Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
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
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,066
|
)
|
|
28
|
|
|
(1,038
|
)
|
Balance at June 30, 2019
|
13,178,750
|
|
|
13
|
|
|
68,244
|
|
|
—
|
|
|
(18,720
|
)
|
|
1,530
|
|
|
51,067
|
|
Recapitalization due to reverse merger
|
1,466,092
|
|
|
1
|
|
|
12,618
|
|
|
—
|
|
|
—
|
|
|
(1,530
|
)
|
|
11,089
|
|
Shares issued in extinguishment of debt
|
1,470,807
|
|
|
2
|
|
|
6,887
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,889
|
|
Shares issued in acquisition of Diversenergy
|
684,963
|
|
|
1
|
|
|
2,999
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,355
|
)
|
|
—
|
|
|
(3,355
|
)
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(530
|
)
|
|
—
|
|
|
—
|
|
|
(530
|
)
|
Balance at September 30, 2019
|
16,800,612
|
|
|
$
|
17
|
|
|
$
|
90,748
|
|
|
$
|
(530
|
)
|
|
$
|
(22,075
|
)
|
|
$
|
—
|
|
|
$
|
68,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Deficit
|
|
Non-controlling Interest
|
|
Total
|
Balance at December 31, 2017
|
3,767,674
|
|
|
$
|
4
|
|
|
$
|
19,510
|
|
|
$
|
—
|
|
|
$
|
(5,872
|
)
|
|
$
|
1,365
|
|
|
$
|
15,007
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,704
|
)
|
|
203
|
|
|
(1,501
|
)
|
Balance at March 31, 2018
|
3,767,674
|
|
|
4
|
|
|
19,510
|
|
|
—
|
|
|
(7,576
|
)
|
|
1,568
|
|
|
13,506
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,287
|
)
|
|
(157
|
)
|
|
(3,444
|
)
|
Balance at June 30, 2018
|
3,767,674
|
|
|
4
|
|
|
19,510
|
|
|
—
|
|
|
(10,863
|
)
|
|
1,411
|
|
|
10,062
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,087
|
)
|
|
(130
|
)
|
|
(3,217
|
)
|
Balance at September 30, 2018
|
3,767,674
|
|
|
$
|
4
|
|
|
$
|
19,510
|
|
|
$
|
—
|
|
|
$
|
(13,950
|
)
|
|
$
|
1,281
|
|
|
$
|
6,845
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Stabilis Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(4,952
|
)
|
|
$
|
(8,164
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation and amortization
|
6,892
|
|
|
6,573
|
|
Gain on disposal of fixed assets
|
(17
|
)
|
|
(162
|
)
|
Bad debt expense
|
147
|
|
|
—
|
|
Gain on extinguishment of debt
|
(116
|
)
|
|
—
|
|
Income from equity investment in joint venture
|
(187
|
)
|
|
—
|
|
Interest expense restructured to debt
|
—
|
|
|
3,258
|
|
Change in operating assets and liabilities, net of acquisitions:
|
|
|
|
Accounts receivable
|
1,823
|
|
|
(55
|
)
|
Due to/(from) related parties
|
113
|
|
|
(2,148
|
)
|
Inventories
|
67
|
|
|
(28
|
)
|
Prepaid expenses and other current assets
|
(1,184
|
)
|
|
(590
|
)
|
Accounts payable and accrued liabilities
|
1,117
|
|
|
(199
|
)
|
Other
|
18
|
|
|
45
|
|
Net cash provided by (used in) operating activities
|
3,721
|
|
|
(1,470
|
)
|
Cash flows from investing activities:
|
|
|
|
Acquisition of fixed assets
|
(2,103
|
)
|
|
(819
|
)
|
Proceeds on sales of fixed assets
|
125
|
|
|
800
|
|
Acquisition of American Electric, net of cash received
|
(1,876
|
)
|
|
—
|
|
Acquisition of Diversenergy, net of cash received
|
611
|
|
|
—
|
|
Net cash used in investing activities
|
(3,243
|
)
|
|
(19
|
)
|
Cash flows from financing activities:
|
|
|
|
Proceeds on long-term borrowings from related parties
|
5,000
|
|
|
4,603
|
|
Payments on long-term borrowings from related parties
|
(2,582
|
)
|
|
(1,233
|
)
|
Payments on long-term borrowings
|
—
|
|
|
(2,420
|
)
|
Proceeds from short-term notes payable
|
767
|
|
|
408
|
|
Payments on short-term notes payable
|
(394
|
)
|
|
(452
|
)
|
Net cash provided by financing activities
|
2,791
|
|
|
906
|
|
Net increase (decrease) in cash and cash equivalents
|
3,269
|
|
|
(583
|
)
|
Cash and cash equivalents, beginning of period
|
1,247
|
|
|
1,488
|
|
Cash and cash equivalents, end of period
|
$
|
4,516
|
|
|
$
|
905
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Interest paid
|
$
|
1,108
|
|
|
$
|
1,121
|
|
Income taxes paid
|
—
|
|
|
—
|
|
Non-cash investing and financing activities:
|
|
|
|
Extinguishment of long-term debt
|
$
|
7,000
|
|
|
$
|
—
|
|
Equipment acquired under capital leases
|
—
|
|
|
1,335
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements
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 120,000 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.
As a result of the business combination with American Electric Technologies, Inc. (“American Electric”) discussed below, we also provide power delivery solutions to the global energy industry through our wholly-owned subsidiary in Brazil, M&I Electric Brazil Sistemas e Servicios em Energia LTDA (“M&I Brazil”) and our joint venture in China, BOMAY Electric Industries Co., Ltd. (“BOMAY”) with a subsidiary of China National Petroleum Company.
