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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C., 20549

FORM 10-K

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

For the fiscal year ended December 31 2018, 2021

☐ 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)

Registrant’s telephone number, including area code:(281)517-5000

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso ☐ Noþ ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o☐ Noþ ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ ☒ Noo

☐

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesþ ☒ Noo

Indicate by check mark if disclosures of delinquent filers in response to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ ☒

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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o☐  Accelerated filer o☐  Non-accelerated filero  ☒

Smaller reporting company þ  ☒Emerging growth company o☐

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.o ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yeso ☐ Noþ ☒

As of June 30, 2018,2021, the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, was $10,969,184.$8,672,205.50.

At April 12, 2019,March 28, 2022, the registrant had 13,453,39312,035,261 outstanding shares of common stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

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Forward-Looking Information

Unless otherwise indicated, the terms “Deep Down, Inc.”, “Deep Down”, “Company”, “we”, “our” and “us” are used in this report to refer to Deep Down, Inc., a Nevada corporation, and its directly and indirectly wholly-ownedwholly owned subsidiaries.

In this Annual Report on Form 10-K (the “Report”), we may make certain forward-looking statements (“Statements”), including statements regarding our plans, strategies, objectives, expectations, intentions, and resources that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We do not undertake to update, revise, or correct any of the Statements. The Statements should also be read in conjunction with our audited consolidated financial statements and the notes thereto.

The Statements contained in this Report that are not historical fact 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 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”, “expects”, “may”, “will”, “should”, “intend”, “plan”, “could”, “is likely”, or “anticipates”, or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We caution the readers that these Statements are only predictions. No assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these projections and other Statements are based upon a variety of assumptions relating to the business of the Company, which, although considered reasonable by us, may not be realized. Because of the number and range of assumptions underlying our projections and Statements, many of which are subject to significant uncertainties and contingencies that are beyond our reasonable control, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this Report. These Statements are based on current expectations and we assume no obligation to update this information. Therefore, our actual experience and the results achieved during the period covered by any particular projections or Statements may differ substantially from those projected. Consequently, the inclusion of projections and other Statements should not be regarded as a representation by us or any other person that these estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the Statements contained herein will prove to be accurate.

The risks and uncertainties mentioned previously relate to, among other matters, the following:

PART I

HistoryGeneral

Deep Down, Inc. is, a Nevada corporation engaged in the oilfield services industry. As used herein,(the “Company”, “Deep Down”, “Company”, “we”, “our” and “us” refers to Deep Down, Inc. and/or its subsidiaries. Deep Down, Inc. (OTCQB: DPDW)), a publicly traded Nevada corporation, was incorporated on December 14, 2006, through a reverse merger with MediQuip Holdings, Inc., a publicly traded Nevada corporation.

Deep Down is the parentan energy services company that provides equipment and support services to the following directly wholly-owned subsidiary:world’s energy and offshore industries. Primary operations are conducted under Deep Down, Inc., a Delaware corporation (“Deep Down Delaware”). Our current operations are primarily conducted under Deep Down Delaware.  , which is a wholly owned subsidiary of the Company.

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 partnerships with 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.

OurDeep Down’s website address iswww.deepdowninc.com. We makeThe Company makes available, free of charge on or through ourits website, copies of ourits Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after wethe Company electronically filefiles such material with, or furnish itfurnishes them to, the Securities and Exchange Commission (“SEC”(the “SEC”). Paper or electronic copies of such materialthese documents may be requestedobtained upon request by contacting the Company at our corporate offices. Information filedCompany. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, is also availableincluding the Company, atwww.sec.govor may be read and copied at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. Information regarding operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330..

Business Overview

We are a global provider of specializedDeep Down provides innovative solutions to complex customer challenges presented between the production facility and the energy source. Deep Down's core services toand technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, and related services. Additionally, Deep Down's team can support subsea engineering, manufacturing, installation, commissioning, and maintenance projects located anywhere in the offshore energy industry to support deepwater and ultra-deepwater exploration, development and production of oil and gas and other maritime operations.  While we are primarily a service company, we also produce custom engineered products that assist us in fulfilling service objectives for specific projects on a contractual basis.  We design and manufacture aworld. The Company’s broad line of surface deepwatersolutions are engineered and ultra-deepwater and offshore equipment solutions which are used bymanufactured primarily for major integrated, large independent, and foreign national oil and gasenergy companies in offshore areas throughout the world. OurThese products are often developed in direct response to customer requests for solutions to critical problemsneeds in the field.  We serve the growing offshore petroleum and maritime industries with technical management and support services.  One of our greatest strengths is the extensive knowledge base of our service, engineering and management personnel in many aspects of the deepwater and ultra-deepwater industry. Set forth below is a more detailed description of important services and products we provide.

OurDeep Down’s goal is to provide superior services and products to ourits customers in a safe, cost-effective, and timely manner. We believeThe Company believes there is significant demand for, and brand name recognition of, ourits established services and products due to the technologicaltechnical capabilities, reliability, cost-effectiveness, timeliness of delivery and execution, and operational efficiency features of these products. Since our formation, we have introduced many new products that continue to broaden the markets we currently serve.solutions.

For the years ended December 31, 20182021 and 2017, we had only2020, the Company’s operations were organized as one operating and reporting segment, Deep Down Delaware. All of the services and products we provide are interrelated, are performed for the same general customers and are marketed as such.reportable segment.

Services

ServicesDeep Down supports all aspects of subsea field development with its engineering and Products

Services. We provide a wide variety of engineering andproject management services, including the design, installation, and retrieval of subsea equipment and systems, connection and termination operations, well-commissioning services, as well asand construction support and Remotely Operated Vehicle (“ROV”) operations support. We pride ourselves in our abilityThe Company works closely with all customers to collaborate with the engineering functions of oil and gas operators, installation contractors and subsea equipment manufacturers to determineprovide the fastest, safest, and most cost-effective solutions to the full spectruma variety of complex issues which arise in our industry.issues. The Company also serves a range of customers, including operators, installation contractors, and subsea equipment manufacturers.

Project Management and Engineering. OurDeep Down’s project management teams specializemanagers and engineers have extensive experience and knowledge to support customers both on and offshore. Particularly, the Company specializes in deepwater subsea developments. Our services are centered on the utilizationdesign and engineering of standardized hardware, proven, well-tested installation techniques, and experienced, consistent teams that have proven to be safe and skilled in all aspects of the installation process.   Many installation contractors find it beneficial to utilize our services to help reduce on-board personnel since our specialized technicians can perform multiple tasks. Our teams have vast experience with the installation ofsteel tube flying leads, umbilicals, flexible and rigid risers, flowlines, and flowlines, umbilicals, flexiblejumpers. Deep Down’s comprehensive subsea engineering services oversee all project requirements from conception to final commissioning, including offshore participation during installation to ensure proper execution and rigid jumpers, steel tube and thermoplastic hose flying leads, pipeline end terminations and manifolds. Our engineers have experience ranging from the initial conceptual design phases through manufacturing and installation and concluding with topside connections and commissioning.  Our experience provides us with a levelsafe completion of “hands on” and practical understanding that has proven to be indispensable in enabling us to offer custom solutions to the many problems encountered both subsea and topside.  Because of our wide knowledge base, our engineering team is often hired by oil and gas operators, installation contractors and subsea equipment manufacturers to provide installation management and engineering support services.  Our engineering team has been involved in several of the innovative solutions used today in deepwater subsea systems.  We specialize in offshore installation engineering and the writing of practical installation procedures.  We deal with issues involving flying leads, compliant umbilical splices, bend stiffener latchers, umbilical hardware, hold-back clamps, and the development of distribution system components.  We are heavily involved in the fabrication of installation aids to simplify offshore executions, and offer hydraulic, fiber optic, and electrical testing services and various contingency testing tools.projects.

Spooling Services. Our experiencedDeep Down’s engineering teams provide the planning, supervision, specialized equipment, and coordination with offshore installation personnel are involved infor a customer’s pull-in and spooling needs. The Company has the ability to manage every stage of the process from terminations, spooling operation, of spooling equipment on many projects, including operationsinstallation, testing, monitoring, and pull-in for other companies to run their spooling equipment. We have developed a very efficient (in both timeumbilicals and cost) system for spooling, utilizing our horizontal drive units, under-rollers, tensioners, carousels and rapid deployment cartridges.flying leads.

