
Cautionary Statement Regarding Forward-Looking Statements Forward-looking statements represent intentions and expectations about future events, subject to risks and uncertainties that could cause actual results to differ materially - Forward-looking statements represent intentions, plans, expectations, assumptions, and beliefs about future events, subject to risks and uncertainties that could cause actual results to differ materially7 - The company undertakes no obligation to update or revise any forward-looking statements, except as required under applicable securities laws8 - Information from market research and analyst reports is relied upon but not independently verified for accuracy and completeness9 Part I. Item 1. Business Stabilis provides turnkey LNG solutions across North America, generating revenue from sales, equipment rental, and services, and holds a 40% equity in BOMAY Electric Industries, Inc Overview Stabilis Solutions, Inc. is an energy transition company providing turnkey clean energy solutions, primarily LNG, across diverse North American markets - Stabilis Solutions, Inc. is an energy transition company providing turnkey clean energy production, storage, transportation, and fueling solutions primarily using LNG12 - The company has safely delivered over 420 million gallons of LNG through more than 43,000 truck deliveries over 18 years, positioning it as one of the largest and most experienced small-scale LNG providers in North America12 - Stabilis provides LNG solutions to customers in diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power, and utility markets12 - The company also builds power and control systems for the energy industry in China through its 40% owned Chinese joint venture, BOMAY Electric Industries, Inc13 Our Business Stabilis produces LNG from owned and third-party sources, provides 'virtual natural gas pipeline' transportation, rents cryogenic equipment, and offers engineering and field support - Stabilis owns and operates two liquefiers in George West, Texas (up to 100,000 LNG gallons/day) and Port Allen, Louisiana (up to 30,000 LNG gallons/day), and purchases LNG from approximately 30 third-party production sources18 - The company offers turnkey LNG transportation and logistics services in North America, providing a 'virtual natural gas pipeline' using its own fleet of cryogenic trailers and outsourced services19 - Stabilis operates a fleet of approximately 205 mobile LNG storage and vaporization assets, one of the largest small-scale LNG equipment fleets in North America20 - The company provides engineering and field support services to help customers design, integrate, mobilize, commission, and reliably operate LNG in their fueling operations21 Market for Small-Scale LNG in North America The North American small-scale LNG market is poised for significant growth, driven by its clean energy benefits, ability to serve remote locations, and economic advantages - LNG is believed to provide an important balance between environmental sustainability, security, accessibility, and economic viability, playing a key role in the energy transition1523 - New and expanding markets for LNG include marine bunkering (driven by IMO sulfur caps) and rocket propulsion (due to higher energy density, reduced explosion risk, and ease of production)24 - Natural gas produces significantly lower carbon dioxide, particulate matter, and sulfur emissions compared to other fossil fuels like coal, gasoline, and diesel25 - LNG is generally less expensive than competing fuel sources (e.g., crude oil, distillate fuels, propane) and exhibits less price sensitivity due to the smaller commodity cost portion26 - LNG offers better safety characteristics than diesel and propane, as it boils and dissipates rapidly when spilled and has a higher ignition temperature and narrower flammability range29 - Established small-scale LNG production and distribution technologies are widely available, reducing technology risk but placing a premium on owner/operator capabilities30 Our Customers Stabilis serves approximately 50 customers across diverse North American markets, including aerospace and mining, with two customers each contributing over 10% of 2022 revenues - Stabilis serves approximately 50 customers in North America across diverse end markets, including aerospace, agriculture, energy, industrial, marine bunkering, mining, pipeline, remote power, and utility markets31 - Target customers typically consume high volumes of fuel, operate in mobile, temporary, or off-pipeline locations, have limited access to alternative fuel sources, and/or face increasingly stringent emissions requirements31 Key Customers by Revenue Contribution (2022) | Customer | % of 2022 Revenue | | :------------- | :---------------- | | Aggreko Plc | >10% | | Minera Penmont | >10% | - Through its 40% interest in BOMAY, Stabilis provides power and control systems for the land drilling and production market in China39 Competitive Strengths Stabilis's strengths include attractive LNG, proven project execution, comprehensive 'virtual natural gas pipeline' solutions, and leveraging capabilities for market expansion - LNG is an economically and environmentally attractive product, reducing harmful emissions and offering lower, more stable prices than distillate fuels or propane4041 - Stabilis has produced and delivered over 420 million gallons of LNG over 18 years, demonstrating proven execution experience in building/operating facilities and providing turnkey fueling solutions42 - The company offers comprehensive 'one-stop shop' off-pipeline natural gas solutions, including supply infrastructure, transportation, logistics, and field service support, with one of North America's largest cryogenic equipment fleets43 - Stabilis can leverage its LNG production and distribution expertise, combined with cryogenic engineering and project development capabilities, to expand into new geographic and service end markets44 Competition Stabilis competes in a highly competitive natural gas market