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,~~June 30, 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

☐

~~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,~~August 5, 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,~~June 30, 2020

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 satisfy our liquidity needs, including our ability to generate sufficient liquidity or cash flow from operations and our ability to obtain additional financing to affect our strategy;

•loss of one or more of our customers;

•credit and performance risk of our customers and contractual counterparties;

•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 ongoing COVID-19 outbreak, ~~beginning in early 2020,~~ which could ~~impact~~further deteriorate 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 successfully integrate ~~successfully acquisitions in the expected timeframe;~~acquisitions; 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.

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				June 30, 2020		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	3,162		$	3,979		Cash and cash equivalents	$	7,056	$	3,979
Accounts receivable, net	6,158			5,945			Accounts receivable, net	1,499		5,945
Inventories, net	127			209			Inventories, net	187		209

Prepaid expenses and other current assets	2,379			3,583			Prepaid expenses and other current assets	2,114		3,583
Due from related parties	19			—

Total current assets	11,845			13,716			Total current assets	10,856		13,716
Property, plant and equipment, net	58,177			60,363			Property, plant and equipment, net	55,983		60,363
Right-of-use assets	849			965			Right-of-use assets	841		965
Goodwill	4,453			4,453			Goodwill	4,453		4,453
Investments in foreign joint ventures	10,120			10,521			Investments in foreign joint ventures	9,174		10,521
Other noncurrent assets	301			308			Other noncurrent assets	303		308
Total assets	$	85,745		$	90,326		Total assets	$	81,610	$	90,326
Liabilities and Equity							Liabilities and Equity
Current liabilities:							Current liabilities:
Current portion of long-term notes payable							Current portion of long-term notes payable	$	313	$	—
Current portion of long-term notes payable - related parties	$	1,000		$	1,000		Current portion of long-term notes payable - related parties	2,140		1,000
Current portion of finance lease obligation - related parties	3,319			3,440			Current portion of finance lease obligation - related parties	2,394		3,440
Current portion of operating lease obligations	334			364			Current portion of operating lease obligations	315		364
Short-term notes payable	321			558			Short-term notes payable	307		558
Accrued liabilities	4,490			5,018			Accrued liabilities	3,796		5,018
Accounts payable	3,283			4,728			Accounts payable	2,979		4,728
Total current liabilities	12,747			15,108			Total current liabilities	12,244		15,108
Long-term notes payable, net of current portion							Long-term notes payable, net of current portion	767		—
Long-term notes payable, net of current portion - related parties	6,077			6,077			Long-term notes payable, net of current portion - related parties	4,937		6,077
Finance lease obligations, net of current portion - related parties	1			648			Finance lease obligations, net of current portion - related parties	—		648
Long-term portion of operating lease obligations	586			650			Long-term portion of operating lease obligations	594		650
Deferred compensation	113			—			Deferred compensation	87		—
Deferred income taxes	28			—			Deferred income taxes	28		—
Total liabilities	19,552			22,483			Total liabilities	18,657		22,483
Commitments and contingencies (Note 13)							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
Stockholders' Equity:							Stockholders' Equity:
Preferred Stock; $0.001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively							Preferred Stock; $0.001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	—		—

Common stock; $0.001 par value, 37,500,000 shares authorized, 16,896,626 and 16,800,612 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively (Note 14)							Common stock; $0.001 par value, 37,500,000 shares authorized, 16,896,626 and 16,800,612 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively (Note 14)	17		17

Additional paid-in capital	90,767			90,748			Additional paid-in capital	90,906		90,748
Accumulated other comprehensive loss	(910		)	(291		)	Accumulated other comprehensive loss	(826)		(291)
Accumulated deficit	(23,681		)	(22,631		)	Accumulated deficit	(27,144)		(22,631)
Total stockholders’ equity	66,193			67,843			Total stockholders’ equity	62,953		67,843

Total liabilities and equity	$	85,745		$	90,326		Total liabilities and equity	$	81,610	$	90,326

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

Stabilis Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)


	Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019				2020		2019		2020		2019
Revenue							Revenue
LNG product	$	9,131		$	10,254		LNG product	$	2,884	$	8,699	$	12,015	$	18,953
Rental, service and other	4,707			2,721			Rental, service and other	2,119		2,396		6,826		5,117
Total revenues	13,838			12,975			Total revenues	5,003		11,095		18,841		24,070
Operating expenses:							Operating expenses:

Cost of LNG product	6,097			7,482			Cost of LNG product	2,551		5,616		8,648		13,098
Cost of rental, service and other	2,918			1,414			Cost of rental, service and other	1,790		1,696		4,708		3,110
Selling, general and administrative expenses	3,186			1,992			Selling, general and administrative expenses	2,368		2,211		5,554		4,203
Depreciation expense	2,270			2,290			Depreciation expense	2,266		2,295		4,536		4,585
Total operating expenses	14,471			13,178			Total operating expenses	8,975		11,818		23,446		24,996
Loss from operations before equity income	(633		)	(203		)	Loss from operations before equity income	(3,972)		(723)		(4,605)		(926)
Net equity loss from foreign joint ventures' operations:
Loss from equity investments in foreign joint ventures	(114		)	—
Net equity income from foreign joint ventures' operations:							Net equity income from foreign joint ventures' operations:
Income from equity investments in foreign joint ventures							Income from equity investments in foreign joint ventures	1,001		—		887		—
Foreign joint ventures' operations related expenses	(60		)	—			Foreign joint ventures' operations related expenses	(53)		—		(113)		—
Net equity loss from foreign joint ventures' operations	(174		)	—
Net equity income from foreign joint ventures' operations							Net equity income from foreign joint ventures' operations	948		—		774		—
Loss from operations	(807		)	(203		)	Loss from operations	(3,024)		(723)		(3,831)		(926)
Other income (expense):							Other income (expense):

Interest expense, net	(11		)	(3		)	Interest expense, net	(15)		(1)		(26)		(4)
Interest expense, net - related parties	(240		)	(309		)	Interest expense, net - related parties	(242)		(295)		(482)		(604)
Other income (expense)	38			(44		)	Other income (expense)	(13)		(19)		25		(63)
Gain from disposal of fixed assets	11			—			Gain from disposal of fixed assets	—		—		11		—
Total other income (expense)	(202		)	(356		)	Total other income (expense)	(270)		(315)		(472)		(671)
Loss before income tax expense	(1,009		)	(559		)	Loss before income tax expense	(3,294)		(1,038)		(4,303)		(1,597)
Income tax expense	41			—
Income tax (benefit) expense							Income tax (benefit) expense	169		—		210		—
Net loss	(1,050		)	(559		)	Net loss	(3,463)		(1,038)		(4,513)		(1,597)
Net income attributable to noncontrolling interests	—			179			Net income attributable to noncontrolling interests	—		28		—		207
Net loss attributable to Stabilis Energy, Inc.	$	(1,050	)	$	(738	)	Net loss attributable to Stabilis Energy, Inc.	$	(3,463)	$	(1,066)	$	(4,513)	$	(1,804)