Testing and Commissioning Services. Umbilical manufacturers, control suppliers, installation contractors, and oil and gas operators utilize our services to performThe Company is capable of performing all aspects of testing including initial Factory Acceptance Testing (“FAT”), extended factory acceptance testing and System Integration Testing (“SIT”), related to the connecting of the umbilical termination assemblies, the performing of installations, and the completion ofcompleting the commissioning of the system thereafter. To execute these services, we have assembledThis includes initial factory acceptance testing, extended factory acceptance testing, and system integration testing, and offshore installation and commissioning services. The Company also offers a variety of personnel and equipment to ensure that all testing operations are done in a safe and time-efficient manner, ensuring a reduced overall project cost.  We also work hard to utilize the most detailed digital testing and monitoring equipment to ensure that the most accurate data is provided to our customers.  We have been hired to perform coiled tubing flushing, cleaning, and hydro testing, umbilical filling, flushing, pressure, flow rate, and cleanliness testing, load out monitoring and testing, installation monitoring, post installation testing, system commissioning, umbilical intermediate testing, and umbilical termination assembly cleanliness, flow, and leak testing. We employ a variety of different pumping systems to meet industry needs and offer maximum flexibility.  Our philosophy is to flush through the maximum number of lines at the highest flow rate possible to maximize efficiency.   Due to the different requirements for testing and commissioning of subsea systems, we have an assortment of pumps and equipment to deployflexibility to ensure a safe and efficient commissioning program.  We have experience handling all types of commissioning fluids, including asphaltine dispersants, diesel, methanol, xylene, corrosion inhibitors, water-based control fluids, oil-based control fluids, 100 percent glycol, paraffin inhibitors, and alcohol.  We have been involved in the design, procurement, testing, installation, and operation of the testing equipment.  Our engineers and service technicians can also assist in writing the testing procedures and sequences from simple FAT to very extensive multiple pressures and fluids testing up to full system SIT procedures. We work closely with the project managers and production platform engineers to help ensure that all aspects of the installation or retrieval project, including potential risks and dangers, are identified, planned for, and eliminated prior to arrival on the production platform.

Storage Management. OurDeep Down’s facility in Houston, Texas covers more than 255,000 square feet on 23 acres, offering internal high quality warehousing capacity, external storage, and a strategic location in Houston's Ship Channel area. Our warehouse is designed to provide customers with flexible and cost effective warehousing and storage management alternatives. Our professional and experienced warehouse staff, combined with the very latest in information technology, results in a fully integrated warehousing package designed to deliver effective solutions to customer needs. Among other capabilities, we are capable of providingthe Company provides long-term specialized contract warehousing;warehousing, long and short-term storage; modern materialsstorage, material handling equipment; covered loading areas; quality security systems;equipment, integrated inventory management;management, packing, and repacking; computerized stock controls; and labeling.

OurThe Company also leases a 6,500 square foot shore-based facility located at Core Industries, Inc. in Mobile, Alabama has 6,500 square feet and houses our 3,400 ton carousel system, and isAlabama. The Mobile site can be used to store customers’ products. The site is sufficient to allowcustomer products and allows for full system integration testing of our customers’ equipment prior to deployment offshore.

ROV and ROV Tooling Services.  As part of our ROV services, we have observation and light work class ROV units capable of operating in depths of 10,000 feet. Our services include offering these vehicles to strategic alliance partners who lease our vehicles and provide the actual services of platform inspection, platform installation and abandonment, search and recovery, salvage, subsea sampling, subsea intervention, telecommunication cable inspections, anchor handling, ROV consulting and project management, ROV pilots and technicians, and underwater cinematography.  We provide an extensive line of ROV intervention tooling, both used to support our own operations and for rental to our customers.  Our ROV tooling equipment includes flying lead orientation tools, class 1-5 torque tools, hot stabs, pipe cutting systems, dredging and pumping systems, ROV clamps and ROV-friendly hooks and shackles that are state-of-the-art in design.

Equipment Refurbishment and Intervention Services.In addition to the new products we build, we have cultivated expertise in theThe Company provides refurbishment and repurposing of recovered subsea distribution assetsequipment and providingassociated support services for offshore interventions.

Items refurbished and repurposed for customers include Logic Caps (“LC(s)”), intermediate logic caps, and Hydraulic Distribution Manifolds (“HDM(s)”). Once a recovered asset is received, it is cleaned, any production fluids are flushed out with a water-based control fluid, and the asset is moved into storage. As an emergency or intervention arises, we pull the stored asset rerouteis engineered, reconfigured, and weld the tubing, and then perform FATtested per customer specifications. Finally, we send out ourAdditionally, Deep Down has developed a suite of proprietary equipment and tools available to address the critical offshore needs of its customers and minimize production disruptions due to unplanned events. A Deep Down service technicians andtechnician is then deployed with the equipment to support the offshore campaign.

Additionally, we perform various tasks in support of offshore interventions. We reconfigure Deep Down Hydrate Remediation Frames and Hydraulic Flying Leads (“HFL(s)”) at either of our facilities or in the field. Our service technicians go offshore to pre-charge and make any changes to the frame needed to remediate hydrates.Products

We also developed the Fast Response Box (“FRB”), a concept cultivated from our vast offshore campaign experience. Our team identified the necessary components for an emergency reroute of a chemical or hydraulic line performed on the deck of a vessel. After theDeep Down designs, manufactures, fabricates, inspects, assembles, tests, and installs subsea distribution hardware is brought up, our service technicians safely depressurize, flush, cut out tubing, and reroute as required to get the well or field back up and producing. We then pre-charge the system and assist in overboarding and reinstallation. Our ability to provide a fully functional temporary solution is designed to bring the well or field back into production immediately and allows time for a permanent solution to be developed.

Our capabilities further include in-house software and hardware engineering to provide innovative solutions from wireless testing and monitoring equipment to Dynamic Positioning (“DP”) systems. We have also developed camera systems that can be set up at any site, enabling our customers to witness FATs, SITs or vessel load-outs in real-time, from any location in the world.

Products. We provide installation support equipment and component parts and assemblies for subsea distribution systems. We believe the key to successful installations of hardware is to design the subsea system by considering installation issues first, working backwards to the design of the hardware itself. This is why we have been instrumental in the development of hardware and techniques to simplify deepwater installations. We design, manufacture, fabricate, inspect, assemble and test subsea equipment, surface equipment and offshore equipment that is used by major integrated, large independent, and foreign national oil and gasenergy companies in offshore areas throughout the world. OurThe Company’s products are used during oil and gas exploration, development, and production operations on offshore drilling rigs, suchinstallation and intervention vessels, and as floating rigs and jack-ups, and for drilling andpart of the permanently installed subsea production of oil and gas wells on offshore platforms, tension leg platforms and moored vessels such as Floating Production Storage and Offloading vessels (“FPSO”).infrastructure.

Flying Leads. Deep Down is a leader indesigns, manufactures, and installs flying lead design, manufacture and installation; in particularleads, particularly steel tube flying leads. OurThe Company’s flagship product, the Loose Steel Tube Flying Lead (“LSFL”LSFL®”), was developed to eliminate the residual memory left in traditional flying leads due to the bundling process. The loose lay of the tubes significantly reduces stiffness of the assembly, allowsis more compliant allowing the bundle to lay flat on the sea floor and follow the prescribed lay path precisely, bend in a tight radius with minimal resistance and offers maximum compliance for easy makeup in lengths up to 1,000’. When greater lengths up to 10,000’ are required, we utilize our patented Non-Helical Umbilical (“NHU®”) in conjunction with a compliant section on each end of the assembly to achieve the same result. We also offer hybrid LSFL® assemblies which can include a wide variety of combinations of electrical, optical, hose and steel tube elements. Hybrid LSFL® technology provides installation savings in both time and money as fewer operations are required to install the combined unit.

precisely. Deep Down employs the patented Moray® termination system on each end of the LSFL®. The Moray® termination is a light weight,lightweight, high-strength, configurable, and field serviceable framework used to connect any commercially available Multi-Quick Connect (“MQC”) plate to the LSFL® bundle.  The Moray® termination assembly allowsoffers several cost and time saving benefits over traditional competitive solutions that allow the installation load fromCompany to lower the steel tubes or strength member to be transmitted directly to the framework and through to the installation rigging while isolating couplers from the load to maintain maximum compliance. The Moray® termination with compliant section is ideal for umbilical end terminations; it eliminates the need for bulky armor pots and is more manageable than a traditional umbilical end termination. In this application, the Moray® termination can be used to house multiple electrical, optical and auxiliary hydraulic interfaces in integrated ROV panels. Moray® termination assemblies can be outfitted with integrated buoyancy allowing quicker installation times by eliminating the need to recover buoyancy modules. Additionally, this allows for the usetotal installed cost of a smaller class ROV on a vessel should the need for rework arise.customer projects.