On July 26, 2019 (the “Effective Date”), the Share Exchange with American Electric and its subsidiaries was completed. In the Share Exchange, American Electric acquired directly 100% of the outstanding limited liability company membership interests of Stabilis Energy, LLC (“Stabilis LLC”) from LNG Investment Company, LLC ("LNG Investment") and 20% of the outstanding limited liability membership interests of PEG Partners, LLC ("PEG") from AEGIS NG LLC ("AEGIS"). AEGIS owned a 20% noncontrolling interest of PEG. The remaining 80% of the outstanding limited liability company interests of PEG were owned directly by Stabilis LLC. As a result, Stabilis became a direct 100% owned subsidiary of American Electric and Prometheus became an indirectly-owned 100% subsidiary of American Electric. Under the Share Exchange Agreement entered into on December 17, 2018 and amended on May 8, 2019, (as amended, the “Share Exchange Agreement”), American Electric issued 13,178,750 post-split shares of common stock to acquire Stabilis LLC, which represented approximately 90% of the total amount of common stock of American Electric which was issued and outstanding as of July 26, 2019. The proposed transaction was approved by the shareholders of American Electric at a Special Meeting of Stockholders. The Share Exchange resulted in a change of control of American Electric to control by Casey Crenshaw by virtue of his beneficial ownership of 88.4% of the common stock of American Electric to be outstanding as of July 26, 2019.
Immediately following the Effective Date, the Company effectuated a reverse stock split of its outstanding common stock at a ratio of one-for-eight, American Electric changed its name to Stabilis Energy, Inc., and our common stock began trading under the ticker symbol “SLNG”.
Because the former owners of Stabilis LLC own 88.4% of the voting stock of the combined company and certain other factors including that directors designated by LNG Investment will constitute a majority of the board of directors, Stabilis LLC is considered to be acquiring American Electric in the Share Exchange for accounting purposes. As a result, the Share Exchange will be 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 in the accompanying unaudited condensed consolidated financial statements and related notes give retroactive effect to the reverse stock split. For further information regarding this transaction, see Note 3.
Basis of Presentation
The financial information represents the historical results of Stabilis for periods prior to the transaction. The operations of American Electric are included in our financial statements from the completion of the Share Exchange on July 26, 2019. The accompanying interim unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s consolidated financial position as of September 30, 2019, and results of operations for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 2019 and 2018. All
intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the nine-month periods ended September 30, 2019 and 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any future year.
Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted, but the resultant disclosures contained herein are in accordance with US GAAP as they apply to interim reporting. 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, 2018 included in the Company's Current Report filed as Form 8-K/A on October 7, 2019.
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 adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective January 1, 2017, which requires the Company 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. 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. Those plans include projected positive cash flows from operations and steps to reduce the Company's debt.
Cash flows from operations have continued to improve due to sales volumes. Management believes that its business will continue to grow and will generate sufficient cash flows to fund future operations.
On November 30, 2018, related party debt holders converted $48.7 million of debt to equity to improve the Company’s financial position and reduce its future debt service requirements. In August 2017 the Company negotiated and amended to its promissory note to Chart Industries, Inc. (“Chart”). This amendment reduced and extended its mandatory debt service payments to provide future payments that management believes are sustainable based on current and projected operating performance. On August 5, 2019, we entered into an exchange agreement with Chart for the satisfaction of indebtedness in the principal amount of $7 million in exchange for shares of our common stock. Additionally, on August 16, 2019, the Company issued a Secured Promissory Note to M/G Finance Co., Ltd. in the principal amount of $5 million,
Use of Estimates
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, and valuations assigned to assets and liabilities in business combinations. Actual results could differ from those estimates, and these differences could be material to the consolidated financial statements.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications had no effect on the Company’s financial position, results of operations or cashflows.
2. Recent Accounting Pronouncements
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-11 provides entities with an additional (and optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current U.S. GAAP (Topic 840, Leases). ASU No. 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the
non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met: If the non-lease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842. The amendments in ASU No. 2018-11 are effective at the same time as the amendments in ASU No. 2016-02 discussed below.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business or as acquisitions (or disposals) of assets. ASU No. 2017-01 is effective for annual periods beginning after December 15, 2018, with early adoption permitted under certain circumstances. The amendments of ASU No. 2017-01 were adopted by the Company effective January 1, 2019. The adoption of this standard had no impact on our consolidated financial position or results of operations, as the adoption is applied on a prospective basis.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of- use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under this new guidance, lessees are required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with lease terms of more than 12 months. We adopted this new standard as of January 1, 2019 using the modified retrospective transition method, applying the new standard to leases in place as of the adoption date. Prior periods have not been adjusted. The adoption of the new lease standard resulted in the recognition of lease liabilities and corresponding right-of-use assets of $0.2 million, on the condensed consolidated balance sheet as of January 1, 2019 for real and personal property operating leases. The adoption of ASU 2016-02 did not have a material impact on our consolidated results of operations and cash flows.
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 own approximately 88.4% of the voting stock of the combined company and certain other factors, including that directors designated by LNG Investment, parent of Stabilis LLC, will constitute a majority of the board of directors, Stabilis is considered to be acquiring American Electric in the Share Exchange for accounting purposes. As a result, the Share Exchange will be treated by American Electric as a reverse acquisition under the purchase method of accounting in accordance with US GAAP. In addition, the Company’s shares outstanding now reflect a one-for-eight reverse split.
The completion of the Share Exchange positions the Company to become a leading North American small-scale LNG production and distribution company focused on consolidating existing LNG assets, as well as investing in new assets in the United States, Mexico, and Canada.
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.
The total purchase price of the Share Exchange is as follows:
|
|
|
|
|
Number of shares of the combined company to be owned by AETI stockholders
|
1,466,092
|
|
Multiplied by the fair value per share of AETI Common Stock
|
$
|
7.12
|
|
Cash
|
$
|
650,000
|
|
Purchase price
|
$
|
11,088,573
|
|
On July 26, 2019, American Electric had 1,173,914 shares of common stock outstanding. The number of shares of American Electric common stock includes the 1,173,914 outstanding, 276,549 shares to be issued prior to the completion of the Share Exchange for conversion of 1,000,000 shares of outstanding Series A Convertible Preferred Stock and 15,629 shares related to restricted stock units and deferred shares. The fair value of American Electric common stock used in determining the purchase price was $7.12 per share based on the closing price of American Electric’s common stock on July 26, 2019.