Common Stock Data:							Common Stock Data:
Net loss per common share:							Net loss per common share:
Basic and diluted	$	(0.06	)	$	(0.06	)	Basic and diluted	$	(0.21)	$	(0.08)	$	(0.27)	$	(0.14)
Weighted average number of common shares outstanding:							Weighted average number of common shares outstanding:
Basic and diluted	16,819,681			13,178,750			Basic and diluted	16,887,194		13,178,750		16,853,438		13,178,750

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

Stabilis Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)


	Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019				2020		2019		2020		2019
Net loss	$	(1,050	)	$	(559	)	Net loss	$	(3,463)	$	(1,038)	$	(4,513)	$	(1,597)
Foreign currency translation adjustment	(619		)	—			Foreign currency translation adjustment	84		—		(535)		—
Total comprehensive loss	(1,669		)	(559		)	Total comprehensive loss	(3,379)		(1,038)		(5,048)		(1,597)
Total comprehensive income attributable to noncontrolling interest	—			179			Total comprehensive income attributable to noncontrolling interest	—		28		—		207
Total comprehensive loss attributable to Stabilis Energy, Inc.	$	(1,669	)	$	(738	)	Total comprehensive loss attributable to Stabilis Energy, Inc.	$	(3,379)	$	(1,066)	$	(5,048)	$	(1,804)

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

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 Income (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 issued	61,308	—		—		—		—		—		—
Stock-based compensation	—	—		139		—		—		—		139
Net loss	—	—		—		—		(3,463)		—		(3,463)
Other comprehensive income	—	—		—		84		—		—		84
Balance at June 30, 2020	16,896,626	$	17	$	90,906	$	(826)	$	(27,144)	$	—	$	62,953

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																Balance at December 31, 2018	13,178,750	$	13	$	68,244	$	—	$	(16,916)	$	1,323	$	52,664

Net loss																Net loss	—	—		—		—		(738)		179		(559)

Balance at March 31, 2019																Balance at March 31, 2019	13,178,750	13		68,244		—		(17,654)		1,502		52,105

Net loss																Net loss	—	—		—		—		(1,066)		28		(1,038)

Balance at June 30, 2019																Balance at June 30, 2019	13,178,750	$	13	$	68,244	$	—	$	(18,720)	$	1,530	$	51,067

	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.

Stabilis Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended March 31,							Six Months Ended June 30,
	2020			2019				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net loss	$	(1,050	)	$	(559	)	Net loss	$	(4,513)	$	(1,597)
Adjustments to reconcile net loss to net cash provided by operating activities:							Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization	2,270			2,290			Depreciation and amortization	4,536		4,585
Deferred income tax expense	41			—			Deferred income tax expense	28		—
Stock-based compensation expense	19			—			Stock-based compensation expense	158		—
Bad debt expense	144			—			Bad debt expense	144		—
Gain on disposal of fixed assets	(11		)	—			Gain on disposal of fixed assets	(11)		—
Loss from equity investment in joint venture	114			—

Income from equity investment in joint venture							Income from equity investment in joint venture	(887)		—
Distributions from equity investment in joint venture							Distributions from equity investment in joint venture	2,054		—

Deferred compensation costs							Deferred compensation costs	87		—

Change in operating assets and liabilities, net of acquisitions:							Change in operating assets and liabilities, net of acquisitions:
Accounts receivable	(356		)	(2,697		)	Accounts receivable	4,316		(601)
Due to (from) related parties	(19		)	482			Due to (from) related parties	—		(708)
Inventories	82			46			Inventories	28		59

Prepaid expenses and other current assets	991			903			Prepaid expenses and other current assets	920		709
Accounts payable and accrued liabilities	(1,902		)	777			Accounts payable and accrued liabilities	(2,537)		2,432
Other	26			(41		)

Net cash provided by operating activities	349			1,201			Net cash provided by operating activities	4,323		4,879
Cash flows from investing activities:							Cash flows from investing activities:
Acquisition of fixed assets	(112		)	(293		)	Acquisition of fixed assets	(281)		(1,577)
Proceeds on sales of fixed assets	11			—			Proceeds on sales of fixed assets	12		—

Net cash used in investing activities	(101		)	(293		)	Net cash used in investing activities	(269)		(1,577)
Cash flows from financing activities:							Cash flows from financing activities:

Proceeds on long-term borrowings							Proceeds on long-term borrowings	1,080		—

Payments on long-term borrowings from related parties	(768		)	(893		)	Payments on long-term borrowings from related parties	(1,694)		(1,672)

Proceeds from short-term notes payable	—			77			Proceeds from short-term notes payable	—		216
Payments on short-term notes payable	(237		)	—			Payments on short-term notes payable	(201)		(176)

Net cash used in financing activities	(1,005		)	(816		)	Net cash used in financing activities	(815)		(1,632)
Effect of exchange rate changes on cash	(60		)	—			Effect of exchange rate changes on cash	(162)		—
Net increase (decrease) in cash and cash equivalents	(817		)	92
Net increase in cash and cash equivalents							Net increase in cash and cash equivalents	3,077		1,670
Cash and cash equivalents, beginning of period	3,979			1,247			Cash and cash equivalents, beginning of period	3,979		1,247
Cash and cash equivalents, end of period	$	3,162		$	1,339		Cash and cash equivalents, end of period	$	7,056	$	2,917

Supplemental disclosure of cash flow information:							Supplemental disclosure of cash flow information:
Interest paid	$	251		$	309		Interest paid	$	474	$	348
Income taxes paid	—			—			Income taxes paid	210		—

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 100,000 gallons per day ~~("gpd"~~(“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.

WeThe Company also ~~provide~~provides power delivery solutions through ~~our~~its subsidiary in Brazil, M&I Electric Brazil Sistemas e Servicios em Energia LTDA (“M&I Brazil”) and ~~our~~its 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, travel reductions, elimination of certain consultants, and other measures to adjust to anticipated activity levels and maintain adequate liquidity. ~~Management concluded positive cash flows are attainable and are supported by~~Furthermore, the ~~recent~~Company has recently seen an increase in Mexico pipeline and 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.opportunities. 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

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)~~(“FASB”) issued Accounting Standards Update ~~(ASU)~~(“ASU”) No. 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” (“ASU No. 2017-04”). 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 No. 2019-12, “Simplifying the Accounting for Income Taxes” (ASU No. 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 No. 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 No. 2020-04, ~~"Reference~~“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting"~~Reporting” (“ASU No. 2020-04”), 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 No. 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 No. 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of ASU No. 2020-04 on our condensed consolidated financial statements.

3. Acquisitions

American ~~Electric.~~Electric Technologies, Inc (“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 Energy, LLC owned ~~approximately~~ 88.4% of the voting stock of the combined company immediately following the ~~Effective Date~~effective date and certain other factors, including that directors designated by LNG Investment, parent of Stabilis Energy, LLC, constituted a majority of the board of directors, Stabilis Energy, LLC 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"~~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.

