SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31,September 30, 2023
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TRANSITION REPORT UNDER SECTION 13 OR 15 (D)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission file number. 001-40364
STABILIS SOLUTIONS, 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.) |
11750 Katy Freeway, Suite 900, Houston, TX 77079
(Address of principal executive offices, including zip code)
(832) 456-6500
(Registrant’sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Common Stock, $.001 par value | SLNG | The Nasdaq Stock Market LLC |
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 (§. 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 Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||||||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒As of May 10,November 7, 2023, there were 18,478,82918,573,391 outstanding shares of our common stock, par value $.001 per share.
STABILIS SOLUTIONS, INC. AND SUBSIDIARIES
For the Quarterly Period Ended March 31,September 30, 2023
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("(“this Report"Report”) includes statements that constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements represent intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks and uncertainties and other factors. 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, 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 necessary estimates reflecting the best judgment of senior management, not guarantees of future performance. Many of the factors that impact forward-looking statements are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements as described in Part I. “Item 1A. Risk Factors” of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("the SEC") on March 9, 2023, as well as the additional risk factors identified and described in Part II. “Item 1A. Risk Factors” of this Report.
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 Report, 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 Condensed Consolidated Balance Sheets (Unaudited, in thousands, except share and per share data) September 30, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents Accounts receivable, net Inventories, net Prepaid expenses and other current assets Assets held for sale Total current assets Property, plant and equipment: Cost Less accumulated depreciation Property, plant and equipment, net Goodwill Investments in foreign joint ventures Right-of-use assets and other noncurrent assets Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued liabilities Current portion of long-term notes payable Current portion of long-term notes payable - related parties Current portion of finance and operating lease obligations Total current liabilities Long-term notes payable, net of current portion and debt issuance costs Long-term portion of finance and operating lease obligations Other noncurrent liabilities Total liabilities Commitments and contingencies (Note 11) Stockholders’ Equity: Preferred stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022 Common stock; $0.001 par value, 37,500,000 shares authorized, 18,573,391 and 18,420,067 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively Additional paid-in capital Accumulated other comprehensive (loss) income Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. Condensed Consolidated Statements of Operations (Unaudited, in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues: Revenues Operating expenses: Cost of revenues Change in unrealized loss on natural gas derivatives Selling, general and administrative expenses Gain from disposal of fixed assets Depreciation expense Total operating expenses Income (loss) from operations before equity income Net equity income from foreign joint venture operations: Income from equity investment in foreign joint venture Foreign joint venture operating related expenses Net equity income from foreign joint venture operations Income (loss) from operations Other income (expense): Interest income (expense), net Interest (expense), net - related parties Other (expense), net Total other income (expense) Net loss from continuing operations before income tax (benefit) expense Income tax expense (benefit) Net loss from continuing operations Loss from discontinued operations, net of income tax Net loss Net income (loss) per common share (Note 13): Basic net income (loss) per common share from continuing operations Basic loss per common share from discontinued operations Basic net income (loss) per common share Diluted net income (loss) per common share from continuing operations Diluted loss per common share from discontinued operations Diluted net income (loss) per common share The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. Condensed Consolidated Statements of Comprehensive (Unaudited, in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net loss Foreign currency translation adjustment, net of tax Total comprehensive loss The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. Condensed Consolidated Statements of (Unaudited, in thousands, except share data) Accumulated Other Common Stock Additional Comprehensive Accumulated Shares Amount Paid-in Capital Income Deficit Total Balance at December 31, 2021 Common stock issued from vesting of stock-based awards Stock-based compensation Net loss Other comprehensive income, net of tax Balance at March 31, 2022 Common stock issued from vesting of stock-based awards Stock-based compensation Net loss Other comprehensive loss, net of tax Balance at June 30, 2022 Common stock issued from vesting of stock-based awards Stock-based compensation Employee tax payments from stock-based withholding Net loss Other comprehensive income, net of tax Balance at September 30, 2022 Accumulated Other Common Stock Additional Comprehensive Accumulated Shares Amount Paid-in Capital Income Deficit Total Common stock issued from vesting of stock-based awards Stock-based compensation Net loss Other comprehensive loss, net of tax Balance at June 30, 2023 Common stock issued from vesting of stock-based awards Stock-based compensation Employee tax payments from stock-based withholding Net income Other comprehensive income, net of tax Balance at September 30, 2023 The accompanying notes are an integral part of the Condensed Consolidated Financial Statements. $ 4,914 $ 11,451 6,135 16,326 128 205 3,381 2,186 — 2,049 14,558 32,217 109,669 103,368 (59,651 ) (55,699 ) 50,018 47,669 4,314 4,314 11,591 11,606 602 774 $ 81,083 $ 96,580 $ 2,208 $ 4,474 8,749 19,642 1,675 848 622 2,435 168 133 13,422 27,532 8,049 8,650 51 183 — 348 21,522 36,713 — — 19 19 101,670 100,137 (460 ) 82 (41,668 ) (40,371 ) 59,561 59,867 $ 81,083 $ 96,580 March 31,
2023December 31,
2022Assets Current assets: Cash and cash equivalents $ 6,861 $ 11,451 Accounts receivable, net 9,696 16,326 Inventories, net 70 205 Prepaid expenses and other current assets 1,402 2,186 Assets held for sale — 2,049 Total current assets 18,029 32,217 Property, plant and equipment: Cost 109,651 103,368 Less accumulated depreciation (57,722) (55,699) Property, plant and equipment, net 51,929 47,669 Goodwill 4,314 4,314 Investments in foreign joint ventures 12,092 11,606 Right-of-use assets and other noncurrent assets 563 774 Total assets $ 86,927 $ 96,580 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,173 $ 4,474 Accrued liabilities 10,681 19,642 Current portion of long-term notes payable 489 848 Current portion of long-term notes payable - related parties 1,839 2,435 Current portion of finance and operating lease obligations 156 133 Total current liabilities 16,338 27,532 Long-term notes payable, net of current portion and debt issuance costs 8,661 8,650 Long-term portion of finance and operating lease obligations 112 183 Other noncurrent liabilities 89 348 Total liabilities 25,200 36,713 Commitments and contingencies (Note 11) Stockholders’ Equity: Preferred stock; $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2023 and December 31, 2022 — — Common stock; $0.001 par value, 37,500,000 shares authorized, 18,433,654 and 18,420,067 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 19 19 Additional paid-in capital 100,726 100,137 Accumulated other comprehensive income 269 82 Accumulated deficit (39,287) (40,371) Total stockholders’ equity 61,727 59,867 Total liabilities and stockholders’ equity $ 86,927 $ 96,580 $ 15,316 $ 25,819 $ 55,065 $ 69,236 12,056 19,904 42,911 54,945 (267 ) (926 ) (322 ) (27 ) 3,002 3,658 9,424 9,643 (1,002 ) 46 (1,002 ) (34 ) 2,003 2,115 6,006 6,589 15,792 24,797 57,017 71,116 (476 ) 1,022 (1,952 ) (1,880 ) 332 205 1,466 1,126 (48 ) (91 ) (152 ) (239 ) 284 114 1,314 887 (192 ) 1,136 (638 ) (993 ) 60 (150 ) (237 ) (437 ) (15 ) (49 ) (71 ) (129 ) (3 ) (28 ) (127 ) (99 ) 42 (227 ) (435 ) (665 ) (150 ) 909 (1,073 ) (1,658 ) 57 (115 ) 224 (248 ) (207 ) 1,024 (1,297 ) (1,410 ) — (1,301 ) — (1,441 ) $ (207 ) $ (277 ) $ (1,297 ) $ (2,851 ) $ (0.01 ) $ 0.06 $ (0.07 ) $ (0.08 ) $ — $ (0.08 ) $ — $ (0.08 ) $ (0.01 ) $ (0.02 ) $ (0.07 ) $ (0.16 ) $ (0.01 ) $ 0.06 $ (0.07 ) $ (0.08 ) $ — $ (0.07 ) $ — $ (0.08 ) $ (0.01 ) $ (0.01 ) $ (0.07 ) $ (0.16 ) Three Months Ended
March 31,2023 2022 Revenues: Revenues $ 26,842 $ 20,267 Operating expenses: Cost of revenues 20,270 15,504 Change in unrealized loss on natural gas derivatives 169 — Selling, general and administrative expenses 3,379 2,931 Gain from disposal of fixed assets — (80) Depreciation expense 2,011 2,277 Total operating expenses 25,829 20,632 Income (loss) from operations before equity income 1,013 (365) Net equity income from foreign joint venture operations: Income from equity investment in foreign joint venture 393 161 Foreign joint venture operating related expenses (48) (74) Net equity income from foreign joint venture operations 345 87 Income (loss) from operations 1,358 (278) Other income (expense): Interest expense, net (150) (137) Interest expense, net - related parties (32) (31) Other income (expense), net (84) (45) Total other income (expense) (266) (213) Net income (loss) from continuing operations before income tax benefit (expense) 1,092 (491) Income tax benefit (expense) (8) 132 Net income (loss) from continuing operations 1,084 (359) Loss from discontinued operations, net of income tax — (47) Net income (loss) $ 1,084 $ (406) Net income (loss) per common share (Note 13): Basic net income (loss) per common share from continuing operations $ 0.06 $ (0.02) Basic loss per common share from discontinued operations $ — $ — Basic net income (loss) per common share $ 0.06 $ (0.02) Diluted net income (loss) per common share from continuing operations $ 0.06 $ (0.02) Diluted loss per common share from discontinued operations $ — $ — Diluted net income (loss) per common share $ 0.06 $ (0.02) Income (Loss) $ (207 ) $ (277 ) $ (1,297 ) $ (2,851 ) (111 ) (849 ) (542 ) (1,424 ) $ (318 ) $ (1,126 ) $ (1,839 ) $ (4,275 ) Three Months Ended