against distillate fuels, propane, and CNG, facing rivals with greater resources, but not mid-scale or world-scale LNG liquefiers - The primary competition for LNG comes from distillate fuels (diesel, fuel oil) and propane, which power the majority of engines and generators in target markets, as well as pipeline natural gas and compressed natural gas (CNG)45 - Competition factors include cost, supply, availability, quality, emissions, and safety of the fuel, with location often being a primary competitive factor due to transportation costs46 - Some competitors have longer operating histories, greater market experience, larger customer bases, more expansive brand recognition, deeper market penetration, and substantially greater financial, marketing, and other resources46 - Stabilis does not compete with mid-scale and world-scale LNG liquefiers (producing >1,000,000 LNG gallons/day) designed for large marine vessels and foreign markets47 Sales and Marketing Stabilis markets products and services through a direct sales force, participates in trade shows, and collaborates with government agencies on natural gas education and regulations - Stabilis markets its products and services primarily through a direct sales force covering all major geographic and customer markets48 - The company also attends trade shows, participates in industry conferences, and works with federal, state, and local government agencies to educate about natural gas and stay abreast of regulations48 Seasonality Stabilis saw no significant seasonal LNG volume variations in 2022, but revenues are sensitive to natural gas price fluctuations, which are higher in peak winter and summer months - The company did not experience significant seasonal variations in LNG delivery volumes during 2022 and does not expect future volumes to be significantly impacted by seasonal variations49 - Revenues are susceptible to variations due to changes in the price of natural gas, which tends to be higher in peak winter and summer months when heating and cooling demand is seasonally higher49 Government Regulation and Environmental Matters Stabilis is subject to extensive environmental, health, safety, and operational regulations; compliance costs are not yet material, but future changes or non-compliance could significantly impact the business - Stabilis is subject to a variety of federal, international, state, provincial, and local laws and regulations relating to the environment, health and safety, labor and employment, building codes, zoning, public reporting, and taxation50 - Compliance with existing regulations has not had a material effect on capital expenditures, earnings, or competitive position to date, but new or more stringent laws could have such an effect in the future50 - Regulations govern the construction and operation of LNG liquefaction plants, requiring facility permits or licenses for storm water, wastewater, waste handling, and air emissions51 - Transportation of LNG requires compliance with federal (USDOT, FMCSA, Hazardous Materials Regulations) and state safety standards for qualified drivers and cryogenic containers52 - Transfer of LNG between facilities and vessels must adhere to international, federal, state, and local safety standards and operational regulations, requiring trained personnel and safety signage53 - Storage and vaporization of LNG at customer sites may require permits or approvals from local planning boards and fire departments, addressing waste handling and air emissions54 - Stabilis holds DOE export licenses for Mexico and Canada, and in Q3 2022, received authorization to export up to 51.75 billion cubic feet per year to all free trade and non-free trade countries for 28 years5556 Human Capital Resources As of December 31, 2022, Stabilis had 100 employees, valuing their expertise and retaining them through competitive compensation, advancement opportunities, and a strong safety culture Human Capital Resources (as of Dec 31, 2022) | Metric | Value | | :---------------- | :---- | | Total Employees | 100 | | Full-time Employees | 99 | - The company attracts and retains employees by offering competitive compensation packages (base, incentive, benefits like medical, dental, vision, disability, 401(k)) and opportunities for advancement58 - Employee safety is paramount, supported by various training, educational, and safety programs with detailed procedures59 Intellectual Property Stabilis holds US and Canadian patents for natural gas applications and processing systems, with the latest expiring in 2038, and ten US and one Canadian trademark registrations - Stabilis holds patents in the US and Canada for the use of natural gas for well enhancement, two patents for rotary fluid processing systems, and a US patent for a gas processing system60 - The last patent to expire in the U.S. will expire in July 203860 - The company has ten U.S. trademark registrations and one foreign trademark registration (Canada)60 Available Information Stabilis's Houston office and website provide free access to SEC filings (10-K, 10-Q, 8-K), which are also available on the SEC's website - Stabilis's principal executive office is located at 11750 Katy Freeway, Suite 900, Houston, Texas 7707961 - Annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K are available free of charge on the company's website (www.stabilis-solutions.com) and the SEC's website (www.sec.gov)[61](index=61&type=chunk) Item 1A. Risk Factors Investing in Stabilis common stock carries high risks, encompassing operational, market, regulatory, and financial uncertainties, including strategy execution, price volatility, and funding needs Risks Related to Our Business Business risks include strategy execution failures, counterparty performance, LNG/natural gas price volatility, operational and construction risks, environmental non-compliance, and challenges in sourcing and personnel - The company's ability to implement its business strategy is uncertain and can be adversely affected by factors such as failure to win new