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 September
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. Yes þ
No o
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 o
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 November 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 September 30, 2015 and December 31, 2014 |
1 |
|
Unaudited Condensed Consolidated Statements
of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 |
2 |
|
Unaudited Condensed Consolidated Statements
of Cash Flows for the Nine Months Ended September 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 |
13 |
|
|
PART II. OTHER INFORMATION |
|
|
Item 1. |
Legal Proceedings |
14 |
Item 6. |
Exhibits |
14 |
|
|
|
Signatures |
15 |
Exhibit Index |
16 |
PART I – FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEEP DOWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value amounts) | |
September 30, 2015 | | |
December 31, 2014 | |
| |
| | | |
| | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash (including a compensating balance of $3,900) (Note 5) | |
$ | 4,969 | | |
$ | 5,312 | |
Accounts receivable, net of allowance for doubtful accounts of $150 and $498, respectively | |
| 10,160 | | |
| 6,488 | |
Inventory, net of reserve for obsolescence of $0 and $205, respectively | |
| 3,129 | | |
| 3,127 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 1,263 | | |
| 6,808 | |
Prepaid expenses and other current assets | |
| 275 | | |
| 280 | |
Total current assets | |
| 19,796 | | |
| 22,015 | |
Property, plant and equipment, net | |
| 11,055 | | |
| 11,732 | |
Investment in joint venture | |
| 68 | | |
| – | |
Intangibles, net | |
| 77 | | |
| 82 | |
Other assets | |
| 859 | | |
| 891 | |
Total assets | |
$ | 31,855 | | |
$ | 34,720 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 2,056 | | |
$ | 4,139 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 260 | | |
| – | |
Current portion of long-term debt | |
| 4,979 | | |
| 5,615 | |
Total current liabilities | |
| 7,295 | | |
| 9,754 | |
Total liabilities | |
| 7,295 | | |
| 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 | |
| 72,856 | | |
| 72,532 | |
Accumulated deficit | |
| (48,311 | ) | |
| (47,581 | ) |
Total stockholders' equity | |
| 24,560 | | |
| 24,966 | |
Total liabilities and stockholders' equity | |
$ | 31,855 | | |
$ | 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 | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
(In thousands, except per share amounts) | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | 6,147 | | |
$ | 8,462 | | |
$ | 19,756 | | |
$ | 20,472 | |
Cost of sales: | |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 3,829 | | |
| 4,649 | | |
| 12,225 | | |
| 11,974 | |
Depreciation expense | |
| 402 | | |
| 349 | | |
| 1,139 | | |
| 1,072 | |
Total cost of sales | |
| 4,231 | | |
| 4,998 | | |
| 13,364 | | |
| 13,046 | |
Gross profit | |
| 1,916 | | |
| 3,464 | | |
| 6,392 | | |
| 7,426 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 2,465 | | |
| 2,181 | | |
| 6,895 | | |
| 7,121 | |
Depreciation and amortization | |
| 27 | | |
| 47 | | |
| 131 | | |
| 130 | |
Total operating expenses | |
| 2,492 | | |
| 2,228 | | |
| 7,026 | | |
| 7,251 | |
Operating (loss) income | |
| (576 | ) | |
| 1,236 | | |
| (634 | ) | |
| 175 | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (75 | ) | |
| (47 | ) | |
| (200 | ) | |
| (156 | ) |
Equity in net income of joint venture | |
| – | | |
| 32 | | |
| 133 | | |
| 32 | |
Other, net | |
| 9 | | |
| (10 | ) | |
| (18 | ) | |
| 343 | |
Total other income (expense) | |
| (66 | ) | |
| (25 | ) | |
| (85 | ) | |
| 219 | |
Income (loss) before income taxes | |
| (642 | ) | |
| 1,211 | | |
| (719 | ) | |
| 394 | |
Income tax benefit (expense) | |
| 3 | | |
| (32 | ) | |
| (11 | ) | |
| (23 | ) |
Net (loss) income | |
$ | (639 | ) | |
$ | 1,179 | | |
$ | (730 | ) | |
$ | 371 | |
| |
| | | |
| | | |
| | | |
| | |
Net (loss) income per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.04 | ) | |
$ | 0.08 | | |
$ | (0.05 | ) | |
$ | 0.02 | |
Fully diluted | |
$ | (0.04 | ) | |
$ | 0.08 | | |
$ | (0.05 | ) | |
$ | 0.02 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted-average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 15,032 | | |
| 15,131 | | |
| 15,091 | | |
| 15,195 | |
Fully diluted | |
| 15,032 | | |
| 15,131 | | |
| 15,091 | | |
| 15,195 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
DEEP DOWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
| |
Nine Months Ended | |
| |
September 30, | |
(In thousands) | |
2015 | | |
2014 | |
Cash flows from operating activities: | |
| | | |
| | |
Net (loss) income | |
$ | (730 | ) | |
$ | 371 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
| | | |
| | |
Equity in net income of joint venture | |
| (133 | ) | |
