Table of Contents
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, 2020
OR
| ¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 000-30351
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.) |
| |
|
|
|
18511 Beaumont Highway,
Houston, Texas
|
|
77049 |
| (Address of Principal Executive
Offices) |
|
(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)
Securities registered pursuant to Section 12(b) of the Act:
None
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which
registered |
| N/A |
N/A |
N/A |
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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| Large
accelerated filer ¨ |
Accelerated filer ¨ |
| |
|
| Non-accelerated filer
þ |
Smaller
reporting company þ |
| |
|
| |
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
No þ
At November 9, 2020, there were 12,388,865 shares outstanding of
Common Stock, 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
wholly-owned subsidiary Deep Down, Inc., a Delaware corporation
(“Deep Down Delaware”). Our current operations are primarily
conducted under Deep Down Delaware.
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 several 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; |
| |
|
|
| |
• |
The
volatility of oil and natural gas prices; |
| |
|
|
| |
• |
Our
use of percentage-of-completion accounting could result in
volatility in our results of operations; |
| |
|
|
| |
• |
A
portion of our contracts may 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; |
| |
|
|
| |
• |
Our
business requires skilled labor, and we may be unable to attract
and retain qualified employees; |
| |
|
|
| |
• |
Unfavorable legal outcomes could have a negative
impact on our business; and |
| |
|
|
| |
• |
The
impact of global health crises, including epidemics and
pandemics. |
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, 2019, 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 by our executive officers
and directors pursuant to Section 16(a) of the Exchange Act, may be
obtained through our website (www.deepdowninc.com) as soon
as reasonably practicable after we, or our executive officers and
directors, have filed or furnished such material 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
ITEM 1. FINANCIAL
STATEMENTS
DEEP DOWN, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
| |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
| |
|
(In thousands, except
per share & share data) |
|
| ASSETS |
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
4,045 |
|
|
$ |
3,523 |
|
| Accounts
receivable, net of allowance of $476 and $50, respectively |
|
|
3,902 |
|
|
|
4,454 |
|
| Contract
assets |
|
|
275 |
|
|
|
814 |
|
| Prepaid
expenses and other current assets |
|
|
101 |
|
|
|
156 |
|
| Total current
assets |
|
|
8,323 |
|
|
|
8,947 |
|
| Property, plant and equipment,
net |
|
|
2,779 |
|
|
|
7,964 |
|
| Intangibles, net |
|
|
46 |
|
|
|
50 |
|
| Right-of-use operating lease
assets |
|
|
3,444 |
|
|
|
4,334 |
|
| Other assets |
|
|
366 |
|
|
|
256 |
|
| Total
assets |
|
$ |
14,958 |
|
|
$ |
21,551 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable
and accrued liabilities |
|
$ |
2,144 |
|
|
$ |
2,204 |
|
| Contract
liabilities |
|
|
448 |
|
|
|
623 |
|
| Current
lease liabilities |
|
|
1,234 |
|
|
|
1,181 |
|
| Total current
liabilities |
|
|
3,826 |
|
|
|
4,008 |
|
| |
|
|
|
|
|
|
|
|
| PPP loan payable |
|
|
1,111 |
|
|
|
– |
|
| Operating lease
liability, long-term |
|
|
2,247 |
|
|
|
3,180 |
|
| Total
liabilities |
|
|
7,184 |
|
|
|
7,188 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies (Note
8) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Stockholders' equity: |
|
|
|
|
|
|
|
|
| Common
stock, $0.001 par value, 24,500,000 shares authorized, 15,756,010
and 15,906,010 shares issued, respectively |
|
|
16 |
|
|
|
16 |
|
| Additional paid-in
capital |
|
|
73,634 |
|
|
|
73,521 |
|
| Treasury stock,
3,367,145 and 2,620,830 shares, respectively, at cost |
|
|
(2,809 |
) |
|
|
(2,284 |
) |
|
Accumulated deficit |
|
|
(63,067 |
) |
|
|
(56,890 |
) |
| Total
stockholders' equity |
|
|
7,774 |
|
|
|
14,363 |
|
| Total
liabilities and stockholders' equity |
|
$ |
14,958 |
|
|
$ |
21,551 |
|
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, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
(In thousands, except
per share data) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
3,136 |
|
|
$ |
4,397 |
|
|
$ |
9,466 |
|
|
$ |
15,966 |
|
| Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales |
|
|
1,794 |
|
|
|
2,274 |
|
|
|
5,252 |
|
|
|
9,061 |
|
|
Depreciation expense |
|
|
174 |
|
|
|
278 |
|
|
|
656 |
|
|
|
837 |
|
| Total
cost of sales |
|
|
1,968 |
|
|
|
2,552 |
|
|
|
5,908 |
|
|
|
9,898 |
|
| Gross profit |
|
|
1,168 |
|
|
|
1,845 |
|
|
|
3,558 |
|
|
|
6,068 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general
and administrative |
|
|
1,351 |
|
|
|
2,136 |
|
|
|
5,049 |
|
|
|
6,137 |
|
| Depreciation and
amortization |
|
|
65 |
|
|
|
70 |
|
|
|
187 |
|
|
|
209 |
|
| Asset
impairment |
|
|
– |
|
|
|
– |
|
|
|
4,490 |
|
|
|
– |
|
| Total
operating expenses |
|
|
1,416 |
|
|
|
2,206 |
|
|
|
9,726 |
|
|
|
6,346 |
|
| Operating loss |
|
|
(248 |
) |
|
|
(361 |
) |
|
|
(6,168 |
) |
|
|
(278 |
) |
| Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest (expense)
income, net |
|
|
(2 |
) |
|
|
– |
|
|
|
(4 |
) |
|
|
12 |
|
|
Gain (loss) on sale of property, plant and equipment |
|
|
– |
|
|
|
(7 |
) |
|
|
– |
|
|
|
8 |
|
| Total
other income (expense) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
|
|
20 |
|
| Loss before income taxes |
|
|
(250 |
) |
|
|
(368 |
) |
|
|
(6,172 |
) |
|
|
(258 |
) |
| Income tax
expense |
|
|
– |
|
|
|
5 |
|
|
|
5 |
|
|
|
15 |
|
| Net loss |
|
$ |
(250 |
) |
|
$ |
(373 |
) |
|
$ |
(6,177 |
) |
|
$ |
(273 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.02 |
) |
| Fully diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.02 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
12,390 |
|
|
|
13,330 |
|
|
|
12,531 |
|
|
|
13,417 |
|
| Fully diluted |
|
|
12,390 |
|
|
|
13,330 |
|
|
|
12,531 |
|
|
|
13,417 |
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
DEEP DOWN, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
| |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
|
|
| (In thousands) |
|
Shares (#) |
|
|
Amount ($) |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2018 |
|
|
15,706 |
|
|
$ |
16 |
|
|
$ |
73,271 |
|
|
$ |
(2,062 |
) |
|
$ |
(54,116 |
) |
|
$ |
17,109 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
212 |
|
|
|
212 |
|
| Treasury shares purchased |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(170 |
) |
|
|
– |
|
|
|
(170 |
) |
| Share-based compensation |
|
|
– |
|
|
|
– |
|
|
|
104 |
|
|
|
– |
|
|
|
– |
|
|
|