Umbilical Hardware. Our blend of experiences withDeep Down designs and fabricates lightweight and compact umbilical manufacturers, subsea engineers and installation contractors has been effective, giving us a unique perspective when fabricating and designing terminations for umbilical manufacturers.  Members of our team were involved with the designs for the armored thermo plastic umbilicals at Oceaneering Multiflex, the first steel tube umbilical in the Gulf of Mexico for the Shell Popeye® umbilical, and the standardization of many steel tube umbilical terminations.  We believe our designs are often much lighter in weight and smaller than the typical hardware that has been created and used incovers the past by our competitors.  Our engineering team has designed and fabricated bending restrictors, armor pots, split barrels, tubing fittings and unions, hinging umbilical splices andentire scope of a project’s needs from the topside terminations with our unique threaded welded fittings, umbilicalplatform to the subsea connection. The Company’s compliant splice, and the bend stiffener latcher.  We offer both polymer and steel bend limiters.  The compliant splice is a patented method of converting spare umbilicals into actual production umbilicals by splicing spare umbilicals together to produce any length required or to repair a damaged umbilical.  This termination system eliminates the burdens of dealing with umbilical splices during installation and is capable of housing both electrical and fiber optic termination assemblies while still allowing for the splice to be spooled up onto a reel or carousel.  Our Umbilical Termination Assembly (“UTA”) and new compliant UTA allows usthe installation team to terminate thean umbilical with a higher degree of quality, and place the critical components of the base unit on the reel or on the carousel, and handle it with additional ease and safety. Then it isThe UTA can then be combined with the mud mat assembly easily and offers both first endfirst-end stab and hangoverhinge-over features as well as yoke second end landing.  The new compliant version allows the UTA to be expanded for multiple J-plates and yet feature the same compliant features in our compliance splicing increasing the ease of handling on the deployment equipment – overboarding – and landing on the seafloor.  Our

Deep Downs’s termination services are becoming popular because they offer the ability to takerefurbish existing topside umbilical hang offsterminations from multiple manufacturers which may have been exposed to harsh environmental conditions, and add them to temporary handling clamps – lifting up the umbilical and providingprovide a completely new hangoff arrangement andconnection, thus extending the life of the umbilical and the subsea field. Bend Stiffener Latchers™ (“BSL”) are still the leaders in the industry allowing bend stiffenersdesigned to be carried by thesecure a dynamic umbilical topside termination assembly in a more compact and overlapping configuration. BSLs are overboarded with the highest strength and can be installed intoto an existing I-tube with existingor standard flange or an I-tube with a mating bell mouth. They are then latched in by ROV allowingoffering significant cost savings without the bend stiffener to be securely attachedneed for modification to the I-tube transferring allrig interface or the dynamic bending whileuse of divers. The quick-release and locking mechanism allows a single remotely operated vehicle to engage or disengage the umbilical is pulled up and hung off. This process eliminateslocking mechanism resulting in significant savings to the handling of two major pieces of hardware, and the need to have measurements between the components as the system is fully extending and adjustable.

customer.

Riser Isolation Valves and Subsea Isolation Valve Services. Deep Down's new Riser Isolation Valve (“RIV”) and Subsea Isolation Valve (“SSIV”) control systems are unique solutions that provide platform personnel hydraulic control and electrical indication for subsea production valve manipulation.valves. These systems provide numerous advantages to the customer including:including emergency shutdown capabilities, valve positioning monitoring systems, and auxiliary positions for spare and/or future field development.

In addition to the fabrication of these systems, Deep Down provides subsea installation engineering, consulting, and service personnel to support customers, installation contractors, valve vendors, and more. Our expertise ensures scope is fully defined and delegated allowing for safe and successful installations. The Deep Down team provides commissioning and technical assistance to customers and platform personnel and seeks to ensure that the systems are working properly and all necessary operational information is handed over to the end users.properly.

Capitalizing on our expertise in umbilical manufacturing, Subsea and Topside Umbilical Termination Assemblies (“SUTA” / “TUTA”), hydraulic and electrical flying leads, and super duplex welding, we provide quality products our clients can depend on. We believe our installation-friendly project designs help us meet customer specifications. When Deep Down’s expert installation team is on the job, product integrity is preserved, helping us ensure successful installations.

Installation Aids.To help our customers and to meet our own internal needs, we have The Company has developed an extensive array of installation aids, including steel flying lead installation systems, tensioners, lay chutes, many varieties of buoyancy modules, clump weights, Vortex Induced Vibration (“VIV”) strakes, mud mats, dual tank skids, gang boxes, work vans, pumping and testing skids, control booths, fluid drum carriers, crimping systems, load cells,  300 and 340 ton under-rollers, powered reels, 200 ton, 400 ton, and 3,400 ton, and 3,500 ton carousel, UTA and bridging jumpercarousels, running and parking deployment frames, termination shelters, pipe straighteners, ROV hooks and shackles, stackable SeaStax® tanks, baskets, Subsea Deployment Basket System (SDB®),Basket® system, Horizontal Drive Units, (“HDU”) and Rapid Deployment Cartridges (“RDC”).Cartridges.

Buoyancy Products. We design, engineer and manufacture deepwater buoyancy systems and support hardware essential to installation and operational requirements. Deep Down's rotational molding operations produce high density polyethylene products including bend restrictors, VIV suppression strakes and fairings, protective outer shells for distributed buoyancy modules and other flotation products. Our unique distributed buoyancy module clamps are designed for quick and easy installation for both "over the stinger" and vertical lay system methods.

Further expansion of our flotation product line includes drilling riser buoyancy support hardware and installation services and development of a “Buoyant Rod” concept that we hope to have significant applications in the flotation industry.

Non-Helical Umbilical®. Deep Down's patented Non-Helical Umbilical (“NHU®”) combines our experience manufacturing miles of loose steel tube flying leads, terminating conventional steel umbilicals, and observing installation behavior of all umbilicals. The NHU® can be manufactured in lengths up to 10 miles using super duplex tubes in standard sizes and in any configuration of hydraulic, electrical or optical elements.  It is intended for long-term infield (static) or short-term dynamic service applications.

Multiple tubes may be fed into the patented Deep Down NHU® manufacturing mechanism, bundled, then extruded with a high density polyethylene outer jacket. Umbilicals are not torque balanced on their own, so rather than expending resources to balance and imparting stresses to helically wind them, the NHU® uses the imbalance to its advantage, resulting in a standard bundle.

The proprietary NHU® manufacturing concept is fully containerized, portable and easily transported for setup virtually anywhere in the world. The ability to manufacture in close proximity to subsea fields offers the benefits of reduced lead times, the use of smaller installation vessels, use of compact Deep Down equipment, the incorporation of the appropriate percentages of local content, and more favorable economics.

Manufacturing

OurDeep Down’s primary operations are currently located at a 255,000 sq. ft.square foot facility on 23 acres off Beaumont Highway, on the eastern end ofin Houston, Texas, where we have been since 2013. In addition to increasing our production capacity, this facility provided the space to build our Steel Tube Flying Leadsteel tube flying lead (“STFL”) Overhead Tracking System.overhead tracking system. This system enables us to easily move STFLs from station to station during production for welding, X-ray, and FAT.factory acceptance testing. We have also significantly expanded our clean, stainless steel welding and tube bending environment, which is separated from all carbon steel fabrication.

We have a 12’x60’ wet testing tank, adding the capability to test our products and rigging with buoyancy scenarios in the water. Featuring filtered water and underwater lighting, this testing tank enables us to launch and test small ROVs and ROV operations.

Our manufacturing plant is ISO 9001 certified. We continue to improve our standards and product quality through the use of quality assurance specialists working with our product manufacturing personnel throughout the manufacturing process. We have the capacity to complete large turn-key projects and still have reserve space for unforeseen emergency projects requiring immediate service and the attention to which our customers are accustomed.

On December 6, 2021, the Company announced plans to relocate its headquarters in Houston, Texas to further advance the operations and growth of the business. Moving to this new location will enable Deep Down to reduce its carbon footprint, further streamline cost structures, and attract high caliber talent as the Company continues to position for future growth. The relocation is expected to be completed in 2022.

Customers

Demand for our deepwater and ultra-deepwater services, surface equipment and offshore rig equipment is dependent on the condition of the oil and gasenergy industry and its ability and need to make capital expenditures, as well as continual maintenance and improvements on its offshore exploration, drilling, and production operations. The level of these expenditures is generally dependent upon various factors such as expected commodity prices, of oil and gas, exploration and production costs, of oil and gas, and the level of offshore drilling and production activity. The prevailing view of future oil and gascommodity prices are influenced by numerous factors affecting the supply and demand for oil and gas.demand. These factors include, but are not limited to, worldwide economic activity, interest rates, cost of capital, environmental regulation, tax policies, and production levels and prices set and maintained by producing nations and the Organization of the Petroleum Exporting Countries. Capital expenditures are also dependent on the cost of exploring for and producing oil and gas, the sale and expiration dates of domestic and international offshore leases, the discovery rate of new oil and gas reserves in offshore areas and technological advances. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility.

Our principal customers are major integrated, oil and gas companies, large independent, oil and gas companies, foreign national oil and gasenergy companies as well as subsea equipment manufacturers and subsea equipment installation contractors involved in the offshore exploration, development, and production.production of natural and renewable resources. Offshore drilling contractors, engineering and construction companies, and other companies involved in maritime operations represent a smaller customer base.

We areDeep Down is not dependent on any one customer or group of customers. The numberamount and variety of our products and services required in a given period by a customer dependscan depend upon itsthe customer’s capital expenditure budget as well as the results of competitive bids. Consequently, a customer may account for a material portion of revenues in one period and may represent an immaterial portion of revenues in a subsequent period. While we are not dependent on any one customer or group of customers, the loss of one or more of our significant customers could, at least on a short-term basis, have an adverse effect on the results of our operations.