March 31,2023 2022 Net income (loss) $ 1,084 $ (406) Foreign currency translation adjustment, net of tax 187 377 Total comprehensive income (loss) $ 1,271 $ (29) Stockholders’Stockholders’ Equity 17,691,268 $ 18 $ 97,875 $ 351 $ (37,185 ) $ 61,059 501,334 — — — — — — — 531 — — 531 — — — — (406 ) (406 ) — — — 377 — 377 18,192,602 18 98,406 728 (37,591 ) 61,561 87,337 — — — — — — — 608 — — 608 — — — — (2,168 ) (2,168 ) — — — (952 ) — (952 ) 18,279,939 18 99,014 (224 ) (39,759 ) 59,049 125,000 1 — — — 1 — — 602 — — 602 (18,206 ) — (85 ) — — (85 ) — — — — (277 ) (277 ) — — — (849 ) — (849 ) 18,386,733 $ 19 $ 99,531 $ (1,073 ) $ (40,036 ) $ 58,441 Common Stock Additional
Paid-in CapitalAccumulated
Other
Comprehensive
IncomeAccumulated
DeficitTotal Shares Amount Balance at December 31, 2022 Balance at December 31, 2022 18,420,067 $ 19 $ 100,137 $ 82 $ (40,371) $ 59,867 18,420,067 $ 19 $ 100,137 $ 82 $ (40,371 ) $ 59,867 Common stock issued from vesting of stock-based awards Common stock issued from vesting of stock-based awards 13,587 — — — — — 13,587 — — — — — Stock-based compensation Stock-based compensation — — 589 — — 589 — — 589 — — 589 Net income Net income — — — — 1,084 1,084 — — — — 1,084 1,084 Other comprehensive income, net of tax Other comprehensive income, net of tax — — — 187 — 187 — — — 187 — 187 Balance at March 31, 2023 Balance at March 31, 2023 18,433,654 $ 19 $ 100,726 $ 269 $ (39,287) $ 61,727 18,433,654 19 100,726 269 (39,287 ) 61,727 45,175 — — — — — — — 593 — — 593 — — — — (2,174 ) (2,174 ) — — — (618 ) — (618 ) 18,478,829 19 101,319 (349 ) (41,461 ) 59,528 125,000 — — — — — — — 513 — — 513 (30,438 ) — (162 ) — — (162 ) — — — — (207 ) (207 ) — — — (111 ) — (111 ) 18,573,391 $ 19 $ 101,670 $ (460 ) $ (41,668 ) $ 59,561 Common Stock Additional
Paid-in CapitalAccumulated
Other
Comprehensive
IncomeAccumulated
DeficitTotal Shares Amount Balance at December 31, 2021 17,691,268 $ 18 $ 97,875 $ 351 $ (37,185) $ 61,059 Common stock issued from vesting of stock-based awards 501,334 — — — — — Stock-based compensation — — 531 — — 531 Net loss — — — — (406) (406) Other comprehensive income, net of tax — — — 377 — 377 Balance at March 31, 2022 18,192,602 $ 18 $ 98,406 $ 728 $ (37,591) $ 61,561
Stabilis Solutions, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss from continuing operations Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: Depreciation Stock-based compensation expense Gain from disposal of fixed assets Income from equity investment in joint venture Cash settlements from natural gas derivatives, net Realized and unrealized losses on natural gas derivatives Distributions from equity investment in joint venture Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other current assets Accounts payable and accrued liabilities Other Net cash provided by operating activities from continuing operations Net cash provided by operating activities from discontinued operations Net cash provided by operating activities Cash flows from investing activities: Acquisition of fixed assets Proceeds from sale of fixed assets Proceeds from assets held for sale Net cash provided by (used in) investing activities from continuing operations Net cash used in investing activities from discontinued operations Net cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from borrowings on short- and long-term notes payable Payments on short- and long-term notes payable Payments on notes payable and finance leases from related parties Payment of debt issuance costs Employee tax payments from restricted stock withholdings Net cash used in financing activities from continuing operations Net cash used in financing activities from discontinued operations Net cash used in financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period The accompanying notes are an integral part of the Condensed Consolidated Financial Statements Notes to Condensed Consolidated Financial Statements (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Stabilis Solutions, Inc. and its subsidiaries (the “Company”, “Stabilis”, “our”, “us” or “we”) is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions primarily using liquefied natural gas (“LNG”) to multiple end markets. The Company serves customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is unavailable, has been interrupted, or needs to be supplemented. Additionally, LNG can be used as a partner fuel for renewable energy, and as an alternative to traditional fuel sources, such as distillate fuel oil (including diesel fuel and other fuel oils) and propane, among others to provide both environmental and economic benefits. The Company also builds power and control systems for the energy industry in China through its 40% owned Chinese joint venture, BOMAY Electric Industries, Inc (“BOMAY”). BOMAY is accounted for as an equity investment. Basis of Presentation and Consolidation The accompanying unaudited, interim condensed consolidated financial statements All intercompany accounts and transactions have been eliminated in consolidation. In the Notes to Condensed Consolidated Financial Statements, all dollar amounts in tabulations are in thousands, unless otherwise indicated. The Use of Estimates in the Preparation of the Consolidated Financial Statements 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 fair value of natural gas derivatives, 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 Condensed Consolidated Financial Statements. Derivative instruments The Company had certain natural gas derivative instruments as of Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2. DISCONTINUED OPERATIONS On October 31,2022, the Company entered into a sales agreement and closed on the sale of its Brazil Operations. The The classification of these assets, liabilities, results of operations and cash flows as discontinued operations requires retrospective application to financial information for all prior periods presented. Accordingly, for the 2022 periods preceding the sale, the Condensed Consolidated Financial Statements and related notes have been recast to separately state the revenues, The following table summarizes the components of income from discontinued operations for the periods presented (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues Costs and expenses Impairment Other (expense), net Income from discontinued operations before income taxes Income tax expense Loss from discontinued operations, net of income taxes Segment Reporting As a result of the classification of the Brazil Operations as discontinued operations, the Company 3. REVENUE RECOGNITION We recognize revenues when the transfer of promised goods or services are delivered to our customers in accordance with the applicable customer contract and we are entitled to be paid by the customer. LNG LNG Product revenues represent the Rental Rental revenues are generated Service revenues Service revenues are generated from engineering and field support services and represent the human resources provided to the customer to support the use of LNG Other Other revenuesare items that, due to their nature, are disaggregated from the categories mentioned above such as expenses incurred by the Company on behalf of the customer that we contractually rebill to our customer on a cost-plus basis. Disaggregated Revenues The table below presents revenue disaggregated by source, for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, Revenues: 2023 2022 2023 2022 LNG Product Rental Service Other Total revenues The table below presents revenue disaggregated by geographic location, for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, Revenues: 2023 2022 2023 2022 Mexico United States Total revenues Variable and Other Revenue Components Certain of our contracts may include rental or services that may vary upon the customer demands at stated rates within the contract and are satisfied as the work is authorized by the customer and performed by the Company. LNG product sales agreements may include both fixed and variable fees per gallon of LNG, but is representative of the stand-alone selling price for LNG at the time the contract was negotiated. We have concluded that the variable LNG fees meet the exception for allocating variable consideration to specific parts of the contract. As such, the variable consideration for these contracts is allocated to each distinct gallon of LNG and recognized when that distinct gallon of LNG is delivered to the customer. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use and value-added taxes, are excluded from revenue. 4. DERIVATIVE INSTRUMENTS As of September 30, December 31, Location on Condensed Consolidated Balance Sheet 2023 (1) 2022 (1) Prepaid expenses and other current assets (2) Right-of-use assets and other noncurrent assets (2) (1)Amounts are presented on a gross basis. (2)The classification between current and noncurrent assets is based upon when the Call Options mature. The Company has not designated the Call Options as a hedge under U.S. GAAP and all resulting gains and losses from changes in the fair value of its derivative instruments are included within change in unrealized loss on natural gas derivatives within the Company's Condensed Consolidated Statements of Operations. The table below presents the changes in the fair value of the Call Options for the three and Three Months Ended Nine Months Ended September 30, September 30, Changes in fair value of derivatives 2023 2022 2022 Fair value of natural gas derivatives, beginning of period Purchases of natural gas derivatives Unrealized losses transferred to realized losses, net Change in unrealized gain (loss) on natural gas derivatives (1) Fair value of natural gas derivatives, end of period Three Months Ended Nine Months Ended September 30, September 30, Realized gain (loss) from derivative instruments 2023 2022 2022 Unrealized gains (losses) transferred to realized gains (losses), net Derivative settlement payments received (2) Realized gain (loss) from natural gas derivatives, net (2) (2)Amounts are included within cost of The Company also enters into forward contracts for purchases of natural gas and/or electricity to meet liquefaction requirements and forward sales contracts for the delivery of LNG to its customers. These contracts are not accounted for as derivatives, but accounted for under the normal purchase normal sales exclusion under U.S. GAAP and are not measured at fair value each reporting period. 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS The Company’s prepaid expenses and other current assets at September 30, December 31, 2023 2022 Prepaid insurance Prepaid supplier expenses Other receivables Natural gas derivatives at fair value, current Deposits Other Total prepaid expenses and other current assets 6. PROPERTY, PLANT AND EQUIPMENT The Company’s property, plant and equipment at September 30, December 31, 2023 2022 Liquefaction plants and systems Real property and buildings Vehicles and tanker trailers and equipment Computer and office equipment Construction in progress Leasehold improvements Less: accumulated depreciation Depreciation expense totaled $2.0 million and In October 2023, the Company’s insurance carriers settled with the Company with respect to certain assets that were damaged in a fire in June of 2023. The damages did not adversely impact the Company’s operations and were covered under the Company’s insurance policies less the policy deductible. The insurance proceeds to be received totaled $1.4 million including the reimbursement of site remediation and clean up expenses incurred by the Company. At September 30, 2023, the damaged assets were written off and the corresponding gain of $1.0 million is included in gain from disposal of fixed assets within the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023, and proceeds to be received under the above referenced settlement are included in prepaid expenses and other current assets at September 30, 2023. 