Consistent with the purchase method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of American Electric based on their estimated fair values as of the Share Exchange 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 strategic advantages gained from the acquisition of a public entity with access to LNG markets in Brazil and China. All of the goodwill is assigned to the Power Delivery segment and is not expected to be deductible for income tax purposes.
The allocation of the purchase price for the acquired assets and liabilities of the proposed merger is as follows (in thousands):
|
|
|
|
|
Total purchase price
|
$
|
11,089
|
|
Current Assets
|
3,611
|
|
Property, plant and equipment, net
|
532
|
|
Investment in foreign joint venture
|
9,333
|
|
Other noncurrent assets
|
410
|
|
Total identifiable assets
|
13,886
|
|
Accounts payable and other accrued expenses
|
(3,221
|
)
|
Accrued liabilities and other current liabilities
|
(138
|
)
|
Other Liabilities
|
(84
|
)
|
Total liabilities assumed
|
(3,443
|
)
|
Goodwill
|
$
|
646
|
|
The following table presents summarized financial information of American Electric since July 26, 2019, the acquisition date.
|
|
|
|
|
|
July 27 - September 30,
|
|
2019
|
Revenue
|
$
|
1,371
|
|
Loss before income tax expense
|
(145
|
)
|
Net loss from continuing operations
|
(145
|
)
|
The following table presents preliminary unaudited pro forma results of operations reflecting the acquisition of American Electric as if the acquisition had occurred as of January 1, 2018. This information has 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 at the beginning of the periods presented or that may be achieved in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue
|
$
|
11,302
|
|
|
$
|
9,934
|
|
|
$
|
38,543
|
|
|
$
|
32,451
|
|
Loss from operations
|
(3,335
|
)
|
|
(2,137
|
)
|
|
(4,862
|
)
|
|
(7,126
|
)
|
Net loss
|
(3,557
|
)
|
|
(3,450
|
)
|
|
(5,846
|
)
|
|
(10,328
|
)
|
Loss per common share - basic and diluted:
|
(0.24
|
)
|
|
(0.24
|
)
|
|
(0.40
|
)
|
|
(0.71
|
)
|
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 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.
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 aggregate consideration paid in connection with the acquisition has been allocated to Diversenergy's tangible and intangible assets and liabilities based on their fair market values at the time of the completion of the acquisition. The assets and liabilities and results of operations of Diversenergy are consolidated into the results of operations of Stabilis as of the completion of the Share Exchange.
The total purchase price of the Diversenergy acquisition is as follows:
|
|
|
|
|
Estimated number of shares issued to Diversenergy stockholders
|
684,963
|
|
Multiplied by the fair value per share of Stabilis Common Stock
|
$
|
4.38
|
|
Cash
|
$
|
2,000,000
|
|
Purchase price
|
$
|
5,000,000
|
|
The following table summarizes the preliminary allocation of the purchase price to the fair value of the respective assets and liabilities acquired (in thousands). The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any measurement period adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
|
|
|
|
|
Total purchase price
|
$
|
5,000
|
|
Current Assets
|
164
|
|
Property, plant and equipment, net
|
507
|
|
Other noncurrent assets
|
114
|
|
Total identifiable assets
|
785
|
|
Current liabilities
|
(99
|
)
|
Total liabilities assumed
|
(99
|
)
|
Goodwill
|
$
|
4,314
|
|
Pro forma results of operations reflecting the Diversenergy acquisition as if it occurred as of the beginning of the periods presented in this report do not materially differ from actual reported results.
Energía Superior. 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. CryoMex is led by Grupo CLISA, a Monterrey, Mexico-based developer and operator of businesses in multiple end markets including energy. We own a 50% interest in Energía Superior.
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.
See Note 9 for discussion of our investment in Energía Superior.
4. Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance and creates ASC Topic 606. This ASU provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On January 1, 2018, the Company adopted ASC 606 on a modified retrospective basis and applied the guidance to all of its contracts. As a result of the Company’s adoption, there were no changes to the timing of the recognition or measurement
of revenue, and there was no cumulative effect of adoption as of January 1, 2018. Therefore, the only changes to the financial statements related to the adoption is in the footnote disclosures as included herein.
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.
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 has the ability to substitute alternative assets throughout the period of use (i.e., the customer cannot prevent the Company from substituting an asset), and alternative assets are readily available and could be sourced within a reasonable period of time. 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. Additionally, each month end the Company records unbilled revenue (a contract asset) related to our Power Delivery business based upon completed and partially completed performance obligations through month end providing the Company an unconditional right to payment for the services performed or products sold for the related period. The Company has no other material contract assets or liabilities and contract costs.
Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use and value-added taxes, are excluded from revenue.