bids, manage expanding operations, attract/retain personnel, or adapt to new energy sector trends6465 - Exposure to performance and credit risks of counterparties, especially during commodity price volatility, may adversely affect operating results, liquidity, and access to financing66 - Cyclical or other changes in the demand for and price of LNG and natural gas, influenced by alternative energy sources, weather, and regulatory policies, could materially and adversely affect the business6768 - Operation and/or construction of LNG infrastructure and facilities involve significant risks, including equipment failures, operational errors, industrial accidents, natural disasters, and non-compliance with health and safety regulations6970 - Insurance may be insufficient to cover losses from inherent operational risks (e.g., explosions, pollution, natural disasters), potentially leading to significant liabilities and adverse effects on the business7172 - The design, construction, and operation of energy-related infrastructure, including LNG facilities, are highly regulated activities, posing risks related to obtaining and maintaining permits, approvals, and authorizations7375 - Existing and future environmental, health, and safety laws and regulations (e.g., CAA, CWA, RCRA, OSHA, GHG emissions) could result in increased compliance costs, additional operating/construction costs, and restrictions768183 - Dependence on contractors for successful completion of energy-related infrastructure projects introduces risks related to their performance, schedule adherence, cost overruns, and potential disagreements8788 - Inability to purchase or receive physical delivery of natural gas in sufficient quantities and/or quality or at economically attractive prices could adversely affect delivery obligations and revenues89 - Competition based on market price for LNG or natural gas, including from alternative fuels and energy sources, may prevent new contracts or decrease prices, adversely affecting results of operations9092 - Technological innovation may render current processes obsolete, requiring continuous adaptation to maintain a competitive position and realize benefits from future projects93 - Increased labor costs, unavailability of skilled workers (e.g., truck drivers), or failure to attract and retain qualified personnel could adversely affect operations and increase operating costs100101 - Impairments to goodwill or long-lived assets may occur due to negative industry/economic trends, market capitalization decline, or reduced future cash flow estimates, negatively impacting operating results102 - Increasing investor focus on Environmental, Social, and Governance (ESG) goals may limit access to capital for companies not prioritizing ESG, and mandatory ESG reporting could increase costs103 - Operations and investments in foreign countries (Mexico, China, Canada) expose the company to losses from weakening foreign economies, unforeseen operating/financial/political/cultural factors, and strained diplomatic relations104 Risks Inherent in an Investment in Us Investment in Stabilis is speculative due to high capital needs, uncertain profitability, potential funding challenges and dilution, thinly traded and volatile stock, and concentrated ownership - Investment in the company is speculative due to significant capital and operating expenditures for infrastructure development and market expansion, with no assurance of achieving or maintaining profitability105106111 - The company may require additional funding (debt or equity) which may not be available on acceptable terms, potentially delaying or limiting business development efforts and adversely affecting financial condition107108109110 - Dependence on a limited number of customers (Aggreko Plc and Minera Penmont each accounted for >10% of 2022 revenues) means the loss or non-performance by a significant customer could materially and adversely affect operating results and cash flows112 - Customer contracts contain various termination rights (e.g., for no cause, force majeure, failure to deliver, payment defaults, insolvency, material breaches, failure to commence operations), which could materially adversely affect the business if exercised114 - Raising additional capital through equity or convertible debt securities will dilute the ownership interest of common stock holders and may include liquidation or other preferences115 - The common stock is thinly traded with a limited public market and is volatile, making it difficult for holders to sell shares and potentially leading to disproportionately large price changes116117118 - Casey Crenshaw's beneficial ownership of 71.9% of outstanding common stock gives him voting control over matters requiring stockholder approval, potentially conflicting with other stockholders' interests121 - Provisions in corporate charter documents and Florida law (Sections 607.0901 and 607.0902) could make an acquisition of the company more difficult and prevent attempts to replace or remove current management123125126 - The company does not anticipate paying any cash dividends in the foreseeable future, making capital appreciation the sole source of gain for stockholders127 - The 40% interest in the Chinese joint venture, BOMAY, has a limited life (terminates in 2028) and is subject to renewal risk, especially given strained U.S. and Chinese political relations128 General Risk Factors General risks include adverse macroeconomic and geopolitical conditions, inflationary pressures, contagious illnesses, cyber incidents, unfavorable legal outcomes, and public company compliance costs - Weakened global macroeconomic and geopolitical conditions (e.g., trade wars, pandemics) can reduce demand for products, restrict credit, and increase market volatility, adversely affecting the business129 - Higher than normal inflationary pressure during 2022 (expected to continue into 2023) on costs like fuel, repairs, maintenance, electricity, wages, and insurance has resulted in margin pressure, as not all costs