7. INVESTMENT IN FOREIGN JOINT VENTURE The Company holds a 40% interest in BOMAY, which builds electrical systems. The majority partner in this foreign joint venture is Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation), which owns 51%. The remaining 9% is owned by AA Energies, Inc. The Company made no sales to its joint venture during the three and nine months ended The tables below present a summary of BOMAY's assets, September 30, December 31, 2023 2022 Assets: Total current assets Total non-current assets Total assets Liabilities and equity: Total liabilities Total joint ventures’ equity Total liabilities and equity Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenue Gross Profit Net income The table below presents the components of our investment in BOMAY and a summary of the activity within those components for the Undistributed Earnings Investment in BOMAY Balance at December 31, 2022 Equity in earnings Less: dividend distributions Foreign currency translation gain (loss) Balance at September 30, 2023 (1) Accumulated statutory reserves in equity method investments of $2.7million at September 30, 2023 and December 31, 2022 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 is being accreted over an original period of nine years (the expected life of the joint venture). The Company's accretion during the nine months ended September 30, 2023 and 2022 both totaled approximately $97 thousand each, respectively, and is included in income from equity investment in foreign joint venture in the accompanying Condensed Consolidated Statements of Operations. The remaining basis difference, net of accumulated accretion at September 30, 2023 and December 31, 2022 is summarized in the following table (in thousands): September 30, December 31, 2023 2022 Original basis difference Less accumulated accretion Net remaining basis difference at end of period 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 of our investment in BOMAY is necessary for the period ending 8. ACCRUED LIABILITIES The Company’s accrued liabilities at September 30, December 31, 2023 2022 Compensation and benefits Professional fees LNG fuel and transportation Accrued interest Customer deposits and prepayments Other taxes payable Other accrued liabilities Total accrued liabilities 9. DEBT The Company’s carrying value of debt, net of debt issuance costs at September 30, December 31, 2023 2022 Secured term note, net of debt issuance costs Secured promissory note - related party Insurance and other notes payable Less: amounts due within one year Total long-term debt Total interest expense was $0.1 million and $0.5 million during three and nine months ended September 30, 2023 and $0.2 million and $0.6 million during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2023, the Company capitalized $0.1 million of interest expense. Revolving Credit Facility On June 9, 2023, the Company, along with its subsidiaries, Stabilis LNG Eagle Ford LLC, Stabilis GDS, Inc. and Stabilis LNG Port Allen, LLC (collectively, the “Borrowers”) entered into a three-year loan agreement (the “Revolving Credit Facility”) with Cadence Bank. The Revolving Credit Facility provides for a maximum aggregate amount of $10.0 million, subject to a borrowing base of 80% of eligible accounts receivable. The Company may request an increase in the maximum aggregate amount under the Revolving Credit Facility by up to $5.0 million, subject to the approval of Cadence Bank. All borrowings under the Revolving Credit Facility are secured by the Company’s accounts receivable and deposit accounts. Borrowings under the Revolving Credit Facility incur interest at the Prime Rate published by the Wall Street Journal. Any unused portion is subject to a quarterly unused commitment fee of 0.5% per annum. As of September 30, 2023, no amounts have been drawn under the Revolving Credit Facility. The Revolving Credit Facility matures on June 9, 2026. Debt issuance cost of $0.1 million was incurred and is reflected at September 30, 2023 in long-term notes payable, net, on the Condensed Consolidated Balance Sheets and as debt issuance costs paid on the Condensed Consolidated Statements of Cashflows. Amortization of debt issuance costs is in interest expense on the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023. The Revolving Credit Facility contains various restrictions and covenants. Among other requirements, the Borrowers must maintain a consolidated net worth of at least $50 million as of September 30, 2023, increasing by 50% of the Borrowers’ net income as of the end of each year ended December 31, and must maintain a minimum Fixed Charge Coverage Ratio of 1.2 to 1.0 on a consolidated basis, as defined in the Revolving Credit Facility, as of the last day of each fiscal quarter, on a trailing twelve (12) months basis. The Revolving Credit Facility also contains customary events of default. If an event of default under the Revolving Credit Facility occurs and is continuing, then Cadence Bank may declare any outstanding obligations under the Loan Agreement to be immediately due and payable. In addition, if any of the Borrowers become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Loan Agreement will automatically become immediately due and payable. As of September 30, 2023, the Company was in compliance with all its covenants related to the Revolving Credit Facility. Secured Term Note On April 8, 2021, the Company entered into a loan agreement (the “Loan Agreement”) with AmeriState Bank (“Lender”), to provide for an advancing loan facility in the aggregate principal amount of up to $10.0 million (the “AmeriState Loan”). The Loan Agreement is secured by specific equipment owned by the Company. On September 19, 2023, the Loan Agreement was amended (the "First Amendment"), for the purpose of The Loan Agreement Secured Promissory Note - Related Party On August 16, 2019, the Company issued a Secured Promissory Note to MG Finance Co., Ltd., a related party, in the principal amount of $5.0 million, which was subsequently amended to defer scheduled debt and interest payments and lower the interest rate from 12.0% to 6.0%. Repayments under the amendment are in equal monthly installments through December 2023. As of Insurance Notes Payable The Company finances its annual commercial insurance premiums for its business and 10. RELATED PARTY TRANSACTIONS Secured Promissory Note - Related Party Casey Crenshaw (our Chairman of the Board) is the beneficial owner of 50% of The Modern Group and is deemed to jointly control The Modern Group with family members. The Company has a secured promissory note payable with MG Finance Co., Ltd, a subsidiary of The Modern Group. See additional discussion in Note 9. Other Purchases and Sales The Company purchases supplies and services from subsidiaries of The Modern Group. The Company made purchases of supplies and services totaling $0.2 million and $0.1 million Chart E&C beneficially owns 11. 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 12. Stock-based Compensation The Company includes stock compensation expense within general and administrative expenses in the Condensed Consolidated Statements of Operations. During the Issuance of Stock-based Awards The Company has a On June 26, 2023, the Company granted 685,437 stock appreciation rights (“SARs”) under the Amended and Restated Plan, with a $10.00 strike price. The SARs 100% vest when the closing price of the Company's common stock averages $10.00 over 10 (ten) consecutive trading days, prior to January 1, 2025. The SARs expire December 31, 2026. Once vested, the SARs may be exercised, whole or in part, prior to their expiration. The SARs may be paid in cash or shares, as elected by the Company, representing the then closing price of the Company's common stock in excess of the strike price. The Company valued the SARs at $0.1 million as of the date of grant. Expense related to these grants was immaterial for the three and nine months ended September 30, 2023. Issuances of Common Stock During the 13. NET INCOME (LOSS) PER SHARE The calculation of net income (loss) per common share Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Weighted average shares: Basic weighted average number of common shares outstanding Dilutive securities Total shares including dilutive securities Net income (loss): Net income (loss) from continuing operations Loss from discontinued operations, net of income tax Net income (loss) Net income (loss) per common share: Basic net income (loss) per common share from continuing operations Basic loss per common share from discontinued operations Basic net income (loss) per common share Diluted net income (loss) per common share from continuing operations Diluted loss per common share from discontinued operations Diluted net income (loss) per common share 14. SUPPLEMENTAL CASH FLOW INFORMATION The Company's supplemental disclosure of cash flow information for the Nine Months Ended September 30, Supplemental Disclosure of Cash Flow Information: 2023 2022 Interest paid Income taxes paid Significant non-cash investing and financing activities: Equipment acquired from issuance of note payable Acquisition of fixed assets included within accounts payable and accrued expenses Fixed assets transferred to assets held for sale Receivable of insurance proceeds from disposition of assets Insurance Premium Financing ITEM2. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q Overview Stabilis Solutions, Inc. and its subsidiaries is an energy transition company that provides turnkey clean energy production, storage, transportation and fueling solutions primarily using liquefied natural gas (“LNG”) to multiple end markets. We provide LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power and utility markets. LNG can be used to deliver natural gas to locations where pipeline service is unavailable, has been interrupted, or needs to be supplemented. LNG can also be used to replace a variety of alternative fuels, including distillate fuel oil and propane, among others, to provide environmental and economic benefits. Increasingly, LNG is being utilized as a transportation fuel in the marine industry and as a propellant in the private rocket launch sector. We believe that these fuel markets are large and provide significant opportunities for LNG usage. We believe that LNG as well as other clean energy solutions will provide an important balance between environmental sustainability, security and accessibility, and economic viability when compared to both renewables and other traditional hydrocarbon-based fuels and will play a key role in the energy transition. The Company generates revenue by selling and delivering LNG to our customers, renting cryogenic equipment and providing engineering and field support services. We sell our products and services separately or as a bundle depending on the customer’s needs. 