UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30,
2015
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 0-30351
DEEP DOWN, INC.
(Exact name of registrant as specified
in its charter)
Nevada |
|
75-2263732 |
(State or other jurisdiction of incorporation) |
|
(I.R.S. Employer Identification No.) |
|
|
|
8827 W. Sam Houston Pkwy N., Suite 100
Houston, Texas |
|
77040 |
(Address of Principal Executive Office) |
|
(Zip Code) |
Registrant’s telephone number, including
area code: (281) 517-5000
Not applicable
(Former name, former address and former
fiscal year, if changed since last report)
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, and (2) has been subject to such filing requirements for the past 90
days. þ Yes
¨ No
Indicate by
check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes þ
No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer ¨ |
Accelerated filer ¨ |
|
|
Non-accelerated filer ¨ |
Smaller reporting company þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No þ
At August 10,
2015, there were 15,031,784 shares of Common Stock outstanding, par value $0.001 per share.
IMPORTANT INFORMATION REGARDING THIS
FORM 10-Q
Unless otherwise indicated, references
to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q (“Report”) refer
collectively to Deep Down, Inc., a Nevada corporation (“Deep Down”), and its directly and indirectly wholly-owned subsidiaries.
Deep Down is the parent company to the
following directly and indirectly wholly-owned subsidiaries: Deep Down, Inc., a Delaware corporation (“Deep Down Delaware”);
Deep Down International Holdings, LLC, a Nevada limited liability company (“DDIH”), and Deep Down Brasil - Solucoes
em Petroleo e Gas, Ltda, a Brazilian limited liability company (“Deep Down Brasil”).
Our current operations are primarily conducted
under Deep Down Delaware. In addition to our strategy of continuing to grow and strengthen our operations, including
by expanding our services and products in response to our customers’ demands, we intend to continue to seek strategic acquisitions
of complementary service providers, product manufacturers and technologies that are focused primarily on supporting deepwater and
ultra-deepwater offshore exploration, development and production of oil and gas reserves and other maritime operations.
Readers should consider the following information
as they review this Report:
Forward-Looking Statements
The statements contained or incorporated
by reference in this Report that are not historical facts are “forward-looking statements” (as such term is defined
in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements
other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements
include any statement that may project, indicate or imply future results, events, performance or achievements. The forward-looking
statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements
can be identified by the use of forward-looking terminology such as “believes,” “expect,” “may,”
“will,” “should,” “intend,” “plan,” “could,” “estimate”
or “anticipate,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties.
Given the risks and uncertainties relating
to forward-looking statements, investors should not place undue reliance on such statements. Forward-looking statements
included in this Report speak only as of the date of this Report and are not guarantees of future performance. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, such expectations may prove to be
incorrect. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by these cautionary statements. The risks and uncertainties mentioned previously relate
to, among other matters, the following:
| · | Economic uncertainty and financial market
conditions may impact our customer base, suppliers and backlog; |
| · | Our backlog is subject to unexpected adjustments
and cancellations and, therefore, may not be a reliable indicator of our future earnings; |
| · | Our volume of fixed-price contracts and
use of percentage-of-completion accounting could result in volatility in our results of operations; |
| · | A portion of our contracts contain terms
with penalty provisions; |
| · | Fluctuations in the price and supply of
raw materials used to manufacture our products may reduce our profits and could materially impact our ability to meet commitments
to our customers; |
| · | Our operations could be adversely impacted
by the continuing effects of government regulations; |
| · | International and political events may
adversely affect our operations; |
| · | Our operating results may vary significantly
from quarter to quarter; |
| · | We may be unsuccessful at generating profitable
internal growth; |
| · | The departure of key personnel could disrupt
our business; and |
| · | Our business requires skilled labor, and
we may be unable to attract and retain qualified employees. |
Document Summaries
Descriptions of documents and agreements
contained in this Report are provided in summary form only, and such summaries are qualified in their entirety by reference to
the actual documents and agreements filed as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2014, other
periodic and current reports we have filed with the SEC or this Report.
