quarter.
Other income. Other income increased $0.1 million in the Current Quarter.
Gain / (loss) on the disposal of fixed assets. The gain from disposal of rolling stock was $11 thousand in the Current Quarter. No assets were disposed in the Prior Year Quarter.
Income tax expense. The Company incurred state income tax expense of $41 thousand during the Current Quarter. No income tax expense was incurred in the Prior Year Quarter.
Liquidity and Capital Resources
Overview
As of March 31, 2020, we had $3.2 million in cash and cash equivalents on hand and $10.7 million in outstanding debt and finance lease obligations (of which $4.6 million is due in the next twelve months).
We have historically funded the business primarily through cash flows from operations, short-term notes payable, debt from finance companies and related parties, and capital contributions. We have used a portion of our cash flows to invest in fixed assets to support growth. We have also used cash to pay interest and principal amounts outstanding under our borrowings.
The Company is subject to substantial business risks and uncertainties inherent in the LNG industry. Additionally, the impact of the COVID-19 pandemic has created additional uncertainties regarding the future demand for LNG from our customers. There is no assurance that the Company will be able to generate sufficient cash flows in the future to sustain itself or to support future growth.
Management concluded positive cash flows from operations are supported by the recent increase in utility and pipeline sales, the reduction of operating costs as a percent of sales, improved plant utilization, and the August 2019 cancellation of $7.0 million

26


of Chart Industries indebtness in exchange for Stabilis common stock. Accordingly, management believes the business will generate sufficient cash flows from its operations to fund the business for the next 12 months.
Cash Flows
Cash flows provided by (used in) our operating, investing and financing activities are summarized below (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
 
(unaudited)
 
(In thousands)
Net cash provided by (used in):
 
 
 
Operating activities
$
349

 
$
1,201

Investing activities
(101
)
 
(293
)
Financing activities
(1,005
)
 
(816
)
Effect of exchange rate changes on cash
(60
)
 

Net increase (decrease) in cash and cash equivalents
(817
)
 
92

Cash and cash equivalents, beginning of period
3,979

 
1,247

Cash and cash equivalents, end of period
$
3,162

 
$
1,339

Operating Activities
Net cash provided by operating activities totaled $0.3 million for the three months ended March 31, 2020 compared to $1.2 million for the same period 2019. The decrease in net cash provided by operating activities of $0.9 million as compared to the Prior Year Quarter was primarily attributable to increased net working capital and a higher net loss.
Investing Activities
Net cash used in investing activities totaled $0.1 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively. The change was driven by a reduction of equipment purchases in 2020.
Financing Activities
Net cash used in financing activities totaled $1.0 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively. The increase of $0.2 million compared to the Prior Year Quarter was primarily attributable to a $0.2 million net increase in payments on short-term notes payable.
Sources of Liquidity and Capital Resources
Our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, proceeds from asset sales and distributions from our BOMAY joint venture. In addition, the Company secured financing from a key vendor and obtained equipment financing from MG Finance, a related party.
Future Cash Requirements
Uses of Liquidity and Capital Resources
We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, capital expenditures, debt repayments and repurchases, equipment purchases, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities, support of legislative and regulatory initiatives, and other general corporate purposes. While we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt, we may elect to pursue additional financing activities such as refinancing existing debt, or debt or equity offerings to provide flexibility with our cash management.

27


Debt Level and Debt Compliance
We had total indebtedness of $7.4 million in principal as of March 31, 2020 with the expected maturities as follows.
 
