slng-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

____________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023


☐			TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission 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’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, 2023, there were 18,478,829 outstanding shares of our common stock, par value $.001 per share.

STABILIS SOLUTIONS, INC. AND SUBSIDIARIES

FORM 10-Q Index

For the Quarterly Period Ended March 31, 2023


		Page
	Part I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 4.	Controls and Procedures	24
	Part II. Other Information
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24

Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("this 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

ITEM 1. FINANCIAL STATEMENTS.

Stabilis Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share data)


	March 31, 2023		December 31, 2022
Assets
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

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Stabilis Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)


	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)

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Stabilis Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, in thousands)


	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)

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Stabilis Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share data)


	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated Deficit		Total
		Shares			Amount
Balance at December 31, 2022		18,420,067	$	19		$	100,137	$	82	$	(40,371)	$	59,867
Common stock issued from vesting of stock-based awards		13,587	—			—		—		—		—
Stock-based compensation		—	—			589		—		—		589
Net income		—	—			—		—		1,084		1,084
Other comprehensive income, net of tax		—	—			—		187		—		187
Balance at March 31, 2023		18,433,654	$	19		$	100,726	$	269	$	(39,287)	$	61,727


	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated Deficit		Total
		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

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Stabilis Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	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

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements

STABILIS SOLUTIONS, INC. AND SUBSIDIARIES

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 ("Condensed Consolidated Financial Statements") include our accounts and those of our subsidiaries and, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in the notes to consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. 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, as filed on March 9, 2023.

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 Company believes that 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. Accordingly, the operating results and cash flows for the three months ended March 31, 2022, have been recast on our Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, respectively. There were no assets and liabilities from discontinued operations as of March 31, 2023 or December 31, 2022, and no results of operations or cash flows for the three months ended March 31, 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.

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 March 31, 2023 and December 31, 2022. The Company recognizes all of its derivative instruments as either assets or liabilities which are recorded at fair value on its Condensed Consolidated Balance Sheet. 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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 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. 2016-13 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.

2. DISCONTINUED OPERATIONS

On October 31, 2022, the Company entered into a sales agreement and closed on the sale of its Brazil Operations. The 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.

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 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, 2023 or December 31, 2022. In addition, the Company had no results of operations nor cash flows for the three months ended March 31, 2023.

The following table summarizes the components of income from discontinued operations for the periods presented (in thousands):


	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)

Segment Reporting

As a result of the classification of the Brazil Operations as discontinued operations, the Company believes that it only has one reporting segment.

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. Revenues are measured as consideration specified in the contract and exclude any sales incentives and amounts collected on behalf of third parties. Amounts are billed upon completion of service or transfer of a product and are generally due within 30 days. Revenues from contracts with customers are disaggregated into (1) LNG product (2) rental (3) service and (4) other.

LNG product revenue generated includes the revenue from the production and delivery of LNG to our customer’s location. Product contracts are established by agreeing on a sales price or transaction price for the related item. Product revenue is recognized upon delivery of the related item to the customer, at which point the customer controls the product and the Company has an unconditional right to payment. The Company acts as a principal when using third party transportation companies and therefore recognizes the gross revenue for the delivery of LNG. The Company enters into forward sales contracts for the delivery of LNG to its customers. Certain of these 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.

Rental, service and other revenue generated by the Company includes equipment and human resources provided to the customer to support the use of 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. 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. LNG service revenue generated by the Company consists of mobilization and demobilization of equipment and onsite technical support while customers are consuming LNG in their applications. Service revenue is billed based on contractual terms that can be based on an event (i.e. mobilization or demobilization) or an hourly rate. Revenue is recognized as the event is completed or work is done. Performance obligations for service revenue are considered to be satisfied as the event is completed or work is done per the terms of the related contract.

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.

Disclosure: Disaggregated Revenues

The 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

The 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

4. DERIVATIVE INSTRUMENTS

As of March 31, 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 1.1 million MMBtu (million British thermal units) of natural gas at March 31, 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 its Condensed Consolidated Balance Sheet. 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, 2022 and December 31, 2022 on the Company's Condensed Consolidated Balance Sheets (in thousands):


Location on Condensed Consolidated Balance Sheet	March 31, 2023(1)		December 31, 2022(1)
Prepaid expenses and other current assets (2)	$	138	$	347
Right-of-use assets and other noncurrent assets (2)	13		225
	$	151	$	572

_______________

(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 March 31, 2023 as well as their net realized gains and losses.


	Three Months Ended March 31,
Changes in fair value of derivatives	2023		2022(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 instruments	2023		2022(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)	$	—

_______________

(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) Amounts are included within cost of LNG product on the Company's Condensed Consolidated Statements of Operations.

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 March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022

Prepaid 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

6. PROPERTY, PLANT AND EQUIPMENT

The Company’s property, plant and equipment at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Liquefaction 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

Depreciation expense totaled $2.0 million and $2.3 million for the three months ended March 31, 2023 and 2022, respectively, all of which is included in the Condensed Consolidated Statements of Operations as a separate line item.

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 months ended March 31, 2023 and 2022.

The tables below present a summary of BOMAY's assets and liabilities and equity at March 31, 2023 and December 31, 2022, and its operational results for the three months ended March 31, 2023 and 2022 in U.S. dollars (in thousands):


	March 31, 2023		December 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

The table below presents the components of our investment in BOMAY and a summary of the activity within those components for the three months ended March 31, 2023 in U.S. dollars (in thousands):


	Initial Investment at Merger (1), (2)		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

SEC Form 10-Q filed by Stabilis Solutions Inc.