Access to Filings
Access to our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments thereto, filed with or furnished to the SEC pursuant
to Section 13(a) of the Exchange Act, as well as reports filed electronically by our officers, directors and shareholders pursuant
to Section 16(a) of the Exchange Act, may be obtained through our website (http://www.deepdowncorp.com) as soon as reasonably
practicable after filed or furnished with the SEC. The contents of our website are not, and shall not be deemed to be, incorporated
into this Report.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
|
|
Page
No. |
|
|
|
Item 1. |
Financial Statements |
|
|
Unaudited Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014 |
1 |
|
Unaudited Condensed Consolidated Statements
of Operations for the Three and Six Months Ended
June 30, 2015 and 2014 |
2 |
|
Unaudited Condensed Consolidated Statements
of Cash Flows for the Six Months Ended
June 30, 2015 and 2014 |
3 |
|
Notes to Unaudited Condensed Consolidated Financial Statements |
4 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 |
Item 4. |
Controls and Procedures |
14 |
PART II. OTHER INFORMATION
Item 1. |
Legal Proceedings |
15 |
Item 6. |
Exhibits |
15 |
|
|
|
Signatures |
|
16 |
Exhibit Index |
17 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEEP DOWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value amounts) | |
| |
|
ASSETS | |
| |
|
Current assets: | |
June 30, 2015 | |
December 31, 2014 |
Cash (including a compensating balance of $3,900) (Note 5) | |
$ | 4,656 | | |
$ | 5,312 | |
Accounts receivable, net of allowance for doubtful accounts of $25 and $498, respectively | |
| 11,153 | | |
| 6,488 | |
Inventory, net of reserve for obsolescence of $0 and $205, respectively | |
| 3,145 | | |
| 3,127 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 4,661 | | |
| 6,808 | |
Prepaid expenses and other current assets | |
| 77 | | |
| 280 | |
Total current assets | |
| 23,692 | | |
| 22,015 | |
Property, plant and equipment, net | |
| 11,196 | | |
| 11,732 | |
Investment in joint venture | |
| 68 | | |
| — | |
Intangibles, net | |
| 78 | | |
| 82 | |
Other assets | |
| 851 | | |
| 891 | |
Total assets | |
$ | 35,885 | | |
$ | 34,720 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 3,412 | | |
$ | 4,139 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 436 | | |
| — | |
Current portion of long-term debt | |
| 4,665 | | |
| 2,942 | |
Total current liabilities | |
| 8,513 | | |
| 7,081 | |
Long-term debt, net | |
| 2,302 | | |
| 2,673 | |
Total liabilities | |
| 10,815 | | |
| 9,754 | |
| |
| | | |
| | |
Commitments and contingencies (Notes 5 and 8) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' equity: | |
| | | |
| | |
Preferred stock, $0.001 par value, 10,000 shares authorized, 0 shares
issued and outstanding | |
| — | | |
| — | |
Common stock, $0.001 par value, 24,500 shares authorized, 15,032 and 15,131 shares issued and outstanding, respectively | |
| 15 | | |
| 15 | |
Additional paid-in capital | |
| 72,727 | | |
| 72,532 | |
Accumulated deficit | |
| (47,672 | ) | |
| (47,581 | ) |
Total stockholders' equity | |
| 25,070 | | |
| 24,966 | |
Total liabilities and stockholders' equity | |
$ | 35,885 | | |
$ | 34,720 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
DEEP DOWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
| |
Three Months Ended | |
Six Months Ended |
| |
June 30, | |
June 30, |
(In thousands, except per share amounts) | |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Revenues | |
$ | 6,771 | | |
$ | 5,847 | | |
$ | 13,609 | | |
$ | 12,010 | |
Cost of sales: | |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 4,132 | | |
| 3,692 | | |
| 8,396 | | |
| 7,220 | |
Depreciation expense | |
| 397 | | |
| 356 | | |
| 737 | | |
| 723 | |
Total cost of sales | |
| 4,529 | | |
| 4,048 | | |
| 9,133 | | |
| 7,943 | |
Gross profit | |
| 2,242 | | |
| 1,799 | | |
| 4,476 | | |
| 4,067 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 2,003 | | |
| 2,889 | | |
| 4,430 | | |
| 5,045 | |
Depreciation and amortization | |
| 67 | | |
| 40 | | |
| 104 | | |
| 83 | |
Total operating expenses | |
| 2,070 | | |
| 2,929 | | |
| 4,534 | | |
| 5,128 | |
Operating income (loss) | |
| 172 | | |
| (1,130 | ) | |
| (58 | ) | |
| (1,061 | ) |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (64 | ) | |
| (48 | ) | |
| (125 | ) | |
| (109 | ) |
Equity in net income of joint venture | |
| 133 | | |
| — | | |
| 133 | | |
| — | |
Other, net | |
| (27 | ) | |
| (20 | ) | |
| (27 | ) | |
| 353 | |
Total other income (expense) | |
| 42 | | |
| (68 | ) | |
| (19 | ) | |
| 244 | |
Income (loss) before income taxes | |
| 214 | | |
| (1,198 | ) | |
| (77 | ) | |
| (817 | ) |
Income tax (expense) benefit | |
| (8 | ) | |
| 18 | | |
| (14 | ) | |
| 9 | |
Net income (loss) | |
$ | 206 | | |
$ | (1,180 | ) | |
$ | (91 | ) | |
$ | (808 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.01 | | |
$ | (0.08 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) |
Fully diluted | |
$ | 0.01 | | |
$ | (0.08 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted-average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 15,110 | | |
| 15,215 | | |
| 15,120 | | |
| 15,227 | |
Fully diluted | |
| 15,110 | | |
| 15,215 | | |
| 15,120 | | |
| 15,227 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
DEEP DOWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
| |
Six Months Ended |
| |
June 30, |
(In thousands) | |
2015 | |
2014 |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (91 | ) | |
$ | (808 | ) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |
| | | |
| | |
Equity in net income of joint venture | |
| (133 | ) | |
| — | |
Share-based compensation | |
| 253 | | |
| 435 | |
Bad debt (credit) expense | |
| (55 | ) | |
| 3 | |
Depreciation and amortization | |
| 841 | | |
| 806 | |
Gain on disposal of property, plant and equipment, net | |
| — | | |
| (317 | ) |
Inventory obsolescence expense | |
| — | | |
| 68 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable, net | |
| (4,668 | ) | |
| (2,638 | ) |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 2,147 | | |
| 3,163 | |
Prepaid expenses and other current assets | |
| 203 | | |
| 194 | |
Other assets | |
| 45 | | |
| 126 | |