| (32 | ) |
Share-based compensation | |
| 382 | | |
| 564 | |
Bad debt expense | |
| 70 | | |
| 48 | |
Depreciation and amortization | |
| 1,270 | | |
| 1,202 | |
Gain on disposals of property, plant and equipment | |
| (7 | ) | |
| (308 | ) |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (3,800 | ) | |
| (488 | ) |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 5,545 | | |
| 449 | |
Prepaid expenses and other current assets | |
| 5 | | |
| (72 | ) |
Other assets | |
| 29 | | |
| 128 | |
Inventory | |
| (2 | ) | |
| (81 | ) |
Accounts payable and accrued liabilities | |
| (2,083 | ) | |
| 358 | |
Deferred revenues | |
| – | | |
| 20 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 260 | | |
| (131 | ) |
Net cash provided by operating activities | |
| 806 | | |
| 2,028 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property, plant and equipment | |
| (584 | ) | |
| (1,427 | ) |
Proceeds from sale of property, plant and equipment | |
| 12 | | |
| 906 | |
Cash paid for deposits | |
| – | | |
| (47 | ) |
Repayments on notes receivable | |
| 19 | | |
| 13 | |
Distribution from joint venture | |
| 65 | | |
| 500 | |
Net cash used in investing activities | |
| (488 | ) | |
| (55 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Cash paid for purchase of our common stock | |
| – | | |
| (126 | ) |
Proceeds from bank term loan | |
| 1,750 | | |
| 2,200 | |
Cash paid for deferred financing costs | |
| (25 | ) | |
| (37 | ) |
Compensating balance | |
| – | | |
| (3,900 | ) |
Repayments of long-term debt | |
| (2,386 | ) | |
| (3,283 | ) |
Net cash used in financing activities | |
| (661 | ) | |
| (5,146 | ) |
Change in cash | |
| (343 | ) | |
| (3,173 | ) |
Cash, beginning of period | |
| 5,312 | | |
| 5,260 | |
Cash, end of period | |
$ | 4,969 | | |
$ | 2,087 | |
| |
| | | |
| | |
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 nine months ended September 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:
| |
September 30, 2015 | | |
December 31, 2014 | |
Spare parts | |
$ | – | | |
$ | 205 | |
Reserve for obsolescence | |
| – | | |
| (205 | ) |
Work in progress | |
| 12 | | |
| 10 | |
Finished goods | |
| 3,117 | | |
| 3,117 | |
Inventory, net | |
$ | 3,129 | | |
$ | 3,127 | |
The finished goods inventory balance of $3,117
at September 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:
| |
September 30, 2015 | | |
December 31, 2014 | |
Costs incurred on uncompleted contracts | |
$ | 4,098 | | |
$ | 10,500 | |
Estimated earnings on uncompleted contracts | |
| 3,513 | | |
| 3,893 | |
| |
| 7,611 | | |
| 14,393 | |
Less: Billings to date on uncompleted contracts | |
| (6,608 | ) | |
| (7,585 | ) |
| |
$ | 1,003 | | |
$ | 6,808 | |
| |
| | | |
| | |
Included in the accompanying consolidated balance sheets under the following
captions: | |
| | | |
| | |
Costs and estimated earnings in excess of billings on uncompleted
contracts | |
$ | 1,263 | | |
$ | 6,808 | |
Billings in excess of costs and estimated earnings on
uncompleted contracts | |
| (260 | ) | |
| – | |
| |
$ | 1,003 | | |
$ | 6,808 | |
The balance in costs and estimated earnings
in excess of billings on uncompleted contracts at September 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 September 30, 2015 and December 31, 2014 consisted of unearned billings related
to fixed-price projects.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The components of net property, plant and equipment
are summarized below:
| |
| | |
| | |
Range of | |
| |
September 30, 2015 | | |
December 31, 2014 | | |
Asset Lives | |
Land | |
$ | 1,582 | | |
$ | 1,582 | | |
| – | |
Buildings and improvements | |
| 1,447 | | |
| 1,447 | | |
| 7 - 36 years | |
Leasehold improvements | |
| 825 | | |
| 696 | | |
| 2 - 5 years | |
Equipment | |
| 14,908 | | |
| 14,015 | | |
| 2 - 30 years | |
Furniture, computers and office equipment | |
| 1,466 | | |
| 1,289 | | |
| 2 - 8 years | |
Construction in progress | |
| 707 | | |
| 1,413 | | |
| – | |
Total property, plant and equipment | |
| 20,935 | | |
| 20,442 | | |
| | |
Less: Accumulated depreciation and amortization | |
| (9,880 | ) | |
| (8,710 | ) | |
| | |
Property, plant and equipment, net | |
$ | 11,055 | | |
$ | 11,732 | | |
| | |
NOTE 5: LONG-TERM DEBT
Long-term debt consisted of the following:
| |
September 30, 2015 | | |
December 31, 2014 | |
Whitney credit facility | |
$ | 4,969 | | |
$ | 5,560 | |
Capital lease obligations | |
| 10 | | |
| 55 | |
Total long-term debt | |
| 4,979 | | |
| 5,615 | |
Less: Current portion of long-term debt | |
| (4,979 | ) | |
| (5,615 | ) |
Long-term debt, net of current portion | |
$ | – | | |
$ | – | |
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. |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