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,				Three Months Ended June 30,		Six Months Ended June 30,
	2019				2019		2019
Revenue	$	14,370		Revenue	$	12,871	$	27,241

Net loss	(1,054		)	Net loss	(390)		(1,444)

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 and six months ended ~~March 31,~~June 30, 2020 and 2019 (in thousands):


	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019			2020		2019		2020		2019
LNG Product	$	9,131	$	10,254	LNG Product	$	2,884	$	8,699	$	12,015	$	18,953
Rental	2,890		2,244		Rental	385		1,337		3,275		3,581
Service	1,310		291		Service	1,268		391		2,578		682
Other	507		186		Other	466		668		973		854
	$	13,838	$	12,975		$	5,003	$	11,095	$	18,841	$	24,070

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,~~June 30, 2020 and December 31, 2019 (in thousands):


	March 31, 2020			December 31, 2019				June 30, 2020		December 31, 2019
Balance at beginning of period	$	185		$	93		Balance at beginning of period	$	185	$	93
Cash received, excluding amounts recognized as revenue	153			185			Cash received, excluding amounts recognized as revenue	350		185
Amounts recognized as revenue	(117		)	(93		)	Amounts recognized as revenue	(117)		(93)
Balance at end of period	$	221		$	185		Balance at end of period	$	418	$	185

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

5. Business Segments

The Company’s revenues are derived from ~~two~~2 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 June 30, 2020										Six Months Ended June 30, 2020
	(in thousands)										(in thousands)
	LNG		Power Delivery		Total		LNG		Power Delivery		Total

Revenues	$	4,027	$	976	$	5,003	$	16,555	$	2,286	$	18,841
Depreciation	2,234		32		2,266		4,469		67		4,536
Loss from operations before equity income	(3,531)		(441)		(3,972)		(3,730)		(875)		(4,605)
Net equity income from foreign joint ventures' operations	—		948		948		—		774		774
Income (loss) from operations	(3,531)		507		(3,024)		(3,730)		(101)		(3,831)
Net income (loss)	(3,740)		277		(3,463)		(4,220)		(293)		(4,513)

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 )


	June 30, 2020
			(in thousands)
	LNG		Power Delivery		Total
Total assets	$	67,358	$	14,252	$	81,610

March 31, 2020
(in thousands)
LNG Power Delivery Total
Total Assets $ 72,647
$ 13,098
$ 85,745


	Three Months Ended June 30, 2019										Six Months Ended June 30, 2019
	(in thousands)										(in thousands)
	LNG		Power Delivery		Total		LNG		Power Delivery		Total
Revenues	$	11,095	$	—	$	11,095	$	24,070	$	—	$	24,070
Depreciation	2,295		—		2,295		4,585		—		4,585
Loss from operations before equity income	(723)		—		(723)		(926)		—		(926)

Net loss	(1,038)		—		(1,038)		(1,597)		—		(1,597)


	December 31, 2019
			(in thousands)
	LNG		Power Delivery		Total
Total assets	$	75,883	$	14,443	$	90,326

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.

6. Prepaid Expenses and Other Current Assets

The Company’s prepaid expenses and other current assets consisted of the following (in thousands):


	June 30, 2020		December 31, 2019
Prepaid LNG	$	59	$	189
Prepaid insurance	259		698
Prepaid supplier expenses	433		229
Other receivables	1,021		1,655
Deposits	193		347
Other	149		465
Total prepaid expenses and other current assets	$	2,114	$	3,583

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				June 30, 2020		December 31, 2019

Liquefaction plants and systems	$	40,830		$	40,617		Liquefaction plants and systems	$	40,830	$	40,617
Real property and buildings	1,689			1,794			Real property and buildings	1,674		1,794
Vehicles and tanker trailers and equipment	46,490			46,597			Vehicles and tanker trailers and equipment	46,545		46,597
Computer and office equipment	431			453			Computer and office equipment	456		453
Construction in progress	410			409			Construction in progress	394		409
Leasehold improvements	31			31			Leasehold improvements	31		31
	89,881			89,901				89,930		89,901
Less: accumulated depreciation	(31,704		)	(29,538		)	Less: accumulated depreciation	(33,947)		(29,538)
	$	58,177		$	60,363			$	55,983	$	60,363

Depreciation expense for ~~both~~ the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 totaled ~~$2.3~~$4.5 million and $4.6 million, respectively, 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~~which owns 51%. The remaining 9% is owned by AA Energies, Inc.

The Company made no0 sales to its joint venture in the ~~three~~six months ended ~~March 31,~~June 30, 2020.

Below is summary financial information for BOMAY at ~~March 31,~~June 30, 2020 and December 31, 2019 and operational results for the three and six months ended ~~March 31,~~June 30, 2020 in U.S. dollars (in thousands, unaudited):


	June 30, 2020		December 31, 2019
Assets:
Total current assets	$	65,681	$	81,247
Total non-current assets	5,882		5,775
Total assets	$	71,563	$	87,022
Liabilities and equity:
Total liabilities	$	45,930	$	58,176
Total joint ventures’ equity	25,633		28,846
Total liabilities and equity	$	71,563	$	87,022

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,				Three Months Ended June 30,		Six Months Ended June 30,
	2020				2020		2020
Revenue	$	8,556		Revenue	$	18,647	$	27,203
Gross Profit	896			Gross Profit	3,336		4,232
Earnings	(284		)	Earnings	2,283		1,999

The following is a summary of activity in our investment in BOMAY for the ~~three~~six months ended ~~March 31,~~June 30, 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~~June 30, 2020
Investments 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.

BOMAY (1) (2)
~~(2)~~Balance at the beginning of the year	~~The Company’s initial~~$	9,333
Undistributed earnings:
Balance at the beginning of the year	1,257
Equity in earnings	887
Dividend distributions	(2,054)
Balance at end of period	90
Foreign currency translation:
Balance at the beginning of the year	(69)
Change during the period	(180)
Balance at end of period	(249)
Total 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,at June 30, 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.	$	9,174

________

(1)Accumulated statutory reserves in equity method investments of $2.67 million at June 30, 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 $86 thousand during the six months ended June 30, 2020 which is included in income from equity investments in foreign joint ventures in the

accompanying condensed consolidated statement of operations. As of June 30, 2020, accumulated accretion totaled $140 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,~~June 30, 2020.