Marketing and Sales

We market our services and products worldwide through our Houston-based sales force. We periodically advertise in trade and technical publications targeting our customer base. We also participate in industry conferences and trade shows to enhance industry awareness of our products and services. Our customers generally order products and services after consultation with us on their project. Orders are typically completed within two weeks to three months depending on the type of product or service. Larger and more complex products may require four to six months to complete, though we have accepted several longer-term projects, requiring significantly more time to complete. Our customers generally select our products and services based on the quality, reliability and reputation of the product or service, price, timely delivery, and advanced technology. For large production system orders, we engage our project management team to coordinate customer needs with our engineering, manufacturing, and service departments, as well as with our trusted subcontractors and vendors. Our profitability on our projects is dependent on performing accurate and cost-effective bids as well as performing efficiently in accordance with bid specifications. Various factors can adversely affect our performance on individual projects that could potentially adversely affect the profitability of a project.

Backlog

Information regarding our backlog is incorporated herein by reference from the section entitled, “Industry and Executive Outlook” in Part II, Item 7 of this Report.

Product Development and Engineering

The technological demands of the oil and gasenergy industry continue to increase as offshore exploration and drilling operations expand into deeper and more hostile environments. Conditions encountered in these environments could soon include well pressures of up to 20,000 psi, mixed flows of oil and gas under high pressure that may also be highly corrosive, and water depths in excess ofexceeding 10,000 feet. We are continually engaged in product development activities to generate new products and to improve existing products and services to meet our customers’ specific needs. We also focus our activities on reducing the overall cost to the customer, which includes not only the initial capital cost but also ongoing operating costs associated with our products.

We have an established track record of introducing new products and product enhancements. Our product development work is conducted at our facility in Houston, Texas, and in the field. Our application engineering staff also provides engineering services to customers in connection with the design and sales of our products. Our ability to develop new products and maintain technological advantages is important to our future growth and success.

We believe that the success of our business depends more on the technical competence, performance, creativity, and marketing abilities of our employees than on any individual patent, trademark, or copyright. Nevertheless, as part of our ongoing product development and manufacturing activities, our policy is to seek patents when appropriate on inventions concerning new products and product improvements. All patent rights for products developed by employees are assigned to us.

Competition

The principal competitive factors in the petroleumoffshore drilling, development and production, and maritime equipment markets are quality, reliability, and reputation of the product, price, technology, and timely delivery. We face significant competition from other manufacturers of exploration, production, and maritime equipment. Several of our primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources and have a longer history in the manufacturing of these types of equipment.

Employees

At April 15, 2019,March 28, 2022, we had a total of 58 full-time employees.46 employees, all of whom are full-time. We also work with a pool of independent contractors who enable us to scale our operations at short notice, as business needs demand. Our employees are not covered by collective bargaining agreements, and we generally consider our employee relations to be good. Our operations depend in part on our ability to attract a skilled labor force. While we believe that our wage rates are competitive and that our relationship with our skilled labor force is good, a significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force andor increases in the wage rates that we pay, or both.

Governmental Regulations

A significant portion of our business activities are subject to federal, state, local and foreign laws and regulations and similar agencies of foreign governments. The technical requirements of these laws and regulations are becoming increasingly expensive, complex, and stringent.  These regulations are administered by various federal, state, and local health and safety and environmental agencies and authorities, including the Occupational Safety and Health Administration of the U.S. Department of Labor and the U.S. Environmental Protection Agency. From time to time, we are also subject to a wide range of reporting requirements, certifications and compliance as prescribed by various federal and state governmental agencies. Expenditures relating to such regulations are made in the normal course of our business and are neither material nor place us at any competitive disadvantage. We do not currently expect that compliance with such laws will require us to make material additional expenditures.

We are also affected by tax policies and other laws and regulations generally relating to the oil and gas industry, including those specifically directed to offshore operations. Adoption of laws and regulations that curtail exploration and development drilling for oil and gas could adversely affect our operations by limiting demand for our services or products.

Increased concerns about the environment have resulted in offshore drilling in certain areas being opposed by environmental groups, and certain areas have been restricted. To the extent that new or additional environmental protection laws that prohibit or restrict offshore drilling are enacted and result in increased costs to the oil and gas industry in general, our business could be materially affected. In addition, these laws may provide for "strict liability"“strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for the environmental damage without regard to negligence or fault on the part of such party. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Certain environmental laws provide for joint and several liabilities for remediation of spills and releases of hazardous substances. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. Such laws and regulations may also expose us to liability for the conduct of or conditions caused by others, or for our acts that were in compliancecomplied with all applicable laws at the time such acts were performed. Compliance with environmental laws and regulations may require us to obtain permits or other authorizations for certain activities and to comply with various standards or procedural requirements.

We cannot determine to what extent our future operations and earnings may be affected by new legislation, new regulations, or changes in existing regulations. We believe that our facilities are in substantial compliance with current regulatory standards. Based on our experience to date, we do not currently anticipate any material adverse effect on our business or consolidated financial position as a result of future compliance with existing environmental laws and regulations controlling the discharge of materials into the environment. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures which may be material.

Intellectual Property

While we are the holder of various patents, trademarks and licenses relating to our business, we do not consider any individual intellectual property to be material to our business operations.

Not Applicable

None

Our operating facility is located at 18511-81018511 Beaumont Highway, Houston, Texas 77049 (“Highway 90”). Our Highway 90 facility consists of approximately 23 acres of land and includes 255,000 sq. ft. of indoor manufacturing and storage space. We have a 10-yearten year lease on our Highway 90 facility, which commenced in June 2013 at a base rate of $90,000 per month, adjustable based on the CPI, for the remainder of the lease term. Additionally, we lease, on a month-to-month basis, 6,500 square feet of storage space in Mobile, AL to house our 3,400 metric ton and 3,500 metric ton carousel systemsystems for $5,000$11,000 per month.

On December 6, 2021, the Company announced plans to relocate its headquarters in Houston, Texas to further advance the operations and growth of the business. Located at 1310 Rankin Road, Deep Down entered into a commercial lease agreement with Wellbore Integrity Solutions, LLC for the lease of approximately 101,000 square feet of office and warehouse space. The term of the lease is for ten years, with a commencement date of no later than May 5, 2022. Deep Down will primarily use the facility for fabrication of custom engineered products as well as other subsea equipment for both oil and gas and renewable energy applications.

We believe that our current space isthese facilities are suitable, adequate and of sufficient capacity to support our current operations.

From time to time, we may be involved inthe Company is party to various legal proceedings arising in the normalordinary course of business. We expenseThe Company expenses or accrueaccrues legal costs as we incur them. A summary of ourincurred and is involved in only one material legal proceedings is as follows:

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 involves alleged delays and defects in products manufactured by the Company for GE dating back to 2013. The Company disputes GE’s allegations and intends to vigorously defend itself against these allegations. Mediation took place on November 28, 2018, but no resolution was found. On February 22, 2019, GE initiated arbitration proceedings with the ICC. The total amount in dispute was originally $2,630,000 butproceeding as of GE’s latest filing with the ICC, the amount in dispute has been reduced to $2,252,000. The parties are in the process of filing preliminary submissions, and the arbitration date has not yet been set.December 31, 2021.

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 $270,000 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 counter-claimcounter claim on March 20, 2013 in the aggregate amount of $1,000,000 for reimbursement of insurance payments allegedly made for repairs. TrialOn March 9, 2022, the parties convened for mediation but did not reach a resolution on this matter. At this point, it is scheduled fornot clear as to whether an unfavorable outcome is either probable or remote, and the weekCompany is unable to determine the likelihood of April 22, 2019.an unfavorable outcome or the amount or range of potential loss if the outcome should be unfavorable.

None

PART II

Price RangeMarket for Common Stock

Our common stock tradesis quoted on the QB Tier of the OTC Markets Group (OTCQB)(the “OTCQB”) under the symbol OTCQB: DPDW. The following table sets forth, for the quarters ended on the dates indicated below, the high and low bid quotations“DPDW.” Quotations for our common stock as reported byon the OTC Markets.OTCQB represent quotations between dealers without adjustment for retail markup, mark down or commissions, and may not represent actual transactions.

Stockholders of Record

As of April 15, 2019,March 28, 2022, there were 1,102approximately 1,800 stockholders of record of our common stock. All common stock held in street names are recorded in the Company’s stock register as being held by one stockholder.

Dividend Policy

To date, we have not paid any cash dividends and our present policy is to retain earnings for working capital for the growth of our operations.

Issuer Purchases of Equity Securities

On March 26, 2018, the Board of Directors authorized the repurchase of up to $1 million in shares of the Company's common stock. The repurchase program was funded from cash on hand and cash provided by operating activities.

The table below summarizes information about our purchases of common stock, based on trade date, during the quarter ended December 31, 2018:

ISSUER PURCHASES OF EQUITY SECURITIES

Not Applicable

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in our forward-looking 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 and related services. 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.

Industry and Executive Outlook

“Offshore is ready for the limelight again,” read the first line of a recent article describing the optimism expressed by executives from leading deep-water explorers and contractors at the recently held Scotia Howard Weil Energy Conference in New Orleans. The prevailing theme at the conference was a coming revival of the offshore oil and gas industry.

However, while there are a number of indicators of an imminent recovery, our 2018 results bear witness to the longer than expected downturn. We are disappointed by our lowest revenue levels in several years, and the corresponding bottom line results, primarily due to slower initiation of new projects by our customers.