Inventory, net | |
| (18 | ) | |
| (38 | ) |
Accounts payable and accrued liabilities | |
| (727 | ) | |
| (172 | ) |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 436 | | |
| 445 | |
Net cash (used in) provided by operating activities | |
| (1,767 | ) | |
| 1,267 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property, plant and equipment | |
| (296 | ) | |
| (665 | ) |
Proceeds from sale of property, plant and equipment | |
| — | | |
| 906 | |
Cash paid for deposits | |
| — | | |
| (47 | ) |
Repayments on notes receivable | |
| 15 | | |
| 4 | |
Distribution from joint venture | |
| 65 | | |
| — | |
Net cash (used in) provided by investing activities | |
| (216 | ) | |
| 198 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Cash paid for purchase of our common stock | |
| — | | |
| (126 | ) |
Proceeds from bank loans | |
| 1,750 | | |
| 2,200 | |
Cash paid for deferred financing costs | |
| (25 | ) | |
| (37 | ) |
Repayments of long-term debt | |
| (398 | ) | |
| (3,049 | ) |
Net cash provided by (used in) financing activities | |
| 1,327 | | |
| (1,012 | ) |
Change in cash | |
| (656 | ) | |
| 453 | |
Cash at beginning of period, net of compensating balance of $3,900 at December 31, 2014 | |
| 1,412 | | |
| 5,260 | |
Cash at end of period, net of compensating balance of $3,900 at June 30, 2015 | |
$ | 756 | | |
$ | 5,713 | |
| |
| | | |
| | |
Supplemental schedule of significant noncash transactions: | |
| | | |
| | |
Common stock surrendered by employees related to payroll taxes on vested restricted stock awards | |
$ | 58 | | |
$ | 178 | |
Reclassification of equipment from property, plant and equipment to finished goods inventory | |
$ | — | | |
$ | 3,117 | |
Reclassification of land and buildings purchase price from deposits in other assets to property, plant and equipment | |
$ | — | | |
$ | 500 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
NOTE 1: BASIS OF PRESENTATION
Basis of Presentation
The accompanying
unaudited condensed consolidated financial statements of Deep Down, Inc. and its directly and
indirectly wholly-owned subsidiaries (“Deep Down,” “we,” “us” or the “Company”)
were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the
“Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those
rules, certain notes or other financial information that are normally required by United States generally accepted accounting principles
(“US GAAP”) can be condensed or omitted. Therefore, these statements should be read in conjunction with
the audited consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended
December 31, 2014, filed on March 31, 2015 with the Commission.
Certain previously reported amounts have
been reclassified to conform to current period presentation.
Use of Estimates
The preparation of financial statements
in conformity with US 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 reported amounts of
revenues and expenses during the reporting period. The most significant estimates used in our financial statements relate to revenue
recognition where we use percentage-of completion accounting on our large fixed-price contracts, the allowance for doubtful trade
accounts receivable and the deferred tax asset valuation allowance. These estimates require judgments, which we base on historical
experience and on various other assumptions, as well as specific circumstances. Estimates may change as new events occur, additional
information becomes available or operating environments change. Actual results may differ from our estimates.
Principles of Consolidation
The unaudited condensed consolidated financial
statements presented herein include the accounts of Deep Down, Inc. and its directly and indirectly
wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.
Segments
For the six months ended June 30, 2015
and 2014, we had only one material operating and reporting segment, Deep Down Delaware.
Recently Issued Accounting Standards
Not Yet Adopted
In May 2014, the FASB issued a new standard
on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach
to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty
of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in
applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. The effective date for
this standard was deferred in July 2015 and will now be effective for us beginning in 2018. The standard permits the use of either
the retrospective or cumulative effect transition method; therefore we are evaluating the effect that this new guidance will have
on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined
the effect of the standard on our ongoing financial reporting.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
NOTE 2: INVENTORY
The components of inventory are summarized
below:
| |
June 30, 2015 | |
December 31, 2014 |
Spare parts | |
$ | — | | |
$ | 205 | |
Reserve for obsolescence | |
| — | | |
| (205 | ) |
Work in progress | |
| 28 | | |
| 10 | |
Finished goods | |
| 3,117 | | |
| 3,117 | |
Inventory, net | |
$ | 3,145 | | |
$ | 3,127 | |
The finished goods inventory balance of
$3,117 at June 30, 2015 and December 31, 2014 consists of a 3,500 MT portable umbilical carousel which we fabricated and bought
back from a customer in November 2013 and are currently holding for sale.
NOTE 3: BILLINGS,
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of billings, costs and estimated earnings on
uncompleted contracts are summarized below:
| |
June 30, 2015 | |
December 31, 2014 |
Costs incurred on uncompleted contracts | |
$ | 14,741 | | |
$ | 10,500 | |
Estimated earnings on uncompleted contracts | |
| 5,150 | | |
| 3,893 | |
| |
| 19,891 | | |
| 14,393 | |
Less: Billings to date on uncompleted contracts | |
| (15,666 | ) | |
| (7,585 | ) |
| |
$ | 4,225 | | |
$ | 6,808 | |
| |
| | | |
| | |
Included in the accompanying consolidated balance sheets under the following captions: | |
| | | |
| | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
$ | 4,661 | | |
$ | 6,808 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| (436 | ) | |
| — | |
| |
$ | 4,225 | | |
$ | 6,808 | |
The balance in costs and estimated earnings
in excess of billings on uncompleted contracts at June 30, 2015 and December 31, 2014 consisted of earned but unbilled revenues
related to fixed-price projects.