9. Accrued Liabilities

The Company’s accrued liabilities consisted of the following (in thousands):


	June 30, 2020		December 31, 2019

Compensation and benefits	$	2,038	$	2,641
Professional fees	186		131
LNG fuel and transportation	483		1,582
Accrued interest	79		134
Contract liabilities	418		185
Other taxes payable	300		163
Other operating expenses	292		182
Total accrued liabilities	$	3,796	$	5,018

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):


	June 30, 2020		December 31, 2019
Unsecured promissory note	$	1,080	$	—
Secured term note payable - related party	2,077		2,077
Secured promissory note - related party	5,000		5,000
Insurance and other notes payable	307		558
Less: amounts due within one year	(2,760)		(1,558)
Total long-term debt	$	5,704	$	6,077

On May 8, 2020, the Company received loan proceeds of $1.1 million (the “Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Loan, which is in the form of a promissory note, dated May 8, 2020, between the Company and Cadence Bank, N.A. as the lender (the “Note”), matures on May 8, 2022 and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on December 2, 2020. There is no prepayment penalty. Under the terms of the PPP, all or a portion of the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits, rent, and utilities. No assurance is provided that the Company will obtain forgiveness of the Loan in whole or in part. With respect to any portion of the Loan that is not forgiven, the Loan will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults and breaches of the provisions of the Note.

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~~six months ended ~~March 31,~~June 30, 2020, the Company recorded interest expense of ~~$25~~$42 thousand, ~~$215~~$435 thousand and ~~$11~~$27 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,~~June 30, 2020, we were in compliance with all of these covenants.

11. Leases

The following table summarizes the supplemental balance sheet information related to lease assets and lease ~~liability obligations~~liabilities as of ~~March 31,~~June 30, 2020 and December 31, 2019 (in thousands):


	Classification	March 31, 2020		December 31, 2019			Classification	June 30, 2020		December 31, 2019
Assets						Assets
Operating lease assets	Operating lease right-of-use assets	$	849	$	965	Operating lease assets	Right-of-use assets	$	841	$	965
Finance lease assets	Property and equipment, net of accumulated depreciation	9,009		9,302		Finance lease assets	Property and equipment, net of accumulated depreciation	8,717		9,302
Total lease assets		$	9,858	$	10,267	Total lease assets		$	9,558	$	10,267
Liabilities						Liabilities
Current						Current
Operating	Current portion of operating lease obligations	$	334	$	364	Operating	Current portion of operating lease obligations - related parties	$	315	$	364
Finance	Current portion of finance lease obligation	3,319		3,440		Finance	Current portion of finance lease obligation	2,394		3,440
Noncurrent						Noncurrent
Operating	Operating lease liabilities	586		650		Operating	Long-term portion of operating lease obligation	594		650
Finance	Finance lease obligations—related parties, net of current portion	1		648		Finance	Finance lease obligations—related parties, net of current portion	—		648
Total lease liabilities		$	4,240	$	5,102	Total lease liabilities		$	3,303	$	5,102

The following table summarizes the components of lease expense for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 (in thousands, unaudited):


Lease Cost	Classification	Three Months Ended June 30,								Six Months Ended June 30,
						2020			2019			2020	2019
Operating lease cost	Cost of sales	$	41	$	48		$	80		$	87
Operating lease cost	Selling, general and administrative expenses	90		40			181			107
Finance lease cost
Amortization of leased assets	Depreciation	292		292			585			585
Interest on lease liabilities	Interest expense	135		171			296			345
Net lease cost		$	558	$	551		$	1,142		$	1,124

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,~~June 30, 2020 (in thousands):


	Operating Leases			Finance Leases			Total				Operating Leases		Finance Leases		Total
Remainder 2020	$	321		$	2,919		$	3,240		Remainder 2020	$	249	$	1,885	$	2,134
2021	237			651			888			2021	286		649		935
2022	176			—			176			2022	172		—		172
2023	145			—			145			2023	145		—		145
2024	149			—			149			2024	149		—		149
Thereafter	25			—			25			Thereafter	25		—		25
Total lease payments	1,053			3,570			4,623			Total lease payments	1,026		2,534		3,560
Less: Interest	(133		)	(250		)	(383		)	Less: Interest	(117)		(140)		(257)
Present value of lease liabilities	$	920		$	3,320		$	4,240		Present value of lease liabilities	$	909	$	2,394	$	3,303

Lease term and discount rates for our operating and finance lease obligations are as follows:



Lease Term and Discount Rate	~~March 31,~~June 30, 2020
Weighted-average remaining lease term (years)
Operating leases	~~3.5~~		3.4
Finance leases	~~0.8~~		0.5
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:~~for the six months ended June 30, 2020 and 2019:


Other information	June 30, 2020		June 30, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	237	$	158
Financing cash flows from finance leases	1,694		1,672
Interest paid	235		340
Noncash activities from right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	73	$	621

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~~six months ended ~~March 31,~~June 30, 2020 and 2019, the Company paid Applied Cryo Technologies, Inc. (“ACT”), a company owned 51% by Crenshaw Family Holdings International, Inc., ~~$33~~$73 thousand and ~~$49~~$158 thousand, respectively, for equipment repairs and services. During the three months ended June 30, 2020 and 2019, the Company paid ACT $40 thousand and $109 thousand, respectively, for equipment repairs and services. The Company had no0 sales ~~of LNG~~ to ACT during the three and six months ended ~~March 31,~~June 30, 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. There was 0 receivable due from ACT as of June 30, 2020. 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. There was 0 payable due to ACT as of June 30, 2020.

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~~six months ended ~~March 31,~~June 30, 2020 and 2019, the Company made purchases of supplies and services from a subsidiary of The Modern Group totaling ~~$33~~$195 thousand and ~~$14~~$31 thousand, respectively. During the three months ended June 30, 2020 and 2019, the

Company made purchases of supplies and services from a subsidiary of The Modern Group totaling $162 thousand and $17 thousand, respectively. There was no0 receivable due from The Modern Group as of ~~March 31,~~June 30, 2020 and December 31, 2019. As of ~~March 31,~~June 30, 2020 and December 31, 2019 the Company had ~~$125~~$149 thousand and $22 thousand, respectively, due to The Modern Group included in accounts payable on the condensed consolidated balance sheets.

During the six months ended June 30, 2020, purchases from Chart Energy & Chemicals, Inc. (“Chart E&C”) totaled $20 thousand. The Company made no purchases during the six months ended June 30, 2019. During the three months ended ~~March 31,~~June 30, 2020, purchases from Chart E&C totaled $10 thousand. The Company made no0 purchases during the three months ended ~~March 31,~~June 30, 2019. As of ~~March 31,~~June 30, 2020 and December 31, 2019 the Company had ~~$10~~$9 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.

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"~~(“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"~~“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,~~June 30, 2020, there have not been any updates to the potential liability. The Company is working with legal counsel to resolve the matter. 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.

In January of 2020, the Company received notification that its ~~Subsidiary,~~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).

In April 2020, the Company issued 61,308 shares of common stock to independent directors as payment for services rendered as members of the Company's Board of Directors (see Note 15—Stock-Based Compensation for further discussion).

Issuances of Warrants

As of ~~March 31,~~June 30, 2020, the Company had outstanding Warrants to purchase ~~103,125~~62,500 shares of our common stock as follows:

Date of Issuance

No. of Warrants

Exercise Price

Expiration Date

Nov. 13, 2017

62,500

$18.08

Nov. 13, 2022

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

Restricted Stock Awards

Independent directors receive 50% of their retainer fee as Restricted Stock Awards ~~("RSAs"~~(“RSAs”). The RSAs are issued immediately upon grant and are subject to a one year vesting period and other restrictions.