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 1.0 percent per annum); both cash borrowings and the issuance of bank letters of credit reduce the available
capacity under the Revolving Credit Facility; the available borrowing and letter of credit capacity under the Revolving Credit
Facility at September 30, 2015 was $2,895; |
| · | 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) at an amount of $9,
as of September 30, 2015; |
| · | 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 repayments 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 September 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 $2,000, $1,744, and $1,225, respectively. 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 September 30, 2015: 1.03 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 September 30, 2015: 0.87 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 September 30, 2015: $24,483. |
| · | 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 September 30, 2015, we were in compliance
with our financial covenants, except for the Fixed Charge Coverage Ratio covenant. Whitney has provided us with a waiver for our
noncompliance with this covenant.
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.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands except per share amounts)
Summary of Nonvested Shares of Restricted
Stock
For the nine months ended September 30, 2015
and 2014, we recognized a total of $382 and $495, 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 nonvested shares of restricted stock awards was $362 at September
30, 2015. These costs are expected to be recognized as expense over a weighted average period of 0.74 years.
Summary of Stock Options
For the nine months ended September 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 September 30, 2015.
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 September 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 $0 in LC’s outstanding at September 30, 2015 and $415 at December 31, 2014.
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. 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. Diluted EPS reflects the potential dilution that could
occur if options to purchase common stock were exercised for shares of common stock.
At September 30, 2015 and 2014, there were
outstanding stock options convertible to 325 shares of common stock, all of which were anti-dilutive for both the three and nine
month periods then ended.
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
Most oilfield service companies that have operations
with customers in the drilling sector and land-based sector of the industry continue to struggle due to low oil prices and are
under pressure from their customers to lower prices significantly. Offshore drilling has slowed and many scheduled projects have
been delayed. We expect this industry condition to continue throughout 2016; however, we also expect it to stabilize and provide
a slightly better working environment. We recently announced receiving a purchase order valued at approximately $13 million, which
is the largest order the Company has ever received. We incurred significant expenses in anticipation of receiving the order in
the third quarter 2015, but have commenced this project in the fourth quarter 2015 with the majority of the work to be performed
in 2016. Additionally, the carousel project that was having a very negative impact on our operations was completed in the third
quarter 2015.
Our backlog continues to be around $35 million.
The current backlog is mostly “time and material” work at very reasonable margins, so we expect our performance to
improve over the next several quarters.
Results of Operations
Three Months Ended September 30, 2015 Compared
to Three Months Ended September 30, 2014
Revenues. Revenues for the three months
ended September 30, 2015 were $6,147 compared to revenues of $8,462 for the three months ended September 30, 2014. The $2,315,
or 27.4 percent, decrease is due primarily to a delay in the receipt of certain customer orders, mainly due to lower oil prices.
Gross profit. Gross profit for the three
months ended September 30, 2015 was $1,916, or 31.2 percent of revenues compared to $3,464, or 40.9 percent of revenues, for the
three months ended September 30, 2014. The $1,548 decrease in gross profit is due primarily to increased costs incurred on prolonged
fixed-price projects for a large customer, and costs incurred in preparation for certain customer orders that were delayed.
Selling, general and administrative expenses.
Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2015 were $2,465
compared to $2,181 for the three months ended September 30, 2014. The $284 increase in SG&A is primarily due to increased expenses
incurred in preparation for certain customer orders that got delayed and an $81 increase in our allowance for doubtful accounts.