104 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at March 31, 2019 |
|
|
15,706 |
|
|
$ |
16 |
|
|
$ |
73,375 |
|
|
$ |
(2,232 |
) |
|
$ |
(53,904 |
) |
|
$ |
17,255 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(112 |
) |
|
|
(112 |
) |
| Treasury shares purchased |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(48 |
) |
|
|
– |
|
|
|
(48 |
) |
| Share-based compensation |
|
|
– |
|
|
|
– |
|
|
|
24 |
|
|
|
– |
|
|
|
– |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at June 30, 2019 |
|
|
15,706 |
|
|
$ |
16 |
|
|
$ |
73,399 |
|
|
$ |
(2,280 |
) |
|
$ |
(54,016 |
) |
|
$ |
17,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(373 |
) |
|
|
(373 |
) |
| Restricted stock awards |
|
|
200 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| Share-based compensation |
|
|
– |
|
|
|
– |
|
|
|
72 |
|
|
|
– |
|
|
|
– |
|
|
|
72 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30, 2019 |
|
|
15,906 |
|
|
$ |
16 |
|
|
$ |
73,471 |
|
|
$ |
(2,280 |
) |
|
$ |
(54,389 |
) |
|
$ |
16,818 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance
at December 31, 2019 |
|
|
15,906 |
|
|
$ |
16 |
|
|
$ |
73,521 |
|
|
$ |
(2,284 |
) |
|
$ |
(56,890 |
) |
|
$ |
14,363 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(637 |
) |
|
|
(637 |
) |
| Treasury shares purchased |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(524 |
) |
|
|
– |
|
|
|
(524 |
) |
| Share-based compensation |
|
|
– |
|
|
|
– |
|
|
|
50 |
|
|
|
– |
|
|
|
– |
|
|
|
50 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at March 31, 2020 |
|
|
15,906 |
|
|
$ |
16 |
|
|
$ |
73,571 |
|
|
$ |
(2,808 |
) |
|
$ |
(57,527 |
) |
|
$ |
13,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5,290 |
) |
|
|
(5,290 |
) |
| Restricted stock awards forfeited |
|
|
(150 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| Share-based compensation |
|
|
– |
|
|
|
– |
|
|
|
24 |
|
|
|
– |
|
|
|
– |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at June 30, 2020 |
|
|
15,756 |
|
|
$ |
16 |
|
|
$ |
73,595 |
|
|
$ |
(2,808 |
) |
|
$ |
(62,817 |
) |
|
$ |
7,986 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(250 |
) |
|
|
(250 |
) |
| Treasury shares purchased |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1 |
) |
|
|
– |
|
|
|
(1 |
) |
| Share-based compensation |
|
|
– |
|
|
|
– |
|
|
|
39 |
|
|
|
– |
|
|
|
– |
|
|
|
39 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30, 2020 |
|
|
15,756 |
|
|
$ |
16 |
|
|
$ |
73,634 |
|
|
$ |
(2,809 |
) |
|
$ |
(63,067 |
) |
|
$ |
7,774 |
|
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, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(In thousands) |
|
| Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(6,177 |
) |
|
$ |
(273 |
) |
| Adjustments to reconcile net loss to
net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
| Share-based
compensation |
|
|
113 |
|
|
|
200 |
|
| Depreciation and
amortization |
|
|
843 |
|
|
|
1,046 |
|
| Gain on sale of
property, plant and equipment |
|
|
– |
|
|
|
(8 |
) |
| Bad debt
expense |
|
|
426 |
|
|
|
– |
|
| Non-cash lease
expense |
|
|
10 |
|
|
|
22 |
|
| Loss on asset
impairment |
|
|
4,490 |
|
|
|
– |
|
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
126 |
|
|
|
(2,334 |
) |
| Contract
assets |
|
|
539 |
|
|
|
890 |
|
| Prepaid expenses
and other current assets |
|
|
45 |
|
|
|
(57 |
) |
| Other assets |
|
|
(136 |
) |
|
|
(31 |
) |
| Accounts payable
and accrued liabilities |
|
|
(60 |
) |
|
|
(543 |
) |
|
Contract liabilities |
|
|
(175 |
) |
|
|
(443 |
) |
| Net
cash provided by (used in) operating activities |
|
|
44 |
|
|
|
(1,531 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
| Proceeds from sale
of property, plant and equipment |
|
|
– |
|
|
|
88 |
|
| Purchases of
property, plant and equipment |
|
|
(118 |
) |
|
|
(66 |
) |
|
Payments received on note receivable
(included in Prepaid expenses and other current
assets) |
|
|
10 |
|
|
|
515 |
|
| Short
term investment - (certificate of deposit) |
|
|
– |
|
|
|
1,035 |
|
| Net
cash provided by (used in) investing activities |
|
|
(108 |
) |
|
|
1,572 |
|
| |
|
|
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
| Principal payment
on long-term debt |
|
|
– |
|
|
|
(56 |
) |
| Repurchase of
common shares |
|
|
(525 |
) |
|
|
(218 |
) |
|
Proceeds from PPP loan |
|
|
1,111 |
|
|
|
– |
|
| Net
cash provided by (used in) financing activities |
|
|
586 |
|
|
|
(274 |
) |
| Change in cash |
|
|
522 |
|
|
|
(233 |
) |
| Cash, beginning of period |
|
|
3,523 |
|
|
|
2,015 |
|
| Cash, end of period |
|
$ |
4,045 |
|
|
$ |
1,782 |
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts 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 wholly-owned subsidiary
(“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, 2019.
Preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, the disclosed amounts
of contingent assets and liabilities, and the reported amounts of
revenues and expenses. If the underlying estimates and assumptions
upon which the financial statements are based change in future
periods, then the actual amounts may differ from those included in
the accompanying unaudited condensed consolidated financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.
Liquidity
The Company’s cash on hand was $4,045 and working capital was
$4,497 as of September 30, 2020. As of December 31, 2019, cash on
hand and working capital was $3,523 and $4,939, respectively. The
Company does not have a credit facility in place and generally
depends on cash on hand, cash flows from operations, and the
potential opportunistic sales of property, plant and equipment
(“PP&E”) to meet its liquidity needs.
The Company cannot predict with certainty the long-term impact of
the abrupt decline in oil prices and global economic disruption
caused by COVID-19 on the Company’s operations and cash flows. The
Company took steps to mitigate the challenges presented by the
current macro environment, including workforce reductions, wage
reductions, rent abatement, and limiting capital expenditures and
research and development efforts to only critical items. The
Company continues to seek further cost reduction opportunities to
preserve liquidity.
As a result of the abrupt decline in oil prices and global economic
activity caused by COVID-19, the Company applied for a loan under
the Small Business Administration’s (“SBA”) Paycheck Protection
Program, and on April 29, 2020, the Company received a loan (“PPP
loan”) in the amount of $1,111, which was used to finance payroll
during the second and third quarters of 2020. The PPP loan is
evidenced by a promissory note, dated to be effective as of April
27, 2020, between the Company and the lender. The promissory note
matures on April 27, 2022 and bears interest at a fixed rate of
1.00 percent per annum, payable in 18 monthly payments commencing
on November 27, 2020.