March 31, 2020
Remainder 2020
$
1,321

2021
3,428

2022
2,649

2023

2024

Thereafter

Total long-term debt, including current maturities
$
7,398

We expect our total interest payment obligations relating to our indebtedness to be approximately $0.9 million for the year ending December 31, 2020. Certain of the agreements governing our outstanding debt have certain covenants with which we must comply. As of March 31, 2020, we were in compliance with all of these covenants.
Off-Balance Sheet Arrangements
As of March 31, 2020, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results.
NEW ACCOUNTING STANDARDS
See Note 2—Recent Accounting Pronouncements to the Notes to Condensed Consolidated Financial Statements included elsewhere in this report for information on new accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates.
Critical Accounting Policies
Revenue Recognition
The Company recognizes revenue associated with the sale of LNG at the point in time when the customer obtains control of the asset. In evaluating when a customer has control of the asset, the Company primarily considers whether the transfer of legal title and physical delivery has occurred, whether the customer has significant risks and rewards of ownership, and whether the customer accepted delivery and a right of payment exists. Revenues from the providing of services, transportation and equipment to customers is recognized as the service is performed.
Revenue is measured as consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Amounts are billed upon completion of service or transfer of a product and are generally due within 30 days.
Revenues from contracts with customers are disaggregated into (1) LNG product and (2) rental, service, and other.

28


LNG product revenue generated includes the revenue from the product and delivery of the LNG to our customer’s location. The Company acts as a principal when using third party transportation companies and therefore recognizes the gross revenue for the delivery of LNG. Product contracts are established by agreeing on a sales price or transaction price for the related item. Revenue is recognized when the customer has taken control of the product. Payment terms for product contracts are generally within thirty days from the receipt of the invoice. Product revenue is recognized upon delivery of the related item to the customer, at which point the customer controls the product and the Company has an unconditional right to payment. The Company acts as a principal when using third party transportation companies and therefore recognizes the gross revenue for the delivery of LNG.
Rental and service revenue generated by the Company includes equipment and people provided to the customer to support the use of LNG and power delivery solutions in their application. Rental contracts are established by agreeing on a rental price or transaction price for the related piece of equipment and the rental period which is generally daily or monthly. The Company maintains control of the equipment that the customer uses and can replace the rented equipment with similar equipment should the rented equipment become inoperable or the Company chooses to replace the equipment for maintenance purposes. Revenue is recognized as the rental period is completed and for periods that cross month end, revenue is recognized for the portion of the rental period that has been completed to date. Payment terms for rental contracts are generally within thirty days from the receipt of the invoice. Performance obligations for rental revenue are considered to be satisfied as the rental period is completed based upon the terms of the related contract. LNG service revenue generated by the Company consists of mobilization and demobilization of equipment and onsite technical support while customers are consuming LNG in their applications. Power Delivery service revenue is generated from time and material projects and consulting services. Service revenue is billed based on contractual terms that can be based on an event (i.e. mobilization or demobilization) or an hourly rate. Revenue is recognized as the event is completed or work is done. Payment terms for service contracts are generally within thirty days from the receipt of the invoice. Performance obligations for service revenue are considered to be satisfied as the event is completed or work is done per the terms of the related contract. Other revenues include the resale of electrical and instrumentation equipment billed upon delivery and are generally due within thirty days from the receipt of the invoice.
All outstanding accounts receivable, net of allowance, on the consolidated balance sheet are typically due and collected within the next 30 days for our LNG business and 12 months for our Power Delivery business.
Impairment of Long-Lived Assets and Goodwill
LNG liquefaction facilities, and other long-lived assets held and used by the Company are reviewed periodically for potential impairment whenever events or changes in circumstances indicate that a particular asset’s carrying value may not be recoverable. Recoverability generally is determined by comparing the carrying value for the asset to the expected undiscounted future cash flows of the asset. If the carrying value of the asset is not recoverable, the amount of impairment loss is measured as the excess, if any, of the carrying value of the asset over its estimated fair value. The estimated undiscounted future cash flows are based on projections of future operating results; these projections contain estimates of the value of future contracts that have not yet been obtained, future commodity pricing and our future cost structure, among others. Projections of future operating results and cash flows may vary significantly from actual results. Management reviews its estimates of cash flows on an ongoing basis using historical experience, business plans, overall market conditions, and other factors.
Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Intangible assets are assets that lack physical substance (excluding financial assets). Goodwill acquired in a business combination and intangible assets with indefinite useful lives are not amortized, and intangible assets with finite useful lives are amortized. Goodwill and intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate the assets carrying value may not be recoverable. We currently test goodwill for impairment annually in the third quarter unless we determine that a triggering event has occurred requiring an earlier test.
Income Taxes
Deferred income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in

29


recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses.
Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in the fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels in accordance with US GAAP:
Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs—Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby, allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
Recently Adopted Accounting Changes and Recently Issued and Adopted Accounting Standards.
For descriptions of recently adopted and issued accounting standards, see Note 2—Recent Accounting Pronouncements to the Notes to Condensed Consolidated Financial Statements.