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. LNG Production and Sales Transportation and Logistics Services Cryogenic Equipment Rental Engineering and Field Support Services Gas Pretreatment Upgrades at our George West, Tx Liquefaction Facility During the second and third quarters of 2023, the Company was adversely impacted by natural gas feedstock composition changes which reduced production from our George West, Tx liquefaction facility (our "George West facility") as well as overall profitability. In August 2023, the Company completed installation of additional gas pretreatment equipment that allowed our George West facility to resume LNG production at full rates. Stabilis supplies LNG to multiple end markets in North America and provides turnkey fuel solutions to help users of propane, diesel and other crude-based fuel products convert to LNG. The sale of the Brazil Operations represents all of the revenues and expenses previously reported within the Company's Power Delivery segment with the exception of the Company's equity method investment in BOMAY. Further, the Three Months Ended The comparative tables below reflect our consolidated operating results for the three months ended Three Months Ended September 30, 2023 2022 $ Change % Change Revenues: LNG Product Increase / (decrease) in gallons delivered Rental Service Other Total revenues Operating expenses: Cost of revenues Change in unrealized loss on natural gas derivatives Selling, general and administrative expenses Gain from disposal of fixed assets Depreciation expense Total operating expenses Income (loss) from operations before equity income Net equity income from foreign joint venture operations Income (loss) from operations Other income (expense): Interest expense, net Interest expense, net - related parties Other income (expense) Total other income (expense) Net income (loss) from continuing operations before income tax (benefit) expense Income tax (benefit) expense Net income (loss) from continuing operations Loss from discontinued operations, net of income tax Net income (loss) Revenues During the Current Quarter, revenues ● Decreased natural gas prices in the Current Quarter compared to the Prior Year Quarter resulting in decreased revenue of $5.2 million; ● Decreased LNG delivered to customers of 3.0 million gallons during the Current Quarter compared to the Prior Year Quarter resulting in decreased revenues of $4.4 million; ● Decreased pricing related to customer mix in the Current Quarter compared to the Prior Year Quarter of $0.2 million; ● Increased revenues from minimum purchase take-or-pay contracts in the Current Quarter compared to the Prior Year Quarter of $0.3 million; and ● Decreased rental, service and other revenues related to a short term marine bunkering project in the Prior Year Quarter compared to the Current Quarter resulting in decreased revenues of $1.0 million. Operating Expenses Costs of revenues. ● Decreased natural gas prices in the Current Quarter compared to the Prior Year Quarter resulting in decreased costs of revenues of $4.8 million; ● Decreased LNG delivered to customers of 3.0 million gallons during the Current Quarter compared to the Prior Year Quarter resulting in decreased costs of revenues of $3.3 million; and ● Decreased costs from minimum purchase take-or-pay contracts of $0.1 million during the Current Quarter compared to the Prior Year Quarter; and ● Increased rental, service and other costs incurred during the Current Quarter compared to the Prior Year Quarter of $0.4 million. Change in unrealized loss on natural gas derivatives. The Company incurred Selling, general and administrative expenses. Depreciation. Gain on disposal of assets. The Company recorded a gain on the disposal of assets of $1.0 million in the Current Quarter related to insurance proceeds to be received for assets damaged in a fire. See also Note 6 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of this gain. Net equity income from foreign joint venture operations. Interest income (expense). Interest income, net was $44 thousand for the Current Quarter compared to expense of $0.2 million in the Prior Year Quarter. Interest income in the Current Quarter is related to increased interest rates and income earned on the Company's overnight deposits. The decrease in interest expense compared to the Prior Year Quarter is due to capitalized interest on capital projects. Interest expense, Other income (expense). Income tax expense Discontinued Operations Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 The comparative tables below reflect our consolidated operating results for the nine months ended September 30, 2023 (the “Current Year”) as compared to the nine months ended September 30, 2022 (the “Prior Year”) (unaudited, amounts in thousands, except for percentages). Nine Months Ended September 30, 2023 2022 $ Change % Change Revenues: LNG Product Increase / (decrease) in gallons delivered Rental Service Other Total revenues Operating expenses: Cost of revenues Change in unrealized loss on natural gas derivatives Selling, general and administrative expenses Gain from disposal of fixed assets Depreciation expense Total operating expenses Income (loss) from operations before equity income Net equity income from foreign joint venture operations Income (loss) from operations Other income (expense): Interest expense, net Interest expense, net - related parties Other income (expense) Total other income (expense) Net income (loss) from continuing operations before income tax (benefit) expense Income tax (benefit) expense Net income (loss) from continuing operations Loss from discontinued operations, net of income tax Net income (loss) Revenues During the Current Year, revenues decreased $14.2 million, or 20%, compared to the Prior Year. The change in revenue primarily related to: ● Decreased LNG delivered to customers of 8.9 million gallons during the Current Year compared to the Prior Year resulting in decreased revenues of $11.5 million; ● Decreased natural gas prices in the Current Year compared to the Prior Year resulting in decreased revenue of $7.8 million; ● Increased revenues from minimum purchase take-or-pay contracts in the Current Year compared to the Prior Year of $4.9 million; ● Increased pricing to customers in the Current Year compared to the Prior Year of $0.1 million; and ● Increased rental, service and other revenues of $0.2 million related to a short term marine bunkering project in the first quarter of the Current Year compared to the Prior Year. Operating Expenses Costs of revenues. Cost of revenues decreased $12.0 million, or 22%, in the Current Year compared to the Prior Year. As a percentage of revenue, these costs were 78% in the Current Year compared to 79% in the Prior Year. The change in cost of revenues was attributable to: ● Decreased LNG delivered to customers of 8.9 million gallons during the Current Year compared to the Prior Year resulting in decreased costs of revenues of $8.9 million; ● Decreased natural gas prices in the Current Year compared to the Prior Year resulting in decreased costs of revenues of $7.6 million. ● Increased costs from minimum purchase take-or-pay contracts of $1.2 million during the Current Year compared to the Prior Year; ● Increased liquefaction and transportation costs of $0.4 million during the Current Year compared to the Prior Year; and ● Increased rental, service and other costs incurred during the Current Year compared to the Prior Year of $2.9 million. Change in unrealized loss on natural gas derivatives. The Company incurred a gain of $0.3 million on the change in unrealized losses associated with the Company's natural gas derivatives in the Current Year compared to $27 thousand in the Prior Year. The gain in the Current Year was due to offsetting amortization of realized losses as call option volumes expired unexercised during the Current Year. See also Note 4 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of our derivatives. Selling, general and administrative expenses. Selling, general and administrative expense decreased $0.2 million primarily due to lower compensation in the Current Year compared to the Prior Year. Gain from disposal of fixed assets. The Company recorded a gain on the disposal of assets of $1.0 million in the Current Year related to insurance proceeds to be received for assets damaged in a fire. See also Note 6 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of this gain. Depreciation. Depreciation expense decreased 9% during the Current Year as compared to the Prior Year due to assets reaching the end of their depreciable lives. Net equity income from foreign joint venture operations. Equity Income from the Company's joint venture increased $0.4 million during the Current Year due to increased sales by the Company's joint venture in BOMAY. Interest income (expense). Interest expense, net decreased $0.2 million for the Current Year compared to the Prior Year. The decrease in the Current Year is related to income earned on the Company's overnight deposits and capitalized interest on capital projects. Interest expense, net - related parties. Related party interest expense decreased $0.1 million in the Current Year as compared to the Prior Year primarily related to lower debt balances and capitalized interest on capital projects. Other income (expense). Other expense was $0.1 million for both the Current Year and the Prior Year related to transactional foreign exchange losses. Income tax expense. The Company incurred a state and foreign income tax expense of $0.2 million during the Current Year compared to a benefit of $0.2 million during the Prior Year. No U.S. federal income tax benefit was recorded for the Current Year or Prior Year as any net U.S. deferred tax assets generated from operating losses were offset by a change in the Company's valuation allowance on net deferred tax assets. Discontinued Operations. Loss from discontinued operations, net of tax was $1.4 million for the Prior Year. The Company sold its Brazil Operations on October 31, 2022. There was no activity from discontinued operations during the Current Year. See Note 2 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's discontinued operations. Liquidity and Capital Resources Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, proceeds received from borrowings under the AmeriState Loan and distributions received from our BOMAY joint venture. In prior years, the Company also obtained financing from MG Finance, a related party. During the Current Quarter, our principal source of liquidity was our existing