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the Company granted 61,308 ~~Restricted Stock Awards (“RSAs”)~~RSAs to independent directors under the Company's 2019 ~~Plan.~~Long Term Incentive Plan (the “2019 Plan”). The fair value of the RSAs on the date of grant was ~~$225~~$150 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~~$57 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,~~June 30, 2020, the Company had ~~$131~~$93 thousand of unrecognized compensation costs related to our Board of Directors grants, which is expected to be recognized over a weighted average period of less than one year.

Restricted Stock Units

During the six months ended June 30, 2020, the Company granted 781,000 Restricted Stock Units (“RSUs”) to employees under the 2019 Plan. The fair value of the RSUs on the date of grant was $1.4 million 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 $101 thousand in stock-based compensation costs, which is included in general and administrative expenses in the condensed consolidated statements of operations.

As of June 30, 2020, the Company had $1.3 million of unrecognized compensation costs related to our RSUs, which is expected to be recognized over a weighted average period of less than three years.

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, the timing of distributions on foreign investments from which foreign taxes are withheld, and changes to actual or forecasted permanent book to tax differences.

The Company’s effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 was ~~4.7%~~0.9% and 0.0%, ~~respectively, which~~respectively. The 2020 rate reflects state and foreign 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~~evaluated subsequent events through the filing date and noted that no subsequent events have occurred that are reasonably likely 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~~impact the ~~short-term remains uncertain.~~financial statements.

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.

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~~which 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 approximately 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~~our products and ~~service~~services 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,~~and 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.

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 Energy, LLC owned approximately ~~90%~~88.4% 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 Energy, 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 Energy, LLC, and Stabilis Eagle Ford, LLC (“Stabilis LNG EFEF”) for the satisfaction of indebtedness of Stabilis LNG EF 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. Various containment measures, including large-scale travel bans, border closures, quarantines, shelter-in-place orders and business and government shutdowns, have resulted in the slowing of economic growth and a reduced demand for oil and natural gas and the disruption of global manufacturing supply chains. As the COVID-19 pandemic ~~develops,~~continues to develop, governments, corporations and other authorities may continue to implement restrictions or policies that adversely impact consumer spending, the economy, commodity prices, demand for our products, 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.

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. BOMAYCompany 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, travel reductions, elimination of certain consultants, and other measures to adjust to anticipated activity levels and maintain adequate liquidity.

~~On March 27, 2020,~~ However, there can be no assurance that these steps will be sufficient mitigate the ~~President~~impact of the ~~United States signed into law~~COVID-19 pandemic. The Company will continue to monitor the ~~CARES Act. The CARES Act among other things, includes provisions~~developments 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,COVID-19, and ~~technical corrections to tax depreciation methods for qualified improved property.~~will follow health and safety guidelines as they evolve. Management may implement further similar cost control measures, as necessary, but there can be no assurances that such measures will be effective.

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.

Results of Operations

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~March 31,~~June 30, 2019

The following table reflects line items from the accompanying Consolidated Statements of Operations for the three months ended ~~March 31,~~June 30, 2020 (the “Current Quarter”) as compared to the three months ended ~~March 31,~~June 30, 2019 (the “Prior Year Quarter”):

Stabilis Energy, Inc.

~~Condensed~~ Consolidated Statements of Operations


	Three Months Ended June 30,						Change		% Change
	2020		2019
	(unaudited)
	(In thousands, excluding percentages)
Revenue:
LNG product	$	2,884	$	8,699	$	(5,815)	(66.8)	%
Rental, service and other	2,119		2,396		(277)		(11.6)
Total revenues	5,003		11,095		(6,092)		(54.9)
Operating expenses:

Costs of LNG product	2,551		5,616		(3,065)		(54.6)
Costs of rental, service and other	1,790		1,696		94		5.5
Selling, general and administrative	2,368		2,211		157		7.1
Depreciation	2,266		2,295		(29)		(1.3)
Total operating expenses	8,975		11,818		(2,843)		(24.1)
Loss from operations before equity income	(3,972)		(723)		(3,249)		449.4
Net equity income from foreign joint ventures' operations:
Income from investments in foreign joint ventures	1,001		—		1,001		—
Foreign joint venture's operations related expenses	(53)		—		(53)		—
Net equity income from foreign joint ventures' operations	948		—		948		—
Loss from operations	(3,024)		(723)		(2,301)		318.3
Other income (expense):

Interest expense, net	(15)		(1)		(14)		1,400.0
Interest expense, net - related parties	(242)		(295)		53		(18.0)
Other income	(13)		(19)		6		(31.6)

Total other income (expense)	(270)		(315)		45		(14.3)
Loss before income tax expense	(3,294)		(1,038)		(2,256)		217.3
Income tax expense	169		—		169		—
Net loss	(3,463)		(1,038)		(2,425)		233.6
Net income (loss) attributable to noncontrolling interests	—		28		(28)		(100.0)
Net loss attributable to controlling interests	$	(3,463)	$	(1,066)	$	(2,397)	224.9	%

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 %

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 June 30,						Change		% Change
	2020		2019
	(unaudited)
	(In thousands, excluding percentages)
Revenue:
LNG product	$	2,884	$	8,699	$	(5,815)	(66.8)	%
Rental, service and other	1,143		2,396		(1,253)		(52.3)
Total revenues	4,027		11,095		(7,068)		(63.7)
Operating expenses:

Costs of LNG product	2,551		5,616		(3,065)		(54.6)
Costs of rental, service and other	902		1,696		(794)		(46.8)
Selling, general and administrative	1,871		2,211		(340)		(15.4)
Depreciation	2,234		2,295		(61)		(2.7)
Total operating expenses	7,558		11,818		(4,260)		(36.0)
Loss from operations before equity income	$	(3,531)	$	(723)	$	(2,808)	388.4	%

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 June 30,						Change		% Change
												2020		2019
												(unaudited)
												(In thousands, excluding percentages)
Revenue:											Revenue:

Rental, service and other											Rental, service and other	$	976	$	—	$	976		—
Total revenues											Total revenues	976		—		976		—
Operating expenses:											Operating expenses:

Costs of rental, service and other											Costs of rental, service and other	888		—		888		—
Selling, general and administrative											Selling, general and administrative	497		—		497		—
Depreciation											Depreciation	32		—		32		—
Total operating expenses											Total operating expenses	1,417		—		1,417		—
Loss from operations before equity income											Loss from operations before equity income	(441)		—		(441)		—
Net equity income from foreign joint ventures' operations:											Net equity income from foreign joint ventures' operations:
Income from equity investments in foreign joint ventures											Income from equity investments in foreign joint ventures	1,001		—		1,001		—
Foreign joint venture's operations related expenses											Foreign joint venture's operations related expenses	(53)		—		(53)		—
Net equity income from foreign joint ventures' operations											Net equity income from foreign joint ventures' operations	948		—		948		—
Loss from operations											Loss from operations	$	507	$	—	$	507	—

	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~~Revenue decreased ~~$1.1~~$5.8 million or ~~11.0%~~67% versus the Prior Year Quarter primarily due to reduced activity ~~levels~~ with ~~certain~~oilfield and other customers as a result of the COVID-19 pandemic and the related impact on overall economic activity, particularly oil and gas ~~customers~~exploration and ~~lower average~~production activity.Lower overall natural gas ~~prices.~~prices also contributed to the decrease.