While we are disappointed by our recent results, we are encouraged by our increasing backlog, which now stands at $15 million, most of which is currently planned for 2019. We are especially pleased by orders we have recently received from new customers, both domestic and international. Our efforts to increase the proportion of work we perform directly for operators and end clients have continued to bear fruit, with the majority of our new orders being directly for end users. We continue to expect to be fully operational in one international location this year, subject to final regulatory approval from the local government.

In light of the operating results over the past few years, volatility in commodity prices and strategic focus on our core business going forward, we recorded impairment charges of $2,320,171 related to our construction in progress and certain equipment.

In July 2018, we announced that our Board of Directors had initiated a review of our strategic alternatives to maximize shareholder value, including a potential sale of the Company. The review is ongoing, though at this point there can be no assurance that the exploration of strategic alternatives will result in any transaction or other alternative. We continue to engage with different parties as part of the review and continue to receive valuable feedback on the best alternatives to maximize shareholder value. We have not set a timetable for completion of the process, and do not intend to comment further regarding the process unless a specific transaction or other alternative is approved by the Board of Directors, the process is concluded, or it is otherwise determined that further disclosure is appropriate or required by law.

Looking towards the future, our solutions continue to be in high demand, with increasing opportunities being presented to us. We remain optimistic about the future prospects for the Company, and remain committed to providing the best value for our customers, in the most ideal working environment for our employees, and ultimately maximizing value for our shareholders.

All remaining dollar and share amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars and shares, unless otherwise indicated.

Results of OperationsGeneral

RevenuesDeep Down is a leading energy services company providing equipment and support services to the world’s energy and offshore industries. Deep Down provides innovative solutions to complex customer challenges presented between the production facility and the energy source. Deep Down's core services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, and related services. Additionally, Deep Down's highly experienced team can support subsea engineering, manufacturing, installation, commissioning, and maintenance projects located anywhere in the world.

The 17 percent decrease in revenue is primarily the result of projects with more limited scopes of work in 2018, compared to projects executed in 2017.Industry and Executive Outlook

CostThe energy services industry is dependent on the capital and operating expenditure programs of salesenergy companies. The decision for operators to cut back or accelerate their exploration, drilling, and gross profitproduction operations is substantially driven by the overall condition of the energy industry. Particularly, the oil and gas industry has historically been characterized by fluctuations in commodity prices, which are driven by a variety of market forces.

In March 2020, the energy industry encountered a significant economic disruption caused by the COVID-19 pandemic, which continues to impact markets globally. The low oil price environment caused by the pandemic, when coupled with restricted travel to mitigate against the spread of COVID-19, triggered many exploration and production companies to either significantly reduce, delay, or cancel their operating and capital spending programs. This decline in offshore drilling and production activity resulted in lower contract volumes or delays in significant contracts, which negatively impacted our earnings and cash flows. Oil and gas prices have rebounded to healthier levels since the onset of the pandemic, but future surges in COVID-19 infections or other unforeseen market factors will continue to cause commodity price fluctuations remains and therefore could present an ongoing risk to our earnings and cash flows. Our primary focus since the beginning of this global economic disruption has been to improve our cost structure and manage our cash flows, which will remain a priority as we look toward the future.

During 2021, oil and gas prices progressively rebounded to healthier levels as demand continued to strengthen and travel restrictions continued to ease. As a result, we managed to safely send teams to various international locations. We are cautiously optimistic that the prevalence of vaccines and the downward trend in COVID cases will continue to encourage border controls to be loosened. However, the cautious return to increased activities by our customers has presented margin pressures to us, as evidenced by our reduced gross margins despite increased revenue levels. Aside from pricing pressure from customers, margin compression has also come in the form of low margin pass-through third-party costs on select projects and general price increases due to the inflationary macro environment in which we currently operate.

Our

We have seen an increase in bidding activity and execution of contract awards this year as operators mobilize to complete a backlog of projects, especially in the current favorable oil price environment. The Company received an order at the beginning of the year for the rental of one of our two carousels that are suitable for large umbilical or cable projects. Certain aspects of this project have not been performed before, which further solidifies our reputation as a service provider of choice for unique offshore installation projects. We envisioned that the successful execution of this project will provide further opportunities to utilize our carousels in the future, and our visions turned into reality when we received a contract award for the rental of the second carousel and associated umbilical spooling services in the fourth quarter of 2021. We remain actively engaged in multiple conversations with different customers to discuss additional rental opportunities for our carousels and associated cable management services.

The growth of our business remains a top priority and generating free cash flow and preservation of liquidity remains of critical importance to achieve this desired growth, especially in this current environment. We are keenly focused on the levers within our control, and we are experiencing an increase in requests for short-cycle service work, an area where we have a proven track record. We also believe customers will continue to be heavily focused on efficiency and shorter lead times without sacrificing quality and safety. As such, we are confident our streamlined operations and continued focus on our core strengths will enable us to be the primary choice for our customers.

The initial loan we received under the Paycheck Protection Program (“PPP”) in April 2020 supplemented our cash flows to fund payroll as revenues declined, and our second PPP loan in March 2021 provided a needed buffer to fund working capital while we continue to strengthen our workforce. We have now received confirmation of the forgiveness for both loans, which solidifies our working capital position as we push towards future growth opportunities. One area we have been able to capitalize on has been the workforce reductions at other organizations, which has provided us the opportunity to add high caliber individuals to our team who possess a wealth of industry knowledge and experience.

Looking towards the future, we are actively engaged with a variety of companies on different aspects of the transition to renewable energy with increasing interest in our installation capabilities, equipment, and knowledge of the subsea environment. There are several areas we see as potential growth opportunities, though the timing of these opportunities and associated cash flows is uncertain. As such, we are pursuing different partnerships especially around new technologies as we seek to leverage our core competencies to increase the market potential of our current product and service offerings. We are also working on developing the next generation of our equipment by incorporating designs that utilize a reduced carbon footprint.

We maintain our commitment to ensuring we continuously enhance value for our stockholders, while being an employer of choice in the industry.

Results of Operations

Revenues

The 33 percent increase in revenues was primarily the result of an increase in demand for our subsea equipment, support services, and rental solutions.

Cost of sales and Gross profit

The increase in gross profit was due to higher revenues from increased project activity for the year ended December 31, 2021. The decrease in gross profit percentage decreased primarily due tois driven by increases in labor and lower revenuesmargin passthrough service costs. Additionally, the Company received rent abatements during the year ended December 31, 2018 relative to our fixed cost of sales, and a higher proportion of higher margin service work and equipment rental2020, which were not recurring during the year ended December 31, 2017.2021.

We recordThe Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $1,590$663 and $1,077$830 for the years ended December 31, 20182021 and 2017,2020, respectively. The increasedyear-over-year decrease in depreciation was primarily due to recording depreciation in the prior year for certain idle, long-lived assets before taking an impairment charge on the remaining undepreciated amount during 2018 included $430 related to our determination that certain equipment has no remaining useful life.the second quarter of 2020.

Selling, general and administrative expenses

The decrease in selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2021 was primarily due to cost containment measures introduced in responseincurring a one-time $245 severance charge related to the lower revenueselimination of the Company’s COO position during the year ended December 31, 2018.2020. The Company also incurred lower administrative payroll costs and charges to stock based compensation during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Asset Impairmentimpairment

For the year ended December 31, 2018, we2021, no charges were recorded for the impairment of long-lived assets.

For the year ended December 31, 2020, the Company recorded impairment charges of $1,890 related to our construction in progress.$4,490 for the impairment of certain idle, long-lived assets. The impairment resulted fromwas 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 our operating results over the past few years, volatility in commodity prices,impact of the COVID-19 pandemic and a strategic focus on our core business going forward. We did not record any impairmentresulting global economic disruption.

Interest expense (income), net

Net interest expense for the year ended December 31, 2017.

Interest income,2021 was $12 compared to net

Net interest incomeexpense of $7 for the year ended December 31, 2018 was $35 compared2020. The increase of $5 is due to netan increase of interest income of $56expense on insurance premium financing for the year ended December 31, 2017. 2021.

Other income, net

The decreaseCompany recorded net other income of $21 is due$2,869 during the year ended December 31, 2021, which was primarily related to our reduced cash balance in interest bearing accounts.the forgiveness of its two PPP loans and employee retention credits.

GainLoss on sale of assets

During the yearsyear ended December 31, 2018 and2021, the Company recorded losses of $76 related to equipment sold by the Company. During the year ended December 31, 2017 we2020, the Company did not record any gains or losses related to vehicles and equipment sold old equipment, including Remotely Operated Vehicles (“ROVs”), which resulted in gains on sales of assets of $439 and $576, respectively.by the Company.

Equity in net income of joint ventureModified EBITDA

In 2017, we received $94 as an earnout distribution from our equity in a joint venture. We no longer have an investment in the joint venture.

Modified EBITDA

OurDeep Down management evaluates ourCompany performance based on a non-GAAPnon-US GAAP measure which consists of earnings (net income or loss) available to common shareholdersstockholders before net interest expense or income, income taxes, depreciation and amortization, non-cash share-based compensation expense, equity in net income or loss of joint venture, non-cash impairments, depreciationnon-cash gains or losses on the sale of property, plant and amortization,equipment (“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.companies. 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 consolidated statements of operations.