cash balances and cash provided by operations. On June 9, 2023, the Company, along with its subsidiaries, Stabilis LNG Eagle Ford LLC, Stabilis GDS, Inc. and Stabilis LNG Port Allen, LLC (collectively, the “Borrowers”) entered into a three-year loan agreement (the “Revolving Credit Facility”) with Cadence Bank. The Revolving Credit Facility provides for a maximum aggregate amount of $10.0 million, subject to a borrowing base of 80% of eligible accounts receivable. The Company may request an increase in the maximum aggregate amount under the Revolving Credit Facility by up to $5.0 million, subject to the approval of Cadence Bank. All borrowings under the Revolving Credit Facility are secured by the Borrowers’ accounts receivable and deposit accounts. Borrowings under the Revolving Credit Facility incur interest at the Prime Rate published by the Wall Street Journal. Any unused portion is subject to a quarterly unused commitment fee of 0.5% per annum. As of As of September 30, 2023, we had The Company is subject to substantial business risks and uncertainties inherent in the LNG industry and there is no assurance that the Company will be able to generate sufficient cash flows in the future to sustain itself or to support future growth. Management believes the Cash Flows Cash flows provided by (used in) our operating, investing and financing activities are summarized below (unaudited, in thousands): Nine Months Ended September 30, 2023 2022 Net cash provided by (used in): Operating activities Investing activities Financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Operating Activities Net cash provided by operating activities totaled Investing Activities Net cash used in investing activities totaled Financing Activities Net cash used in financing activities totaled Future Cash Requirements We require cash to fund our operating expenses and working capital requirements, including costs associated with fuel sales, Capital expenditures for the Shelf Registration Statement On April 11, 2022, the Company filed a registration statement on Form S-3 (the Off-Balance Sheet Arrangements As of 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 accounting principles generally accepted in the United States of America New Accounting Standards See Note 1 to the Notes to Condensed Consolidated Financial Statements included elsewhere in this Report for information on new accounting standards. As a “smaller reporting company,” the Company is not required to provide this information. 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 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. 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. 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, 2022 filed with the SEC on March 9, 2023 (“Form 10-K”), which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. During the None. (a) Index to Exhibits ExhibitNo. Exhibit Description 3.1 3.2 4.1 4.2 4.3 4.5 31.1 *Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer. 31.2 32.1 101.INS *Interactive XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document) 104 * Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed † Indicates management contract or compensatory plan, contract or arrangement 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: November 8, 2023 STABILIS SOLUTIONS, INC. By: /s/ Westervelt T. Ballard, Jr. Westervelt T. Ballard, Jr. President and Chief Executive Officer (Principal Executive Officer) By: /s/ Andrew L. Puhala Andrew L. Puhala Chief Financial Officer (Principal Financial Officer) $ (1,297 ) $ (1,410 ) 6,006 6,589 1,695 1,741 (1,002 ) (34 ) (1,466 ) (1,126 ) — (1,179 ) 540 513 813 1,550 5,636 (977 ) 948 529 (6,633 ) 5,174 140 (570 ) 5,380 10,800 — 738 5,380 11,538 (8,982 ) (1,746 ) — 100 — 2,049 (8,982 ) 403 — (334 ) (8,982 ) 69 — 1,000 (860 ) (1,555 ) (1,813 ) (669 ) (108 ) — (162 ) (85 ) (2,943 ) (1,309 ) — (113 ) (2,943 ) (1,422 ) 8 7 (6,537 ) 10,192 11,451 910 $ 4,914 $ 11,102 Three Months Ended
March 31,2023 2022 Cash flows from operating activities: Net income (loss) from continuing operations $ 1,084 $ (359) Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities: Depreciation 2,011 2,277 Stock-based compensation expense 589 531 Income from equity investment in joint venture (393) (161) Realized and unrealized losses on natural gas derivatives 421 — Changes in operating assets and liabilities: Accounts receivable 2,044 1,672 Prepaid expenses and other current assets 507 342 Accounts payable and accrued liabilities (6,361) (1,684) Other 191 (156) Net cash provided by operating activities from continuing operations 93 2,462 Net cash provided by operating activities from discontinued operations — 693 Net cash provided by operating activities 93 3,155 Cash flows from investing activities: Acquisition of fixed assets (3,727) (690) Proceeds from sale of fixed assets — 100 Net cash used in investing activities from continuing operations (3,727) (590) Net cash used in investing activities from discontinued operations — (228) Net cash used in investing activities (3,727) (818) Cash flows from financing activities: Payments on short- and long-term notes payable (365) (414) Payments on notes payable and finance leases from related parties (596) (669) Net cash used in financing activities from continuing operations (961) (1,083) Net cash used in financing activities from discontinued operations — (49) Net cash used in financing activities (961) (1,132) Effect of exchange rate changes on cash 5 (3) Net increase (decrease) in cash and cash equivalents (4,590) 1,202 Cash and cash equivalents, beginning of period 11,451 910 Cash and cash equivalents, end of period $ 6,861 $ 2,112 ("(“Condensed Consolidated Financial Statements"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 consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) have been condensed or omitted. We believe that the presentation and disclosures herein are adequate to prevent the information presented herein from being misleading. The 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 periods presented are not necessarily indicative of the results of operations to be expected for the full year. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K,10-K, as filed on March 9, 2023.Company believes thatsale of the Brazil Operations sold on October 31, 2022, met the criteria for discontinued operations presentation. The classification of these assets, liabilities, results of operations and cash flows as discontinued operations requires retrospective application to financial information for all prior periods presented.presented (preceding the sale). Accordingly, the operating results related to our Brazil Operations for the three and nine months ended September 30, 2022, and cash flows for the threenine months ended March 31,September 30, 2022 have been recast, are included within loss from discontinued operations, net of tax on our Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, respectively.Flows. There were no assets and liabilities from discontinued operations as of March 31,September 30, 2023 or December 31, 2022, and no results of operations or cash flows for the three and nine months ended March 31, 2023.September 30, 2023. Unless otherwise noted, the amounts presented throughout the notes to our Financial Statements relate to our continuing operations. See Note 2 for further discussion of the Company's discontinued operations.9March 31,September 30, 2023 and December 31, 2022.2022. The Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on itsthe Company's Condensed Consolidated Balance Sheet.Sheets. The accounting for changes in the fair value of a derivative instrument depends on whether it qualifies for and has been designated as a hedge as well as the type of hedge. The Company has not designated its derivatives as hedges under U.S. GAAP and all resulting gains and losses from changes in the fair value of its derivative instruments are included within the Condensed Consolidated Statements of Operations. The Company did not enter into any derivative transactions for speculative purposes. See Note 4 for further discussion of the Company's derivatives.2016-13,2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For receivables, and other short-term financial instruments, companies will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination. ASU No. 2016-132016-13 was effective for the Company in the first quarter 2023. Adoption of this standard had no material impact to the Company's Condensed Consolidated Financial Statements. Company believes that the sale of the Brazil Operations met the criteria for discontinued operations presentation as the sale of the Brazil Operations represented a strategic shift of future operations of the Company. Further, the Brazil Operations had separately reported financial information available as the Brazil Operations represented substantially all of the revenue and expenses of the Company's previously reported Power Delivery segment. and expenses and cash flows between its continuing operations and the discontinued operations. The Company had no assets and liabilities related to the Brazil Operations at March 31,September 30, 2023 or December 31, 2022.2022. In addition, the Company had no results of operations nor cash flows for the three and nine months ended March 31, 2023.Three Months Ended
March 31,2023 2022 Revenue $ — $ 2,766 Costs and expenses — 2,793 Other income (expense), net — (17) Loss from discontinued operations before income taxes $ — $ (44) Income tax expense — 3 Loss from discontinued operations, net of income taxes $ — $ (47) $ — $ 3,202 $ — $ 8,602 — 3,082 — 8,392 — 1,310 — 1,310 — (45 ) — (80 ) — (1,235 ) — (1,180 ) — 66 — 261 $ — $ (1,301 ) $ — $ (1,441 ) believes that it only has one reporting segment.10 or transfer of a product and are generally due within 30 days. days from receipt of the invoice. Revenues from contracts with customersare disaggregated into (1)(1) LNG product (2)Product (2) rental (3)(3) service and (4)(4) other.product revenue generated includesProduct revenuesrevenuesale of LNG from both produced and purchased sources as well as the production and delivery oftransportation performed to deliver the LNG to our customer’scustomer location.contractsrevenues are established by agreeing on a sales price or transaction price for the related item. Product revenue is recognized upon delivery of the related itemLNG 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 usingthird party transportation companies and therefore recognizes the gross revenue for the deliverysupply of LNG. The Company enters into forward salesdoes not differentiate between the revenue from the sale of LNG production and purchased LNG as the criteria for revenue recognition are identical. Some of our contracts contain minimum take-or-pay amounts where a customer has agreed to source a minimum volume of LNG under the contract. Take or pay revenues are only recognized when the customer has failed to take the minimum contracted volumes upon completion of the time period specified within the