30


ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at March 31, 2020 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

31


PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company becomes involved in various legal proceedings and claims in the normal course of business. In management’s opinion, the ultimate resolution of these matters will not have a material effect on our financial position or results of operations.
ITEM 1A. RISK FACTORS.
Our operations and financial results are subject to various risks and uncertainties, including those described in the Part I. “Item 1A. Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 16, 2020 ("Form 10-K"), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the three months ended March 31, 2020, there have been no material changes in our risk factors disclosed in our Form 10-K, except for the following:

The rapid spread of a contagious illness such as a novel coronavirus, or fear of such an event, may adversely affect our business, operations and financial condition.

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus. As the COVID-19 outbreak is still evolving, much of its impact remains unknown.
Effects of the current pandemic include, or may include, among others:

deterioration of worldwide, regional or national economic conditions and activity, which could further reduce or prolong the recent significant declines in energy prices, or adversely affect global demand for LNG and natural gas;
disruptions to our operations as a result of the potential health impact on our employees and crew, and on the workforces of our customers and business partners;
potential reduced cash flows and financial condition, including potential liquidity constraints;
negative impact on the credit worthiness of our customers and contractual counterparties;
reduced access to capital, including the ability to refinance any existing obligations, as a result of any credit tightening generally or due to continued declines in global financial markets;
disruptions, delays or cancellations in the construction of new LNG and natural gas projects, which could limit or adversely affect our ability to pursue future growth opportunities; and
potential deterioration in the financial condition and prospects of our customers or joint venture partners, or attempts by customers or third parties to invoke force majeure contractual clauses as a result of delays or other disruptions.
Many uncertainties remain with respect to the COVID-19 pandemic, and we continue to monitor the rapidly evolving situation. Given the dynamic nature of these circumstances and the international nature of our business and operations, the duration of any business disruption and the related financial impact to us cannot be reasonably estimated at this time. The COVID-19 pandemic alone or coupled with continued volatility in the energy markets may materially and adversely affect our business, financial condition, operating results, cash flow, liquidity and prospects or have the effect of heightening many of the other risks described herein and in our Form 10-K. The extent to which our business, contracts, financial condition, operating results, cash flow, liquidity and prospects are affected by the COVID-19 outbreak or volatility in the energy markets will depend on various factors beyond our control and are highly uncertain, including the duration and scope of the outbreak, decreased demand for LNG and the resulting economic effects of the outbreak of COVID-19.
ITEM 5. OTHER INFORMATION.
None.

32


ITEM 6. EXHIBITS.
(a) Index to Exhibits
Exhibit No.
 
Exhibit Description
 
 
 
2.1
  
 
 
 
2.2
  
 
 
 
3.1
  
 
 
 
3.2
  
 
 
 
4.1
  
 
 
 
4.2
  
 
 
 
4.3
  
 
 
 
4.4
  
 
 
 
4.5
  
 
 
 
4.6
  
 
 
 
4.7
  
 
 
 
4.8
  
 
 
 
4.9
  
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
101.INS
 
 XBRL Instance Document.
 
 
 
101.SCH
 
 XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
 XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 

33


Exhibit No.
 
Exhibit Description
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
 
101.PRE
 
 XBRL Taxonomy Extension Presentation Linkbase Document.
(1)
Exhibits and schedules to the Share Exchange Agreement and Amendment have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant hereby undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the U.S. Securities and Exchange Commission.
*    Filed herewith.

34


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 7, 2020
 
 
 
 
STABILIS ENERGY, INC.
 