We believe Modified EBITDA is a useful to investors in evaluating our operating performance because it is widely used to 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 asset impairment);amortization), and actions that do not affect liquidity (share-based compensation expense, equity in net income or loss of joint venture)expense) from our operating results; andresults. 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 lossincome (loss) to Modified EBITDA (loss) for the years ended December 31, 20182021 and 2017 (certain prior year amounts have been excluded to conform to the current year presentation):2020:

The $756 improvement in Modified EBITDA decreased by $2,129was due to an increase in 2018 compared to 2017. Therevenues and decrease in EBITDA was primarily due toSG&A for the increase in net loss during 2018year ended December 31, 2021 as compared to 2017, partially offset by the addback of the impairment charges.year ended December 31, 2020.

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 $7,098 as of December 31, 2021, and potential opportunistic sales of PP&E in addition to pursuing a disciplined approach to making capital investments.

Given the volatility in oil prices and global economic activity caused by COVID-19 in 2020, the Company cannot predict with certainty the future impact 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 alignment, wage reductions, rent abatements, and limiting capital expenditures and R&D efforts to only critical items. The Company continues to seek further opportunities to preserve liquidity, including securing a credit facility.

The Company obtained a $1,111 PPP loan in April 2020 (“April 2020 PPP Loan”). The April 2020 PPP Loan was used to finance covered payroll expenses during the second and third quarters of 2020. The Company applied for forgiveness of the April 2020 PPP Loan in October 2020 and received forgiveness of $1,111 from the SBA on June 29, 2021. The amount of loan forgiveness, including accrued interest, is presented as a component of other income on the consolidated statements of operations for the year ended December 31, 2021.

The Company obtained a second $1,111 PPP loan in March 2021 (“March 2021 PPP Loan”). The March 2021 PPP Loan was used to finance covered payroll expenses during the first and second quarters of 2021. The Company applied for forgiveness of the March 2021 PPP Loan in August 2021 and received forgiveness of $1,111 from the SBA on September 10, 2021. The amount of loan forgiveness, including accrued interest, is presented as a component of other income on the consolidated statement of operations for the year ended December 31, 2021.

The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the fiscal year ended December 31, 2021, the Company reported a decrease of $69 in cash. The Company used $1,067 of net cash from operating activities primarily driven by an increase in accounts receivable and other components of working capital. The Company also used $113 in net cash for investing activities, primarily for purchases of PP&E. The Company generated $1,111 of net cash from financing activities, from PPP loan proceeds.

During the fiscal year ended December 31, 2018, we2020, the Company reported an increase of $222 in cash. The Company used $1,924$206 of ournet cash on hand to fund our operating, investing and financing activities. We used $1,545 in ourfrom operating activities primarily due to decreased customer orders. Wedriven by an increase in accounts receivable and other components of working capital. The Company also used $346$158 in net cash for investing activities, which included $882 inprimarily for purchases of Property, Plant and Equipment (“PP&E”),&E. The Company generated $586 of net cash from financing activities, primarily through $1,111 of PPP loan proceeds, which was partially offset by $538 in proceeds from$525 of share repurchases that occurred prior to the saleonset of equipment,the COVID-19 pandemic and cash receipts from a note receivable. We also used $33 in financing activities, which included $22 for repurchasesreceipt of our outstanding stock and $11 for payments on a motor vehiclethe initial PPP loan.

During the fiscal year ended December 31, 2017, we used $4,264 of our cash on hand to fund our operating, investing and financing activities. We used $762 in our operating activities, primarily due to decreased customer orders. We also used $2,029 in investing activities, which included $2,940 in purchases of PP&E, offset by $908 in proceeds from the sale of equipment, a cash distribution from a former joint venture and cash receipts from a note receivable. The $2,940 in new PP&E included $992 in purchases of equipment used in our traditional lines of business and betterments of existing equipment, $914 in equipment developed and built as part of our sponsorship of Texas A&M’s participation in the Shell XPRIZE competition, and $1,034 in new equipment and technologies, which at the time were projected to be new revenue streams for the Company. We also used $1,473 in financing activities, due to repurchases of our outstanding stock.

Through a combination of our current working capital of $7,026, cash expected to be generated from operations, potential opportunistic sales of PP&E in the future and reduction in our capital investments budget, we believe we will have adequate liquidity to meet our future operating requirements.

Summary of Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in accordance with US GAAP requires us to make estimates and judgments that may affect assets and liabilities. On an on-goingongoing basis, we evaluate our estimates, including those related to revenue recognition and related allowances, contract assets and liabilities, impairments of long-lived assets, including intangibles, income taxes including the valuation allowance for deferred tax assets, 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.

Property, plant and equipment

PP&E is stated at cost, net of accumulated depreciation, amortization, and related impairments. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. Replacements and betterments are capitalized, while maintenance and repairs are expensed as incurred. It is our policy to include amortization expense on assets acquired under finance leases with depreciation expense on owned assets. Additionally, we record depreciation and amortization expense related to revenue-generating assets as a component of cost of sales in the accompanying consolidated statements of operations.

If circumstances associated with our PP&E have changed or a significant event has occurred that may affect the recoverability of the carrying amount of our PP&E, an impairment indicator exists, and we test the PP&E for impairment. Before testing for impairment, we group PP&E with other finite-lived long-lived assets (“long-lived assets”) at the lowest level of identifiable cash flows that are largely independent of cash flows from other assets or groups of assets. Testing long-lived assets for impairment is a two-step process:

Step 1 - We test the long-lived asset group for recoverability by comparing the carrying amount of the asset group with the sum of the undiscounted future cash flows from use and the eventual disposal of the asset group. If the carrying amount of the long-lived asset group is determined to be greater than the sum of the undiscounted future cash flows from use and disposal, we would need to perform step 2.

Step 2 - If the long-lived group of assets fails the recoverability test in step 1, we would record an impairment expense for the difference between the carrying amount and the fair value of the long-lived asset group.

During the year ended December 31, 2021, the Company conducted assessments of whether impairment indicators were present that indicate the carrying amount of its long-lived asset group might not be recoverable and determined that no such events or changes in circumstances were present.

During the year ended December 31, 2020, the Company recorded charges of $4,490 for the impairment of certain idle, long-lived assets, which were evaluated at the asset level. 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.

Revenue Recognition

On January 1, 2018, we adopted ASC Topic 606 (“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605, Revenue Recognition.

There was no significant impact on the Company’s results of operations or financial position upon the adoption of ASC 606. We did not record any adjustments to opening retained earnings as of January 1, 2018 because the Company’s revenue recognition methodologies for both fixed price contracts (over time using cost to cost as an input measure of performance) and for service contracts (over time as services are incurred) do not materially change by the adoption of the new standard.

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 (eveneven if that single project results in the delivery of multiple units).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.

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. Additionally, in otherIn our fixed price contracts, the customer typicallyeither controls the work in process as evidenced either by contractual termination clauses or by ourwe deliver products with no alternative use to the Company and have rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company.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.receipt but have increased to 45 or 60 days depending on the customer.

Contract balances

Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues are recorded based on a percentage-of-completion basisthe 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. As ofFor the years ended December 31, 2018, we had2021 and 2020, there were no contracts whose termwith terms that extended beyond one year.

Allowance for Doubtful Accounts

We provideThe Company provides an allowance for doubtful accountson trade receivables based on a specific review of each customer’s accounts receivable balance with respect to its ability to make payments. When specific accounts are determined to require an allowance, they are expensed by a provision for bad debts in that period.  At December 31, 20182021 and 2017, we2020, the Company estimated the allowance for doubtful accounts requirement to be $10.$525 and $84, respectively.  Bad debt (credit) expense totaled $67$442 and $(22)$238 for the years ended December 31, 20182021 and 2017,2020, respectively.

Income Taxes

We follow the asset and liability method of accounting for income taxes. This method takes into accountconsiders the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

We record a valuation allowance to reduce the carrying value of our deferred tax assets when it is more likely than not that some or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends upon our ability to generate sufficient taxable income of the appropriate character in the future. This requires management to use estimates and make assumptions regarding significant future events such as the taxability of entities operating in the various taxing jurisdictions. In evaluating our ability to recover our deferred tax assets, we consider all reasonably available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions, including the amount of future state, and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment. When the likelihood of the realization of existing deferred tax assets changes, adjustments to the valuation allowance are charged in the period in which the determination is made, either to income or goodwill, depending upon when that portion of the valuation allowance was originally created.

We record an estimated tax liability or tax benefit for income and other taxes based on what we determine will likely be paid in the various tax jurisdictions in which we operate. We use our best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent upon various matters, including resolution of tax audits, and may differ from amounts recorded. An adjustment to the estimated liability would be recorded as a provision or benefit to income tax expense in the period in which it becomes probable that the amount of the actual liability or benefit differs from the recorded amount.

Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. If and when our deferred tax assets are no longer fully reserved, we will begin to provide for taxes at the full statutory rate. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Recent Accounting Pronouncements

Recent Accounting Pronouncements are included in Note 1, “Description of Business and Summary of Significant Accounting Policies and Estimates”, Note 2, “Leases”, and Note 3, “Revenue from Contracts with Customers”, of the Notes to Consolidated Financial Statements included in this Report.