Subsequent to the effective date of the Company’s PPP loan, the
U.S. Treasury and SBA refined its payment deferral guidance whereas
payments for PPP loans are to be deferred for at least ten months
after the end of the loan forgiveness covered period. Additionally,
if the loan forgiveness application is submitted within ten months
after the end of the loan forgiveness covered period, payments will
be further deferred until such loan forgiveness application is
processed by the SBA. The Company applied for forgiveness of its
PPP loan in its entirety in October 2020, which falls within ten
months after the end of the Company’s loan forgiveness covered
period. The Company has not received guidance from its lender
regarding the timing or ultimate outcome of its forgiveness
application. Therefore, due to the uncertain timing of payments,
the Company did not carry a portion of its PPP loan balance as a
current liability at September 30, 2020.
The Company believes it will have adequate liquidity to meet its
future operating requirements arising in the normal course of
business for the next twelve months through a combination of
current cash on hand, cash expected to be generated from
operations, current working capital, and potential opportunistic
sales of PP&E in addition to pursuing a disciplined approach to
making capital investments.
Principles of Consolidation
The unaudited condensed consolidated financial statements presented
herein include the accounts of Deep Down, Inc. and its wholly owned
subsidiary. Any intercompany transactions and balances have been
eliminated.
Segments
For the three and nine months ended September 30, 2020 and 2019,
the Company had one operating and reporting segment, Deep Down
Delaware.
In February 2016, the Financial Accounting Standards Board (“FASB”)
issued ASU 2016-02, Leases (“ASC Topic 842”). Under this guidance,
lessees are required to recognize on the balance sheet a lease
liability and a right-of-use (“ROU”) asset for all leases, except
for short-term leases with terms of twelve months or less. The
lease liability represents the lessee’s obligation to make lease
payments arising from a lease and will initially be measured as the
present value of the lease payments. The ROU asset represents the
lessee’s right to use a specified asset for the lease term, and
will be measured at the lease liability amount, adjusted for lease
prepayment, lease incentives received and the lessee’s initial
direct costs.
ASC Topic 842 provides for certain practical expedients when
adopting the guidance. The Company elected the package of practical
expedients allowing the Company, for all leases that commenced
prior to the adoption date, to not reassess whether any expired or
existing contracts are, or contain, leases, the lease
classification for any expired or existing leases, or initial
direct costs for any expired or existing leases.
The Company utilizes the land easements practical expedient
allowing the Company to not assess whether any expired or existing
land easements are, or contain, leases if they were not previously
accounted for as leases under the existing leasing guidance.
Instead, the Company will continue to apply its existing accounting
policies to historical land easements. The Company elects to apply
the short-term lease exception; therefore, the Company will not
record an ROU asset or corresponding lease liability for leases
with an initial term of twelve months or less that are not
reasonably certain of being renewed and instead will recognize a
single lease cost allocated over the lease term, generally on a
straight-line basis. The Company elects to apply the practical
expedient to not separate lease components from non-lease
components and instead account for both as a single lease component
for all asset classes.
The Company elects to not capitalize any lease in which the
estimated value of the underlying asset at the commencement date is
less than the Company’s capitalization threshold. A lease would
need to qualify for the low value exception based on various
criteria.
ROU assets and lease liabilities are recognized at the commencement
date based on the present value of lease payments over the lease
term and include options to extend or terminate the lease when they
are reasonably certain to be exercised. The present value of lease
payments is determined primarily using the incremental borrowing
rate based on the information available at the lease commencement
date. Lease agreements with lease and non-lease components are
generally accounted for as a single lease component. The Company’s
operating lease expense is recognized on a straight-line basis over
the lease term and a portion is recorded in cost of sales, and the
remainder is recorded in selling, general and administrative
expenses. The accounting for some leases may require significant
judgment, which includes determining whether a contract contains a
lease, determining the incremental borrowing rate to utilize in our
net present value calculation of lease payments for lease
agreements which do not provide an implicit rate, and assessing the
likelihood of renewal or termination options.
As of September 30, 2020, the Company does not have any finance
lease assets or liabilities, nor does the Company have any
subleases.
The following tables present information about our operating
leases:
| |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
| Assets: |
|
|
|
|
|
|
|
|
| Right-of-use assets |
|
$ |
3,444 |
|
|
$ |
4,334 |
|
| |
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
|
|
| Current lease
liabilities |
|
|
1,234 |
|
|
|
1,181 |
|
|
Non-current lease liabilities |
|
|
2,247 |
|
|
|
3,180 |
|
| Total lease
liabilities |
|
$ |
3,481 |
|
|
$ |
4,361 |
|
The components of the Company’s lease expense are as follows:
| |
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Operating lease expense included in Cost of sales |
|
$ |
271 |
|
|
$ |
312 |
|
|
$ |
659 |
|
|
$ |
926 |
|
| Operating lease
expense included in SG&A |
|
|
26 |
|
|
|
55 |
|
|
|
100 |
|
|
|
185 |
|
| Short
term lease expense |
|
|
37 |
|
|
|
41 |
|
|
|
124 |
|
|
|
278 |
|
| Total lease
expense |
|
$ |
334 |
|
|
$ |
408 |
|
|
$ |
883 |
|
|
$ |
1,389 |
|
Lease term and discount rate:
| |
|
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
Weighted-average remaining lease terms on operating leases
(yrs.) |
|
|
|
|
|
|
2.70 |
|
|
3.28 |
| Weighted-average
discount rates on operating leases |
|
|
|
|
|
|
5.374% |
|
|
5.374% |
During the quarter ended September 30, 2020, the Company did not
have any sale/leaseback transactions.
Present value of lease liabilities:
| Twelve
months ending September 30, |
|
|
Operating Leases |
|
| 2021 |
|
|
$ |
1,387 |
|
| 2022 |
|
|
|
1,403 |
|
| 2023 |
|
|
|
943 |
|
| Thereafter |
|
|
|
– |
|
| Total lease
payments |
|
|
$ |
3,733 |
|
| Less:
Interest |
|
|
|
(252 |
) |
| Present value
of lease liabilities |
|
|
$ |
3,481 |
|
NOTE 3: REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenues are recognized when control of the promised goods or
services is transferred to our customers in an amount that reflects
the consideration we expect to be entitled to in exchange for those
goods or services. To determine the proper revenue recognition
method for our customer contracts, we evaluate whether two or more
contracts should be combined and accounted for as one single
contract and whether the combined or single contract should be
accounted for as more than one performance obligation. This
evaluation requires significant judgment and the decision to
combine a group of contracts or separate the combined or single
contract into multiple performance obligations could change the
amount of revenue and profit recorded in a given period.
For most of our fixed price contracts, the customer contracts with
us to provide a significant service of integrating a complex set of
tasks and components into a single project or capability even if
that single project results in the delivery of multiple units.
Hence, the entire contract is accounted for as one performance
obligation. We account for a contract when it has approval and
commitment from both parties, the rights of the parties are
identified, payment terms are identified, the contract has
commercial substance and collectability of consideration is
probable.