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 (loss)
income to Modified EBITDA for the three months ended September 30, 2015 and 2014:
| |
Three Months Ended | |
| |
September 30, | |
| |
2015 | | |
2014 | |
Net (loss) income | |
$ | (639 | ) | |
$ | 1,179 | |
Add back interest expense, net of interest income | |
| 75 | | |
| 47 | |
Add back depreciation and amortization | |
| 429 | | |
| 396 | |
Add back (deduct) income tax expense (benefit) | |
| (3 | ) | |
| 32 | |
Deduct equity in net income of joint venture | |
| – | | |
| (32 | ) |
Add back share-based compensation | |
| 129 | | |
| 129 | |
Modified EBITDA | |
$ | (9 | ) | |
$ | 1,751 | |
Modified EBITDA for the three months ended
September 30, 2015 was $(9) compared to $1,751 for the three months ended September 30, 2014. The $1,762 decrease in Modified EBITDA
was due primarily to the $1,812 decrease in operating income realized in the three months ended September 30, 2015 compared to
the three months ended September 30, 2014. This decrease is a result of reasons discussed previously.
Nine Months Ended September 30, 2015 Compared
to Nine Months Ended September 30, 2014
Revenues. Revenues for the nine months
ended September 30, 2015 were $19,756 compared to $20,472 for the nine months ended September 30, 2014. The $716 decrease is primarily
the result of a delay in the receipt of certain customer orders due to lower oil prices.
Gross Profit. Gross profit for the nine
months ended September 30, 2015 was $6,392, or 32.4 percent of revenues, compared to $7,426 or 36.3 percent of revenues for the
nine months ended September 30, 2014. The $1,034 decrease in gross profit is due primarily to the previously mentioned revenue
decrease.
Selling, general and administrative expenses.
Selling, general and administrative expenses (“SG&A”) for the nine months ended September 30, 2015 were $6,895
compared to $7,121 for the nine months ended September 30, 2014. The $226 reduction in SG&A is due to decreased share-based
compensation and property tax expenses, and the absence of costs related to our Panama operations, offset by increased expenses
incurred in preparation for delayed projects and an increase in allowance for doubtful accounts.
Other income (expense). The 2014 period
includes net gain on the disposal of property, plant and equipment of $308.
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)
income to Modified EBITDA for the nine months ended September 30, 2015 and 2014:
| |
Nine Months Ended | |
| |
September 30, | |
| |
2015 | | |
2014 | |
Net (loss) income | |
$ | (730 | ) | |
$ | 371 | |
Add back interest expense, net of interest income | |
| 200 | | |
| 156 | |
Add back depreciation and amortization | |
| 1,270 | | |
| 1,202 | |
Add back income tax expense | |
| 12 | | |
| 23 | |
Add back Panama exit costs accrual | |
| – | | |
| 192 | |
Add back share-based compensation | |
| 382 | | |
| 564 | |
Deduct equity in net income of joint venture | |
| – | | |
| (32 | ) |
Modified EBITDA | |
$ | 1,134 | | |
$ | 2,476 | |
Modified EBITDA for the nine months ended September
30, 2015 was $1,134 compared to $2,476 for the nine months ended September 30, 2014. The $1,342 decrease in Modified EBITDA
was due to a $1,543 decrease in gross profit before depreciation, offset by the Panama exit costs accrued in 2014.
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 1.0 percent per annum); both cash borrowings and the issuance of bank letters of credit reduce the available
capacity under the Revolving Credit Facility; the available borrowing and letter of credit capacity under the Revolving Credit
Facility at September 30, 2015 was $2,895; |
| · | 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) at an amount of $9,
as of September 30, 2015; |
| · | 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 September 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 $2,000, $1,744, and $1,225, respectively. 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 September 30, 2015: 1.03 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 September 30, 2015: 0.87 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 September 30, 2015: $24,483. |
| · | 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 September 30, 2015, we were in compliance with our financial
covenants, except for the Fixed Charge Coverage Ratio covenant. Whitney has provided us with a waiver for our noncompliance with
this covenant.
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 7 “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 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 September 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 September 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 September 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 September 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 September 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.
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: November 12, 2015
By: /s/ Ronald E. Smith
Ronald E. Smith
President and Chief Executive
Officer
(Principal Executive
Officer)
By: /s/ Eugene L.
Butler
Eugene L. Butler
Executive Chairman and
Chief Financial Officer
(Principal Financial
Officer and Principal Accounting Officer)
INDEX TO EXHIBITS
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.
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 September 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: | November 12, 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 September 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: | November 12, 2015 |
| | |
| | /s/ Eugene L. Butler |
Name: | Eugene L. Butler |
Title: | Executive Chairman and Chief Financial
Officer |
| | (Principal Financial Officer and Principal Accounting
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 September 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,
hereby certify, 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: | November 12, 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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