The balance in billings in excess of costs
and estimated earnings on uncompleted contracts at June 30, 2015 and December 31, 2014 consisted of unearned billings related to
fixed-price projects.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The components of net property, plant and
equipment are summarized below:
| |
| |
| |
Range of |
| |
June 30, 2015 | |
December 31, 2014 | |
Asset Lives |
Land | |
$ | 1,582 | | |
$ | 1,582 | | |
- |
Buildings and improvements | |
| 1,447 | | |
| 1,447 | | |
7 - 36 years |
Leasehold improvements | |
| 696 | | |
| 696 | | |
2 - 5 years |
Equipment | |
| 13,975 | | |
| 14,015 | | |
2 - 30 years |
Furniture, computers and office equipment | |
| 1,290 | | |
| 1,289 | | |
2 - 8 years |
Construction in progress | |
| 1,709 | | |
| 1,413 | | |
- |
Total property, plant and equipment | |
| 20,699 | | |
| 20,442 | | |
|
Less: Accumulated depreciation and amortization | |
| (9,503 | ) | |
| (8,710 | ) | |
|
Property, plant and equipment, net | |
$ | 11,196 | | |
$ | 11,732 | | |
|
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
NOTE 5: LONG-TERM DEBT
Long-term debt consisted of the following:
| |
June 30, 2015 | |
December 31, 2014 |
Whitney credit facility | |
$ | 6,941 | | |
$ | 5,560 | |
Capital lease obligations | |
| 26 | | |
| 55 | |
Total long-term debt | |
| 6,967 | | |
| 5,615 | |
Less: Current portion of long-term debt | |
| (4,665 | ) | |
| (2,942 | ) |
Long-term debt, net of current portion | |
$ | 2,302 | | |
$ | 2,673 | |
Credit Facility
Since 2008, we have maintained a credit
facility (the “Facility”) with Whitney. The Facility has been amended and restated several times, most recently
effective June 30, 2015 when we entered into the eighth amendment (“Eighth Amendment”).
The relevant terms of the Eighth Amendment
include:
| · | an extension of the maturity date of the
revolving credit facility (“Revolving Credit Facility”) to June 30, 2016; |
| · | a modification of the interest rate with
respect to the Revolving Credit Facility to 4.0 percent per annum; |
| · | a modification of certain financial covenants,
specifically the Leverage Ratio and Fixed Charge Coverage Ratio (see further discussion below); and |
| · | a requirement that we maintain a compensating
balance of $3,900 in our existing interest-bearing account at Whitney, to continue until such time as we have regained compliance
with all of our covenants under the Facility for two consecutive quarters commencing with the quarter ended June 30, 2015. |
Other current relevant terms of the Facility
include:
| · | a committed amount of $5,000 under the
Revolving Credit Facility, subject to a borrowing base limitation based on eligible trade accounts receivable; the Revolving
Credit Facility may be used to borrow cash (at an interest rate of 4.0 percent per annum) or to issue bank letters of credit
(at a fee of 1 percent per annum); both cash borrowings and the issuance of bank letters of credit reduce the available capacity
under the commitment; the available borrowing and letter of credit capacity under the Revolving Credit Facility at June 30, 2015
was $835; |
| · | a real estate term facility (“RE
Term Facility”) of $2,000, at an interest rate of 4.0 percent per annum, maturing April 15, 2018, with the Company being
obligated to make monthly increasing repayments of principal (along with accrued and unpaid interest thereon) starting at $8, beginning
April 1, 2013; |
| · | a carousel term facility (“Carousel
Term Facility”) of $2,200, at an interest rate of 3.5 percent per annum, maturing October 15, 2016, with the Company being
obligated to make monthly repayment of principal of $65 (along with accrued and unpaid interest thereon) beginning July 1, 2014;
and |
| · | outstanding balances under the Facility
are secured by all of the Company’s assets. |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
As of June 30, 2015, the Company had indebtedness
to Whitney consisting of the Revolving Credit Facility, the RE Term Facility, and the Carousel Term Facility, in amounts equal
to $3,750, $1,771, and $1,420, respectively. Additionally, a bank letter of credit issued under the Revolving Credit Facility
in the amount of $415 was outstanding at June 30, 2015 and December 31, 2014. This letter of credit expired on July 15, 2015. See
Note 8 “Commitments and Contingencies”, of the notes to unaudited condensed consolidated financial statements.
As mentioned above, our Facility obligates
us to comply with certain financial covenants. They are as follows:
| · | Leverage Ratio - The ratio of total net
debt to consolidated EBITDA must be less than 3.0 to 1.0; actual Leverage Ratio as of June 30, 2015: 1.21 to 1.0. |
| · | Fixed Charge Coverage Ratio - The ratio
of consolidated EBITDA to consolidated net interest expense, plus principal payments on total debt, must be greater than 1.4 to
1.0; actual Fixed Charge Coverage Ratio as of June 30, 2015: 2.54 to 1.0. |
| · | Tangible Net Worth - Our consolidated
net worth, after deducting other assets as are properly classified as “intangible assets,” plus 50 percent of net income,
after provision for taxes, must be in excess of $16,700; actual Tangible Net Worth as of June 30, 2015: $24,992. |
| · | Moreover, we continue to have obligations
for other covenants, including, among others, limitations on issuance of common stock, liens, transactions with affiliates, additional
indebtedness and permitted investments. |
As of June 30, 2015, we were in compliance
with our financial covenants.
NOTE 6: SHARE-BASED COMPENSATION
We have a share-based compensation plan,
the “2003 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan” (the “Plan”).
Awards of common stock and options to purchase common stock granted under the Plan have vesting periods of three years and options
are exercisable for two years once fully vested. Share-based compensation expense related to awards is based on the fair value
at the date of grant, and is recognized over the requisite expected service period, net of estimated forfeitures. Under the Plan,
the maximum number of shares issued pursuant to options is 15 percent of issued and outstanding common shares.
Summary of Nonvested Shares of Restricted
Stock
For the six months ended June 30, 2015
and 2014, we recognized a total of $253 and $366, respectively, of share-based compensation expense related to restricted stock
awards, which is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated
statements of operations. The unamortized estimated fair value of the 263 nonvested shares of restricted stock was $491 at June
30, 2015. These costs are expected to be recognized as expense over a weighted average period of 1.00 years.