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated
by fixed price and service contracts. Sales taxes are excluded from
revenues.
| |
|
Three
Months Ended |
|
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Fixed Price Contracts |
|
$ |
2,522 |
|
|
$ |
3,012 |
|
| Service
Contracts |
|
|
614 |
|
|
|
1,385 |
|
| Total |
|
$ |
3,136 |
|
|
$ |
4,397 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
Nine
Months Ended |
|
| |
|
|
September 30, |
|
| |
|
|
2020 |
|
|
|
2019 |
|
| Fixed Price Contracts |
|
$ |
6,338 |
|
|
$ |
9,422 |
|
| Service
Contracts |
|
|
3,128 |
|
|
|
6,544 |
|
| Total |
|
$ |
9,466 |
|
|
$ |
15,966 |
|
Fixed price contracts
For fixed price contracts, we generally recognize revenue over time
as we perform because of continuous transfer of control to the
customer. This continuous transfer of control to the customer is
supported by clauses in the contract that allow the customer to
unilaterally terminate the contract for convenience, pay us for
costs incurred plus a reasonable profit and take control of any
work in process. In our fixed price contracts, the customer either
controls the work in process or we deliver products with no
alternative use to the Company and have rights to payment for work
performed to date plus a reasonable profit as evidenced by
contractual termination clauses.
Because of control transferring over time, revenue is recognized
based on the extent of progress towards completion of the
performance obligation. The selection of the method to measure
progress towards completion requires judgment and is based on the
nature of the products or services to be provided. We generally use
the cost-to-cost measure of progress for our contracts because it
best depicts the transfer of control to the customer which occurs
as we incur costs on our contracts. Under the cost-to-cost measure
of progress, the extent of progress towards completion is measured
based on the ratio of costs incurred to date to the total estimated
costs at completion of the performance obligation. Revenues,
including estimated fees or profits, are recorded proportionally as
costs are incurred.
Contracts are often modified to account for changes in contract
specifications and requirements. We consider contract modifications
to exist when the modification either creates new, or changes the
existing, enforceable rights and obligations. Most of our contract
modifications are for goods or services that are not distinct from
the existing contract due to the significant integration service
provided in the context of the contract and are accounted for as if
they were part of that existing contract. The effect of a contract
modification on the transaction price, and our measure of progress
for the performance obligation to which it relates, is recognized
as an adjustment to revenue (either as an increase in or a
reduction of revenue) on a cumulative catch-up basis.
We have a company-wide standard and disciplined quarterly estimate
at completion process in which management reviews the progress and
execution of our performance obligations. As part of this process,
management reviews information including, but not limited to, any
outstanding key contract matters, progress towards completion and
the related program schedule, identified risks and opportunities
and the related changes in estimates of revenues and costs. Changes
in estimates of net sales, cost of sales and the related impact to
operating income are recognized quarterly on a cumulative catch-up
basis, which recognizes in the current period the cumulative effect
of the changes on current and prior periods based on a performance
obligation’s percentage of completion. A significant change in one
or more of these estimates could affect the profitability of one or
more of our performance obligations. When estimates of total costs
to be incurred exceed total estimates of revenue to be earned on a
performance obligation related to fixed price contracts, a
provision for the entire loss on the performance obligation is
recognized in the period the loss is estimated.
Service Contracts
We recognize revenue for service contracts measuring progress
toward satisfying the performance obligation in a manner that best
depicts the transfer of goods or services to the customer. The
control over services is transferred over time when the services
are rendered to the customer on a daily basis. Specifically, we
recognize revenue as the services are provided as we have the right
to invoice the customer for the services performed. Services are
billed and paid on a monthly basis. Payment terms for services are
usually 30 days from invoice receipt but have increased to 45 days
during the recent industry downturn.
Contract balances
Costs and estimated earnings in excess of billings on uncompleted
contracts arise when revenues are recorded based on the extent of
progress towards completion but cannot be invoiced under the terms
of the contract. Such amounts are invoiced upon completion of
contractual milestones. Billings in excess of costs and estimated
earnings on uncompleted contracts arise when milestone billings are
permissible under the contract, but the related costs have not yet
been incurred. All contract costs are recognized currently on jobs
formally approved by the customer and contracts are not shown as
complete until virtually all anticipated costs have been incurred
and the risk of loss has passed to the customer.
Assets related to costs and estimated earnings in excess of
billings on uncompleted contracts, as well as liabilities related
to billings in excess of costs and estimated earnings on
uncompleted contracts, have been classified as current. The
contract cycle for certain long-term contracts may extend beyond
one year; thus, complete collection of amounts related to these
contracts may extend beyond one year though such long-term
contracts include contractual milestone billings as discussed
above. At September 30, 2020 and December 31, 2019, there were no
contracts with terms that extended beyond one year.
The following table summarizes the Company’s contract assets, which
are “Costs and estimated earnings in excess of billings on
uncompleted contracts” and our contract liabilities, which are
“Billings in excess of costs and estimated earnings on uncompleted
contracts”.
| |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
| Costs incurred on
uncompleted contracts |
|
$ |
2,308 |
|
|
$ |
1,687 |
|
| Estimated
earnings on uncompleted contracts |
|
|
3,506 |
|
|
|
2,294 |
|
| |
|
|
5,814 |
|
|
|
3,981 |
|
| Less: Billings to
date on uncompleted contracts |
|
|
(5,987 |
) |
|
|
(3,790 |
) |
| |
|
$ |
(173 |
) |
|
$ |
191 |
|
| |
|
|
|
|
|
|
|
|
| Included
in the accompanying unaudited condensed consolidated balance sheets
under the following captions: |
|
|
|
|
|
|
|
|
| Contract
assets |
|
$ |
275 |
|
|
$ |
814 |
|
|
Contract liabilities |
|
|
(448 |
) |
|
|
(623 |
) |
| |
|
$ |
(173 |
) |
|
$ |
191 |
|
The contract asset and liability balances at September 30, 2020 and
December 31, 2019 are primarily associated with revenue related to
fixed-price projects.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price
of firm orders for which work has not been performed and excludes
unexercised contract options, potential orders, and any remaining
performance obligations for any sales arrangements that had not
fully satisfied the criteria to be considered a contract with a
customer pursuant to the requirements of ASC 606.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the
amortization period would have been one year or less. These costs
are recorded within selling, general and administrative
expenses.
Many of our services contracts are short-term in nature with a
contract term of one year or less. For those contracts, we have
utilized the practical expedient in ASC 606-10-50-14 exempting the
Company from disclosure of the transaction price allocated to
remaining performance obligations if the performance obligation is
part of a contract that has an original expected duration of one
year or less.
Additionally, our payment terms are short-term in nature with
settlements of one year or less. We have, therefore, utilized the
practical expedient in ASC 606-10-32-18 exempting the Company from
adjusting the promised amount of consideration for the effects of a
significant financing component given that the period between when
the entity transfers a promised good or service to a customer and
when the customer pays for that good or service will be one year or
less.
Further, in many of our service contracts, we have a right to
consideration from a customer in an amount that corresponds
directly with the value to the customer of our performance
completed to date (for example, a service contract in which we bill
a fixed amount for each hour of service provided). For those
contracts, we have utilized the practical expedient in ASC
606-10-55-18, which allows us to recognize revenue in the amount
for which we have the right to invoice.
