| Basis of Presentation and Summary of Significant Accounting Policies | (1) Basis of Presentation and Summary of Significant Accounting
Policies
(a) Description of Business
Stabilis Energy, LLC is a Texas Limited liability company
(“the Company”) formed in 2013 to produce, market, and
sell liquefied natural gas (“LNG”). The Company also
resells liquefied natural gas from third parties and provides
services, transportation, and equipment to customers.
The Company is a supplier of LNG to the industrial, midstream, and
oilfield sectors in North America and provides turnkey fuel
solutions to help industrial users of diesel and other crude-based
fuel products convert to LNG, resulting in reduced fuel costs and
improved environmental footprint. The Company opened a 120,000
gallons per day (“gpd”) LNG production facility in
George West, Texas in January 2015 to service industrial and
oilfield customers in Texas and the greater Gulf Coast region. The
Company owns a second liquefaction plant capable of producing
25,000 gpd that is being relocated to the Permian Basin to support
LNG demand in this region. The Company is vertically integrated
from LNG production through distribution and cryogenic equipment
rental.
On February 28, 2017, the Company acquired Prometheus Energy
Group Incorporated (“Prometheus”) in a transaction
between entities under common control and Prometheus became an 80%
owned subsidiary of the Company. Because the entities are under
common control, the assets and liabilities of Prometheus were
transferred to the Company at their historic cost (see Note
(4) Acquisition of PEG Partners, LLC
Prometheus markets and distributes LNG for off road, high
horsepower applications. Prometheus provides LNG and service
solutions to users in the oil and gas, mining, remote and temporary
power, utility, mobile on-site low-cost on-site off-pipeline
On November 28, 2018, the Company’s members and related
party creditors entered into a two-step Note (11) Members Equity
On December 17, 2018, the Company entered into a definitive
share exchange agreement with American Electric Technologies, Inc.
(“AETI”) to enter into a business combination
transaction. At the closing, the Company’s owners will
contribute 100% of their outstanding membership units to AETI in
exchange for AETI common stock resulting in the Company and its
subsidiaries becoming a wholly-owned subsidiary of AETI. The
proposed transaction has been approved by the board of directors of
AETI and the Company’s owners, and will be submitted to the
shareholders of AETI for approval of the issuance of AETI common
stock in connection with the transaction and other
transaction-related matters at a Special Meeting of Shareholders.
The transaction is expected to close during the second quarter of
2019, subject to customary closing conditions.
(b) Basis of Presentation and Consolidation
The consolidated financial statements of the Company are prepared
on the accrual basis of accounting, in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) and include the accounts of the Company
and its wholly-owned subsidiaries Stabilis Energy Services, LLC,
and Stabilis Oilfield Investment Company, LLC as of and for the
years ended December 31, 2018 and 2017.
In 2014, the Company acquired a 50% beneficial interest in Stabilis
LNG Eagle Ford, LLC (“LNG EF”) and Stabilis FHR
Oilfield LNG, LLC (“FHR”). Management determined that
the 50% beneficial interest provided the Company significant
influence but not a controlling financial interest. Through
May 19, 2017, the Company reported its share of income or loss
from its 50% interest in LNG EF and FHR using the equity method of
accounting. On May 19, 2017, the Company acquired the
remaining 50% interests in LNG EF and FHR. Accordingly, after the
purchase date all income and expense items from the date of
purchase forward have been consolidated (see Note
(3) Step Acquisition of Equity Interests
On March 1, 2018, JCH Crenshaw Holdings, LLC
(“JCH”) assigned its membership interest in PEG
Partners, LLC, (“PEG”) to the Company. PEG, a Delaware
Limited Liability Company, owns Prometheus. Management determined
that JCH (which, along with its affiliates, controls Stabilis)
gained control of PEG on February 28, 2017, when it obtained a
non-voting non-voting
All significant intercompany transactions and balances have been
eliminated in consolidation.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
Company adopted Financial Accounting Standards Board
(“FASB”) Accounting Standards Update
(“ASU”) No. 2014-15, 205-40),
These factors were reviewed by management to determine if there was
substantial doubt as to the Company’s ability to continue as
a going concern. Management concluded that its plan to address the
Company’s liquidity issues would allow it to continue as a
going concern. Those plans include projected positive cash flows
from operations, the conversion of the majority of its existing
debt to equity, and the majority member’s intent and ability
to support operations if required.
Cash flows from operations have continued to improve due to sales
volumes and reduced operating costs. Management believes that its
business will continue to grow and will generate sufficient cash
flows to fund future operations.
On November 30, 2018, related party debt holders converted
$48.7 million of debt to equity to improve the Company’s
financial position and reduce its future debt service requirements.
Additionally, in August 2017 the Company negotiated an amendment to
its promissory note to Chart Industries. This amendment reduced and
extended its mandatory debt service payments to provide future
payments that management believes are sustainable based on current
and projected operating performance.
(c) Use of Estimates in the Preparation of the Consolidated
Financial Statements
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States (“U.S. GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant items subject to such estimates include the
carrying amount of contingencies, and valuation allowances for
receivables, inventories, and deferred income tax assets. Actual
results could differ from those estimates, and these differences
could be material to the consolidated financial statements.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities
of three months or less, when purchased, to be cash and cash
equivalents. Cash equivalents consist principally of money market
accounts held with major financial institutions. The Company is
exposed to credit risk from its deposits of cash and cash
equivalents in excess of amounts insured by the Federal Deposit
Insurance Corporation. The company has not experienced any losses
on its deposits of cash and cash equivalents.
(e) Accounts Receivable
Accounts receivable are recognized when products are sold. The
Company extends credit to many of its customers in the ordinary
course of business. Generally, these sales are unsecured.