contract and the Company has the unconditional right to receive payment for the delivery of LNG to its customers.take or pay amount. Certain of theseour sales contracts contain provisions that may meet the criteria of a derivative in the event delivery is not made. These contracts are accounted for under the normal purchase normal sales exclusion under U.S. GAAP and are not measured at fair value each reporting period.service and other revenuerevenuesbyfrom the Company includesrental of cryogenic equipment and human resources provided to our customers. Rental revenues are not dependent upon the customer to supportgallons delivered but based upon day rates or monthly rates for the use of equipment as specifically established within the contract and are disaggregated from LNG and services 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.Product revenues. Revenues related to rental of equipment are recognized under Topic 606 and not ASC 842: Leases, as 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. Performance obligations for rental revenue are considered to be satisfied as the rental period is completed based upon the terms of the related contract. The stated rental rates within each contract are representative of the stand-alone rental rates at the time the contract was negotiated.service revenue generated byat the Company consists ofcustomer’s job site. These include support and costs for mobilization and demobilization of equipment andat customer sites as well as onsite technical support while customers are consuming LNG in their applications.LNG. Service revenue is billedrevenues are not dependent upon the gallons delivered or rental period but based onupon the specific contractual terms thatand can be based on an event (i.e. mobilization or demobilization) or an hourly rate. Revenuerate as specifically established within the contract and are disaggregated from LNG Product revenues and Rental revenues. Service revenue is recognized as the event is completed or work is done. Performance obligations for service revenueThe stated hourly labor rates in each contract are considered to be satisfied as the event is completed or work is done per the termsrepresentative of the related contract.stand-alone hourly rates at the time the contract was negotiated. $ 12,122 $ 21,823 $ 44,595 $ 58,944 1,330 1,690 4,640 5,015 1,579 2,154 4,745 4,952 285 152 1,085 325 $ 15,316 $ 25,819 $ 55,065 $ 69,236 $ 1,558 $ 3,427 $ 6,122 $ 12,087 13,758 22,392 48,943 57,149 $ 15,316 $ 25,819 $ 55,065 $ 69,236 Disclosure: Disaggregated RevenuesThe table below presents revenue disaggregated by source, for the three months ended March 31, 2023 and 2022 (in thousands):Three Months Ended
March 31,Revenues: 2023 2022 LNG Product $ 21,905 $ 16,785 Rental 2,247 1,986 Service 2,066 1,395 Other 624 101 Total revenues $ 26,842 $ 20,267 11The table below presents revenue disaggregated by geographic location, for the three months ended March 31, 2023 and 2022 (in thousands):Three Months Ended
March 31,Revenues: 2023 2022 Mexico $ 2,819 $ 3,766 United States 24,023 16,501 Total revenues $ 26,842 $ 20,267 March 31,September 30, 2023 and December 31, 2022, the Company held a series of call options (“the Call Options”) for the purchase of natural gas related to customer commitments. The Call Options are for a total of 1.10.5 million MMBtu (million British thermal units) of natural gas at March 31,September 30, 2023 which extend into the second quarter of 2024. The Company purchased the Call Options to manage the risk of increasing natural gas prices above what it can charge its customers. The Company may also enter into other derivative transactions when beneficial. Except for contracts qualifying for the normal purchase normal sales exception, as further described below, the Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on itsthe Company's Condensed Consolidated Balance Sheet.Sheets. The fair value of the Call Options are predominantly determined from broker quotes and are considered a level 2 fair value measurement. The following table presents the location and fair value of the Call Options at March 31, 2022September 30, 2023 and December 31, 2022 on the Company's Condensed Consolidated Balance Sheets (in thousands):Location on Condensed Consolidated Balance Sheet $ 138 $ 347 13 225 $ 151 $ 572 _______________(1) $ 32 $ 347 — 225 $ 32 $ 572 (2) threenine months ended March 31,September 30, 2023and 2022 as well as their net realized gains and losses.Three Months Ended
March 31,Changes in fair value of derivatives20232022(1)Fair value of natural gas derivatives, beginning of period$572 $— Unrealized gains (losses) transferred to realized gains (losses), net (3)(252)— Change in unrealized loss on natural gas derivatives (2)(169)— Fair value of natural gas derivatives, end of period$151 $— Three Months Ended
March 31,Realized gain (loss) from derivative instruments20232022(1)Unrealized gains (losses) transferred to realized gains (losses), net$(252)$— Derivative settlement payments received (3)— — Realized gain (loss) from natural gas derivatives, net (3)$(252)$— 12 2023 $ 81 $ 1,126 $ 572 $ — — — — 2,241 (316 ) (324 ) (862 ) (540 ) 267 926 322 27 $ 32 $ 1,728 $ 32 $ 1,728 2023 $ (316 ) $ (324 ) $ (862 ) $ (540 ) — 682 — 1,062 $ (316 ) $ 358 $ (862 ) $ 522 (1)_______________(1) The Company did not have any derivative instruments during the three months ended March 31, 2022.(2) Amounts are presented as their own separate line item within the Company's Condensed Consolidated Statements of Operations.(3) LNG productrevenues on the Company's Condensed Consolidated Statements of Operations.March 31,September 30, 2023 and December 31, 2022 consisted of the following (in thousands): $ 1,354 $ 990 162 286 1,526 254 32 347 203 236 104 73 $ 3,381 $ 2,186 March 31,
2023December 31,
2022Prepaid insurance $ 712 $ 990 Prepaid supplier expenses 232 286 Other receivables 103 254 Natural gas derivatives at fair value, current 138 347 Deposits 203 236 Other 14 73 Total prepaid expenses and other current assets $ 1,402 $ 2,186 March 31,September 30, 2023 and December 31, 2022 consisted of the following (in thousands):March 31,
2023December 31,
2022Liquefaction plants and systems $ 47,645 $ 47,636 Real property and buildings 2,065 2,057 Vehicles and tanker trailers and equipment 52,936 52,647 Computer and office equipment 459 470 Construction in progress 6,516 527 Leasehold improvements 30 31 109,651 103,368 Less: accumulated depreciation (57,722) (55,699) $ 51,929 $ 47,669 $ 48,005 $ 47,636 2,066 2,057 49,489 52,647 457 470 9,620 527 32 31 109,669 103,368 (59,651 ) (55,699 ) $ 50,018 $ 47,669 $2.3$2.1 million for the three months ended March 31,September 30, 2023 and 2022, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item. Depreciation expense totaled $6.0 million and $6.6 million for the nine months ended September 30, 2023 and 2022, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item.March 31,September 30, 2023 and 2022.13and liabilities and equity at March 31,September 30, 2023 and December 31, 2022, and its operational results for the three and nine months ended March 31,September 30, 2023 and 2022 in U.S. dollars (in thousands):March 31,
2023December 31, 2022 Assets: Total current assets $ 92,669 $ 88,536 Total non-current assets 2,964 3,016 Total assets $ 95,633 $ 91,552 Liabilities and equity: Total liabilities $ 61,581 $ 58,482 Total joint ventures’ equity 34,052 33,070 Total liabilities and equity $ 95,633 $ 91,552 Three Months Ended
March 31,2023 2022 Revenue $ 21,214 $ 10,079 Gross Profit 2,403 1,609 Earnings 901 323 $ 136,833 $ 88,536 2,677 3,016 $ 139,510 $ 91,552 $ 106,982 $ 58,482 32,528 33,070 $ 139,510 $ 91,552 $ 18,565 $ 12,364 $ 70,148 $ 55,090 2,754 2,332 8,640 7,637 749 430 3,422 2,573 threenine months ended March 31,September 30, 2023 in U.S. dollars (in thousands):Undistributed Earnings Cumulative Foreign Exchange Translation Adj Investment in BOMAY Balance at December 31, 2022 $ 9,333 $ 2,295 $ (22) $ 11,606 Equity in earnings — 393 — 393 Less: dividend distributions — — — — Foreign currency translation gain (loss) — — 93 93 Balance at March 31, 2023 $ 9,333 $ 2,688 $ 71 $ 12,092 _______________(1)Accumulated statutory reserves in equity method investments of $2.7 million at March 31, 2023 and December 31, 2022 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 is being accreted over an original period of nine years (the expected life of the joint venture). The Company's accretion during the three months ended March 31, 2023 and 2022 both totaled approximately $32 thousand each, respectively, and is included in income from equity investment in foreign joint venture in the accompanying Condensed Consolidated Statements of Operations. The remaining basis difference, net of accumulated accretion at March 31, 2023 and December 31, 2022 is summarized in the following table (in thousands):14 Initial Investment at Merger (1), (2) Cumulative Foreign Exchange Translation Adj $ 9,333 $ 2,295 $ (22 ) $ 11,606 — 1,466 — 1,466 — (813 ) — (813 ) — — (668 ) (668 ) $ 9,333 $ 2,948 $ (690 ) $ 11,591 March 31,
2023December 31,
2022Original basis difference $ 1,165 $ 1,165 Less accumulated accretion (475) (443) Net remaining basis difference at end of period $ 690 $ 722 $ 1,165 $ 1,165 (539 ) (443 ) $ 626 $ 722 March 31, 2023.September 30, 2023.March 31,September 30, 2023 and December 31, 2022 consisted of the following (in thousands): $ 2,202 $ 3,111 404 454 3,989 6,549 44 33 1,505 8,456 457 701 148 338 $ 8,749 $ 19,642 March 31,
2023December 31,
2022Compensation and benefits $ 1,709 $ 3,111 Professional fees 421 454 LNG fuel and transportation 3,387 6,549 Accrued interest 33 33 Customer deposits and prepayments 1,406 8,456 Other taxes payable 552 701 Other accrued liabilities 3,173 338 Total accrued liabilities $ 10,681 $ 19,642 March 31,September 30, 2023 and December 31, 2022 consisted of the following (in thousands):March 31,
2023December 31,