Accordingly, we do not disclose the value of unsatisfied
performance obligations for (i) contracts with an original expected
length of one year or less and (ii) contracts for which we
recognize revenue at the amount to which we have the right to
invoice for services performed.
| NOTE 4: |
PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following:
| |
|
|
|
|
|
|
|
Range
of |
|
| |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
|
Asset Lives |
|
| Buildings and
improvements |
|
$ |
285 |
|
|
$ |
285 |
|
|
|
7 - 36 years |
|
| Leasehold improvements |
|
|
906 |
|
|
|
896 |
|
|
|
2 - 5 years |
|
| Equipment |
|
|
12,343 |
|
|
|
17,887 |
|
|
|
2 - 30 years |
|
| Furniture, computers and office
equipment |
|
|
907 |
|
|
|
901 |
|
|
|
2 - 8 years |
|
| Construction in progress |
|
|
31 |
|
|
|
64 |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total property, plant and
equipment |
|
|
14,472 |
|
|
|
20,033 |
|
|
|
|
|
| Less: Accumulated
depreciation and amortization |
|
|
(11,693 |
) |
|
|
(12,069 |
) |
|
|
|
|
| Property, plant
and equipment, net |
|
$ |
2,779 |
|
|
$ |
7,964 |
|
|
|
|
|
Impairment of
Long-lived Assets
As a result of unfavorable market conditions primarily due to the
COVID-19 pandemic and developments in global oil markets, which
triggered historically low crude oil prices and decreases in our
customers’ capital budgets, the Company determined the carrying
amount of certain idle long-lived assets exceeded their respective
expected cash flows and therefore recorded an impairment charge of
$4,490 related to idle fixed assets during the second quarter of
2020.
The Company owns, and routinely invests in, a portfolio of
long-lived assets which are used both internally for product
manufacturing and externally to perform services in the field. We
evaluate for impairment our property and equipment that is held and
used whenever changes in circumstances indicate that the carrying
amount of an asset group may not be recoverable. Recoverability is
assessed based on estimated undiscounted future net cash flows.
Estimating future net cash flows requires us to make assumptions
and estimates including, but not limited to, cash flows associated
with future use and eventual disposal of the asset group and
determination of the primary asset of the group. Should the review
indicate that the carrying value is not fully recoverable, the
amount of the impairment loss is determined by comparing the
carrying value to the estimated fair value. No impairment was
recorded related to the long-lived assets held and used during the
three months ended September 30, 2020.
| NOTE
5: |
SHARE-BASED
COMPENSATION |
Share-based compensation is included in selling, general and
administrative expenses in the accompanying unaudited condensed
consolidated statements of operations and additional paid in
capital in the accompanying unaudited consolidated balance sheets.
On August 5, 2020, the three non-employee members of the Board of
Directors (the “Board”) were each granted an option to purchase 50
shares of the Company’s common stock at a price of $0.37 per share.
Fair value of these stock options was $0.25 per share at the date
of the grant. Options for 25% of the shares vested on August 31,
2020, with the remaining shares scheduled to vest in equal
installments on November 30, 2020, February 28, 2021, and May 31,
2021, subject to the recipient’s continued service on the Board.
During the three and nine months ended September 30, 2020, the
Company recognized a total of $39 and $113, respectively, of
share-based compensation expense. During the three and nine months
ended September 30, 2019, the Company recognized a total of $72 and
$200, respectively, of share-based compensation expense. The
unamortized estimated fair value of nonvested shares of restricted
stock and stock options was $69 and $134 at September 30, 2020 and
December 31, 2019, respectively. These costs are expected to be
recognized as expenses over a weighted-average period of 0.48
years.
On December 23, 2019, the Board authorized the repurchase of up to
500 shares of the Company’s outstanding common stock (the
“Repurchase Program”). The Repurchase Program was funded from cash
on hand and cash provided by operating activities. The Board
separately authorized the repurchase of additional shares during
the quarter ended March 31, 2020, in a privately negotiated
transaction. As of March 31, 2020, the repurchase program had been
exhausted.
For the three months ended September 30, 2020, the Company
purchased 3 shares of common stock at an average price of
approximately $0.43 per share totaling $1 in a privately negotiated
transaction. For the nine months ended September 30, 2020, the
Company purchased 746 shares of common stock at an average price of
approximately $0.70 per share totaling $525 in privately negotiated
transactions.
For the three months ended September 30, 2019, the Company received
300 shares of common stock from our former CEO in exchange for
certain previously impaired Company equipment ($0 carrying value at
the time of exchange). No value was recorded to treasury stock
because the assets had approximately $0 fair value at the time of
the exchange. For the nine months ended September 30, 2019, the
Company purchased 588 shares of common stock at an average price of
approximately $0.37 per share totaling $218.
Treasury shares are accounted for using the cost method.
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. At September 30, 2020 and December 31, 2019, management
has recorded a full deferred tax asset valuation allowance.
| NOTE
8: |
COMMITMENTS
AND CONTINGENCIES |
Employment Agreements
The Company entered into employment agreements with the Chief
Executive Officer and former Chief Operating Officer (the
“Executives”) on September 18, 2019 and September 23, 2019,
respectively, which contained severance provisions. In the event of
termination of the Executives’ employment for any reason, the
Executives would be entitled to receive all accrued, unpaid salary
and vacation time through the date of termination and all benefits
to which the Executives are entitled or vested under the terms of
all employee benefit and compensation plans, agreements and
arrangements in which the Executives are participants as of the
date of termination.
In addition, subject to executing a general release in favor of the
Company, the Executives would be entitled to receive certain
severance payments in the event of termination of the Executive’s
employment by the Company “other than for cause” or by the
Executive with “good reason.” These severance payments include: (i)
a sum in cash equal to one to two times the Executive’s annual base
salary; (ii) a sum in cash equal to one to two times the average
annual bonus paid to the Executive for the prior two full fiscal
years preceding the date of termination; (iii) a sum in cash equal
to a pro rata portion of the annual bonus payable for the period in
which the date of termination occurs based on the actual
performance under the Company’s annual incentive bonus arrangement,
but no less than fifty percent of Executive’s annual base salary;
and (iv) if the Executive’s termination occurs prior to the date
that is twelve months following a change of control, then each and
every share option, restricted share award and other equity-based
award that is outstanding and held by the Executive shall
immediately vest and become exercisable.
On April 1, 2020, the Company eliminated the position of Chief
Operating Officer (“COO”) and relieved the COO of his duties
pursuant to the terms of his employment agreement. In addition to
payment of accrued and unpaid salary, vacation time, and other
benefits referred to above, the Company is required to pay the
former COO one time his contractual annual base salary of $245,
payable over 12 months. This amount is included in selling, general
and administrative expenses in the accompanying unaudited condensed
consolidated statements of operations for the nine months ended
September 30, 2020.
Litigation
From time to time, the Company is party to various legal
proceedings arising in the ordinary course of business. The Company
expenses or accrues legal costs as incurred and is involved in only
one material legal proceeding as of the date of this Report.
In November 2011, the Company delivered equipment to Aker
Solutions, Inc. (“Aker”), but Aker declined to pay the final
invoice in the aggregate amount of $270 alleging some warranty
items needed to be repaired. The Company made repairs, but Aker
continued to claim further work was required. The Company
repeatedly attempted to collect on the receivable and ultimately
filed suit on November 16, 2012, in the Harris County District
Court. Aker subsequently filed a counterclaim on March 20, 2013 in
the aggregate amount of $1,000 for reimbursement of insurance
payments allegedly made for repairs. The parties have not reached a
resolution on this matter. At this point, it is not clear as to
whether an unfavorable outcome is either probable or remote, and
the Company is unable to determine the likelihood of an unfavorable
outcome or the amount or range of potential loss if the outcome
should be unfavorable.