can be passed to customers130 - The spread of a new contagious illness (like COVID-19) or resurgence of a variant may adversely affect business, operations, and financial condition through reduced economic activity, operational disruptions, and liquidity constraints131132133 - A cyber incident could result in information theft, data corruption, operational disruption, operational delays, and/or financial loss, requiring significant resources for protective measures134 - Involvement in material legal proceedings (contract disputes, business practices, intellectual property) and unfavorable outcomes could have a material adverse effect on financial position and results of operations135 - The company incurs ongoing costs and demands upon management due to complying with laws and regulations affecting public companies (e.g., Sarbanes-Oxley, SEC rules), which can increase compliance costs and make attracting/retaining qualified personnel difficult136 - Failure to maintain proper and effective internal control over financial reporting could harm operating results and business operations, and negatively impact the stock price137138 Item 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments139 Item 2. Properties Stabilis leases Houston headquarters, owns LNG plants in Texas and Louisiana, and leases offices in Mexico and storage sites, with existing facilities deemed adequate for current operations Principal Properties (as of Dec 31, 2022) | Facility Location | Use | Size | Leased or Owned | | :---------------- | :----- | :------------------------- | :-------------- | | Houston, TX | Office | 13,000 sq. ft. | Leased | | Monterrey, Mexico | Office | 1,888 sq. ft. | Leased | | George West, TX | LNG Plant | 3,400 sq. ft. on 31.04 acres | Owned | | Port Allen, LA | LNG Plant | 2,400 sq. ft. on 18.98 acres | Owned | - The company also leases various short-term trailer storage sites in California, Colorado, and Florida to support operations141 - Existing facilities are believed to be adequate for operations and allow for efficient customer service141 Item 3. Legal Proceedings The company is involved in various legal proceedings and claims in the normal course of business, but management believes their ultimate resolution will not materially affect its financial position or results of operations - The company becomes involved in various legal proceedings and claims in the normal course of business142 - Management's opinion is that the ultimate resolution of these matters will not have a material effect on the company's financial position or results of operations142 Item 4. Mine Safety Disclosures No mine safety disclosures are required - No mine safety disclosures143 Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stabilis common stock trades on Nasdaq under 'SLNG,' with 18.4 million shares outstanding; no cash dividends were paid in 2021-2022, with earnings retained for business development - The company's common stock trades under the symbol 'SLNG' on The Nasdaq Stock Market LLC146 Common Stock Information (as of March 9, 2023) | Metric | Value | | :---------------- | :---------- | | Holders of Record | 23 | | Shares Outstanding | 18,433,655 | - The company did not declare or pay cash dividends on common shares in either fiscal year 2022 or 2021 and anticipates retaining any earnings for use in business operations for the foreseeable future146 Item 6. Reserved This item is reserved and not applicable - Item 6 is reserved and not applicable149 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Stabilis's financial condition and results for 2022 vs. 2021, covering business overview, revenues, expenses, liquidity, capital resources, and critical accounting policies Overview Stabilis provides turnkey LNG solutions across North America, generating revenue from sales, rentals, and services, with recent developments including DOE export approval and Brazil Operations sale - Stabilis Solutions, Inc. is an energy transition company providing turnkey clean energy production, storage, transportation, and fueling solutions primarily using LNG to multiple end markets across North America153 - The company generates revenue by selling and delivering LNG, renting cryogenic equipment, and providing engineering and field support services155 - During Q3 2022, Stabilis received U.S. Department of Energy (DOE) authorization to export domestically produced LNG to all free trade and non-free trade countries for up to 51.75 billion cubic feet per year for a term of 28 years160 - On October 31, 2022, the company sold its Brazil Operations for approximately $0.9 million, resulting in the presentation of these operations as discontinued and an impairment charge of $1.4 million161 Results of Operations In 2022, Stabilis reported a $3.2 million net loss, an improvement from 2021, with revenues up 42.9% to $98.8 million due to higher LNG volumes and pricing Consolidated Results (in thousands, except percentages) | Metric | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | Change | % Change | | :---------------------------------------------- | :---------------------- | :---------------------- | :------- | :------- | | Revenues | $98,823 | $69,171 | $29,652 | 42.9 | | Costs of revenues | $77,694 | $55,216 | $22,478 | 40.7 | | Selling, general and administrative | $13,191 | $13,792 | $(601) | (4.4) | | Total operating expenses | $100,393 | $78,254 | $22,139 | 28.3 | | Income (loss) from operations | $28 | $(7,300) | $7,328 | 100.4 | | Net loss from continuing operations | $(1,192) | $(7,630) | $6,438 | 84.4 | | Loss from discontinued operations, net of income taxes | $(1,994) | $(168) | $(1,826) | n/a | | Net loss | $(3,186) | $(7,798) | $4,612 | 59.1 % | - Revenues increased by $29.7 million (43%) in 2022, primarily due to additional LNG gallons delivered, increased natural gas prices, higher pricing charged to customers in response to inflation, and increased rental, service, and other revenue167 - Costs of revenues increased by $22.5 million (41%) in 2022, driven by additional