Summary of Stock Options
For the six months ended June 30, 2015
and 2014, we recognized a total of $0 and $69, respectively,
of share-based compensation expense related to outstanding stock option awards, which is included in selling, general and administrative
expenses in the accompanying unaudited condensed consolidated statements of operations. The unamortized portion of the estimated
fair value of non-vested stock options was $0 at June 30, 2015.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
NOTE 7: INCOME TAXES
Income tax expense during interim periods
is based on applying the estimated annual effective income tax rate to interim period operations. The estimated annual effective
income tax rate may vary from the statutory rate due to the impact of permanent items relative to our pre-tax income, as well as
by any valuation allowance recorded. We employ an asset and liability approach that results in the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between the financial basis and the
tax basis of those assets and liabilities. A valuation allowance is established when it is more likely than not that some of the
deferred tax assets will not be realized. Although our future projections indicate that we may be able to realize some
of these deferred tax assets, due to the degree of uncertainty of these projections, at June 30, 2015 and December 31, 2014 management
has recorded a full deferred tax asset valuation allowance.
NOTE 8: COMMITMENTS
AND CONTINGENCIES
Litigation
From time to time we are involved in legal
proceedings arising in the normal course of business. As of the date of this Report, we were not involved in any material actual
or pending legal proceedings.
Operating Leases
We lease certain offices, facilities, equipment
and vehicles under non-cancellable operating and capital leases expiring at various dates through 2023.
Letters of Credit
Certain of our customers could require
us to issue a standby letter of credit (“LC”) in the ordinary course of business to ensure performance under terms
of a contract or as a form of product warranty. The beneficiary could demand payment from the issuing bank for the amount of the
outstanding letter of credit. There was $415 in LC’s outstanding at June 30, 2015 and December 31, 2014. This LC expired
on July 15, 2015.
NOTE 9: EARNINGS PER COMMON SHARE
Basic earnings per share (“EPS”)
is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Fully diluted
EPS is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive common stock equivalents
(warrants, stock awards and stock options) outstanding during the period. Fully diluted EPS reflects the potential dilution that
could occur if options to purchase common stock were exercised for shares of common stock.
At June 30, 2015 and 2014, there were outstanding
stock options convertible to 325 and 825 shares of common stock, respectively, all of which were
anti-dilutive for both the three and six month periods then ended.
NOTE 10: STOCKHOLDERS’ EQUITY
Common Stock
The number of shares of common stock outstanding
is as follows:
Balance, December 31, 2014 | |
| 15,131 | |
Shares surrendered by employees related to payroll taxes on vested restricted stock awards | |
| (99 | ) |
Balance, June 30, 2015 | |
| 15,032 | |
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides
information that management believes is relevant for an assessment and understanding of our results of operations and financial
condition. This information should be read in conjunction with our audited historical consolidated financial statements, which
are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Securities and Exchange
Commission on March 31, 2015 and our unaudited condensed consolidated financial statements, and notes thereto, included with
this Quarterly Report on Form 10-Q (“Report”) in Part I. Item 1. “Financial Statements.”
General
We are an oilfield services company specializing
in complex deepwater and ultra-deepwater oil production distribution system support services, serving the worldwide offshore exploration
and production industry. Our services and technological solutions include distribution system installation support and engineering
services, umbilical terminations, loose-tube steel flying leads, buoyancy products and services, remotely operated vehicles (“ROVs”)
and toolings. We support subsea engineering, installation, commissioning, and maintenance projects through specialized, highly
experienced service teams and engineered technological solutions. Our primary focus is on more complex deepwater and ultra-deepwater
oil production distribution system support services and technologies, used between the platform and the wellhead.
In Part I. Item 2 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” all dollar and share amounts are in thousands
of dollars and shares, unless otherwise indicated.
Industry and Executive Outlook
The oilfield service industry continues
to be under pressure from very low oil prices. The current price is in the mid $ 40s, which is about 20 percent lower than it was
in the first quarter of the year. The outlook for oil prices remains uncertain and it appears that the industry will be working
with low oil prices for the remainder of the year and possibly next year. The most significant impact has been in the drilling
sector where we are seeing substantial reductions of personnel. Offshore drilling continues to decline as well, however offshore
production sector remains fairly busy, which has a positive impact on our business.
Our backlog remains very strong at approximately
$34 million at August 7, 2015. We will continue to focus on our strengths and reduce or control our costs where possible.
Results of Operations
Three Months Ended June 30, 2015 Compared
to Three Months Ended June 30, 2014
Revenues. Revenues for the three
months ended June 30, 2015 were $6,771, a $924 (16 percent) increase over revenues of $5,847 for the three months ended June 30,
2014. This increase is due primarily to a return to normal revenue levels, as we experienced significant project delays in the
2014 period.
Gross profit. Gross profit for the
three months ended June 30, 2015 was $2,242, or 33 percent of revenues. Gross profit for the three months ended June 30,
2014 was $1,799, or 31 percent of revenues. The $443 increase in gross profit is due primarily to the previously mentioned return
to normal revenue levels in the 2015 period.
Selling, general and administrative
expenses. Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2015 was
$2,003, or 30 percent of revenues. SG&A for the three months ended June 30, 2014 was $2,889, or 49 percent of revenues.