 
 
 
By:
/s/ James C. Reddinger
 
 
James C. Reddinger
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
By:
/s/ Andrew L. Puhala
 
 
Andrew L. Puhala
 
 
Chief Financial Officer
(Principal Financial Officer)
 

35
Exhibit


Exhibit 31.1
CERTIFICATIONS
I, James C. Reddinger, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Stabilis Energy, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
May 7, 2020
 
 
 
 
By:
/s/ James C. Reddinger
 
 
James C. Reddinger
Principal Executive Officer
 


Exhibit


Exhibit 31.2
CERTIFICATIONS
I, Andrew L. Puhala, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Stabilis Energy, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
May 7, 2020
 
 
 
 
By:
/s/ Andrew L. Puhala
 
 
Andrew L. Puhala
Principal Financial Officer
 



Exhibit


Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Reddinger, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Stabilis Energy, Inc. on Form 10-Q for the quarter ended March 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Stabilis Energy, Inc.
Date:
May 7, 2020
 
 
 
 
By:
/s/ James C. Reddinger
 
 
James C. Reddinger
Principal Executive Officer
 
I, Andrew L. Puhala, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Stabilis Energy, Inc. on Form 10-Q for the quarter ended March 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form l0-Q fairly presents in all material respects the financial condition and results of operations of Stabilis Energy, Inc.
Date:
May 7, 2020
 
 
 
 
By:
/s/ Andrew L. Puhala
 
 
Andrew L. Puhala
Principal Financial Officer
 



v3.20.1
Accrued Liabilities (Tables)
3 Months Ended
Mar. 31, 2020
Payables and Accruals [Abstract]  
Schedule of Accrued Liabilities
The Company’s accrued liabilities consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Compensation and benefits
$
2,359

 
$
2,641

Professional fees
234

 
131

LNG fuel and transportation
1,366

 
1,582

Accrued interest
59

 
134

Contract liabilities
221

 
185

Other taxes payable
192

 
163

Other operating expenses
59

 
182

Total accrued liabilities
$
4,490

 
$
5,018

v3.20.1
Overview and Basis of Presentation (Details)
gallon in Thousands, $ in Millions
1 Months Ended 3 Months Ended
Aug. 31, 2019
USD ($)
Mar. 31, 2020
gallon
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]    
Convertible debt, exchanged | $ $ 7.0  
Bomay    
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]    
Ownership percentage   40.00%
Texas    
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]    
Daily capacity of production facility in gallons   100
Permian Basin    
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]    
Daily capacity of production facility in gallons   25
v3.20.1
Investments in Foreign Joint Ventures
3 Months Ended
Mar. 31, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Foreign Joint Ventures
Investments in Foreign Joint Ventures
BOMAY. The Company holds a 40% interest in BOMAY Electric Industries Company, Ltd. (“BOMAY”) which builds electrical systems for sale in China. The majority partner in this foreign joint venture is Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation), who owns 51%. The remaining 9% is owned by AA Energies, Inc.
The Company made no sales to its joint venture in the three months ended March 31, 2020.
Below is summary financial information for BOMAY at March 31, 2020 and December 31, 2019 and operational results for the three months ended March 31, 2020 in U.S. dollars (in thousands, unaudited):
 
March 31,
2020
 
December 31, 2019
Assets:
 
 
 
Total current assets
$
66,465

 
$
81,247

Total non-current assets
5,646

 
5,775

Total assets
$
72,111

 
$
87,022

Liabilities and equity:
 
 
 
Total liabilities
$
43,971

 
$
58,176

Total joint ventures’ equity
28,140

 
28,846

Total liabilities and equity
$
72,111

 
$
87,022

 
Three Months Ended
March 31,
 
2020
Revenue
$
8,556

Gross Profit
896

Earnings
(284
)

The following is a summary of activity in our investment in BOMAY for the three months ended March 31, 2020 in U.S. dollars (in thousands, unaudited):
 
March 31, 2020
Investments in BOMAY (1) (2)
 
Balance at the beginning of the year
$
9,333

Undistributed earnings:
 
Balance at the beginning of the year
1,257

Equity in earnings
(114
)
Dividend distributions

Balance at end of period
1,143

Foreign currency translation:
 