Accounts receivable are stated at cost, net of any allowance for
doubtful accounts. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the failure of
customers to make required payments. The Company reviews the
accounts receivables on a periodic basis and makes allowances where
there is doubt as to the collectability of individual balances. In
evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the
balance, the customer’s payment history, its current
credit-worthiness and current economic trends. At December 31,
2018 and 2017, management believed all balances were fully
collectible such that no allowance for doubtful accounts was deemed
necessary.
(f) Inventories
Inventory consists of LNG produced that is either (1) in a
storage container at our plant or (2) in a storage trailer
that is in transit to a customer. Inventory quantities are measured
at each reporting period and are valued at the lower of cost or
market, determined on a first-in, first-out
(g) Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and amortization. Significant additions,
renewals, and capital improvements are capitalized, whereas
expenditures for maintenance and repairs are charged to expense as
incurred. Leasehold improvements are amortized over the shorter of
the applicable remaining lease term or the estimated useful life of
the related assets. The cost and related accumulated depreciation
of assets retired or sold are removed from the appropriate asset
and depreciation accounts, and the resulting gain or loss is
reflected in income. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of
the assets as follows:
Liquefaction plants and systems
10 – 20 years
Real property and buildings
10 – 15 years
Vehicles and tanker trailers and equipment
5 – 15 years
Computer and office equipment
3 – 10 years
Leasehold improvements
3 – 5 years
(h) Long-Lived Assets
Long lived assets, such as property, plant, and equipment, are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. If circumstances require a long-lived asset or asset
group be tested for possible impairment, the Company first compares
undiscounted cash flows expected to be generated by that asset or
asset group to its carrying amount. If the carrying amount of the
long-lived asset or asset group is not recoverable on an
undiscounted cash flows basis, an impairment is recognized to the
extent that the carrying amount exceeds its fair value. Fair value
is determined through various valuation techniques including
discounted cash flows models, quoted market values and third-party
independent appraisals, as considered necessary.
(i) Asset Retirement Obligations
The Company recognizes the fair value of the liability associated
with an asset retirement obligation in the period in which the
liability is incurred or becomes reasonably estimable and if there
is a legal obligation to restore or remediate the property at the
end of a lease term. Asset retirement obligations are based upon
future retirement cost estimates and incorporate certain
assumptions, such as costs to restore the property and any salvage
value. Management does not believe the Company had any material
asset retirement obligations at December 31, 2018 or 2017.
(j) Revenue Recognition
The Company recognizes revenue associated with the sale of LNG at
the point in time when the customer obtains control of the asset.
In evaluating when a customer has control of the asset, the Company
primarily considers whether the transfer of legal title and
physical delivery has occurred, whether the customer has
significant risks and rewards of ownership, and whether the
customer accepted delivery and a right of payment exists. Revenues
from the providing of services, transportation and equipment to
customers is recognized as the service is performed (see Note
(2) Revenue Recognition
(k) Income Taxes
The Company, with the consent of all of its members, elected to be
treated as a corporation for federal income tax reporting purposes.
Deferred income taxes are accounted for under the asset-and-liability
The Company recognizes the tax benefit or obligation from an
uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing
authorities, based not only on the technical merits of the tax
position based on tax law, but also past administrative practices
and precedents of the taxing authority. The tax benefits or
obligations are recognized in the financial statements if there is
a greater than 50% likelihood of the tax benefit or obligation
being realized upon ultimate resolution. As of December 31,
2018 and 2017, the Company had no uncertain tax positions that
required recognition.
The Company files income tax returns in the United States of
America and in the state of Texas. With few exceptions, the Company
is subject to examination by the applicable taxing authorities for
years after 2014.
(l) Commitments and Contingencies
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines, and penalties and other sources are
recorded when it is probable that a liability has been incurred and
the amount can be reasonably estimated. Legal costs incurred in
connection with loss contingencies are expensed as incurred.
(m) Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to
the extent possible. The Company determines fair value based on
assumptions that market participants would use in pricing an asset
or liability in the principal or most advantageous market. When
considering market participant assumptions in the fair value
measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized
in one of the following levels in accordance with U.S. GAAP:
Level 1 Inputs—Unadjusted quoted prices in active
markets for identical assets or liabilities accessible to the
reporting entity at the measurement date.
Level 2 Inputs—Other than quoted prices included in
Level 1 inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of
the asset or liability.
Level 3 Inputs—Unobservable inputs for the asset or
liability used to measure fair value to the extent that observable
inputs are not available, thereby, allowing for situations in which
there is little, if any, market activity for the asset or liability
at the measurement date.
The carrying value of cash and cash equivalents, accounts
receivable, inventory, accounts payable and accrued liabilities
approximate their respective fair values due to their relative
short maturities. The carrying value of the Company’s notes
payable and capital lease obligations approximates fair value
because the related interest rates approximate rates currently
available to the Company.
Nonfinancial assets and liabilities measured at fair value on a
nonrecurring basis include certain nonfinancial assets and
liabilities acquired in a business combination. In determining fair
value, the Company uses quoted market prices or, to the extent that
there are no available quoted market prices, market prices for
similar assets or liabilities.
(o) Recent Accounting Pronouncements
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic
842): Targeted Improvements No. 2018-11 No. 2018-11 non-lease non-lease non-lease No. 2018-11 No. 2016-02
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business No. 2017-01 2017-01 No. 2017-01
In February 2016, the FASB issued ASU No. 2016-02, Leases right-of- No. 2016-02, No. 2016-02 No. 2016-02.
In May 2014, the FASB ASU No. 2014-09, Revenue from
Contracts with Customers No. 2014-09 No. 2014-09 |