The $886 reduction in SG&A is due to favorable variances as follows. The 2014 period included a $192 accrual for Panama exit
costs; share-based compensation decreased by $173 because fewer grants were amortizing in the 2015 period; bad debts improved by
$102 as the 2015 period included a significant recovery; property tax expense decreased by $102 due to a significant amount of
property being classified in 2015 as “primarily for offshore use”, and is now property tax exempt; travel and lodging
expense decreased by $93 because the 2014 period included non-recurring costs related to our entry and exit from Panama. The remaining
net favorable variance of $224 is not comprised of any individually significant variances.
Equity in net income of joint venture.
During the three months ended June 30, 2015, we recorded $133 of equity in the year ended December 31, 2014 net income of Cuming
Flotation Technologies, LLC (“CFT”), in which we own a 20 percent interest. CFT’s 2014 net income consisted primarily
of a gain on the sale of property, plant and equipment and earn-out revenues associated with the sale of a subsidiary.
Modified EBITDA. Our management
evaluates our performance based on a non-GAAP measure which consists of earnings (net income or loss) available to common shareholders
before net interest expense, income taxes, non-cash share-based compensation expense, equity in net income or loss of joint venture,
non-cash impairments, depreciation and amortization, other non-cash items and one-time charges (“Modified EBITDA”). This
measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated
in accordance with US GAAP. The measure should not be considered in isolation or as a substitute for operating income or loss,
net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance
with US GAAP. The amounts included in the Modified EBITDA calculation, however, are derived from amounts included in the accompanying
unaudited condensed consolidated statements of operations.
We believe Modified EBITDA is useful to
investors in evaluating our operating performance because it is widely used to measure a company’s operating performance,
which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods,
capital structure and the method by which assets were acquired. It helps investors more meaningfully evaluate and compare the results
of our operations from period to period by removing the impact of our capital structure (primarily interest); asset base (primarily
depreciation and amortization); actions that do not affect liquidity (share-based compensation expense, equity in net income or
loss of joint venture) from our operating results; and it helps investors identify items that are within our operational control.
Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition
in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.
The following is a reconciliation of net
income (loss) to Modified EBITDA for the three months ended June 30, 2015 and 2014:
| |
Three Months Ended |
| |
June 30, |
| |
2015 | |
2014 |
Net income (loss) | |
$ | 206 | | |
$ | (1,180 | ) |
Add back interest expense, net of interest income | |
| 64 | | |
| 48 | |
Add back depreciation and amortization | |
| 464 | | |
| 396 | |
Add back (deduct) income tax expense (benefit) | |
| 8 | | |
| (18 | ) |
Add back Panama exit costs accrual | |
| — | | |
| 192 | |
Add back share-based compensation | |
| 127 | | |
| 300 | |
Modified EBITDA | |
$ | 869 | | |
$ | (262 | ) |
Modified EBITDA for the three months ended
June 30, 2015 was $869. Modified EBITDA for the three months ended June 30, 2014 was $(262). The $1,131 increase in Modified EBITDA
was due primarily to a $590 increase in gross profit before depreciation, and a $415 decrease in operating expense before Panama
exit costs, share-based compensation and depreciation and amortization, both as a result of reasons discussed previously.
Six Months Ended June 30, 2015 Compared
to Six Months Ended June 30, 2014
Revenues. Revenues for the six months
ended June 30, 2015 were $13,609. Revenues for the six months ended June 30, 2014 were $12,010. The $1,599 increase (13 percent)
is primarily the result of mobilization, assembly and rental revenues earned during the three months ended March 31, 2015 with
respect to a 3,500 MT carousel, as well as a return to normal revenue levels during the three months ended June 30, 2015, as compared
to the same period in 2014.
Gross Profit. Gross profit for the
six months ended June 30, 2015 was $4,476, or 33 percent of revenues. Gross profit for the six months ended June 30, 2014
was $4,067 or 34 percent of revenues. The $409 increase in gross profit is due primarily to the previously mentioned revenue increase.
Selling, general and administrative
expenses. Selling, general and administrative expenses (“SG&A”) for the six months ended June 30, 2015 was
$4,430, or 33 percent of revenues. SG&A for the six months ended June 30, 2014 was $5,045, or 42 percent of revenues.
The $615 reduction in SG&A is due to favorable variances as follows. The 2014 period included a $192 accrual for Panama
exit costs; share-based compensation decreased by $182 because fewer grants were amortizing in the 2015 period; property tax expense
decreased by $100 due to a significant amount of property being classified in 2015 as “primarily for offshore use”,
and is now property tax exempt. The remaining net favorable variance of $141 is not comprised of any individually significant
variances.
Equity in net income of joint venture.
During the six months ended June 30, 2015, we recorded $133 of equity in the year ended December 31, 2014 net income of Cuming
Flotation Technologies, LLC, (“CFT”), in which we own a 20 percent interest. CFT’s 2014 net income consisted
primarily of a gain on the sale of property, plant and equipment and earn-out revenues associated with the sale of a subsidiary.
Other income (expense). The 2014
period includes net gain on the disposal of property, plant and equipment of $317.
Modified EBITDA. As noted above,
our management evaluates our performance based on Modified EBITDA. This measure may not be comparable to similarly titled
measures employed by other companies and is not a measure of performance calculated in accordance with US GAAP. The measure should
not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating,
investing or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Modified
EBITDA calculation, however, are derived from amounts included in the accompanying condensed consolidated statements of operations.
We believe Modified EBITDA is useful to
investors in evaluating our operating performance because it is widely used to measure a company’s operating performance,
which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods,
capital structure and the method by which assets were acquired. It helps investors more meaningfully evaluate and compare the results
of our operations from period to period by removing the impact of our capital structure (primarily interest); asset base (primarily
depreciation and amortization); actions that do not affect liquidity (share-based compensation expense, equity in net income or
loss of joint venture) from our operating results; and it helps investors identify items that are within our operational control.
Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition
in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.
The following is a reconciliation of net
loss to Modified EBITDA for the six months ended June 30, 2015 and 2014:
| |
Six Months Ended |
| |
June 30, |
| |
2015 | |
2014 |
Net loss | |
$ | (91 | ) | |
$ | (808 | ) |
Add back interest expense, net of interest income | |
| 125 | | |
| 109 | |
Add back depreciation and amortization | |
| 841 | | |
| 806 | |
Add back (deduct) income tax expense (benefit) | |
| 14 | | |
| (9 | ) |
Add back Panama exit costs accrual | |
| — | | |
| 192 | |
Add back share-based compensation | |
| 253 | | |
| 435 | |
Modified EBITDA | |
$ | 1,142 | | |
$ | 725 | |
Modified EBITDA for the six months ended
June 30, 2015 was $1,142. Modified EBITDA for the six months ended June 30, 2014 was $725. The $417 increase in Modified
EBITDA was due to a $529 increase in gross profit before depreciation, a $135 decrease in operating expense before Panama exit
costs, share-based compensation and depreciation and amortization, and a $247 decrease in other income, all as a result of reasons
discussed previously.
Liquidity and Capital Resources
Overview
Historically, we have supplemented the
financing of our capital needs through debt and equity financings.
Since 2008, we have maintained a credit
facility (the “Facility”) with Whitney. The Facility has been amended and restated several times, most recently
effective June 30, 2015 when we entered into the eighth amendment (“Eighth Amendment”).
The relevant terms of the Eighth Amendment
include:
| · | an extension of the maturity date of the
revolving credit facility (“Revolving Credit Facility”) to June 30, 2016; |
| · | a modification of the interest rate with
respect to the Revolving Credit Facility to 4.0 percent per annum; |
| · | a modification of certain financial covenants,
specifically the Leverage Ratio and Fixed Charge Coverage Ratio (see further discussion below); and |
| · | a requirement that we maintain a compensating
balance of $3,900 in our existing interest-bearing account at Whitney, to continue until such time as we have regained compliance
with all of our covenants under the Facility for two consecutive quarters commencing with the quarter ended June 30, 2015. |
Other current relevant terms of the Facility
include:
| · | a committed amount of $5,000 under the
Revolving Credit Facility, subject to a borrowing base limitation based on eligible trade accounts receivable; the Revolving
Credit Facility may be used to borrow cash (at an interest rate of 4.0 percent per annum) or to issue bank letters of credit
(at a fee of 1 percent per annum); both cash borrowings and the issuance of bank letters of credit reduce the available capacity
under the commitment; the available borrowing and letter of credit capacity under the Revolving Credit Facility at June 30, 2015
was $835; |
| · | a real estate term facility (“RE
Term Facility”) of $2,000, at an interest rate of 4.0 percent per annum, maturing April 15, 2018, with the Company being
obligated to make monthly increasing repayments of principal (along with accrued and unpaid interest thereon) starting at $8, beginning
April 1, 2013; |
| · | a carousel term facility (“Carousel
Term Facility”) of $2,200, at an interest rate of 3.5 percent per annum, maturing October 15, 2016, with the Company being
obligated to make monthly repayment of principal of $65 (along with accrued and unpaid interest thereon) beginning July 1, 2014;
and |
| · | outstanding balances under the Facility
are secured by all of the Company’s assets. |
As of June 30, 2015, the Company had indebtedness
to Whitney consisting of the Revolving Credit Facility, the RE Term Facility, and the Carousel Term Facility, in amounts equal
to $3,750, $1,771, and $1,420, respectively. Additionally, a bank letter of credit issued under the Revolving Credit Facility
in the amount of $415 was outstanding at June 30, 2015 and December 31, 2014. This letter of credit expired on July 15, 2015.
See Note 8 “Commitments and Contingencies”, of the notes to unaudited condensed consolidated financial statements.
As mentioned above, our Facility obligates
us to comply with certain financial covenants. They are as follows:
| · | Leverage Ratio - The ratio of total net
debt to consolidated EBITDA must be less than 3.0 to 1.0; actual Leverage Ratio as of June 30, 2015: 1.21 to 1.0. |
| · | Fixed Charge Coverage Ratio - The ratio
of consolidated EBITDA to consolidated net interest expense, plus principal payments on total debt, must be greater than 1.4 to
1.0; actual Fixed Charge Coverage Ratio as of June 30, 2015: 2.54 to 1.0. |
| · | Tangible Net Worth - Our consolidated
net worth, after deducting other assets as are properly classified as “intangible assets,” plus 50 percent of net income,
after provision for taxes, must be in excess of $16,700; actual Tangible Net Worth as of June 30, 2015: $24,992. |
| · | Moreover, we continue to have obligations
for other covenants, including, among others, limitations on issuance of common stock, liens, transactions with affiliates, additional
indebtedness and permitted investments. |
As of June 30, 2015, we were in compliance
with our financial covenants.
With our Facility availability and cash we expect to generate
from operations, we believe we will have adequate liquidity to fund our future requirements.
Inflation and Seasonality
We do not believe that our operations are
significantly impacted by inflation. Our business is not significantly seasonal in nature.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Estimates
The discussion and analysis of our financial
condition and results of operations is based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation
of these financial statements in accordance with US GAAP requires us to make estimates and judgments that may affect assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition and related allowances,
costs and estimated earnings incurred in excess of billings on uncompleted contracts, impairments of long-lived assets, including
intangibles, income taxes including the valuation allowance for deferred tax assets, billings in excess of costs and estimated
earnings on uncompleted contracts, contingencies and litigation, and share-based payments. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions
or conditions.