The table below presents revenue disaggregated by source, for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
LNG Product
|
$
|
7,919
|
|
|
$
|
6,914
|
|
|
$
|
26,872
|
|
|
$
|
21,812
|
|
Rental, services and other
|
2,595
|
|
|
1,087
|
|
|
7,712
|
|
|
4,754
|
|
|
$
|
10,514
|
|
|
$
|
8,001
|
|
|
$
|
34,584
|
|
|
$
|
26,566
|
|
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 to the global energy industry through our wholly-owned subsidiary in Brazil and our joint venture in China.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues
|
|
|
|
|
|
|
|
LNG
|
$
|
9,143
|
|
|
$
|
8,001
|
|
|
$
|
33,213
|
|
|
$
|
26,566
|
|
Power Delivery
|
1,371
|
|
|
—
|
|
|
1,371
|
|
|
—
|
|
Total
|
10,514
|
|
|
8,001
|
|
|
34,584
|
|
|
26,566
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
LNG
|
(2,988
|
)
|
|
(2,015
|
)
|
|
(3,914
|
)
|
|
(5,196
|
)
|
Power Delivery
|
(266
|
)
|
|
—
|
|
|
(266
|
)
|
|
—
|
|
Total
|
(3,254
|
)
|
|
(2,015
|
)
|
|
(4,180
|
)
|
|
(5,196
|
)
|
Depreciation
|
|
|
|
|
|
|
|
LNG
|
2,277
|
|
|
2,190
|
|
|
6,862
|
|
|
6,573
|
|
Power Delivery
|
30
|
|
|
—
|
|
|
30
|
|
|
—
|
|
Total
|
2,307
|
|
|
2,190
|
|
|
6,892
|
|
|
6,573
|
|
Income from equity investments in foreign joint ventures
|
|
|
|
|
|
|
|
LNG
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Power Delivery
|
187
|
|
|
—
|
|
|
187
|
|
|
—
|
|
Total
|
$
|
187
|
|
|
$
|
—
|
|
|
$
|
187
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Assets
|
|
|
|
|
|
|
|
LNG
|
|
|
|
|
$
|
77,866
|
|
|
$
|
74,705
|
|
Power Delivery
|
|
|
|
|
13,582
|
|
|
—
|
|
Total
|
|
|
|
|
$
|
91,448
|
|
|
$
|
74,705
|
|
For the purposes of the operating segment disclosure, the Company presents operating income as it is the most comparable measure to the amounts presented on the condensed consolidated statement of operations.
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.
6. Prepaid Expenses and Other Current Assets
The Company’s prepaid expenses and other current assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
Prepaid LNG
|
$
|
105
|
|
|
$
|
367
|
|
Prepaid insurance
|
876
|
|
|
174
|
|
Other Receivables
|
1,649
|
|
|
672
|
|
Deposits
|
579
|
|
|
578
|
|
Other
|
659
|
|
|
324
|
|
Total Prepaid expenses and other current assets
|
$
|
3,868
|
|
|
$
|
2,115
|
|
7. Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
Liquefaction plants and systems
|
$
|
40,573
|
|
|
$
|
39,679
|
|
Real property and buildings
|
1,765
|
|
|
1,396
|
|
Vehicles and tanker trailers and equipment
|
46,329
|
|
|
44,878
|
|
Computer and office equipment
|
364
|
|
|
238
|
|
Construction in progress
|
829
|
|
|
1,071
|
|
Leasehold improvements
|
1
|
|
|
1
|
|
|
89,861
|
|
|
87,263
|
|
Less: accumulated depreciation
|
(27,244
|
)
|
|
(20,657
|
)
|
|
$
|
62,617
|
|
|
$
|
66,606
|
|
Depreciation expense for the nine months ended September 30, 2019 and 2018 totaled $6.9 million and $6.6 million respectively, of which all is included in the consolidated statements of operations as its own and separate line item.
8. Goodwill
The following presents changes in goodwill during 2019 (in thousands):
|
|
|
|
|
|
Goodwill
|
|
|
December 31, 2018
|
$
|
—
|
|
Acquisition of American Electric
|
646
|
|
Acquisition of Diversenergy
|
4,314
|
|
September 30, 2019
|
$
|
4,960
|
|
See Note 3 for discussion of the acquisitions.
9. Investments in Foreign Joint Ventures
BOMAY. As a result of the completion of the Share Exchange on July 26, 2019, 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).
The Company made no sales to its joint venture in the three months ended September 30, 2019.
Below is summary financial information for BOMAY at September 30, 2019 and operational results for the period from July 27, 2019 to September 30, 2019 in U.S. dollars (in thousands, unaudited):
|
|
|
|
|
|
September 30, 2019
|
Assets:
|
|
Total current assets
|
$
|
73,075
|
|
Total non-current assets
|
3,304
|
|
Total assets
|
$
|
76,379
|
|
Liabilities and equity:
|
|
Total liabilities
|
$
|
50,713
|
|
Total joint ventures’ equity
|
25,666
|
|
Total liabilities and equity
|
$
|
76,379
|
|
|
|
|
|
|
|
July 27 - September 30,
|
|
2019
|
|
|
Revenue
|
$
|
8,466
|
|
Gross Profit
|
1,668
|
|
Earnings
|
467
|
|
The following is a summary of activity in our investment in BOMAY for the period from July 27, 2019 to September 30, 2019 in U.S. dollars (in thousands, unaudited):
|
|
|
|
|
|
September 30, 2019
|
Investments in BOMAY(1)
|
|
Balance at July 26, 2019
|
$
|
9,333
|
|
Undistributed earnings:
|
|
Balance at July 26, 2019
|
—
|
|
Equity in earnings
|
187
|
|
Dividend distributions
|
—
|
|
Balance at end of period
|
187
|
|
Foreign currency translation:
|
|
Balance at July 26, 2019
|
—
|
|
Change during the period
|
(252
|
)
|
Balance at end of period
|
(252
|
)
|
Total investment in BOMAY at September 30, 2019(2)
|
$
|
9,268
|
|
________
|
|
1.
|
Accumulated statutory reserves in equity method investments of $2.81 million at September 30, 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.
|
At September 30, 2019, the Company’s investment in BOMAY of $9.3 million differs from the Company’s 40% share of BOMAY’s equity of $10.3 million. The basis difference of approximately $1.0 million will be accreted over the remaining nine year life of the joint venture.
|
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 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 September 30, 2019.
Energía Superior. On August 20, 2019, we completed the formation of Energía Superior, a joint venture with CryoMex, to pursue investments in distributed natural gas production and distribution assets in Mexico. CryoMex is controlled by Grupo CLISA,
a Monterrey, Mexico-based developer and operator of businesses in multiple end markets including energy. We own a 50% interest in Energía Superior.
As of September 30, 2019, the Company has not made any material investments in Energía Superior.