Rental, Service, and Other Revenue. Rental, ~~service~~Service and ~~other revenues increased~~Other Revenue decreased by ~~$2.0~~$0.3 million or ~~73.0%~~12% in the Current Quarter ~~compared~~relative to the Prior Year Quarter primarily due to reduced equipment rentals with oilfield customers. These decreased equipment rental revenues were partially offset by the completion of the Share Exchange transaction with American Electric, which contributed ~~$1.3~~$1 million ~~and higher equipment rentals with peaking customers.~~

to other revenues.

Operating Expenses

~~Cost of LNG Product.~~ ~~Cost~~Costs of LNG Product. Cost of product in the Current Quarter decreased ~~$1.4~~$3.1 million or ~~18.5%.~~55% due to reduced activity levels. As a percentage of LNG Product Revenue, ~~overall cost~~costs of LNG product ~~decreased~~increased from ~~73%~~65% to ~~67%~~88% due to ~~improved~~decreased utilization of the George West Plant ~~and a higher percentage of total gallons sold being sourced from the plant.~~which reduces plant efficiency.

~~Cost~~Costs of Rental, Service, and Other Revenue. ~~This cost~~ Costs increased ~~$1.5~~$0.1 million or ~~106.4%~~6% in the Current Quarter. ~~The~~This increase in costs is primarily a result of the completion of the ~~Share Exchange~~share exchange with American Electric. Costs related to the acquired business of ~~$1.2~~$0.9 million are included in our results of operations in the Current Quarter. Costs related to the LNG segment ~~also increased~~decreased by ~~$0.3~~$0.8 million or 47% consistent with the ~~increased equipment rental to winter peaking customers.~~decline in Rental, Service and Other revenue for the LNG segment.

Selling, general and ~~administrative~~.administrative. Selling, general and administrative expense increased ~~$1.2~~$0.2 million ~~or 59.9%~~ during the Current Quarter as compared to the Prior Year Quarter. ~~The~~This increase results primarily from the consolidation of American Electric and ~~Diversenergy and additional~~

Diversenergy. These increased costs were partially offset by reduced costs related to ~~the Company’s transition to a public company, all of which occurred subsequent to the~~travel, business development, and salary expenses.

Depreciation. Depreciation expense was unchanged from Prior Year Quarter.

~~Depreciation. Depreciation expense was $2.3 million during both the Current Quarter and Prior Year Quarter.~~

Net Equity ~~Loss~~Income From Foreign Joint Ventures' Operations

~~Loss~~Income from Investments in Foreign Joint Ventures. ~~Loss~~As a result of the completion of the Share Exchange transaction with American Electric, income from investments in foreign joint ventures ~~was $0.1~~increased $1.0 million induring the Current ~~Quarter as a result~~Quarter. Equity income of the acquired joint venture, BOMAY, is included in our results of operations following the completion 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.~~on July 26, 2019.

Operating expenses related to foreign joint ventures. Operating expenses related to BOMAY were $0.1 million infor 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~~ Related party 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.~~ Income.Other income was consistent with the Prior Year Quarter.

Income tax expense. The Company incurred income tax expense of $0.2 million during the Current Quarter primarily related to foreign taxes paid in connection with the cash dividend received from our BOMAY joint venture. No income tax expense was incurred in the Prior Year Quarter.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The following table reflects line items from the accompanying Consolidated Statements of Operations for the six months ended June 30, 2020 (the “Current Year”) as compared to the six months ended June 30, 2019 (the “Prior Year”):

Stabilis Energy, Inc.

Condensed Consolidated Statements of Operations


	Six Months Ended June 30,						Change		% Change
	2020		2019
	(unaudited)
	(In thousands, excluding percentages)
Revenue:
LNG product	$	12,015	$	18,953	$	(6,938)	(36.6)	%
Rental, service and other	6,826		5,117		1,709		33.4
Total revenues	18,841		24,070		(5,229)		(21.7)
Operating expenses:

Costs of LNG product	8,648		13,098		(4,450)		(34.0)
Costs of rental, service and other	4,708		3,110		1,598		51.4
Selling, general and administrative	5,554		4,203		1,351		32.1
Depreciation	4,536		4,585		(49)		(1.1)
Total operating expenses	23,446		24,996		(1,550)		(6.2)
Loss from operations before equity income	(4,605)		(926)		(3,679)		397.3
Net equity income from foreign joint ventures' operations:
Income from investments in foreign joint ventures	887		—		887		100.0
Foreign joint venture's operations related expenses	(113)		—		(113)		100.0
Net equity income from foreign joint ventures' operations	774		—		774		100.0
Loss from operations	(3,831)		(926)		(2,905)		313.7
Other income (expense):

Interest expense, net	(26)		(4)		(22)		550.0
Interest expense, net - related parties	(482)		(604)		122		(20.2)
Other income (expense)	25		(63)		88		(139.7)
Gain (loss) from disposal of assets	11		—		11		100.0
Total other income (expense)	(472)		(671)		199		(29.7)
Loss before income tax expense	(4,303)		(1,597)		(2,706)		169.4
Income tax expense	210		—		210		100.0
Net loss	(4,513)		(1,597)		(2,916)		182.6
Net income (loss) attributable to noncontrolling interests	—		207		(207)		(100.0)
Net loss attributable to Stabilis Energy, Inc.	$	(4,513)	$	(1,804)	$	(2,709)	150.2	%

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


	Six Months Ended June 30,						Change		% Change
	2020		2019
	(unaudited)
	(In thousands, excluding percentages)
Revenue:
LNG product	$	12,015	$	18,953	$	(6,938)	(36.6)	%
Rental, service and other	4,540		5,117		(577)		(11.3)
Total revenues	16,555		24,070		(7,515)		(31.2)
Operating expenses:

Costs of LNG product	8,648		13,098		(4,450)		(34.0)
Costs of rental, service and other	2,573		3,110		(537)		(17.3)
Selling, general and administrative	4,595		4,203		392		9.3
Depreciation	4,469		4,585		(116)		(2.5)
Total operating expenses	20,285		24,996		(4,711)		(18.8)
Loss from operations before equity income	$	(3,730)	$	(926)	$	(2,804)	(302.8)	%

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.