Inflation and Seasonality

We do not believe that our operations are significantly impacted by inflation. Our business is not seasonal in nature.

Not Applicable

The financial statements are included herewith commencing on page F-1.

None

Evaluation of Disclosure Controls and Procedures.  The Company’s disclosure controls and procedures are designed to ensure that such information required to be disclosed by the Company in reports filed or submitted under the Exchange Act as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures are designed to provide such reasonable assurance.

The Company’s management, with the participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2018,2021, 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 December 31, 2018.

2021.

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 December 31, 2018,2021, based on revisions and updates issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to its report 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 December 31, 2018.2021.

Changes in Internal Control Over Financial Reporting.  The Company’s management, with the participation of the principal executive and principal financial officer, have concluded that there were no changes in internal control over financial reporting during the fiscal quarter ended December 31, 2018.2021.

Not Applicable

Not ApplicableApplicable.

PART III

The following table sets forth the names, ages and positions of our directors and executive officersofficer as of December 31, 2018:2021:

_________________________

Biographical information regarding each of our current directors and executive officersofficer is as follows. The following paragraphs also include specific information about each director’s experience, qualifications, attributes, or skills that led the Board of Directors to the conclusion that the individual should serve on the Board as of the time of this filing, in light of our business and structure:

Ronald E. Smith,Charles K. Njuguna, President, Chief Executive Officer, Chief Financial Officer, and Director. Mr. Smith co-founded Deep Down in 1997 andNjuguna has served as ourthe Company’s Chief Executive Officer President and Director since December 2006. PriorSeptember 2019. Since September 2017, Mr. Njuguna has served as the Company’s Chief Financial Officer. Mr. Njuguna joined the Company in early 2012 to December 2006, Mr. Smithmanage the Company’s corporate accounting activities, was Deep Down’s President. Mr. Smith graduated from Texas A&M University with a Bachelor of Science degree in Ocean Engineering in 1981. Mr. Smith worked both onshore and offshore in management positions for Ocean Drilling and Exploration Company (ODECO), Oceaneering Multiflex, Mustang Engineering and Kvaerner before founding Deep Down. Mr. Smith’s interests includelater appointed to manage all types of offshore technology, nautical innovations, state of the art communications, diving technology, hydromechanics, naval architecture, dynamicsCompany’s commercial activities, and was subsequently promoted to Business Manager, with oversight for a wide range of offshore structures, diving technologyfinancial, operational, and marketingadministrative functions. Additionally, Mr. Njuguna has over 20 years of new or innovative concepts. Mr. Smith is directly responsible forinternational business experience, including various operational and financial management roles in Africa, the invention or development of many innovative solutions for the offshore industry, including the first steel tube flying lead installation system. Mr. Smith is also credited for the new patented Loose Steel Tube Flying Leads, subsea deployment systems, new subsea J-platesUK, and the recently patented NHU (Non Helical Umbilical), which is a mobile steel tube umbilical production facility employing a new concept to build Steel Tube Umbilicals.US. Mr. Njuguna holds an MBA from the University of Texas at Austin.

Mr. SmithNjuguna is qualified for serviceto serve as a director based on the Board due to his extensive background in many aspectsin-depth knowledge of the offshore industry, spanning almost three decades. Mr. Smith’s wide range of knowledgeCompany’s operations and experience with the various technologies and platforms in the deepwater industry brings invaluable expertise to our Board.his international business experience.

Mark Carden, Chairman of the Board of Directors. Mr. Carden has served as Chairman of the Board since September 30, 2017, when Mr. Eugene L. Butler resigned as Executive Chairman and Chief Financial Officer.2017. Mr. Carden joined the Board as an independent director effective May 1, 2014 and was appointed Chairman of the Audit Committee of the Board of Directors. Mr. Carden was a Partner at Coopers & Lybrand, LLP, now PricewaterhouseCoopers, LLP and held multiple senior-level financial positions specializing in electric and gas utilities from 1981 to 1999; he most recently served as Chief Operating Officer, Global Energy Assurance Practice. Additionally, Mr. Carden was one of three CPAs in the US selected to serve a two yeartwo-year fellowship at the Financial Accounting Standards Board from 1991 to 1993. Mr. Carden holds a BBA from Texas A&M University. He is currently the Executive Pastor and Elder at Clear Creek Community Church, in League City, Texas.

Mr. Carden is also a member of the Compensation Committee.

Mr. Carden is qualified for service on the Board based on his experience and expertise in management, notably his knowledge of the energy market and business strategy, and is a financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

Charles K. Njuguna, Chief Financial OfficerDavid J. Douglas, Director.

Mr. Njuguna has servedDouglas joined the Board as an independent director effective April 16, 2019. Mr. Douglas is the Principal of Jamaka Capital Management, LLC, the Company’s Chief Financial Officer since September 2017, followinglargest institutional investor. Mr. Butler’s resignation. Mr. Njuguna joined the Company in early 2012 to manage the Company’s corporate accounting activities, was later appointed to manage all of the Company’s commercial activities, and most recently served as Business Manager, with oversight for a wide range of financial, operational and administrative functions. Additionally, Mr. NjugunaDouglas has over 2030 years of international businessinvestment experience as a principal including various operational and financial management roles25 years in Africa, the UK and the US.family office industry. Mr. Njuguna holds an MBA fromDouglas is a graduate of the University of Texas at Austin.Pennsylvania’s Wharton School earning a BS in Economics, Magna Cum Laude. Mr. Douglas is a member of the Audit and Compensation Committees.

Mr. NjugunaDouglas is qualified to serve as an officera director based on his in-depth knowledgesignificant finance and investment experience.

Neal I. Goldman, Director.

Mr. Goldman joined the Board as an independent director effective April 16, 2019. Mr. Goldman is the President and Founder of Goldman Capital Management, Inc., a family office since 2018, which was previously an investment advisory firm founded in 1985. Mr. Goldman is a Chartered Financial Analyst (CFA). Mr. Goldman received his B.A. degree in Economics from The City University of New York (City College). Mr. Goldman is a member of the Company’s operationsAudit and Compensation Committees.

Mr. Goldman is qualified to serve as a director based on his international business experience.significant finance and investment background.

Corporate Governance

Code of Ethics

The Company has adopted Codes of Ethical Conduct that apply to all its directors, officers (including its chief executive officer, chief financialoperating officer, controller and any person performing such functions) and employees. The Company has previously filed copies of these Codes of Ethical Conduct and they can be located pursuant to the information shown in the Exhibit list items 14.1 and 14.2 to this Report. Copies of the Company’s Codes of Ethical Conduct may also be obtained at the Investors section of the Company’s website,www.deepdowninc.com, or by written request addressed to the Corporate Secretary, Deep Down, Inc., PO Box 1389, Crosby, TX.TX 77532. The Company intends to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of its code of ethics that apply to the Chief Executive Officer, Chief Financial OfficerVice President of Finance or Controller by posting such information on the Company’s website. Information contained on the website is not part of this Report.

The Company’s Board of Directors is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results, and effectiveness of the annual audit of the Company's financial statements and other services provided by the Company’s independent public accountants. The Board of Directors reviews the Company's internal accounting controls, practices, and policies. Our Board of Directors has determined that Mr. Carden qualifies as an independent audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than ten percent shareholders also are required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely on the Company’s review of the copies of such forms received by it, the Company believes that all Section 16(a) filing requirements applicable to its officers and directors and greater-than ten percent beneficial owners during the year ended December 31, 20182021 were in compliance.satisfied.

The following table sets forth information concerning total compensation earned in the years ended December 31, 20182021 and 20172020 by our Principal Executive Officer (“PEO”), and our other executive officer as of December 31, 2018 (collectively, our “Named Officers”).

Summary Compensation Tables for the years ended December 31, 20182021 and 20172020

Narrative Disclosure to Summary Compensation Table

On January 1, 2016,September 18, 2019, the Company entered into an employment agreement with Mr. Smith for a term of three years, and subject to automatic annual renewals, unless at least 90 days prior toamended the applicable renewal date, the Company shall give notice that the employment agreement shall not be extended. The term of the agreement has been renewed through December 31, 2019. The employment agreement provides that Mr. Smith receive annual cash compensation of $501,562.

On July 27, 2018, the Company entered into anexisting employment agreement with Mr. Njuguna for a term of three years, effective OctoberSeptember 1, 2017,2019, and subject to automatic annual renewals, unless at least 90 days prior to the applicable renewal date, the Company shall give notice that the employment agreement shall not be extended. The employment agreement provides that Mr. Njuguna receive annual cash compensation of $250,000.$325,000.

On September 12, 2019, the Company entered into an employment agreement with Mr. Simmons for a term of three years effective September 23, 2019. The employment agreement provided that Mr. Simmons receive annual cash compensation of $245,000. On April 1, 2020, the Company eliminated the position of Chief Operating Officer (“COO”) and relieved Mr. Simmons 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, the Company was required to pay Mr. Simmons one time his contractual annual base salary of $245,000, which was paid over 12 months.