10. Accrued Liabilities
The Company’s accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
Compensation and benefits
|
$
|
2,475
|
|
|
$
|
907
|
|
Professional fees
|
619
|
|
|
827
|
|
LNG fuel and transportation
|
1,146
|
|
|
612
|
|
Accrued interest
|
59
|
|
|
220
|
|
Other taxes payable
|
311
|
|
|
100
|
|
Other operating expenses
|
785
|
|
|
247
|
|
Total Accrued Liabilities
|
$
|
5,395
|
|
|
$
|
2,913
|
|
11. Debt
The Company’s carrying value of debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
Secured Term Note Payable
|
$
|
7,077
|
|
|
$
|
9,077
|
|
Insurance and Other Notes Payable
|
831
|
|
|
121
|
|
Less: Amounts due within one year
|
(1,831
|
)
|
|
(2,621
|
)
|
Total Long-Term Debt
|
$
|
6,077
|
|
|
$
|
6,577
|
|
Secured Term Note Payable
On September 30, 2013, Stabilis LNG Eagle Ford, LLC ("Stabilis LNG EF") entered into a Secured Term Note Payable with Chart Energy & Chemicals, Inc. (“Chart E&C”), a Delaware corporation and subsidiary of Chart, in connection with a Master Sales Agreement whereby Chart E&C agreed to sell Stabilis LNG EF certain equipment for its liquefaction plant. The total value of the agreement was not to exceed $20.5 million and was billed in advances based on a “Milestone Payment Schedule”. The note contained various covenants that limit the Stabilis LNG EF’s ability to grant certain lines, incur additional indebtedness, guarantee or become contingently liable for obligations of any person except for those allowed by Chart E&C, merge or consolidate into or with a third party or engage in certain asset dispositions and acquisitions, pay dividends or make distributions, transact with affiliates, prepayment of indebtedness, and issue additional equity interests. Further, the Master Sales Agreement was secured by a $20.0 million equity interest and first lien on all plant assets including land. Borrowings bear interest on the outstanding principal at the rate of 3.0% plus the London interbank offered rate.
The Secured Term Note Payable was amended on August 21, 2017 whereby only the payment terms of principal and interest were modified to be payable in eight installments as follows: (i) $2.5 million plus accrued interest due on August, 24, 2017, (ii) $2.5 million plus accrued interest due on August 24, 2018, (iii) $2.5 million plus accrued interest due on August 24, 2019, (iv) four equal payments of $1.5 million plus accrued interest on each anniversary date of August 24, 2019 thereafter, (v) and $0.6 million plus accrued interest on the remaining unpaid balance of the Amended Secured Term Note Payable on August 24, 2024. In the event all principal and interest is paid in full by August 24, 2023, an additional payment of $2.2 million is to be forgiven.
On August 5, 2019, we entered into an exchange agreement (the “Exchange Agreement”) with 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. Management determined the modifications to be substantial and pursuant to ASC 470, the transaction was treated as a debt extinguishment for accounting purposes. Accordingly, the Company recognized a gain on extinguishment of debt of $0.1 million, which is included in Other Income in the accompanying Condensed Consolidated Statement of Operations.
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.
Secured Promissory Note
On August 16, 2019, the Company issued a Secured Promissory Note to M/G Finance Co., Ltd., a related party, in the principal amount of $5 million, at an interest rate per annum of 6% until December 10, 2020, and 12% thereafter. The debt payments are interest only through December 2020 followed by monthly principal and interest payments through December of 2022. The debt is secured by certain pieces of the Company’s equipment valued at $5 million. See Note 13 for further discussion of the Promissory Note.
Insurance Notes Payable
The Company finances its annual commercial insurance premiums for its business and operations with a finance company. The dollar amount financed was $0.5 million for the 2019 to 2020 policy. The outstanding principal balance on the premium finance note was $0.1 million at December 31, 2018 and $0.5 million at September 30, 2019. The renewal occurred in August 2019 and covers a period of up to one year. The Company makes equal monthly payments of principal and interest over the term of the notes which are generally 10 months in term. The interest rate for the 2018 to 2019 insurance policy was 5.4%. The interest rate for the 2019 to 2020 insurance policy is 6.2%. The note is unsecured.
Term Loan Facility
In connection with the acquisition of American Electric (see Note 3), the Company assumed a Loan Facility between M&I Brazil, a subsidiary, and an employee and current director of the Company. The Loan Agreement provides the Company with a $0.3 million loan facility of which $0.2 million is drawn and is outstanding as of September 30, 2019. All outstanding amounts, including accrued but unpaid interested, are due in June 2020. Under the loan agreement, the interest rate on the loan facility is 10.0%, per annum, payable each quarter. The loan facility is secured by the assets held by M&I Brazil.
Unsecured Term Note Payable
The Company also assumed a short-term financing arrangement between M&I Brazil and Santander Bank, which was used to finance project expenditures. The loan is due March 2020, with an interest rate of 11.88%. At September 30, 2019, the outstanding balance is $0.2 million .
12. Leases
We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in our condensed consolidated balance sheet unless it is reasonably certain we will renew the lease. All leases with an initial term greater than 12 months, whether classified as operating or finance, are recorded to our condensed consolidated balance sheet based on the present value of lease payments over the lease term, determined at lease commencement. Determination of the present value of lease payments requires discount rate. We use the implicit rate in the lease agreement when available. Most of our leases do not provide an implicit interest rate: therefore, we use a weighted average borrowing rate based on the information available at the commencement date.