LNG gallons delivered, increased natural gas prices, inflationary pressures (transportation, liquefaction, personnel, electricity), and increased costs for rental, service, and other revenue167 - Selling, general and administrative expense decreased by $0.6 million (4%) in 2022, mainly due to prior year's immediate vesting of restricted stock and executive transition costs, partially offset by current year increases in stock-based compensation, incentive compensation, headcount, and legal/accounting fees169 - Net equity income from foreign joint ventures' operations decreased by $0.2 million (10%) in 2022, primarily due to business contraction in China173 - Loss from discontinued operations, net of tax, was $2.0 million in 2022, including a $1.4 million impairment from the Brazil Operations sale and reclassification of $0.6 million of cumulative foreign exchange losses177 Seasonality and Inflation Stabilis saw no significant seasonal LNG volume variations in 2022, but revenues are sensitive to natural gas price fluctuations and faced inflationary pressures on costs, impacting margins - No significant seasonal variations in LNG delivery volumes were experienced in 2022, and none are expected to materially impact future volumes179 - Revenues are susceptible to natural gas price variations, which are typically higher in peak winter and summer months due to heating and cooling demand179 - Higher than normal inflationary pressure during 2022 (expected to continue into 2023) on costs like fuel, repairs, maintenance, electricity, wages, and insurance has resulted in margin pressure, as not all costs can be passed to customers180 Liquidity and Capital Resources Stabilis's 2022 liquidity sources included cash from operations and a loan facility, with $11.5 million cash and $12.3 million debt at year-end, deemed sufficient for 12 months, while exploring additional financing Cash Flows In 2022, net cash from operations significantly increased to $14.7 million, investing activities used $1.9 million, and financing activities used $2.3 million due to debt paydowns Cash Flows Summary (in thousands) | Cash flows from operating activities | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :------------------------------------- | :---------------------- | :---------------------- | | Net cash provided by operating activities | $14,697 | $4,297 | | Net cash used in investing activities | $(1,917) | $(7,520) | | Net cash provided by (used in) financing activities | $(2,253) | $3,012 | | Net increase (decrease) in cash and cash equivalents | $10,541 | $(330) | | Cash and cash equivalents, end of period | $11,451 | $910 | - Net cash provided by operating activities increased by $10.4 million in 2022, primarily due to increased revenues and improved profitability (excluding noncash items)187 - Net cash used in investing activities decreased in 2022 due to lower fixed asset acquisitions (e.g., Port Allen LNG plant in 2021) and proceeds from the sale of CNG assets in Mexico ($2.0 million) and Brazil Operations ($0.2 million)188 - Net cash used in financing activities in 2022 was primarily attributable to debt paydown, contrasting with 2021's cash provided by AmeriState Bank loan proceeds189 Future Cash Requirements Stabilis requires cash for operations, capital expenditures, and debt, and may seek additional financing, with future capex dependent on investment opportunities and capital availability, and $1.0 million in open purchase orders - Cash is required to fund operating expenses, working capital, capital expenditures, debt repayments, equipment purchases, facility maintenance, mergers and acquisitions, market expansion, and sales and marketing activities191 - The company may pursue additional financing activities (refinancing, new debt, or debt/equity offerings) to provide flexibility, but there is no assurance such alternatives will be available on acceptable terms191 - Future capital expenditures are dependent upon accretive investment opportunities and the availability of additional capital at favorable terms; $1.0 million in open purchase orders for capital expenditures remained at December 31, 2022192 Debt Level and Debt Compliance As of December 31, 2022, Stabilis had $12.3 million in total indebtedness, with $3.3 million due in 2023, and expected $0.6 million in interest payments for 2023, and was in compliance with all financial covenants Expected Debt Maturities (in thousands) as of Dec 31, 2022 | Year | Amount | | :--------- | :----- | | 2023 | $3,283 | | 2024 | $857 | | 2025 | $1,285 | | 2026 | $1,285 | | 2027 | $1,285 | | Thereafter | $4,285 | | Total | $12,280 | - Total indebtedness (net of debt issuance costs) was $12.0 million as of December 31, 2022193 - Expected total interest payment obligations for the year ending December 31, 2023, are approximately $0.6 million194 - As of December 31, 2022, the company was in compliance with all financial covenants, including 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 1.0194 Contractual Obligations As of December 31, 2022, Stabilis had total contractual obligations of $15.2 million, with $4.0 million due in 2023, including a $9.0 million term loan and a $2.4 million related-party note Contractual Obligations (in thousands) as of Dec 31, 2022 | Obligation | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | | :---------------------------------------- | :------- | :----- | :----- | :----- | :----- | :----- | :--------- | | Term Loan to AmeriState Bank | $8,998 | $— | $857 | $1,285 | $1,285 | $1,285 | $4,286 | | Interest - AmeriState Bank | $2,558 | $525 | $511 | $440 | $365 | $290 | $427 | | MG Finance note payable - related party | $2,435 | $2,435 | $— | $— | $— | $— | $— | | Interest - MG Finance note payable | $78 | $78 | $— | $— | $— | $— | $— | | Finance Lease Obligations | $61 | $19 | $42 | $— | $— | $— | $— | | Interest - Finance lease obligations | $6 | $6 | $— | $— | $— | $— | $— | | Operating Lease Obligations | $255 | $114 | $120 | $21 | $— | $— | $— | | Insurance and other notes