Outstanding Equity Awards at December 31, 2018

The following table summarizes nonvested stock awards assuming a market valueinformation with respect to unexercised options for the Named Officer holding options as of $0.85 per share (the closing market price of the Company’s common stock on December 31, 2018). See Note 5, “Share-Based Compensation”, of the Notes to Consolidated Financial Statements included in this Report for additional information.2021.

Benefits payable upon change in control

Both Mr. Smith and Mr. Njuguna’s (the “Executives”) employment agreements containagreement contains provisions related to change in control.

In the event of termination of the Executive’sMr. Njuguna’s employment for any reason, he will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination and all benefits to which the Executivehe is entitled or vested under the terms of all employee benefit and compensation plans, agreements, and arrangements in which the Executivehe is a participant as of the date of termination. In addition, subject to executing a general release in favor of us, the ExecutiveMr. Njuguna will be entitled to receive certain severance payments in the event his employment is terminated by the Company “other than for cause” or by the Executivehim with “good reason.” These severance payments include the following:

(i) a lump sum in cash equal to one times the Executive’shis annual base salary (at the rate in effect on the date of termination), provided, however, that if such termination occurs prior to the date that is twelve months following a change of control, then such payment will be equal to threetwo times the Executive’s annual base salary (at the rate in effect on the date of termination);

(ii) a lump sum in cash equal to the average annual bonus paid to the Executivehim for the prior two full fiscal years preceding the date of termination; provided, however, that if such termination occurs prior to the date that is twelve months following a change of control, then such payment will be equal to two times the average annual bonus paid to the Executivehim for the prior two full fiscal years preceding the date of termination;

(iii) a lump 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 our annual incentive bonus arrangement; provided, however, that such pro rata portion shall be calculated based on the Executive’shis annual bonus for the previous fiscal year; but if no previous annual bonus has been paid to the Executive,him, then the lump sum cash payment for this current pro rata annual bonus obligation shall be no less than fifty percent of the Executive’shis annual base salary; and

(iv) if the Executive’shis 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.

The Executives haveMr. Njuguna has agreed to not, during the term of theirhis employment and for a one-year period after theirhis termination, engage in “Competition” (as defined in his employment agreement) with us, solicit business from any of our customers or potential customers, solicit the employment or services of any person employed by or a consultant to us on the date of termination or within six months prior thereto, or otherwise knowingly interfere with our business or accounts or any of our subsidiaries.

The Executives’Mr. Njuguna’s employment agreementsagreement also provideprovides that we, to the extent permitted by applicable law and our by-laws, will defend, indemnify and hold harmless the Executivehim from any and all claims, demands or causes of action, including reasonable attorneys’ fees and expenses, suffered or incurred by the Executivehim as a result of the assertion or filing of any claim, demand, litigation or other proceedings based upon statements, acts or omissions made by or on behalf of the Executivehim pursuant to the Employment Agreementhis employment agreement or in the course and scope of the Executive’shis employment with us. We will also maintain and pay all applicable premiums for directors’ and officers’ liability insurance which shall provide full coverage for the defense and indemnification of the Executive,Mr. Njuguna, to the fullest extent permitted by applicable law.

Compensation of Directors

The Compensation Committee of the Board of Directors makes all decisions regarding director compensation. Only directors who are not employees, independent contractors, or consultants of the Company or any of its subsidiaries or affiliates (“Independent Directors”), are entitled to receive a fee, plus reimbursement of reasonable out-of-pocket expenses incurred to attend Board meetings.

The Company uses a combination of cash and equity-based compensation, in the form of restricted stock or stock options, to attract and retain qualified candidates to serve on the Board. We believe our compensation arrangement for Independent Directors is comparable to the standards of peer companies within our industry and geographical location.

We pay our Independent Directors meeting fees of $1,500 per meeting attended of the Board of Directors. Compensation for our Independent Directors consists of equity and cash as described below. Our Independent Director, as of the date of this Report, is Mr. Mark Carden.

On October 1, 2016, the Company entered into a 3-year consulting agreement (the “Agreement”), with Ms. Mary L. Budrunas, the spouse of Mr. Smith and a former full-time employee of the Company. Ms. Budrunas retired from being a full-time employee of the Company effective September 30, 2016, but continues to provide services to the Company.

The following table provides certain information with respect to the 20182021 compensation awarded or earned by theour Independent Directors who served in such capacity during the year, and Ms. Budrunas. Ms. Budrunas and Mr. Warner resigned from the Board of Directors on April 5, 2019.

year.

Set forth below is certain information with respect to beneficial ownership of Common Stock as of April 15, 2019,March 28, 2022, except as otherwise noted below, by (i) each person known by us to beneficially own more than 5 percent of the outstanding shares of our common stock; (ii) each Director as of such date; (iii) our “Named Officers” (as determined under Item 402(m) of Regulation S-K); and (iv) all directors and executive officers of Deep Down as a group. To our knowledge, all persons listed in the table have sole voting and investment power with respect to their shares, except to the extent that authority is shared with their respective spouse under applicable law.

______________

* Indicates ownership of less than 1% of Common Stock outstanding.

__________________

Certain Relationships and Related Transactions

Our Board of Directors and management recognize that related person transactions present a heightened risk of conflicts of interest, and therefore we review all relationships and transactions in which we and our directors, director nominees and executive officers or their immediate family members, as well as holders of more than 5 percent of any class of our voting securities and their family members, have a direct or indirect material interest. As required under SEC rules, transactions that are determined to be directly or indirectly material to us or a related person are disclosed in the appropriate annual and/or quarterly statements filed with the SEC.

Director Independence

We believe that Mr.Messrs. Carden, isDouglas, and Goldman are “independent” under the requirements of Rule 303A.02 of the NYSE Listed Company Manual.

The Company’s independent registered public accounting firm is Moss Adams LLP (“Moss Adams”); issuing office is Houston, TX; PCAOB ID: 659. The following table sets forth the aggregate fees paidpayments made to Moss Adams for audit services rendered in connection with the Company’s consolidated financial statements and reports for the years ended December 31, 20182021 and 2017,2020 and for other services rendered during those years on behalf of Deep Down and its subsidiaries:

Audit Fees: Consists of fees billed for professional services rendered for the audit of Deep Down’s consolidated financial statements, the review of interim condensed consolidated financial statements included in quarterly reports, services that are normally provided in connection with statutory and regulatory filings or engagements and attest services, except those not required by statute or regulation.

Audit-Related Fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit and review of Deep Down’s consolidated financial statements and are not reported under "Audit“Audit Fees."”

Tax Fees: Consists of tax compliance, tax preparation and other tax services. Tax compliance and tax preparation consists of fees billed for professional services related to assistance with tax returns. Other tax services consist of fees billed for other miscellaneous tax consulting.

All Other Fees: None.

Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

The Board of Directors pre-approves all audit and permissible non-audit services provided by Moss Adams. These services may include audit services, audit-related services, tax services and other services. The Board of Directors may also pre-approve particular services on a case-by-case basis and may delegate pre-approval authority to one or more directors. If so delegated, the director must report any pre-approval decision to the Board of Directors at its first meeting after the pre-approval was obtained.

PART IV

Information required by this item is incorporated herein by reference from the section entitled “Exhibit Index” of this Report.

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Charles K. Njuguna and Mark Carden and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated:

EXHIBIT INDEX

_________________________

* Filed herewith.

# Furnished herewith.

† Exhibit constitutes a management contract or compensatory plan or arrangement.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

Deep Down, Inc.

Opinion on the Financial Statements

We have audited the accompanyingconsolidated balance sheetssheets ofDeep Down, Inc. and subsidiaries (the “Company”) as ofDecember 31, 20182021 and 2017,2020, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the yearsyears then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20182021 and 2017,2020, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

/s/ Moss Adams LLP

Houston, Texas

April 15, 2019

We have servedThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the Company’s auditor since 2017.critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Determination of Estimated Costs to Complete for Fixed Price Contracts

As described in Note 3 to the consolidated financial statements, total revenue of approximately $6,867,000 for the year ended December 31, 2021 is generated from fixed price contracts. For the Company’s fixed price contracts, 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. The Company uses the cost-to-cost measure of progress for its contracts because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on the 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. Management’s estimation of total cost at completion is subject to many variables and requires significant judgment. There are many factors which impact management’s estimate, including, but not limited to, the ability to properly execute the engineering, design and fabrication phases consistent with customers’ expectations, the availability and costs of labor and materials resources, productivity, weather, and level of success in the installation phase. Each of these factors can affect the accuracy of cost estimates, and ultimately, future profitability.

The principal considerations in our determination that revenue recognition, specifically determination of estimated costs to complete for fixed price contracts, is a critical audit matter are the complexity of these estimates and exercise of significant judgment by management when developing these estimates for fixed price contracts. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the estimates of costs to complete.

The primary procedures we performed to address this critical audit matter included:

and testing management’s ability to reasonably estimate costs to complete for fixed price contracts,

/s/ Moss Adams, LLP

Houston, Texas

March 28, 2022

659

We have served as the Company’s auditor since 2017.

DEEP DOWN, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the consolidated financial statements.

DEEP DOWN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of the consolidated financial statements.

DEEP DOWN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of the consolidated financial statements.

DEEP DOWN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018 and 2017