Our lease portfolio primarily consists of operating leases for certain, facilities, office spaces and equipment. Our leases have remaining terms of 1 year to 5 years and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The operating lease asset also includes any upfront lease payments made and excludes lease incentives and initial direct cost incurred. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
The following table summarized the supplemental balance sheet information related to lease assets and lease liability obligations as of September 30, 2019 (in thousands, unaudited):
|
|
|
|
|
|
|
Classification
|
September 30, 2019
|
Assets
|
|
|
Operating lease assets
|
Operating lease right-of-use assets
|
$
|
1,002
|
|
Finance lease assets
|
Property and equipment, net of accumulated depreciation
|
9,595
|
|
Total lease assets
|
|
10,597
|
|
Liabilities
|
|
|
Current
|
|
|
Operating
|
Current portion of operating lease obligations
|
340
|
|
Finance
|
Current portion of finance lease obligation
|
4,662
|
|
Noncurrent
|
|
|
Operating
|
Operating lease liabilities
|
682
|
|
Finance
|
Finance lease obligations,—related parties, net of current portion
|
3
|
|
Total lease liabilities
|
|
$
|
5,687
|
|
The following table summarizes the components of lease expenses for the three and nine months ended September 30, 2019 (in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Cost
|
|
Classification
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Operating lease cost
|
|
Cost of sales and Selling, general and administrative expenses
|
$
|
203
|
|
|
$
|
—
|
|
|
$
|
298
|
|
|
$
|
—
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
Cost of operations
|
274
|
|
|
261
|
|
|
858
|
|
|
759
|
|
Interest on lease liabilities
|
|
Interest expense
|
170
|
|
|
176
|
|
|
510
|
|
|
542
|
|
Net lease cost
|
|
|
$
|
647
|
|
|
$
|
437
|
|
|
$
|
1,666
|
|
|
$
|
1,301
|
|
In 2014, the Company entered into a five year non-cancelable operating lease for an office in Denver, Colorado. In January 2019, the Company amended its operating lease for the Denver, Colorado office relocating to a smaller office suite and reducing the lease expense for the remainder of the term. The total rent expense incurred under the lease for the nine months ended September 30, 2019 and 2018 totaled $74 thousand and $175 thousand, respectively. In February of 2018, the Company began to sublease a portion of the office space to a subsidiary of TMG for $5 thousand a month through December 2018 and $2 thousand a month beginning January 2019 (see Note 13, Related Party Transactions for further discussion).
In December 2018, the Company entered into a one year lease for equipment used at our liquefaction plant in George West, Texas. The lease called for monthly payments of $13 thousand through December 31, 2019.
In January 2019, the Company extended its lease for one year for yard space from an unrelated party in Fort Lupton, Colorado. The lease called for monthly payments of $2 thousand through December 31, 2019. The Company subleased the yard space to a subsidiary of TMG during 2018 (see Note 13, Related Party Transactions for further discussion).
The Company leases certain buildings and facilities, including office space in Bellevue, Washington; Houston, Texas; and certain equipment under non-cancellable operating leases expiring at various dates through 2022. M&I Brazil leases offices and facilities in three cities in Brazil that are under operating lease agreements. The leases expire at various dates through January 2022. The assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments based on Brazil’s General Market Price Index rate. Brazil also has multiple short-term equipment leases which are less than twelve months and have no cancellation penalties, therefore they are not recorded in the balance sheet.
The following schedule presents the future minimum lease payments for our operating and finance obligations at September 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Total
|
Remainder 2019
|
$
|
80
|
|
|
$
|
1,108
|
|
|
$
|
1,188
|
|
2020
|
420
|
|
|
3,879
|
|
|
4,299
|
|
2021
|
221
|
|
|
—
|
|
|
221
|
|
2022
|
144
|
|
|
—
|
|
|
144
|
|
Thereafter
|
321
|
|
|
—
|
|
|
321
|
|
Total lease payments
|
1,186
|
|
|
4,987
|
|
|
6,173
|
|
Less: Interest
|
(164
|
)
|
|
(322
|
)
|
|
(486
|
)
|
Present value of lease liabilities
|
$
|
1,022
|
|
|
$
|
4,665
|
|
|
$
|
5,687
|
|
Lease term and discount rates for our operating and finance lease obligations are as follows:
|
|
|
|
|
Lease Term and Discount Rate
|
|
September 30, 2019
|
Weighted-average remaining lease term (years)
|
|
|
Operating leases
|
|
3.8
|
|
Finance leases
|
|
0.7
|
|
Weighted-average discount rate
|
|
|
Operating leases
|
|
7.2
|
%
|
Finance leases
|
|
9.9
|
%
|
The following table summarizes the supplemental cash flow information related to leases as of September 30, 2019:
|
|
|
|
|
|
Other information
|
|
September 30, 2019
|
|
|
(In thousands)
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
Operating cash flows from operating leases
|
|
$
|
298
|
|
Financing cash flows from finance leases
|
|
2,582
|
|
Interest paid
|
|
510
|
|
Noncash activities from right-of-use assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
|
$
|
1,173
|
|
13. Related Party Transactions
Finance Lease Obligations
During 2017, Stabilis LLC refinanced its’ lease agreement with a subsidiary of The Modern Group, Ltd. (“The Modern Group”) for equipment purchases totaling approximately $10.1 million. The following individuals serve in various leadership capacities for The Modern Group: Casey Crenshaw (our Executive Chairman and Chairman of our Board) as President, Will Crenshaw (a member of our Board) as Chairman and Chief Executive Officer, and Ben Broussard (a member of our Board) as Director of Finance and as COO of M/G Finance Co., Ltd., 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 a sibling. Under the terms of the lease agreement, the Company’s monthly payments were interest-only for the first 12 months at an annual rate of 6%. The
Company is repaying 80% of the outstanding lease obligation over the remaining term of 36 months at an annual interest rate of 10%.
During 2018, Stabilis LLC entered into lease agreements with a subsidiary of The Modern Group to finance vehicles and machinery and equipment totaling approximately $1.5 million. Under the terms of the leases, the balance is due in equal monthly installments over 24 months at annual interest rate of 10%.
The Company’s carrying value of finance lease obligations to related parties consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Finance Lease Obligations with subsidiary of The Modern Group, Ltd
|
$
|
4,665
|
|
|
$
|
7,246
|
|
Less: Amounts due within one year
|
(4,662
|
)
|
|
(3,879
|
)
|
Total Long Term Finance Lease Obligations to Related Parties
|
$
|
3
|
|
|
$
|
3,367
|
|
Secured Promissory Note
On August 16, 2019, the Company issued a Secured Promissory Note to M/G Finance Co., Ltd. in the principal amount of $5 million. Casey Crenshaw, our Executive Chairman and Chairman of our Board, serves as the President of M/G Finance Co., Ltd. M/G Finance Co. Ltd. is a subsidiary of The Modern Group. See Note 11 for further discussion of the Promissory Note.