Refer to Part II. Item 2 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year
ended December 31, 2014 for a discussion of our Critical Accounting Policies.
Recently Issued Accounting Standards
Not Yet Adopted
Management has not yet assessed whether recently issued accounting
standards, which are not yet effective, will have a material impact on our condensed consolidated financial statements upon adoption.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures. The Company’s disclosure controls and procedures are designed to ensure that such information
required to be disclosed by the Company in reports filed or submitted under the Exchange Act as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls
and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal
executive and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are
inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures
are designed to provide such reasonable assurance.
The Company’s management, with the
participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation
of the Company’s disclosure controls and procedures as of June 30, 2015, as required by Rule 13a-15(e) of the Exchange
Act. Based upon that evaluation, the principal executive and the principal financial officer have concluded that the Company’s
disclosure controls and procedures were effective as of June 30, 2015.
Management’s Report on Internal
Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining
adequate internal controls over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Although the internal
controls over financial reporting were not audited, the Company’s management, including the principal executive and principal
financial officer, assessed the effectiveness of internal controls over financial reporting as of June 30, 2015, based on
criteria issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal
Control-Integrated Framework.” Upon evaluation, the Company’s management has concluded that the Company’s
internal controls over financial reporting were effective as of June 30, 2015.
Changes in Internal Control Over Financial
Reporting. The Company’s management, with the participation of the principal executive and principal
financial officer, has concluded that there were no changes in internal control over financial reporting during the fiscal quarter
ended June 30, 2015.
PART II. – OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
From time to time, we are involved in legal
proceedings arising in the normal course of business. As of the date of this Quarterly Report on Form 10-Q, we were not involved
in any material actual or pending legal proceedings.
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K
are listed in the Index of Exhibits of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
10.1 |
Eighth Amendment to Amended and Restated Credit Agreement, dated as of June 19, 2015, by and among Deep Down, Inc. and Whitney Bank (incorporated herein by reference from Exhibit 10.1 to our Form 8-K filed on June 22, 2015). |
31.1* |
Certification of Ronald E. Smith, President and Chief Executive Officer, furnished pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
31.2* |
Certification of Eugene L. Butler, Chief Financial Officer, furnished pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
32* |
Certification of Ronald E. Smith, President and Chief Executive Officer and Eugene L. Butler, Chief Financial Officer, furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS* |
XBRL Instance Document |
101.SCH* |
XBRL Schema Document |
101.CAL* |
XBRL Calculation Linkbase Document |
101.DEF* |
XBRL Definition Linkbase Document |
101.LAB* |
XBRL Label Linkbase Document |
101.PRE* |
XBRL Presentation Linkbase Document |
______________________________
* Filed or furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DEEP DOWN, INC. |
|
|
(Registrant) |
|
|
|
|
|
|
|
Date: August 11, 2015 |
|
|
|
/s/ Ronald E. Smith |
|
|
Ronald E. Smith |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
/s/ Eugene L. Butler |
|
|
Eugene L. Butler |
|
|
Executive Chairman and Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
/s/ Ira B. Selya |
|
|
Ira B. Selya |
|
|
Corporate Controller |
|
|
(Principal Accounting Officer) |
|
INDEX TO EXHIBITS
10.1 |
Eighth Amendment to Amended and Restated Credit Agreement, dated as of June 19, 2015, by and among Deep Down, Inc. and Whitney Bank (incorporated herein by reference from Exhibit 10.1 to our Form 8-K filed on June 22, 2015). |
31.1* |
Certification of Ronald E. Smith, President and Chief Executive Officer, furnished pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
31.2* |
Certification of Eugene L. Butler, Chief Financial Officer, furnished pursuant to Rules 13a-14 and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
32* |
Certification of Ronald E. Smith, President and Chief Executive Officer and Eugene L. Butler, Chief Financial Officer, furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS* |
XBRL Instance Document |
101.SCH* |
XBRL Schema Document |
101.CAL* |
XBRL Calculation Linkbase Document |
101.DEF* |
XBRL Definition Linkbase Document |
101.LAB* |
XBRL Label Linkbase Document |
101.PRE* |
XBRL Presentation Linkbase Document |
______________________________
* Filed or furnished herewith.
Exhibit 31.1
CERTIFICATION
I, Ronald E. Smith, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Deep Down, Inc. (the “registrant”) for the quarterly period
ended June 30, 2015; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting. |
Date: August 11, 2015
|
/s/ Ronald E. Smith |
|
Name: |
Ronald E. Smith |
|
Title: |
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATION
I, Eugene L. Butler, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Deep Down, Inc. (the “registrant”) for the quarterly period
ended June 30, 2015; |
| 2.` | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting. |
Date: August 11, 2015
|
/s/ Eugene L. Butler L. But |
|
Name: |
Eugene L. Butler |
|
Title: |
Executive Chairman and Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report
of Deep Down, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2015, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), the undersigned, Ronald E. Smith, President and Chief Executive
Officer of the Company, and Eugene L. Butler, Executive Chairman and Chief Financial Officer of the Company, each of the undersigned
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Deep Down. |
Date: |
August 11, 2015 |
|
|
|
|
|
|
|
|
/s/ Ronald E. Smith |
|
Name: |
Ronald E. Smith |
|
Title: |
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
/s/ Eugene L. Butler |
|
Name: |
Eugene L. Butler |
|
Title: |
Executive Chairman and Chief Financial Officer |
|
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