payable | $848 | $848 | $— | $— | $— | $— | $— | | Total | $15,239 | $4,025 | $1,530 | $1,746 | $1,650 | $1,575 | $4,713 | Contingencies Stabilis is involved in various litigation and tax disputes, with management believing ultimate resolutions will not materially affect financial position or results of operations - The company is involved in various litigation matters and tax disputes with government agencies in the normal course of business200 - Management believes the ultimate resolution of these matters will not have a material effect on the company's financial position or results of operations200 Off-Balance Sheet Arrangements As of December 31, 2022, Stabilis had no material off-balance sheet arrangements affecting its financial condition or operations - As of December 31, 2022, the company had no transactions that met the definition of off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on its financial condition, revenues, expenses, results of operations, liquidity, cash requirements, or capital resources201 New Accounting Standards The company refers to Note 1 for new accounting standards, with ASU 2020-04 having an immaterial impact and ASU 2016-13 effective Q1 2023 with expected immaterial impact - Adoption of ASU No. 2020-04, 'Reference Rate Reform,' did not have a material impact on the company's Consolidated Financial Statements286 - ASU No. 2016-13, 'Financial Instruments - Credit Losses,' will be effective for the company in Q1 2023, with an expected immaterial impact on consolidated financial statements287 Critical Accounting Policies and Estimates Preparation of Stabilis's financial statements requires significant management judgment and estimates, particularly for revenue recognition, impairment, income taxes, and fair value measurements Revenue Recognition Stabilis recognizes revenue from LNG product sales when customers obtain control, and from rental/service activities as performed or completed, allocating variable fees to distinct LNG molecules - The company recognizes revenue from contracts with customers in accordance with Topic 606, disaggregated into LNG product, rental, service, and other207272 - Revenue associated with the sale of LNG is recognized at the point in time when the customer obtains control of the asset, considering transfer of legal title, physical delivery, risks/rewards, and right of payment208273 - Revenues from providing services, transportation, and equipment rentals are recognized as the service is performed or the rental period is completed208273298299 - Variable LNG fees in product sales agreements are allocated to each distinct molecule of LNG and recognized when that molecule is delivered to the customer212300 Impairment of Long-Lived Assets and Goodwill Long-lived assets are reviewed for impairment when carrying value may not be recoverable, and goodwill is tested annually; $0.1 million goodwill impairment was recorded in 2022 related to Brazil Operations - Long-lived assets are reviewed periodically for potential impairment whenever events or changes in circumstances indicate that a particular asset's carrying value may not be recoverable, comparing it to expected undiscounted future cash flows215269 - Goodwill is tested for impairment annually (in the third quarter) or more frequently if triggering events occur216270 - During 2022, $0.1 million of goodwill impairment was recorded related to the sale of the Brazil Operations, included within loss from discontinued operations216270 - No additional impairment of goodwill or long-lived assets was identified during the annual assessment in 2022 or 2021216269270 Income Taxes Income taxes are accounted for using the asset-and-liability method, recognizing deferred tax assets and liabilities for temporary differences and carryforwards, with a valuation allowance applied if realization is unlikely - Income taxes are accounted for under the asset-and-liability method, recognizing deferred tax assets and liabilities for future tax consequences attributable to temporary differences and carryforwards217274 - A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be realized217274 - The company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained, measured at the largest amount greater than 50% likely of being realized218275 - As of December 31, 2022, the company had net operating loss carryforwards of approximately $57.3 million, fully reserved by a valuation allowance due to not yet generating significant taxable income348 - No uncertain tax positions required recognition as of December 31, 2022 and 2021275349 Fair Value Measurements Fair value determinations maximize observable inputs (Level 1, 2, 3); fixed and variable rate debt fair value was estimated at $11.3 million (carrying value $12.0 million) at December 31, 2022, using Level 2 inputs - Fair value measurements maximize the use of observable inputs and minimize unobservable inputs, categorized into Level 1, Level 2, and Level 3219220221279280281 - The fair value of fixed and variable rate debt was estimated at $11.3 million (compared to a carrying value of $12.0 million) at December 31, 2022, using Level 2 fair value measurements (discounting future cash flows with the company's incremental borrowing rate)282 Derivatives As of December 31, 2022, Stabilis held natural gas call options (1.3 million MMBtu) to manage price risk, recorded at fair value with changes recognized in operations, and does not engage in speculative derivative transactions - As of December 31, 2022, the company held natural gas call options for 1.3 million MMBtu, extending into Q2 2024, to manage the risk of increasing natural gas prices305 - Derivative instruments are recognized at fair value on the Consolidated Balance Sheet; changes in fair value are included in the Consolidated Statements of Operations as they are not designated as hedges222266307 - The fair value of the Call Options is predominantly determined from broker quotes and is considered a Level 2 fair value measurement305 - The company incurred an unrealized