Business context and reporting period
Filing identity: The supplied filing is American Electric Technologies, Inc. (AETI), not Stabilis Solutions, Inc. It is the annual Form 10-K for the fiscal year ended December 31, 2018, filed April 16, 2019; it does not provide standalone fourth-quarter results. AETI had signed a proposed share exchange to acquire Stabilis Energy, LLC and Prometheus Energy Group, Inc., subject to shareholder approval and other closing conditions.
After selling substantially all U.S. M&I Electric operations in August 2018, AETI’s continuing business centered on electrical services and equipment in Brazil, its 40% equity-method investment in Chinese joint venture BOMAY, and Houston corporate operations. The U.S. business sold is reported as discontinued operations.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Continuing net revenue | $7.591 | $5.716 |
| Gross profit / margin | $1.914 / 25% | $1.150 / 20% |
| Operating loss | $(1.230) | $(3.128) |
| Continuing net loss | $(1.661) | $(0.197) |
| Consolidated net loss | $(2.557) | $(2.228) |
| Net loss attributable to common stockholders | $(2.917) | $(2.584) |
| Cash from (used in) operating activities | $(3.318) | $0.098 |
- Brazil revenue rose 33%, primarily on downstream oil and gas sales; gross profit rose 66%. General and administrative expense fell to $3.335 million from $4.194 million.
- Cash and cash equivalents were $2.124 million at year-end, versus $2.289 million. Working capital was $1.201 million, with a 1.4-to-1 current ratio.
- Total debt was approximately $0.202 million, compared with $6.148 million reported in the liquidity table for 2017. The $6.5 million senior secured term note was repaid from the U.S. asset-sale proceeds; the remaining Brazil note was owed to AETI’s former chairman and due in 2019.
- Investing activities provided $9.861 million, mainly from the U.S. asset sale; financing activities used $6.539 million, principally for debt repayment. AETI reported $0.601 million of net equity income from foreign joint ventures, including $0.953 million of BOMAY equity income less MIEFE liquidation loss and joint-venture expenses.
Material changes, outlook and risks
- The U.S. operations sale had an approximately $18.5 million stated purchase price, comprising $10.1 million cash consideration and $8.4 million of assumed debt. AETI recorded a $4.521 million gain; sale proceeds after transaction costs were $10.118 million.
- The buyer asserted an approximately $4.3 million reduction to net working capital in the sale-price true-up. AETI disputed the calculation and said it had not received sufficient supporting documentation; no adjustment was recorded. A later determination could change the purchase price.
- Management disclosed substantial doubt about AETI’s ability to continue as a going concern based on historical losses and negative operating cash flows. Management believed asset monetization, financing and other strategic actions would probably address estimated liquidity needs for 12 months after issuance, but could not assure their success or availability.
- The December 2018 proposed share exchange contemplated issuing shares equal to approximately 90% of AETI’s then-outstanding common stock, with a resulting change in control. Completion was not assured. The filing says transaction expenses could require short-term financing.
- In October 2018, Nasdaq notified AETI that its share price had remained below the $1 minimum bid requirement; the initial compliance period ended April 15, 2019. AETI had committed to undertake a reverse stock split and was awaiting Nasdaq’s response regarding additional time.
- Disclosure controls and internal control over financial reporting were deemed ineffective at year-end due to a material weakness: a reduced accounting staff, insufficient segregation of duties and CFO transition. Identified errors were corrected during the audit, which resulted in an unqualified opinion on the financial statements; the auditor did not opine on internal-control effectiveness. Management said it was seeking additional accounting staff.
- Other notable risks include dependence on international and oil-and-gas markets, foreign exchange and commodity-price exposure, customer concentration (two customers represented 23% of revenue and 56% of trade receivables in 2018), and restrictions on access to BOMAY audit work papers in China. The filing reports a $0.4 million accumulated currency translation loss at year-end.
- BOMAY’s board approved extending the joint venture through 2028. BOMAY reported 2018 revenue of $37.244 million and earnings of $2.381 million; these are joint-venture figures, not consolidated AETI revenue.
- Preferred stock carries cumulative 6% dividends and potential conversion into common shares; the filing also identifies 2.212 million preferred conversion shares and 825,000 warrants as potentially dilutive securities excluded from diluted loss per share.
Important facts for investors to verify
- Confirm the filing and issuer identity: this is AETI’s 2018 10-K, and the Stabilis transaction was proposed, not reported as completed in this filing.
- Check the outcome and terms of the $4.3 million working-capital dispute, including any later purchase-price adjustment.
- Assess cash needs, financing availability and progress in remediating the disclosed material weakness; management’s liquidity plan was not assured.
- Verify the status and final dilution/control implications of the proposed share exchange, preferred stock, warrants and any reverse stock split.
- Review subsequent Nasdaq compliance, customer collections and concentration, and the accessibility and reliability of BOMAY financial information.