Term Loan Facility
In connection with the acquisition of American Electric (see Note 3), the Company assumed a Loan Facility between M&I Brazil, a subsidiary, and an employee and current director of the Company. The Loan Agreement provides the Company with a $0.3 million loan facility of which $0.2 million is drawn and is outstanding as of September 30, 2019. All outstanding amounts, including accrued but unpaid interested, are due in June 2020. Under the loan agreement, the interest rate on the loan facility is 10.0%, per annum, payable each quarter. The loan facility is secured by the assets held by M&I Brazil.
Operating Leases
The Company subleases land in Fort Lupton, Colorado to a subsidiary of The Modern Group. During both the nine months ended September 30, 2019 and 2018, amounts billed to The Modern Group under the agreement totaled $9 thousand. During both the three months ended September 30, 2019 and 2018, amounts billed to TMG under the agreement totaled $3 thousand.
The Company subleases space in Denver, Colorado to a subsidiary of The Modern Group. During the nine months ended September 30, 2019 and 2018, the Company billed $18 thousand and $40 thousand, respectively, to The Modern Group under the agreement. During the three months ended September 30, 2019 and 2018, the Company billed $6 thousand and $15 thousand, respectively, to TMG under the agreement.
Payroll and Benefits
The Company utilizes payroll and benefit resources from The Modern Group. During the nine months ended September 30, 2019 and 2018, the Company incurred expenses of $4 thousand and $10 thousand for processing and administrative charges associated with payroll processing. During the three months ended September 30, 2018, the Company incurred expenses of $3 thousand for processing and administrative charges associated with payroll processing. There were no expenses incurred for processing and administrative charges during the three months ended September 30, 2019 due to a transition to a third party.
Other Purchases
The Company has issued a purchase order to Applied Cryo Technologies, Inc. (“ACT”), a company owned 51% by Crenshaw Family Holdings International, Inc., for equipment totaling $302 thousand. The Company expects to take delivery of equipment late in 2019. The Company also paid ACT $110 thousand thousand for equipment repairs and services.
The Company purchases supplies and services from a subsidiary of The Modern Group. During the nine months ended September 30, 2019 and 2018, purchases from The Modern Group totaled $44 thousand and $88 thousand, respectively. During
the three months ended September 30, 2018, purchases from The Modern Group totaled $53 thousand. There were no purchases of supplies and services during the three months ended September 30, 2019.
14. 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 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.
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 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 consolidated financial position, results of operations, or liquidity. Additionally, the Company currently expenses all legal costs as they are incurred.
In August 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. In October 2018, 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 September 30, 2019, there have not been any updates to the potential liability. The Company is working with legal counsel to resolve the matter.
15. Stockholders’ Equity
On November 28, 2018, Stabilis LLC's members and related party creditors entered into a two-step Contribution and Exchange Agreement to form LNG Investment and restructure the capitalization of Stabilis LLC which resulted in the following transactions.
On November 30, 2018, Stabilis LLC's members contributed 1,000 membership units in Stabilis LLC having a carrying amount of $20 million to LNG Investment in exchange for 2,000 Class B units having a carrying amount of $20 million in LNG Investment. An aggregate of 2,000 Class B units were issued by LNG Investment to Stabilis LLC having a carrying amount of $20 million. The contribution and exchange of units resulted in Stabilis LLC becoming a wholly owned subsidiary of LNG Investment. Subsequently, Stabilis LLC's members and related party creditors, holders of an aggregate net carrying amount of $48.7 million of indebtedness, contributed their individual indebtedness to LNG Investment in exchange for Class A units in proportion to their percentage of indebtedness in total. An aggregate of 4,874.28 Class A units were issued by LNG Investment to the related party creditors of the Company having a carrying amount of $48.7 million.
On December 17, 2018, the Stabilis LLC entered into a definitive share exchange agreement with American Electric to enter into a business combination transaction. Under the terms of the agreement, Stabilis LLC’s owners were to contribute 100% of their outstanding membership units to American Electric in exchange for American Electric common stock resulting in Stabilis LLC and its subsidiaries becoming a wholly-owned subsidiary of American Electric.
On July 26, 2019, we completed the Share Exchange by which American Electric acquired 100% of the outstanding limited liability company interests of Stabilis LLC from LNG Investment and 20% of the outstanding limited liability company interests of PEG from AEGIS. The remaining 80% of the outstanding limited liability company interests of PEG are owned directly by Stabilis LLC. As a result, Stabilis LLC became a 100% directly-owned subsidiary and PEG became a 100% indirectly-owned subsidiary of American Electric. Under the Share Exchange Agreement entered into on December 17, 2018 and amended on May 8, 2019, American Electric issued 13,178,750 shares of common stock to acquire Stabilis LLC, which represented 90% of the total amount of the common stock of American Electric which was issued and outstanding as of July 26, 2019. The Share Exchange resulted in a change of control of American Electric to be controlled by Casey Crenshaw by virtue of his beneficial ownership of 88.4% of the common stock of American Electric to be outstanding as of July 26, 2019.
The Condensed Consolidated Statements of Stockholders’ Equity presents the historical equity of Stabilis, retrospectively adjusted to the equity structure of American Electric prior to the reverse merger. The share amounts presented reflect the restated number of shares using the exchange ratio established in the Share Exchange Agreement.
On August 20, 2019, we issued 684,963 shares of our common stock valued at $3.0 million to Diversenergy as partial consideration for the completion of our acquisition of Diversenergy.
On August 30, 2019, we issued 1,470,807 shares of our common stock to Chart E&C in exchange for the satisfaction of indebtedness in the principal amount of $7 million.
16. Issuance of Common Stock and Warrants
Except as otherwise noted, all issuance of common stock and warrants reflect the 1:8 reverse stock split effective July 29, 2019.