On August 6, 2018, GE Oil and Gas UK Ltd. (“GE”) requested that the
Company mediate a dispute between the parties in the ICC
International Centre for ADR (“ICC”). The dispute involved alleged
delays and defects in products manufactured by the Company for GE
dating back to 2013. During the second quarter of 2020, the parties
finalized the terms of a definitive settlement agreement which is
now final and binding. Per the terms of the settlement, the Company
shall pay GE $750 in total, which shall be paid on a monthly basis
through February 2022. The Company accrued a liability related to
this matter in the amount of $750 for the year ended December 31,
2019.
| 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, nonvested 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 and
all nonvested stock awards vest.
At September 30, 2020 and 2019, all such securities were
anti-dilutive.
| NOTE 10: |
RELATED PARTY TRANSACTIONS |
On August 15, 2019, Mr. Ronald E. Smith, the Company's Founder,
resigned as Chief Executive Officer and as a member of the Board,
effective as of August 31, 2019. In connection with Mr. Smith's
resignation, the Company and Mr. Smith entered into a Transition
Agreement, effective as of September 1, 2019 (the “Transition
Agreement”). The Transition Agreement provides for Mr. Smith to
serve as an independent consultant to the Company from September 1,
2019 through December 31, 2021. The Company agreed to pay Mr. Smith
$15 per month, from January 1, 2020 through December 31, 2021, in
exchange for his future services. The Company therefore recorded
consulting expenses related to the Transition Agreement totaling
$45 and $135 for the three and nine months ended September 30,
2020, respectively.
In addition to the other payments provided for under the Transition
Agreement, the Company also agreed to pay Mr. Smith 1.5% of the net
sale or lease value of two carousels owned by Company, if such sale
or lease occurs prior to December 31, 2021, unless those assets are
sold or leased in conjunction with a sale of all or substantially
all of the assets or stock of Deep Down, in which case no
commission is due.
As part of the Transition Agreement, Mr. Smith is bound by certain
non-disclosure and confidentiality provisions, and a non-compete
and non-hire agreement.
| NOTE 11. |
SMALL BUSINESS ADMINISTRATION’S PAYCHECK
PROTECTION PROGRAM LOAN |
As a result of the abrupt decline in oil prices and global economic
activity caused by COVID-19, the Company applied for a loan under
the Small Business Administration’s (“SBA”) Paycheck Protection
Program, and on April 29, 2020, the Company received a loan (“PPP
loan”) in the amount of $1,111, which was used to finance payroll
during the second and third quarters of 2020. The PPP loan is
evidenced by a promissory note, dated to be effective as of April
27, 2020, between the Company and the lender. The promissory note
matures on April 27, 2022 and bears interest at a fixed rate of
1.00 percent per annum, payable in 18 monthly payments commencing
on November 27, 2020.
Subsequent to the effective date of the Company’s PPP loan, the
U.S. Treasury and SBA refined its payment deferral guidance whereas
payments for PPP loans are to be deferred for at least ten months
after the end of the loan forgiveness covered period. Additionally,
if the loan forgiveness application is submitted within ten months
after the end of the loan forgiveness covered period, payments will
be further deferred until such loan forgiveness application is
processed by the SBA. The Company applied for forgiveness of its
PPP loan in its entirety in October 2020, which falls within ten
months after the end of the Company’s loan forgiveness covered
period. The Company has not received guidance from its lender
regarding the timing or ultimate outcome of its forgiveness
application. Therefore, due to the uncertain timing of payments,
the Company did not carry a portion of its PPP loan balance as a
current liability at September 30, 2020.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands except per share amounts)
The following discussion and analysis provide information that
management believes is relevant for an assessment and understanding
of Deep Down’s results of operations and financial condition. This
information should be read in conjunction with the Company’s
audited historical consolidated financial statements, which are
included in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 and which is available on the SEC’s
website, and the Company’s 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
Deep Down is an oilfield product and services company specializing
in complex deepwater and ultra-deepwater support services and
subsea distribution products used between the production facility
and the wellhead. Our core services and technological solutions
include distribution system installation support and engineering
services, umbilical terminations, loose-tube steel flying leads,
and related services. Additionally, our highly experienced,
specialized service teams can support subsea engineering,
installation, commissioning, and maintenance projects located
anywhere in the world.
Industry and Executive Outlook
The challenges presented by the global COVID-19 pandemic and the
resulting sharp decline in oil prices continue to disrupt our
business and that of our customers. Although we have seen some
relaxation in the actions taken by various governments and
companies to prevent the spread of COVID-19, such actions initially
caused the demand for oil and gas to decline at unprecedented rates
and prompted our customers to scale back their operations. The
impact of these actions on our business includes customers delaying
new purchase orders, extending timelines for existing purchase
orders, and delaying payment of outstanding invoices. We expect
that customer activity will recover when oil prices further
stabilize and there is a recovery in the global demand for oil and
gas.
In response to these new challenges, we successfully adjusted our
strategy to operate in this cycle of lower oil prices. Earlier this
year, we implemented workforce reductions, wage reductions, rent
abatement, and limited capital expenditures and R&D efforts to
only critical items. We were not able to accomplish this without
our team of highly capable individuals who were able to respond
quickly to the global pandemic pressures; however, there is much
more work to do.
During the second quarter of 2020, the Company applied for and
received a loan in the amount of $1,111 under the Small Business
Administration’s Paycheck Protection Program. The loan proceeds
were used to finance payroll during the second and third quarters
of 2020. The Company applied for forgiveness of its PPP loan in its
entirety in October 2020, but the Company has not received guidance
from its lender regarding the timing or ultimate outcome of its
forgiveness application.
While increasing revenue remains our top priority, generating free
cash flow and preservation of liquidity remains a high priority in
the current environment. We are keenly focused on the levers within
our control, and we are seeing an increase in requests for
short-cycle service work, an area where we have a proven track
record. We, therefore, see this as an area of further growth for
the Company. We also believe customers on the other side of the
downturn will be heavily focused on efficiency and shorter lead
times, without sacrificing quality and safety, and are confident
our streamlined operations and renewed focus on our cost drivers
will enable us to be a solid choice for our customers.
We are encouraged by the future potential of the Company and look
forward to continuing to be a service provider of choice for our
customers, an employer of choice for our current and future
employees, and a good value for shareholders.
Results of Operations
Three Months Ended September 30, 2020 Compared to Three Months
Ended September 30, 2019
Revenues. Revenues for the three months ended September 30,
2020 were $3,136 compared to revenues of $4,397 for the three
months ended September 30, 2019. The $1,261, or 29 percent,
decrease from the same period in 2019 was primarily the result of
fewer projects in process, COVID-19 related travel restrictions,
and the recent developments in the global oil markets.
Gross profit. Gross profit for the three months ended
September 30, 2020 was $1,168, or 37 percent of revenues, compared
to $1,845, or 42 percent of revenues, for the three months ended
September 30, 2019. The 5 percent decrease in gross profit
percentage was primarily due to a lower proportion of service
revenues resulting from COVID-19 disruptions and delays during the
three months ended September 30, 2020, compared to the three months
ended September 30, 2019.
Selling, general and administrative expenses. Selling,
general and administrative (“SG&A”) expenses were $1,351, or 43
percent of revenues, for the three months ended September 30, 2020
compared to $2,136, or 49 percent of revenues, for the three months
ended September 30, 2019, which included $349 in one-time expenses
related to the resignation of the Company’s founder. Excluding the
one-time charges, SG&A expenses for the three months ended
September 30, 2019 were $1,787, or 41% of revenues. The $436
decrease in regular SG&A expenses was due to lower payroll
costs, lower legal costs, and continuous efforts to reduce
operating expenses during the three months ended September 30,
2020, compared to the three months ended September 30, 2019.