2022Secured term note, net of debt issuance costs $ 8,661 $ 8,650 Secured promissory note - related party 1,839 2,435 Insurance and other notes payable 489 848 Less: amounts due within one year (2,328) (3,283) Total long-term debt $ 8,661 $ 8,650 $ 8,585 $ 8,650 622 2,435 1,139 848 (2,297 ) (3,283 ) $ 8,049 $ 8,650 which $9.0 million was drawn and outstandingsubstituting certain items of Collateral under the Loan Agreement; the First Amendment is attached as of March 31, 2023.an exhibit to this filing. The AmeriState Loan which is in the form of a term loan facility, matures on April 8, 2031 and bears interest at 5.75% per annum through April 8, 2026, and the U.S. prime lending rate plus 2.5% per annum thereafter. The AmeriState Loan provides that proceeds from borrowings may be used for working capital purposes at the Company’s liquefaction plant in George West, Texas and related fees and costs associated with the AmeriState Loan. is secured by specific equipment owned byrequires the Company.15(i)(i) terminate its commitment, (ii) declare the outstanding principal amount of the Advancing Notes (as defined in the Loan Agreement) due and payable, or (iii) exercise all rights and remedies available to Lender under the Loan Agreement.The Loan Agreement requires the Company to meet certain financial covenants which include a debt-to-net-worth ratio of not more than 9.1 to 1.0 and a debt service coverage ratio of not less than 1.2 to 1.0 on an annual basis beginning December 31, 2022. The Company was in compliance with all of its debt covenants as of March 31, 2023.March 31,September 30, 2023, the outstanding balance is $1.8$0.6 million. The debt is secured by certain equipment of the Company. See Note 10 - Related Party Transactions.operations with a finance company. The dollaroperations. For the 2023-2024 policies, the amount financed was $1.2$1.1 million, forwhich is the policy. Theamount of the outstanding principal balance on the premium finance note was $0.8 million at December 31, 2022 and $0.5 million at March 31, 2023.September 30, 2023. The Company makes equal monthly payments of principal and interest over the term of the notes which are generally 10 months or 11 months in term.note. The interest rate for the insurance policyfinancing is 6.31%7.95%. At December 31, 2022, the policies' outstanding principal balance was $0.8 million, related to the 2022-2023 policies. The final installment payment on the 2022-2023 policies was made in July 2023.and $48 thousand for the three months ended March 31,September 30, 2023 and 2022, respectively. Office rent of $15 thousandFor the nine months ended September 30, 2023 and 2022, purchases totaled $0.4 million and $0.2 million, respectively. During the third quarter, the Company also purchased equipment it was paid torenting from The Modern Group during both the three months ended March 31, 2023 and 2022.for $0.1 million. As of March 31,September 30, 2023 and December 31, 2022, the Company had $31$33 thousand and $0.1 million, respectively, due to a subsidiary of The Modern Group included in accounts payable on the Condensed Consolidated Balance Sheets.8.0%7.9% of our outstanding common stock at March 31, 2023.September 30, 2023. The Company made no purchases from Chart E&C for the three months ended March 31,September 30, 2023 and 2022 of $11 thousand and $2 thousand, respectively. For the nine months ended September 30, 2023 and 2022, the Company made purchasepurchases from Chart E&C of $45totaling $22 thousand for the three months ended March 31, 2022.and $0.1 million, respectively. The Company had no receivable due from Chart at March 31, 2023 or December 31, 2022. As of March 31, 2023 the Company had no amounts due to Chart E&C; however does have a commitment for the future delivery of equipment during 2023 totaling $0.6 million. At December 31, 2022, the Company had $0.5 million due to Chart E&C included in accounts payable on the Condensed Consolidated Balance Sheets.Sheets at December 31, 2022, with no accounts payable due at September 30, 2023. The Company also has a commitment for the future delivery of equipment during 2023 totaling $0.6 million. The Company had no receivable due from Chart E&C at September 30, 2023 or December 31, 2022.16 Additionally, the Company currently expenses all legal costs as they are incurred. STOCKHOLDERS’ STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATIONthreenine months ended March 31,September 30, 2023 and 2022, the Company recognized $0.6$1.7 million and $0.5$1.7 million of stock compensation expense, respectively.long termlong-term incentive plan (the “Amended and Restated Plan”) which provides for a maximum number of shares of common stock available for issuance of 5,500,000 shares. The plan was amended in 2023 to increase the maximum number of shares from 4,000,000 shares. to 5,500,000, as approved by shareholders at the annual stockholders meeting held August 16, 2023. Awards under the Amended and Restated Plan may be granted to employees, officers and directors of the Company and affiliates, and any other person who provides services to the Company and its affiliates (including independent contractors and consultants of the Company and its subsidiaries). Awards may be granted in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, substitute awards, other stock-based awards, cash awards and/or any combination of the foregoing. No participant may receive a grant covering more than 2,000,000 shares of our common stock in any year and a non-employee member of the Board may not be granted more than 100,000 shares in any year.threenine months ended March 31,September 30, 2023, and 2022, shares of common stock were issued upon vesting of restricted stock units of 13,587totaling 153,324 and 501,334,695,465, respectively. There were no stock options or stock appreciation rights exercised during the threenine months ended March 31,September 30, 2023 or 2022.2022.17includingfor the numberthree and nine months ended September 30, 2023 and 2022 are presented below. For the September 30, 2023 securities that were excluded that would have had an anti-diluted effect consist of shares for both basic and diluted net income (loss) per share is as follows (in thousands, except share and per share data):Three Months Ended
March 31,2023 2022 Weighted average shares: Basic weighted average number of common shares outstanding 18,426,408 18,191,446 91,509 — Total shares including dilutive securities 18,517,917 18,191,446 Net income (loss): Net income (loss) from continuing operations $ 1,084 $ (359) Loss from discontinued operations, net of income tax — (47) Net income (loss) $ 1,084 $ (406) Net income (loss) per common share: Basic income (loss) per common share: Basic net income (loss) per common share from continuing operations $ 0.06 $ (0.02) Basic loss per common share from discontinued operations — — Basic net income (loss) per common share 0.06 (0.02) Diluted income (loss) per common share: Diluted net income (loss) per common share from continuing operations $ 0.06 $ (0.02) Diluted loss per common share from discontinued operations — — Diluted net income (loss) per common share 0.06 (0.02) _______________(1)Dilutive securities include the dilutive effect of incremental shares for unvested restricted stock units ("RSUs") and unexercisedof 27,177, stock options from the Company's stock-based compensation awards. The dilutive RSUsof 2,074,505 and stock options are calculated under the treasury stock method. For the three months ended March 31, 2023, 2,074,505appreciation rights of stock options were excluded from dilutive shares because their effect would be anti-dilutive, and 105,843 of RSUs were excluded.658,437. 18,518,915 18,324,534 18,470,423 18,256,587 — 272,074 — — 18,518,915 18,596,608 18,470,423 18,256,587 $ (207 ) $ 1,024 $ (1,297 ) $ (1,410 ) — (1,301 ) — (1,441 ) $ (207 ) $ (277 ) $ (1,297 ) $ (2,851 ) $ (0.01 ) $ 0.06 $ (0.07 ) $ (0.08 ) — (0.08 ) — (0.08 ) (0.01 ) (0.02 ) (0.07 ) (0.16 ) $ (0.01 ) $ 0.06 $ (0.07 ) $ (0.08 ) — (0.07 ) — (0.08 ) (0.01 ) (0.01 ) (0.07 ) (0.16 ) (2)The Company had no dilutive securities for the three months ended March 31, 2022 since the Company incurred net losses for both continuing and discontinued operations for these periods and inclusion would be antidilutive.threenine months ended March 31,September 30, 2023 and 2022 is as follows (in thousands):Three Months Ended
March 31,Supplemental Disclosure of Cash Flow Information: 2023 2022 Interest paid $ 182 $ 181 Income taxes paid — (14) Significant non-cash investing and financing activities: Equipment acquired from issuance of note payable — 359 Acquisition of fixed assets included within accounts payable and accrued expenses 3,000 170 $ 489 $ 635 207 29 — 359 150 565 — 1,841 1,441 — 1,139 1,203 1816MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.("(“this Report"Report”) and the consolidated financial statements included in the 2022 Annual Report on Form 10-K filed on March 9, 2023 with the U.S. Securities and Exchange Commission (the "SEC"“SEC”). 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.19Company also believes that the decision to exit the Brazil Operations met the criteria to be reported as discontinued operations. As a result, the Company believes that it has one reporting segment and the operating results presented in the tables below have been recast to separately present the revenues and expenses related to the Brazil Operations as discontinued operations for all periods presented.March 31,September 30, 2023 Compared to Three Months Ended March 31,September 30, 2022March 31,September 30, 2023 (the “Current Quarter”) as compared to the three months ended March 31,September 30, 2022 (the “Prior Year Quarter”) (unaudited, amounts in thousands, except for percentages).Three Months Ended
March 31, $ Change % Change 2023 2022 Revenues: Revenues $ 26,842 $ 20,267 $ 6,575 32.4 % Operating expenses: Cost of revenues 20,270 15,504 4,766 30.7 Change in unrealized loss on natural gas derivatives 169 — 169 n/a Selling, general and administrative expenses 3,379 2,931 448 15.3 Gain from disposal of fixed assets — (80) 80 n/a Depreciation expense 2,011 2,277 (266) (11.7) Total operating expenses 25,829 20,632 5,197 25.2 Income (loss) from operations before equity income 1,013 (365) 1,378 377.5 Net equity income from foreign joint venture operations 345 87 258 296.6 Income (loss) from operations 1,358 (278) 1,636 588.5 Other income (expense): Interest expense, net (150) (137) (13) (9.5) Interest expense, net - related parties (32) (31) (1) (3.2) Other income (expense) (84) (45) (39) (86.7) Total other income (expense) (266) (213) (53) (24.9) Net income (loss) from continuing operations before income tax benefit (expense) 1,092 (491) 1,583 322.4 Income tax benefit (expense) (8) 132 (140) (106.1) Net income (loss) from continuing operations 1,084 (359) 1,443 401.9 Loss from discontinued operations, net of income tax — (47) 47 n/a Net income (loss) $ 1,084 $ (406) $ 1,490 367.0 20 $ 12,122 $ 21,823 (9,701 ) (44.5 )% (3,032 ) 1,330 1,690 (360 ) (21.3 ) 1,579 2,154 (575 ) (26.7 ) 285 152 133 87.5 15,316 25,819 (10,503 ) (40.7 ) 12,056 19,904 (7,848 ) (39.4 ) (267 ) (926 ) 659 (71.2 ) 3,002 3,658 (656 ) (17.9 ) (1,002 ) 46 (1,048 ) n/a 2,003 2,115 (112 ) (5.3 ) 15,792 24,797 (9,005 ) (36.3 ) (476 ) 1,022 (1,498 ) n/a 284 114 170 149.1 (192 ) 1,136 (1,328 ) n/a 60 (150 ) 210 n/a (15 ) (49 ) 34 (69.4 ) (3 ) (28 ) 25 (89.3 ) 42 (227 ) 269 (118.5 ) (150 ) 909 (1,059 ) (116.5 ) 57 (115 ) 172 n/a (207 ) 1,024 (1,231 ) n/a — (1,301 ) 1,301 (100.0 ) $ (207 ) $ (277 ) $ 70 (25.3 ) increased $6.6decreased $10.5 million, or 32%41%, compared to the Prior Year Quarter. The increasechange in revenue primarily related to:•Increased natural gas prices during the Current Quarter compared to the Prior Year Quarter;•Increased pricing charged to our customers;•Increased revenues from minimum purchase contracts ("take-or-pay"); and•Increases in rental, service, and other revenue related to additional projects with higher equipment and labor components.The above increases were partially offset by fewer gallons of LNG delivered in the Current Quarter compared to the Prior Year Quarter.increased $4.8decreased $7.8 million, or 31%39%, compared to the Prior Year Quarter. As a percentage of revenue, these costs were 76%79% and 77% in both the Current Quarter and the Prior Year Quarter.Quarter, respectively. The increasechange in cost of revenues was primarily attributable to:•Increased natural gas prices during the Current Quarter compared to the Prior Year Quarter;•Inflationary pressures, including increased transportation, liquefaction, personnel and other costs;•Increased take-or-pay fees; and•Increased costsTable of rental, service, and other revenue primarily related to increased labor and equipment rentals to support marine bunkering projects.Contentsana gain of $0.3 million on the change in unrealized loss of $0.2 millionlosses associated with the Company's natural gas derivatives in the Current Quarter on its natural gas derivatives.compared to a gain of $0.9 million in the Prior Year Quarter. The unrealized lossgain in the Current Quarter was due to lower future natural gas prices at March 31, 2023offsetting amortization of realized losses as compared to December 31, 2022. The Company had no derivatives incall option volumes expired unexercised during the Prior YearCurrent Quarter. See also Note 4 in the Notes to the Condensed Consolidated Financial Statements for a further discussion of our derivatives.increased $0.4decreased $0.7 million duringprimarily due to lower compensation in the Current Quarter compared to the Prior Year Quarter. The increase was primarily related to increased compensation and headcount expense and increased professional services.Gain from disposal of fixed assets. In the Prior Year Quarter, a gain of $0.1 million was recognized from the disposal of fixed assets. There was no gain in the Current Year Quarter.12%5% during the Current Quarter as compared to the Prior Year Quarter due to assets reaching the end of their depreciable lives. investments in the Company's foreign joint venture increased $0.3improved by $0.2 million duringin Current Quarter compared to the CurrentPrior Year Quarter due to increased operating activitysales by the Company's joint venture in China.net. Interestnet - related parties. Related party interest expense increased $13decreased $34 thousand duringin the Current Quarter as compared to the Prior Year Quarter primarily related to lower debt balances and capitalized interest on additional borrowings from the Company's loan with AmeriState Bank.Interest expense, net - related parties. Related party interest expense in the Current Quarter was comparable to the Prior Year.$84$2 thousand during the Current Quarter compared to other income of $45$28 thousand in the Prior Year Quarter related to transactional foreign exchange losses.$8 thousand$0.1 million during the Current Quarter compared to a state and foreign income tax benefit of $0.1 million during the Prior Year Quarter. No U.S. federal income tax benefit was recorded for the Current Quarter or Prior Year Quarter as any net U.S. deferred tax assets generated from operating losses were offset by a change in the Company's valuation allowance on net deferred tax assets.21Operating lossLoss from discontinued operations, net of tax was $47 thousand$1.3 million for the Prior Year Quarter. The Company sold its Brazil Operations on October 31, 2022. There was no activity from discontinued operations during the Current Quarter. See Note 2 in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company's discontinued operations. $ 44,595 $ 58,944 (14,349 ) (24.3 )% (8,894 ) 4,640 5,015 (375 ) (7.5 ) 4,745 4,952 (207 ) (4.2 ) 1,085 325 760 233.8 55,065 69,236 (14,171 ) (20.5 ) 42,911 54,945 (12,034 ) (21.9 ) (322 ) (27 ) (295 ) n/a 9,424 9,643 (219 ) (2.3 ) (1,002 ) (34 ) (968 ) n/a 6,006 6,589 (583 ) (8.8 ) 57,017 71,116 (14,099 ) (19.8 ) (1,952 ) (1,880 ) (72 ) 3.8 1,314 887 427 48.1 (638 ) (993 ) 355 (35.8 ) (237 ) (437 ) 200 (45.8 ) (71 ) (129 ) 58 (45.0 ) (127 ) (99 ) (28 ) 28.3 (435 ) (665 ) 230 (34.6 ) (1,073 ) (1,658 ) 585 (35.3 ) 224 (248 ) 472 n/a (1,297 ) (1,410 ) 113 (8.0 ) — (1,441 ) 1,441 (100.0 ) $ (1,297 ) $ (2,851 ) $ 1,554 (54.5 ) We haveThe Company has used cash flows to invest in fixed assets and increase working capital to support growth as well as to pay interest and principal amounts outstanding under our debt.its debt agreements. The Company's sale of the Brazil Operations on October 31, 2022 is not anticipated to adversely impact the Company's future cash flows.March 31,September 30, 2023, no amounts have been drawn under the Revolving Credit Facility. The Revolving Credit Facility matures on June 9, 2026. The Revolving Credit Facility contains various restrictions and covenants. As of September 30, 2023, the Company was in compliance with all its covenants related to the Revolving Credit Facility. The Company also has a $10.0 million secured term loan facility with AmeriState Bank, of which, $1.0 million is available for future draws at September 30, 2023. $6.9$4.9 million in cash and cash equivalents on hand and $11.3$10.6 million in outstanding debt (net of debt issuance costs), and in lease obligations (of which $2.5 million is due in the next twelve months). The Company has a $10.0 millionTotal availability under the Revolving Credit Facility and the secured term loan facility with $1.0is $3.7 million available for future draws at March 31,September 30, 2023. The Company has also filed a shelf registration statement (described below) which provides the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions.businessCompany will generate sufficient cash flows from its operations along with availability under our loan facility that is sufficientthe Company's debt agreements to fund the business for the next twelve months. As we continue to grow, management continues to evaluate additional financing alternatives, however, there is no guarantee that additional financing will be available or available at terms that would be beneficial to shareholders.Three Months Ended March 31, 2023 2022 Net cash provided by (used in): Operating activities $ 93 $ 3,155 Investing activities (3,727) (818) Financing activities (961) (1,132) Effect of exchange rate changes on cash 5 (3) Net increase (decrease) in cash and cash equivalents $ (4,590) $ 1,202 Cash and cash equivalents, beginning of period 11,451 910 Cash and cash equivalents, end of period $ 6,861 $ 2,112 $ 5,380 $ 11,538 (8,982 ) 69 (2,943 ) (1,422 ) 8 7 (6,537 ) 10,192 11,451 910 $ 4,914 $ 11,102 $0.1$5.4 million for the threenine months ended March 31,September 30, 2023 compared to $3.2$11.5 million for the same period in 2022. The decrease in net cash provided by operating activities of $3.1$6.2 million as compared to the Prior Year Quarter was primarily attributable to higherlower net income exclusive of non cash items for depreciation, stock-based compensation, equity income from our joint venture, BOMAY, change in unrealized loss on derivatives and (gain) loss on disposals of fixed assets; changes in working capital requirements.$3.7$9.0 million for the threenine months ended March 31,September 30, 2023 compared to $0.8net cash provided by investing activities of $0.1 million for the threenine months ended March 31,September 30, 2022. The increase in net cash used in the Current QuarterYear of $9.1 million was primarily due to cash paid to purchase additional assets.22$1.0$2.9 million for the threenine months ended March 31,September 30, 2023, compared to $1.1$1.4 million for the threenine months ended March 31,September 30, 2022. The increase in cash used in financing activities in the Current Year compared to the Prior Year is due to $1.0 million of proceeds received from borrowings in the Prior Year with no proceeds from borrowings in the Current Year. For both periods, the cash used in financing activities was primarily for repayment of debt.capital expenditures, debt repayments, purchases of equipment and repurchases, equipment purchases,other capital expenditures, maintenance of LNG production facilities, mergers and acquisitions (if any), pursuing market expansion, supporting sales and marketing activities 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, obtaining new debt, or debt or equity offerings to provide flexibility with our cash management. Certain of these alternatives may require the consent of current lenders or stockholders, and there is no assurance that we will be able to execute any of these alternatives on acceptable terms or at all.threenine months ended March 31,September 30, 2023 were $3.7$9.0 million and primarily related to the purchase of additional liquefaction assets and rolling stock. The Company had purchase orders open of approximately $4.0$1.0 million for capital expenditures at March 31,September 30, 2023. Future capital expenditures over the next twelve months will be dependent upon investment opportunities as well as the availability of additional capital at favorable terms."Shelf Registration"“Shelf Registration”) which was declared effective on April 26, 2022 and will permit the Company to issue up to $100.0 million in either common stock, preferred stock, warrants or a combination of the above, and gives the Company the flexibility to raise capital to fund working capital requirements, repay debt and/or fund future transactions. On December 16, 2022, the Company filed a prospectus supplement to the Shelf Registration that allows the Company to sell and issue shares of common stock directly to the public "at“at the market"market” as permitted in Rule 415 under the Securities Act. As a smaller reporting company, we are subject to General Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the Shelf Registration to no more than one-third of our public float in any twelve month period as measured in accordance with such instruction. There is no assurance that we will be able to raise capital pursuant to the Shelf Registration on acceptable terms or at all. We made no issuances under the Shelf Registration during the threenine months ended March 31,September 30, 2023.March 31,September 30, 2023, 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.("(“U.S. GAAP"GAAP”) which 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“Critical Accounting Policies and Estimates"Estimates” during the three and nine months ended March 31,September 30, 2023 from those disclosed within the Company's Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 9, 2023.March 31,September 30, 2023.threenine months ended March 31,September 30, 2023, there have been no material changes in our risk factors disclosed in our 2022 Form 10-K.Exhibit No.Exhibit Description31.110.1† 10.2 *First Amendment to Loan Agreement, made effective as of September 19, 2023, between Stabilis Solutions, Inc. and Ameristate Bank. 101104101.SCH*Inline XBRL Taxonomy Extension Schema Document 101.CAL *Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB *Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE *Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF *Inline XBRL Taxonomy Extension Definition Linkbase Document herewith.Date: May 10, 202326