As of September 30, 2019, we 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 23, 2020
|
Nov. 13, 2017
|
|
62,500
|
|
$18.08
|
|
Nov. 13, 2022
|
The 2012 Warrants were issued in connection with the purchase of $5 million of the Company’s Series A Convertible Preferred Stock, since converted to common stock, by an affiliate of Casey Crenshaw and they are beneficially owned by Mr. Crenshaw. The 2017 Warrants were issued to an unaffiliated party in connection with a financing transaction. All of the Warrants have a cashless exercise option. The 2012 Warrants have an anti-dilution feature that may result in a lower exercise price in the event the Company engages in certain stock issuances at a lower price than the current Warrant exercise price, including in connection with certain acquisition transactions.
As a result of the completion of the Share Exchange, we issued approximately 14,644,842 shares of Stabilis Energy, Inc. common stock (such issuances reflecting shares of common stock after to the reverse stock split effective July 29, 2019). The former holders of Stabilis LLC and its subsidiaries own approximately 90% of the combined company and the former American Electric stockholders own 10% of the combined company. We issued 12,564,733 shares of common stock to LNG Investment and 614,017 shares of common stock to AEGIS. The remaining shares were issued to American Electric stockholders.
On August 20, 2019, we issued 684,963 shares of our common stock valued at $3.0 million to Diversenergy as partial consideration for the completion of our acquisition of Diversenergy.
On August 30, 2019, we issued 1,470,807 shares of our common stock to Chart E&C in exchange for the satisfaction of indebtedness in the principal amount of $7 million.
17. Redeemable Convertible Preferred Stock
As a result of the completion of the Share Exchange, our Board of Directors has the authority, without stockholder approval, to issue up to 1,000,000 shares of Preferred Stock, $.001 par value. The authorized Preferred Stock may be issued by the Board of Directors in one or more series and with the rights, privileges and limitations of the Preferred Stock determined by the Board of Directors. The rights, preferences, powers and limitations of different series of Preferred Stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, and other matters. As of September 30, 2019, we have no Preferred Stock outstanding.
18. Employee Benefits
The Company has established a savings plan ("Savings Plan") which is qualified under Section 401(k) of the Internal Revenue Code. Eligible employees may elect to make contributions to the Savings Plan through salary deferrals of up to 90% of their base pay, subject to Internal Revenue Code limitations. The Company contributes to the Savings Plans, subject to limitations. For the nine months ended September 30, 2019 and 2018 the Company contributed $95 thousand and $38 thousand, respectively, in matching contributions to the Savings Plan. For the three months ended September 30, 2019 and 2018 the Company contributed $40 thousand and $13 thousand, respectively, in matching contributions to the Savings Plan.
19. Income Taxes
The components for income tax expense included in the accompanying statement of operations for the nine months ended September 30, 2019 and full year 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Current state income tax expense
|
$
|
38
|
|
|
$
|
—
|
|
Deferred federal income tax expense
|
—
|
|
|
—
|
|
Total income tax expense
|
$
|
38
|
|
|
$
|
—
|
|
A reconciliation of income taxes computed using the 21% U.S. federal statutory rate to the amount reflected in the accompanying consolidated statement of operations for the nine months ended September 30, 2019 and full year 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Income tax benefit using U.S. federal statutory rate
|
$
|
1,005
|
|
|
$
|
2,328
|
|
State Income Tax Expense
|
(30
|
)
|
|
—
|
|
Non-deductible expenses
|
(10
|
)
|
|
17
|
|
Impact of change in statutory rate
|
|
|
|
Change in valuation allowance
|
(683
|
)
|
|
(2,311
|
)
|
RTP/Other Adjustments
|
(320
|
)
|
|
(34
|
)
|
|
$
|
(38
|
)
|
|
$
|
—
|
|
The effects of temporary differences and carryforwards that give rise to deferred tax assets (liabilities) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Federal net operating loss carryforward
|
$
|
11,202
|
|
|
$
|
10,876
|
|
Federal Sec. 382 net operating loss carryforward
|
3,642
|
|
|
—
|
|
Accrued interest to related parties, not deductible until paid
|
259
|
|
|
334
|
|
Stock options
|
614
|
|
|
—
|
|
Accrued compensation
|
39
|
|
|
—
|
|
Basis of intangible assets
|
332
|
|
|
221
|
|
Basis in foreign entity
|
509
|
|
|
—
|
|
Valuation allowance
|
(9,438
|
)
|
|
(3,950
|
)
|
Total deferred tax assets
|
7,159
|
|
|
7,481
|
|
|
|
|
|
Basis of property, plant and equipment
|
6,969
|
|
|
7,447
|
|
Bad debt expense
|
39
|
|
|
34
|
|
Prepaid expenses
|
151
|
|
|
—
|
|
Total deferred tax liabilities
|
7,159
|
|
|
7,481
|
|
Net deferred tax liabilities
|
$
|
—
|
|
|
$
|
—
|
|
At September 30, 2019 the Company has net operating loss carry forwards of approximately $53.6 million which may be used to offset future taxable income. The net operating loss carryforwards includes $42.8 million of losses arising prior to December 31, 2017 that expire in 2028 through 2037. Those arising in tax years after 2017 can be carried forward indefinitely. Also, for losses arising in taxable years beginning after December 31, 2017 the operating loss deduction is limited to 80% of taxable income (determined without regard to the deduction). Since the Company has not yet generated significant taxable income, a valuation allowance has been established to fully reserve the Company's net deferred tax assets at September 30, 2019. A change in ownership eliminated substantially all net operating loss carryforwards of an acquired subsidiary at July 26, 2019. The elimination of those loss carryforwards is shown above as a section 382 limitation.
The Company recognizes the tax benefit or obligation from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also past administrative practices and precedents of the taxing authority. The tax benefits or obligations are recognized in our financial statements if there is a greater than 50% likelihood of the tax benefit or obligation being realized upon ultimate resolution. As of nine months ended September 30, 2019 and year ended December 31, 2018, the Company had no uncertain tax positions that required recognition.
As of September 30, 2019, the Company's tax returns for years 2015 to 2018 remain subject to examination for both federal and state filings.