loss of $0.9 million in 2022 on its natural gas derivatives due to lower future natural gas prices168 - The company does not enter into derivative transactions for speculative purposes222266 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Stabilis faces market risks from commodity price fluctuations and foreign currency exchange rates, managing LNG price risk through contracts and derivatives, but not hedging foreign currency risk despite $0.8 million non-U.S. dollar working capital - The company encounters significant market risks, including commodity and interest rate risks224 - Commodity price risk for LNG is managed by structuring customer contract pricing to mirror supply cost volatility with vendors and through natural gas derivative instruments226 - Foreign currency exchange rate risk arises from operations in Mexico (Mexican Peso functional currency) and an equity method investment in China (Chinese Yuan functional currency)227 - As of December 31, 2022, the non-U.S. dollar denominated working capital balance was approximately $0.8 million; a 10% adverse change would reduce it by approximately $0.1 million228 - The company does not currently have or intend to enter into any derivative arrangements to protect against foreign currency fluctuations229 - Volatility in customer demand is greatly driven by changes in oil and gas prices, influencing new capital projects and project schedules230 Item 8. Financial Statements and Supplementary Data This item presents the audited consolidated financial statements of Stabilis Solutions, Inc. for 2022 and 2021, including the Independent Registered Public Accounting Firm's Report, Balance Sheets, Statements of Operations, Comprehensive Loss, Stockholders' Equity, Cash Flows, and Notes - The section includes the Report of Independent Registered Public Accounting Firm by Ham, Langston & Brezina, L.L.P. (Auditor ID: 298)232234 - The consolidated financial statements presented are: Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss, Consolidated Statements of Stockholders' Equity, and Consolidated Statements of Cash Flows232 - The financial statements are for the fiscal years ended December 31, 2022 and 2021, and are prepared in conformity with U.S. GAAP235 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in and disagreements with accountants on accounting and financial disclosure379 Item 9A. Controls and Procedures As of December 31, 2022, management concluded that disclosure controls and internal control over financial reporting were effective, with the company exempt from external attestation as a smaller reporting company - As of December 31, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level380 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework381 - As a smaller reporting company, Stabilis is exempt from the independent registered public accounting firm's attestation report on the effectiveness of internal control over financial reporting381 - There have been no changes in internal control over financial reporting during the last fiscal quarter that have materially affected or are reasonably likely to materially affect it383 Item 9B. Other Information No other information is reported under this item - No other information is reported under this item384 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections No disclosures are required regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections385 Part III. Item 10. Directors, Executive Officers and Corporate Governance This section lists Stabilis's executive officers and directors, including J. Casey Crenshaw (Chairman) and Westervelt T. Ballard, Jr. (CEO), with independent directors overseeing governance and compensation Directors and Executive Officers (as of March 9, 2023) | Name | Age | Position | | :----------------------- | :-- | :------------------------------------------ | | J. Casey Crenshaw | 48 | Chairman of the Board of Directors | | Westervelt T. Ballard, Jr. | 51 | President, Chief Executive Officer and Director | | Andrew L. Puhala | 53 | Chief Financial Officer | | Benjamin J. Broussard | 43 | Director | | Stacey B. Crenshaw | 46 | Director | | Edward L. Kuntz | 78 | Director | | Peter C. Mitchell | 67 | Director | | Matthew W. Morris | 51 | Director | - Messrs. Peter C. Mitchell, Edward L. Kuntz, and Matthew W. Morris are currently the company's independent directors as defined by NASDAQ and SEC rules398 - The Audit Committee consists of Messrs. Peter C. Mitchell (Chair), Edward L. Kuntz, and Matthew W. Morris, with Mr. Mitchell satisfying the definition of 'audit committee financial expert'401 - The Compensation Committee consists of Messrs. J. Casey Crenshaw (Chair), Peter C. Mitchell, Edward L. Kuntz, and Matthew W. Morris, responsible for developing and maintaining executive compensation policy402403 - The company has adopted a Code of Business Ethics and Conduct applicable to all employees, officers, and Board members, available on its website404 Item 11. Executive Compensation Stabilis's executive compensation program aims to attract and retain key employees by aligning interests with shareholders through performance goals and equity-based compensation, with independent directors receiving $100,000 annually - The executive compensation program is designed to attract, motivate, and retain key employees by aligning their interests with shareholders through operational and financial performance goals and equity-based compensation406 Named Executive Officers | Name | Principal Position | | :----------------------- | :------------------------- | | Westervelt T. Ballard, Jr. | Chief Executive Officer, President | | Andrew L. Puhala | Chief Financial Officer | | Koby Knight | SVP EPC & Special Projects | Summary Compensation Table (in $) | Name and Principal Position | Year | Salary | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Total | | :-------------------------- | :--- | :-------- | :----------- | :------------ | :------------------------------------- | :---------- | | Westervelt