Modified EBITDA. Our management evaluates our performance
based on a non-US GAAP measure which consists of earnings (net
income or loss) available to common shareholders before net
interest income, income taxes, depreciation and amortization,
non-cash share-based compensation expense, non-cash impairments,
non-cash gains or losses on the sale of PP&E, 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 a useful measure of 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), and actions
that do not affect liquidity (share-based compensation expense)
from our operating results. Additionally, 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 three months ended September 30, 2020 and 2019:
| |
|
Three
Months Ended |
|
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Net loss |
|
$ |
(250 |
) |
|
$ |
(373 |
) |
| |
|
|
|
|
|
|
|
|
| Add: Interest
expense (income), net |
|
|
2 |
|
|
|
– |
|
| Add: Income tax
expense |
|
|
– |
|
|
|
5 |
|
| Add: Depreciation
and amortization |
|
|
239 |
|
|
|
348 |
|
| Add: Share-based
compensation |
|
|
39 |
|
|
|
72 |
|
| Add: Loss on sale
of property, plant and equipment |
|
|
– |
|
|
|
7 |
|
| Add: One-time
charges related to Founder's resignation |
|
|
– |
|
|
|
349 |
|
| |
|
|
|
|
|
|
|
|
| Modified
EBITDA |
|
$ |
30 |
|
|
$ |
408 |
|
The $378 decrease in Modified EBITDA was primarily due to decreased
revenues as a result of the decline in offshore activity triggered
by the COVID-19 pandemic for the three months ended September 30,
2020 as compared to the three months ended September 30, 2019.
Nine Months Ended September 30, 2020 Compared to Nine Months
Ended September 30, 2019
Revenues. Revenues for the nine months ended September 30,
2020 were $9,466 compared to revenues of $15,966 for the nine
months ended September 30, 2019. The $6,500, or 41 percent,
decrease was the result of fewer projects in process, COVID-19
related travel restrictions, and the recent developments in the
global oil markets.
Gross profit. Gross profit as a percentage of revenues was
38% for both the nine months ended September 30, 2020 and September
30, 2019, respectively, despite a $2,510 decrease in gross profit
for the nine months ending September 30, 2020 compared to September
30, 2019. Gross profit as a percentage of revenues remained
consistent over the comparative period despite incurring lower
revenues, which was due to cost containment measures implemented by
the Company to mitigate against the challenges posed by the macro
environment.
Selling, general and administrative expenses. SG&A
expenses were $5,049, or 53 percent of revenues, for the nine
months ended September 30, 2020, which included a $245 severance
charge related to the elimination of the Company’s COO position and
a $448 reserve for doubtful accounts receivable due to prolonged
customer payment terms and uncertainty around certain customers’
liquidity affected by the COVID-19 pandemic. Excluding these
charges, SG&A expenses for the nine months ended September 30,
2020 were $4,356, or 46 percent of revenues. SG&A expenses were
$6,137, or 38 percent of revenues, for the nine months ended
September 30, 2019, which included $349 in one-time expenses
related to the resignation of the Company’s founder. Excluding the
one-time charges, SG&A expenses for the nine months ended
September 30, 2019 were $5,788, or 36% of revenues. The $1,432
decrease in regular SG&A expenses was due to lower payroll
costs, lower legal costs, and continuous efforts to reduce
operating expenses during the nine months ended September 30, 2020,
compared to the nine months ended September 30, 2019.
Asset Impairment. During the nine months ended September 30,
2020, the Company recorded charges of $4,490 for the impairment of
certain idle long-lived assets. The impairment was the result of an
analysis of the carrying value of the assets and our inability to
objectively project future cash flows from the sale or lease of
these assets, particularly in light of the impact of the COVID-19
pandemic and resulting global economic disruption.
Modified EBITDA. The following is a reconciliation of net
loss to Modified EBITDA (loss) for the nine months ended September
30, 2020 and 2019:
| |
|
Nine
Months Ended |
|
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Net loss |
|
$ |
(6,177 |
) |
|
$ |
(273 |
) |
| Add: Interest
expense (income), net |
|
|
4 |
|
|
|
(12 |
) |
| Add: Income tax
expense |
|
|
5 |
|
|
|
15 |
|
| Add: Depreciation
and amortization |
|
|
843 |
|
|
|
1,046 |
|
| Add: Share-based
compensation |
|
|
113 |
|
|
|
200 |
|
| Deduct: Gain on
sale of property, plant and equipment |
|
|
– |
|
|
|
(8 |
) |
| Add: Asset
impairment |
|
|
4,490 |
|
|
|
– |
|
| Add: One-time
charges related to elimination of COO position |
|
|
245 |
|
|
|
– |
|
| Add:
One-time charges related to Founder's resignation |
|
|
– |
|
|
|
349 |
|
| Modified EBITDA
(loss) |
|
$ |
(477 |
) |
|
$ |
1,317 |
|
The $1,794 decrease in Modified EBITDA was due to decreased
revenues as a result of the decline in offshore activity triggered
by the COVID-19 pandemic coupled with a $448 reserve for doubtful
accounts receivable due to prolonged customer payment terms and
uncertainty around certain customers’ liquidity affected by the
pandemic for the nine months ended September 30, 2020 as compared
to the nine months ended September 30, 2019.
Liquidity and Capital Resources
The Company believes it will have adequate liquidity to meet its
future operating requirements through a combination of cash on
hand, cash expected to be generated from operations, working
capital of $4,497 as of September 30, 2020, and potential
opportunistic sales of PP&E, in addition to pursuing a
disciplined approach to making capital investments.
The Company cannot predict with certainty the overall impact of the
abrupt decline in oil prices and global economic disruption caused
by COVID-19 on the Company’s operations and cash flows. The Company
has taken steps to mitigate the challenges presented by the current
macro environment, including workforce reductions, wage reductions,
rent abatement, and limiting capital expenditures and R&D
efforts to only critical items. The Company continues to seek
further cost reduction opportunities to preserve liquidity.
As a result of the abrupt decline in oil prices and global economic
activity caused by COVID-19, the Company applied for a loan under
the Small Business Administration’s (“SBA”) Paycheck Protection
Program, and on April 29, 2020, the Company received a loan (“PPP
loan”) in the amount of $1,111, which was used to finance payroll
during the second and third quarters of 2020. The PPP loan is
evidenced by a promissory note, dated to be effective as of April
27, 2020, between the Company and the lender. The promissory note
matures on April 27, 2022 and bears interest at a fixed rate of
1.00 percent per annum, payable in 18 monthly payments commencing
on November 27, 2020.
Subsequent to the effective date of the Company’s PPP loan, the
U.S. Treasury and SBA refined its payment deferral guidance whereas
payments for PPP loans are to be deferred for at least ten months
after the end of the loan forgiveness covered period. Additionally,
if the loan forgiveness application is submitted within ten months
after the end of the loan forgiveness covered period, payments will
be further deferred until such loan forgiveness application is
processed by the SBA. The Company applied for forgiveness of its
PPP loan in its entirety in October 2020, which falls within ten
months after the end of the Company’s loan forgiveness covered
period. The Company has not received guidance from its lender
regarding the timing or ultimate outcome of its forgiveness
application. Therefore, due to the uncertain timing of payments,
the Company did not carry a portion of its PPP loan balance as a
current liability at September 30, 2020.