Balance at the beginning of the year
(69
)
Change during the period
(287
)
Balance at end of period
(356
)
Total investment in BOMAY at March 31, 2020
$
10,120

________
(1)
Accumulated statutory reserves in equity method investments of $2.71 million at March 31, 2020 and December 31, 2019 is included in our investment in BOMAY. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
(2)
The Company’s initial investment in BOMAY differed from the Company’s 40% share of BOMAY’s equity as a result of applying fair value accounting pursuant to ASC 805. The basis difference of approximately $1.0 million will be accreted over the remaining nine year life of the joint venture. The Company accreted $43 thousand during the three months ended March 31, 2020 which is included in loss from equity investments in foreign joint ventures in the accompanying condensed consolidated statement of operations. As of March 31, 2020, accumulated accretion totaled $97 thousand.
The Company accounts for its investment in BOMAY using the equity method of accounting. Under the equity method, the Company’s share of the joint venture operations earnings or losses is recognized in the condensed consolidated statements of operations as equity income (loss) from foreign joint venture operations. Joint venture income increases the carrying value of the joint venture and joint venture losses reduce the carrying value. Dividends received from the joint venture reduce the carrying value. In accordance with our long-lived asset policy, when events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests long-lived assets for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment adjustment is necessary at March 31, 2020.
v3.20.1
Revenue Recognition
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Revenue Recognition
Disaggregated Revenues
The table below presents revenue disaggregated by source, for the three months ended March 31, 2020 and 2019 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
LNG Product
$
9,131

 
$
10,254

Rental
2,890

 
2,244

Service
1,310

 
291

Other
507

 
186

 
$
13,838

 
$
12,975


See Note 5—Business Segments, below, for additional disaggregation of revenue.
Contract Liabilities
The Company recognizes contract liabilities upon receipt of payments for which the performance obligations have not been fulfilled at the reporting date, resulting in deferred revenue. Contract liabilities are included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The following table presents the changes in the Company’s contract liabilities for the periods ended March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020
 
December 31, 2019
Balance at beginning of period
$
185

 
$
93

Cash received, excluding amounts recognized as revenue
153

 
185

Amounts recognized as revenue
(117
)
 
(93
)
Balance at end of period
$
221

 
$
185


The Company has no other material contract assets or liabilities and contract costs.
v3.20.1
Related Party Transactions
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions
Other Purchases and Sales
During the three months ended March 31, 2020 and 2019, the Company paid Applied Cryo Technologies, Inc. (“ACT”), a company owned 51% by Crenshaw Family Holdings International, Inc., $33 thousand and $49 thousand, respectively, for equipment repairs and services. The Company had no sales of LNG to ACT during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020 and December 31, 2019, the Company had $4 thousand and $4 thousand, respectively, due from ACT included in accounts receivable on the condensed consolidated balance sheets. As of  March 31, 2020 and December 31, 2019 the Company had $28 thousand and $24 thousand, respectively, due to ACT included in accounts payable on the condensed consolidated balance sheets.
The Company purchases supplies and services from a subsidiary of The Modern Group. Casey Crenshaw is the beneficial owner of 25% of the Modern Group and is deemed to jointly control The Modern Group with family members. During the three months ended March 31, 2020 and 2019, the Company made purchases of supplies and services from a subsidiary of The Modern Group totaling $33 thousand and $14 thousand, respectively. There was no receivable due from The Modern Group as of March 31, 2020 and December 31, 2019. As of March 31, 2020 and December 31, 2019 the Company had $125 thousand and $22 thousand, respectively, due to The Modern Group included in accounts payable on the condensed consolidated balance sheets.
During the three months ended March 31, 2020, purchases from Chart E&C totaled $10 thousand. The Company made no purchases during the three months ended March 31, 2019. As of March 31, 2020 and December 31, 2019 the Company had $10 thousand and $8 thousand, respectively, due to Chart E&C included in accounts payable on the condensed consolidated balance sheets.
v3.20.1
Commitments and Contingencies (Details)
$ in Millions
1 Months Ended
Oct. 31, 2018
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Potential liability related to asset purchase agreement $ 4.3