T. Ballard, Jr. | 2022 | 500,000 | 95,734 | 869,019 | 750,000 | 2,214,753 | | | 2021 | 175,547 | 3,390,000 | 2,879,000 | 125,000 | 6,569,547 | | Andrew Puhala | 2022 | 315,000 | 19,148 | 178,604 | 189,000 | 701,752 | | | 2021 | 315,000 | — | — | 103,150 | 418,150 | | Koby Knight | 2022 | 325,000 | 19,148 | 178,604 | 195,000 | 729,752 | | | 2021 | 325,000 | — | — | 125,000 | 462,000 | - Mr. Ballard's employment agreement (effective August 23, 2021) includes an annualized base salary of $500,000, participation in an annual bonus plan, 500,000 RSUs (250,000 vested immediately, 125,000 vested Aug 2022, 125,000 vest Aug 2023), and 1,300,000 stock options (442,000 vested Aug 2022, 429,000 vest Aug 2023, 429,000 vest Aug 2024)419420 - Independent directors receive an annual fee of $100,000, payable 100% in cash435 Independent Director Compensation (2022) | Name | Fees Earned or Paid in Cash ($) | Total ($) | | :-------------- | :------------------------------ | :-------- | | Edward L. Kuntz | 100,000 | 100,000 | | Peter C. Mitchell | 100,000 | 100,000 | | Matthew W. Morris | 100,000 | 100,000 | | Total | 300,000 | 300,000 | - The Amended and Restated 2019 Long Term Incentive Plan increased the maximum number of shares of common stock available for issuance from 1,675,000 to 4,000,000433 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 9, 2023, J. Casey Crenshaw beneficially owned 71.9% of Stabilis's common stock, giving him voting control, with LNG Investment Company, LLC owning 68.2% and Chart Energy & Chemicals, Inc. 8.0% Beneficial Ownership of Common Stock (as of March 9, 2023) | Name | Number of Shares | Percent of Class | | :---------------------------- | :--------------- | :--------------- | | J. Casey Crenshaw | 13,249,730 | 71.9 % | | Stacey B. Crenshaw | 13,249,730 | 71.9 % | | LNG Investment Company, LLC | 12,580,808 | 68.2 % | | Chart Energy & Chemicals, Inc. | 1,470,807 | 8.0 % | | All directors and officers as a group (9 persons) | 13,646,514 | 74.0 % | - J. Casey Crenshaw's beneficial ownership of 71.9% of the outstanding common stock gives him voting and dispositive power over a significant portion of the company's stock440 Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding rights (1) | Weighted-average exercise price of outstanding options (2) | Number of securities remaining available under equity compensation plans (3)(a) | | :---------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | :-------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 2,285,444 | $8.20 | 595,101 | - The Amended and Restated 2019 Long Term Incentive Plan has 595,101 shares remaining available for future issuance441443 Item 13. Certain Relationships and Related Transactions and Director Independence Stabilis engages in transactions with related parties, including Chart Energy & Chemicals, Inc. and entities associated with J. Casey Crenshaw, with all such transactions reviewed and approved by the Audit Committee and Board - Related parties include Chart Energy & Chemicals, Inc. (8.0% beneficial owner) and entities associated with J. Casey Crenshaw (Chairman) and Ben Broussard (Director), such as The Modern Group and MG Finance Co., Ltd447448 - A secured promissory note to MG Finance Co., Ltd. (related party) had a principal amount of $2.4 million outstanding at December 31, 2022, maturing in December 2023, with an amended interest rate of 6.0%328449450 Related Party Purchases and Sales (in millions) | Related Party | 2022 Purchases | 2021 Purchases | 2022 Sales | 2021 Sales | | :--------------- | :------------- | :------------- | :--------- | :--------- | | The Modern Group | $0.3 | $1.0 | $0 | $0.013 | | Chart E&C | $1.1 | $0.3 | N/A | N/A | - The Audit Committee reviews and the Board approves all related party transactions455 - Peter C. Mitchell, Matthew W. Morris, and Edward L. Kuntz are the independent directors456 Item 14. Principal Accountant Fees and Services For 2022, Stabilis was billed $270,500 in audit fees by Ham, Langston & Brezina, L.L.P., an increase from 2021, with all audit and permitted non-audit services pre-approved by the Audit Committee Principal Accountant Fees (in $) | Types of Fees | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--------------- | :---------------------- | :---------------------- | | Audit Fees | 270,500 | 232,500 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | Other Fees | — | — | | Total Fees | 270,500 | 232,500 | - Audit fees increased from $232,500 in 2021 to $270,500 in 2022459 - The Audit Committee's policy is to pre-approve all audit services and all permitted non-audit services (including fees and terms) provided by the independent registered public accounting firm460 Part IV. Item 15. Exhibits and Financial Statement Schedules This item lists the consolidated financial statements and an index to exhibits filed as part of the report, with financial statement schedules omitted as not applicable or included in the notes - The following documents are filed as part of this report: Consolidated Financial Statements (Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements)464 - All financial statement schedules have been omitted as the required information is not applicable or is included in the Consolidated Financial Statements and Notes thereto464 - An index to exhibits is provided, which immediately precedes the signature page and is incorporated herein by reference465 Item 16. Form 10-K Summary The registrant has elected not to provide summary information for Form 10-K - The registrant has elected not to provide summary information466 Signatures The report is signed by Westervelt T. Ballard, Jr. (President and CEO) and Andrew L. Puhala (CFO) on behalf of Stabilis Solutions, Inc., and by the Board of Directors - The report is signed by Westervelt T. Ballard, Jr., President and Chief Executive Officer (Principal Executive Officer), and Andrew L. Puhala, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)474 - The report has also been signed by the Chairman of the Board and other Directors475