	Six Months Ended June 30,						Change		% Change
	2020		2019
	(unaudited)
	(In thousands, excluding percentages)
Revenue:

Rental, service and other	$	2,286	$	—	$	2,286	—	%
Total Revenues	2,286		—		2,286		—
Operating Expenses:


Costs of rental, service and other	2,135		—		2,135		—
Selling, general and administrative	959		—		959		—
Depreciation	67		—		67		—
Total operating expenses	3,161		—		3,161		—
Loss from operations before equity income	(875)		—		(875)		—
Net equity income from foreign joint ventures' operations:
Income from equity investments in foreign joint ventures	887		—		887		—
Foreign joint venture's operations related expenses	(113)		—		(113)		—
Net equity income from foreign joint ventures' operations	774		—		774		—
Loss from operations	$	(101)	$	—	$	(101)	—	%

Revenue

LNG Product Revenue. During the Current Year LNG Product revenues decreased $6.9 million or 37% versus the Prior Year primarily due to reduced activity with oilfield and other customers during the second quarter of 2020 as a result of the COVID-19 pandemic and the related impact on overall economic activity, particularly oil and gas exploration and production activity.Lower overall natural gas prices also contributed to the decrease.

Rental, Service, and Other Revenue. Rental, service and other revenues increased by $1.7 million or 33% in the Current Year compared to Prior Year primarily due to the completion of the Share Exchange transaction with American Electric, which contributed $2.3 million of revenue, partially offset by decreased revenue with oil and gas customers in the LNG segment.

Operating Expenses

Cost of LNG Product. Cost of LNG Product in the Current Year decreased $4.5 million or 34%. As a percentage of LNG Product Revenue, the costs decreased by 4% due to reduced plant efficiency in the Current Year.

Cost of Rental, Service, and Other Revenue. This cost increased $1.6 million or 51% in the Current Year, primarily due to the completion of the Share Exchange with American Electric subsequent to the Prior Year which contributed an additional$2.1 million compared to the Prior Year.

Selling, general and administrative. Selling, general and administrative expense increased $1.4 million or 32% during the Current Year as compared to the Prior Year. 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.

Depreciation. Depreciation expense was consistent with Prior Year.

Net Equity Income From Foreign Joint Ventures' Operations

Income from Investments in Foreign Joint Ventures. Income from investments in foreign joint ventures was $0.9 million in the Current Year as a result of the Share Exchange with American Electric which occurred subsequent to the Prior Year. There was no income or loss from investment in foreign joint ventures in the Prior Year.

Operating expenses related to foreign joint ventures. Operating expenses related to BOMAY were $0.1 million in the Current ~~Quarter.~~Year. There were no operating expenses related to foreign joint ventures in the Prior Year.

Other Income (Expense)

Interest expense, net. Interest expense in the Current Year was consistent with the Prior Year.

Interest expense, net - related parties. Related party interest expense decreased $0.1 million during the Current Year as compared to the Prior Year primarily due to the cancellation of Chart Industries indebtedness in exchange for Stabilis common stock subsequent to the Prior Year.

Other income. Other income was $25 thousand in the Current Year compared to expense of $63 thousand in the Prior Year due to the reversal of operational accruals in Brazil.

Gain ~~/ (loss)~~ on the disposal of fixed assets. The gain from disposal of rolling stock was $11 thousand in the Current ~~Quarter.~~Year. No assets were disposed in the Prior ~~Year Quarter.~~Year.

Income tax expense. The Company incurred ~~state income~~foreign tax expense of ~~$41 thousand~~$0.2 million during the Current ~~Quarter.~~Year primarily related to foreign taxes paid in connection with the cash dividend received from our BOMAY joint venture. No income tax expense was incurred in the Prior ~~Year Quarter.~~Year.

Liquidity and Capital Resources

Overview

As of ~~March 31,~~June 30, 2020, we had ~~$3.2~~$7.1 million in cash and cash equivalents on hand and ~~$10.7~~$10.9 million in outstanding debt and finance lease obligations (of which ~~$4.6~~$5.2 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. In the second quarter of 2020, the Company experienced a significant reduction in revenues, particularly from its customers in the upstream oil and gas sector, due to the business shutdowns and general economic slowdown resulting from the COVID-19 pandemic. The ultimate length and severity of this slowdown is not yet known. 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. While the Company has implemented a number of cost control measures, including headcount reductions, temporary salary reductions, travel reductions, elimination of certain consultants, and other measures to adjust to anticipated activity levels and maintain adequate liquidity, there can be no assurance that these steps will be sufficient mitigate the impact of the COVID-19 pandemic. Management may implement further similar cost control measures, as necessary, but there can be no assurances that such measures will be effective.

~~Management concluded positive cash flows from operations are supported by the recent~~The Company has recently seen an increase in Mexico pipeline and 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 indebtness in exchange for Stabilis common stock.~~opportunities. 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,							Six Months Ended June 30,
	2020			2019				2020		2019
	(unaudited)							(unaudited)
	(In thousands)							(In thousands)
Net cash provided by (used in):							Net cash provided by (used in):
Operating activities	$	349		$	1,201		Operating activities	$	4,323	$	4,879
Investing activities	(101		)	(293		)	Investing activities	(269)		(1,577)
Financing activities	(1,005		)	(816		)	Financing activities	(815)		(1,632)
Effect of exchange rate changes on cash	(60		)	—			Effect of exchange rate changes on cash	(162)		—
Net increase (decrease) in cash and cash equivalents	(817		)	92			Net increase (decrease) in cash and cash equivalents	3,077		1,670
Cash and cash equivalents, beginning of period	3,979			1,247			Cash and cash equivalents, beginning of period	3,979		1,247
Cash and cash equivalents, end of period	$	3,162		$	1,339		Cash and cash equivalents, end of period	$	7,056	$	2,917

Operating Activities

Net cash provided by operating activities totaled ~~$0.3~~$4.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to ~~$1.2~~$4.9 million for the same period 2019. The decrease in net cash provided by operating activities of ~~$0.9~~$0.6 million as compared to the Prior Year ~~Quarter~~ was primarily attributable to ~~increased~~a higher net loss, partially offset by $1.8 million net cash dividend received from our BOMAY joint venture, and lower net working capital ~~and a higher net loss.~~requirements.

Investing Activities

Net cash used in investing activities totaled ~~$0.1~~$0.3 million and ~~$0.3~~$1.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The change was ~~driven by a reduction~~due to $1.5 million of equipment purchases in the first six months of 2019. There was less than $0.3 million of equipment purchased in the first six months of 2020.

Financing Activities

Net cash used in financing activities totaled ~~$1.0~~$0.8 million and ~~$0.8~~$1.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The ~~increase~~reduction of ~~$0.2~~$0.8 million compared to the Prior Year ~~Quarter~~ was primarily attributable to proceeds of $1.1 million received as a ~~$0.2 million net increase in payments on short-term notes payable.~~loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act.

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.~~party, and received the Payroll Protection Loan of $1.1 million. The Company is evaluating additional financing alternatives.

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.

Debt Level and Debt Compliance

We had total indebtedness of ~~$7.4~~$8.5 million in principal as of ~~March 31,~~June 30, 2020 with the expected maturities as ~~follows.~~follows (in thousands).