The Company also continues to engage in discussions with several
financial institutions if a credit facility is needed to further
support operations. There can be no assurance that the Company
could obtain a credit facility, if needed.
During the nine months ended September 30, 2020, the Company
generated $44 of net cash from operating activities, which was
primarily due to reductions in accounts receivable and contract
assets. The Company also used $108 in net cash for investing
activities, primarily for purchases of property, plant and
equipment. The Company generated $586 of net cash from financing
activities, primarily through the $1,111 PPP loan proceeds, which
was partially offset by $525 of share repurchases.
During the nine months ended September 30, 2019, the Company used
$1,531 of net cash in operating activities, primarily due to a
$2,334 increase in accounts receivable and a $543 decrease in
accounts payable. The Company generated $1,572 of net cash from
investing activities, primarily due to receiving $515 in repayments
on a note receivable and $1,035 from the maturity of a certificate
of deposit. The Company also used $274 in net cash for financing
activities primarily related to share repurchases.
Inflation and Seasonality
The Company does not believe that its operations are significantly
impacted by inflation, and its business is not significantly
seasonal in nature.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its
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 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 the
financial statements relate to revenue recognition where the
Company measures progress towards completion on a cost-to-cost
basis for fixed-price contracts, the allowance for doubtful
accounts, and impairments of long-lived assets. These estimates
require judgments, which are based 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.
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, 2019 for a
discussion of our critical accounting policies and estimates.
Recently Issued Accounting Standards
Refer to Note 1 in Part II. Item 8. “Financial Statements and
Supplemental Data,” in our Annual Report on Form 10-K for the year
ended December 31, 2019 for a discussion of recently issued
accounting standards.
Share Repurchase Program
On December 23, 2019, the Board authorized the repurchase of up to
500 shares of the Company’s outstanding common stock (the
“Repurchase Program”). The Repurchase Program was funded from cash
on hand and cash provided by operating activities. The Board
separately authorized the repurchase of additional shares during
the quarter ended March 31, 2020, in a privately negotiated
transaction. As of March 31, 2020, the repurchase program had been
exhausted.
For the three months ended September 30, 2020, the Company
purchased 3 shares of common stock at an average price of
approximately $0.43 per share totaling $1 in a privately negotiated
transaction. For the nine months ended September 30, 2020, the
Company purchased 746 shares of common stock at an average price of
approximately $0.70 per share totaling $525 in privately negotiated
transactions.
For the three months ended September 30, 2019, the Company received
300 shares of common stock from our former CEO in exchange for
certain previously impaired Company equipment ($0 carrying value at
the time of exchange). No value was recorded to treasury stock
because the assets had approximately $0 fair value at the time of
the exchange. For the nine months ended September 30, 2019, the
Company purchased 588 shares of common stock at an average price of
approximately $0.37 per share totaling $218.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
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, 2020,
as required by Rule 13a-15(e) of the Exchange Act. Based upon
that evaluation, the principal executive and the principal
financial officer concluded that the Company’s disclosure controls
and procedures were effective as of September 30, 2020.
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, 2020, based on
criteria issued in 2013 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, 2020.
Changes in Internal Control Over Financial
Reporting. The Company’s management, with the
participation of the principal executive and principal financial
officer, have concluded there were no changes in internal control
over financial reporting during the fiscal quarter ended September
30, 2020.
PART
II. – OTHER INFORMATION
(Amounts in thousands except per share amounts)
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is party to various legal
proceedings arising in the ordinary course of business. The Company
expenses or accrues legal costs as incurred and is involved in only
one material legal proceeding as of the date of this Report.
In November 2011, the Company delivered equipment to Aker
Solutions, Inc. (“Aker”), but Aker declined to pay the final
invoice in the aggregate amount of $270 alleging some warranty
items needed to be repaired. The Company made repairs, but Aker
continued to claim further work was required. The Company
repeatedly attempted to collect on the receivable and ultimately
filed suit on November 16, 2012, in the Harris County District
Court. Aker subsequently filed a counterclaim on March 20, 2013 in
the aggregate amount of $1,000 for reimbursement of insurance
payments allegedly made for repairs. The parties have not reached a
resolution on this matter. At this point, it is not clear as to
whether an unfavorable outcome is either probable or remote, and
the Company is unable to determine the likelihood of an unfavorable
outcome or the amount or range of potential loss if the outcome
should be unfavorable.
On August 6, 2018, GE Oil and Gas UK Ltd. (“GE”) requested that the
Company mediate a dispute between the parties in the ICC
International Centre for ADR (“ICC”). The dispute involved alleged
delays and defects in products manufactured by the Company for GE
dating back to 2013. During the second quarter of 2020, the parties
finalized the terms of a definitive settlement agreement which is
now final and binding. Per the terms of the settlement, the Company
shall pay GE $750 in total, which shall be paid on a monthly basis
through February 2022. The Company accrued a liability related to
this matter in the amount of $750 for the year ended December 31,
2019.
ITEM
1A. RISK FACTORS
Not applicable
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the repurchase and cancellation of
our common stock during the nine months ended September 30,
2020.
| |
|
Nine months ended September 30, 2020 |
|
| |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced
Programs (1) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under
the Programs |
|
| January 1 - January 31 |
|
|
744 |
|
|
$ |
0.7000 |
|
|
|
495 |
|
|
$ |
– |
|
| February 1 - February 28 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| March 1 - March 31 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| April 1 - April 30 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| May 1 - May 31 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| June 1 - June 30 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| July 1 - July 31 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| August 1 - August 31 |
|
|
3 |
|
|
$ |
0.4300 |
|
|
|
– |
|
|
|
– |
|
| September 1 - September 30 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
747 |
|
|
$ |
0.6991 |
|
|
|
495 |
|
|
$ |
– |
|
(1) On December 23, 2019, the Board of Directors
authorized a repurchase program under which the Company could
repurchase up to 500 shares of outstanding stock. As of March 31,
2020, the repurchase program had been exhausted.
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are
listed in the Index to Exhibits of this Quarterly Report on Form
10-Q, which is incorporated herein by reference.
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 9, 2020 |
|
|
| |
By: |
/s/ Charles K. Njuguna |
| |
|
Charles K. Njuguna |
| |
|
President, Chief Executive
Officer and Chief Financial Officer |
| |
|
(Principal Executive
Officer) |
| |
|
|
| |
By: |
/s/ Trevor L. Ashurst |
| |
|
Trevor L. Ashurst |
| |
|
Vice President of
Finance |
| |
|
(Principal Accounting
Officer) |
| |
|
|
| |
|
|
| |
|
|
INDEX TO EXHIBITS
| 31.1* |
Certification of
Charles K. Njuguna, President, Chief Executive Officer and Chief
Financial 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
Trevor L. Ashurst, Vice President of Finance, furnished pursuant to
Rules 13a-14 and 15d-14(a) of the Securities Exchange Act of 1934,
as amended. |
| |
|
| 32.1* |
Statement of
Charles K. Njuguna, President, Chief Executive Officer and 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. |
| |
|
| 32.2* |
Statement of
Trevor L. Ashurst, Vice President of Finance, 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.
** To be filed by amendment
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