	March 31, 2020			June 30, 2020
Remainder 2020	$	1,321	Remainder 2020	$	1,352
2021	3,428		2021	3,965
2022	2,649		2022	3,147
2023	—		2023	—
2024	—		2024	—

Thereafter	—		Thereafter	—
Total long-term debt, including current maturities	$	7,398	Total long-term debt, including current maturities	$	8,464

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,~~June 30, 2020, we were in compliance with all of these covenants.

Off-Balance Sheet Arrangements

As of ~~March 31,~~June 30, 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.

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~~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. A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be realized.

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

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.

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,~~June 30, 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.

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"~~10-K”) and our Quarterly Report on From 10-Q for the

quarter ended March 31, 2020 filed with the Securities and Exchange Commission on May 7, 2020 (the “Form 10-Q”), 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,~~June 30, 2020, there have been no material changes in our risk factors disclosed in our Form 10-K and Form 10-Q, except for the following:

The ~~rapid~~continued spread of a contagious illness such as a novel coronavirus ~~or fear of such an event,~~(“COVID-19”), may adversely affect our business, operations and financial condition.

~~Our~~The responses of governmental authorities and companies across the world to reduce the spread of the COVID-19 pandemic have significantly reduced global economic activity. Various containment measures, which have included business ~~could be adversely affected by~~closures, work stoppages, shuttering of public spaces and events and/or severe restrictions of global and regional travel, among others, while aiding in the ~~effects~~prevention of ~~a widespread outbreak~~further spread of ~~contagious disease, including~~ the ~~recent outbreak~~virus, have resulted in the slowing of ~~respiratory illness caused by a novel coronavirus.~~economic growth, reduced demand for crude oil and natural gas and the disruption of global manufacturing supply chains. 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.

The Company has 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. However, there can be no assurance that these steps will be sufficient mitigate the impact of the COVID-19 pandemic. The Company will continue to monitor the developments relating to COVID-19 and will follow health and safety guidelines as they evolve. Management may implement further similar cost control measures, as necessary, but there can be no assurances that such measures will be effective.

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.

Our ability to maintain our liquidity may be materially and adversely affected if we are unable to access the capital markets or if any significant customer fails to perform its contractual obligations for any reason.

The COVID-19 pandemic has increased volatility and caused negative pressure in the capital and credit markets. As a result, we may not have access in the current environment to the capital markets or financing on terms we would find favorable, if at all. Furthermore, as a result of the disruptions caused by the pandemic and the volatility in the energy markets, we believe we are exposed to heightened credit and performance risk of our customers and contractual counterparties. Our ability to generate cash is substantially dependent upon the performance by customers under contracts that we have entered into, and we could be materially and adversely affected if any significant customer fails to perform its contractual obligations for any reason.

Outbreaks of infectious diseases, such as the outbreak of COVID-19, at one or more of our facilities could adversely affect our operations.

Federal, state and local governments have enacted various measures to try to contain the outbreak of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. Our facility in George West, Texas, as well as our M&I Brazil subsidiary in Brazil, and our 40% interest in BOMAY, a joint venture in China, are critical infrastructure and have continued to operate during the outbreak, which means that we must keep our employees who operate our facilities safe and minimize unnecessary risk of exposure to the virus. In response, we have taken certain precautionary measures to protect the continued safety and welfare of our employees who continue to work at our facilities and have modified certain business and workforce practices, such as implementing work from home policies where appropriate. The measures taken to prevent an outbreak at our facilities may result in increased costs. If a large number of our employees in those critical facilities were to contract COVID-19 at the same time, our operations could be adversely affected.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

(a) Index to Exhibits



Exhibit No.		Exhibit Description

2.1		(1) Share Exchange Agreement, dated December 17, 2018, by and among American Electric Technologies, Inc., LNG Investment Company, LLC, AEGIS NG LLC, Stabilis Energy, LLC, and PEG Partners, LLC (Incorporated by reference to Registrant’s Current Report on Form 8-K filed December 24, 2018)

2.2		(1) Amendment dated May 8, 2019 to the Share Exchange Agreement concerning the business combination with Stabilis (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed May 9, 2019)

3.1		Restated Articles of Incorporation of the Registrant (Incorporated by Reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed December 11, 2019)

3.2		Amended and Restated Bylaws of the Registrant (Incorporated by Reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed February 9, 2009)

4.1		Warrant to purchase 125,000 shares of Registrant’s common stock dated May 2, 2012 (Incorporated by reference to Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2012)

4.2		Warrant to purchase 200,000 shares of Registrant’s common stock dated May 2, 2012 (Incorporated by reference to Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2012)

4.3		Investors Rights Agreement between Registrant and JCH Crenshaw Holdings, LLC dated May 2, 2012 (Incorporated by reference to Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2012)

4.4		Registration Rights Agreement between Registrant and JCH Crenshaw Holdings, LLC dated May 2, 2012 (Incorporated by reference to Exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2012)

4.5		Warrant to Purchase Common Stock dated November 13, 2017, issued to HD Special-Situations III, LP (Incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2017)

4.6		Registration Rights Agreement dated November 13, 2017 between Registrant and HD Special-Situations III, LP (Incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2017)

4.7		Voting Agreement, dated as of December 17, 2018, by and among JCH Crenshaw Holdings, LLC and certain stockholders of Registrant (Incorporated by reference to Exhibit B of Amendment No. 8 to Schedule 13D filed by JCH Crenshaw Holdings, LLC and J. Casey Crenshaw on December 28, 2018)

4.8		Registration Rights Agreement dated July 26, 2019, by and among Registrant, LNG Investment Company, LLC, and AEGIS NG LLC (Incorporated by Reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed August 1, 2019)

4.9		Registration Rights Agreement dated as of August 20, 2019, by and among Registrant and the Investors named therein (Incorporated by Reference to Exhibit 4.9 to Registrant's Registration Statement on Form S-1 filed September 11, 2019)

~~31.1~~























































31.1		*Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer.

31.2		*Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer.

32.1		*Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer.

~~101.INS~~	~~XBRL Instance Document.~~

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~



~~Exhibit No.~~101.INS						~~Exhibit Description~~ XBRL Instance Document.

101.SCH						XBRL Taxonomy Extension Schema Document.

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.

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.

(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.

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: August 7, 2020

~~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)

3542



	Page
		Part I. Financial Information
Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets	45
		Condensed Consolidated Statements of Operations	56
		Condensed Consolidated Statements of Comprehensive Loss	67
		Condensed Consolidated Statements of Stockholders’ Equity	78
		Condensed Consolidated Statements of Cash Flows	89
		Notes to Condensed Consolidated Financial Statements	910
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022

Item 4.		Controls and Procedures	3137
		Part II. Other Information
Item 1.		Legal Proceedings	3238
Item 1A.		Risk Factors	3238

Item 5.		Other Information	3239
Item 6.		Exhibits	3340
Signatures				3543



	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		)



	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		)



	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