EXHIBIT 99.1
NEWS RELEASE
| August 20, 2008 | OTC BB: DPDW |
DEEP DOWN ANNOUNCES 96% INCREASE IN REVENUES
HOUSTON, TX – August 20, 2008 – Deep Down, Inc. (OTCBB: DPDW) announced unaudited results on August 15, 2008 for the three months and six months ended June 30, 2008, on Form 10-Q filed with the U.S. Securities and Exchange Commission.
Deep Down generated revenue of $14.2 million for the six months ended June 30, 2008 compared to $7.2 million for the same period last year, an increase of $7.0 million, or 96%. Our acquisitions accounted for $5.1 million of this increase. Mako was included for the entire period and accounted for $2.7 million of the increase. Flotation Technologies was included for two months and accounted for $1.5 million of the increase. ElectroWave was included for six months and accounted for $0.9 million of the increase, but the six month period in 2007 included only three months revenue for ElectroWave since it was acquired in April 2007. Our existing businesses continued to strengthen with increased revenues of $1.9 million, or 29%, over last year’s six month period. Contract revenues were up 25%, and rentals were up 47%. Our offshore market continues to be strong as we continue to expand our customer base.
Deep Down generated revenues of $7.9 million for the three months ended June 30, 2008 compared to $5.1 million for the same period last year, an increase of $2.8 million, or 54%. Our acquisitions represented $3.0 million of the increase in revenue in addition to a slight revenue decrease in the core business of $0.2 million. This slight decrease in revenue was a result of certain customers delaying scheduled projects.
Gross margin for the six months ended June 30, 2008 was $4.8 million compared to $2.7 million in the same prior year period, an increase of $2.1 million, or 79%. $1.4 million of the increase is attributable to the inclusion of the acquisitions in this period. The overall gross margin was 34 % for the first six months of 2008 as compared to 37% for the same period last year. The gross margin is slightly lower due to an increase in personnel.
SG&A for the six months ended June 30, 2008, was $5.4 million compared to $1.8 million for the same period last year, an increase of $3.6 million, or 209%. The acquisitions of Mako and Flotation represented $1.5 million of the increase. Bad debt expense increased by $0.8 million due to the write-off of two accounts, one of which filed for bankruptcy protection during the quarter ($0.2 million of the total bad debt is included in the Mako subsidiary). Personnel and related costs increased by $1.0 million primarily due to an expansion of our businesses, combined with the related costs of administering a public company and complying with reporting requirements. Additionally, we paid approximately $0.7 million in professional, accounting, and legal fees to support our various initiatives during the six months ended June 30, 2008, including the filing of a registration statement, acquisitions and reporting requirements. Stock based compensation related to employee stock options and restricted stock was approximately $0.3 million in the current fiscal year compared to approximately $40,000 for the comparable prior year period.
Operating loss for the six months ended June 30, 2008, was $1.5 million compared to operating income of $0.8 million for the same prior year period. Net loss for the six months ended June 30, 2008, was $5.0 million compared to net income of $0.8 million for the same prior period. Income was impacted by one-time interest expense and loss on debt extinguishment expenses totaling $2.6 million related to the early payoff of our secured credit agreement (the “Credit Agreement”). Earnings before interest, taxes, depreciation, amortization and other non-cash charges (“EBITDA”) for the six months ended June 30, 2008, was $0.5 million, compared to $1.0 million, a decrease of $0.5 million over the same prior year period.
Interest expense for the six months ended June 30, 2008, was $3.5 million compared to $1.5 million for the same prior year period. In connection with the early payoff of the Credit Agreement, Deep Down accelerated the remaining deferred financing costs totaling $0.7 million and recorded this charge to interest expense. Additionally, $1.5 million in debt discounts were accelerated and recorded to interest expense, along with early termination fees of approximately $0.5 million. Deep Down paid cash interest related to the Credit Agreement totaling $0.8 million for the six months ended June 30, 2008. For the comparable period last year, $1.4 million of the total interest was related to accretion on the redemption of Series G and Series E Preferred Stock.
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“I am pleased to report this quarter that Deep Down continues to improve its financial position. The Company is now essentially debt free and has retired all of its remaining preferred shares. Liquidity is strong with unrestricted cash and equivalents of $4.1 million and a current ratio of 3.8. Our working capital position is $10.8 million. Stockholders’ equity has improved dramatically and is now $52.9 million compared to $12.6 million on December 31, 2007. We remain excited and optimistic about the prospects for continued revenue growth and a return to profitability,” commented Robert E. Chamberlain, Jr., Deep Down’s Chairman.
About Deep Down, Inc.
Deep Down specializes in the provision of innovative solutions, installation management, engineering services, support services, custom fabrication and storage management services for the offshore subsea control, umbilical, and pipeline industries. The company fabricates component parts of subsea distribution systems and assemblies that specialize in the development of subsea fields and tie backs. These items include umbilicals, flow lines, distribution systems, pipeline terminations, controls, winches, and launch and retrieval systems, among others. Deep Down provides these services from the initial field conception phase, through manufacturing, site integration testing, installation, topside connections, and the final commissioning of a project.
The Company’s ElectroWave subsidiary offers products and services in the fields of electronic monitoring and control systems for the energy, military, and commercial business sectors. ElectroWave designs, manufactures, installs, and commissions integrated PLC and SCADA based instrumentation and control systems, including ballast control and monitoring, drilling instrumentation, vessel management systems, marine advisory systems, machinery plant control and monitoring systems, and closed circuit television systems.
The Company’s Mako subsidiary serves the growing offshore petroleum and marine industries with technical support services, and products vital to offshore petroleum production, through rentals of its remotely operated vehicles (ROV), topside and subsea equipment, and diving support systems used in diving operations, maintenance and repair operations, offshore construction, and environmental/marine surveys.
Flotation engineers, designs and manufactures deepwater buoyancy systems using high-strength FlotecTM syntactic foam and polyurethane elastomers. Flotation’s product offerings include distributed buoyancy for flexible pipes and umbilicals, drilling riser buoyance modules, CoreTecTM drilling riser buoyancy modules, ROVitsTM buoyancy, Hydro-Float mooring buoys, StablemoorTM low-drag ADCP deployment solution, Quick-Loc™ cable floats, HardballTM umbilical floats, Flotec™ cable and pipeline protection, InflexTM polymer bend restrictors, and installation buoyancy of any size and depth rating.
The Company’s strategy is to become a leading provider of products and services to the offshore industry, including shallow, deep, and ultra-deep water applications in oil and gas exploration, development and production activities, and maritime operations. Management plans to achieve this strategy through organic growth and strategic acquisitions of complementary businesses with technological advantages in deepwater environments. For further company information, please visit www.deepdowninc.com, www.electrowaveusa.com, www.makotechnologies.com and www.flotec.com.
One of our most important responsibilities is to communicate with shareholders in an open and direct manner. Comments are based on current management expectations, and are considered "forward-looking statements," generally preceded by words such as "plans," "expects," "believes," "anticipates," or "intends." We cannot promise future returns. Our statements reflect our best judgment at the time they are issued, and we disclaim any obligation to update or alter forward-looking statements as the result of new information or future events. Deep Down urges investors to review the risks and uncertainties contained within its filings with the Securities and Exchange Commission.
For Further Information
Steven Haag, Investor Relations
ir@deepdowninc.com
281-862-2201 (O)
281-862-2522 (F)
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DEEP DOWN, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2008 | December 31, 2007 | |||||||
| ASSETS | ||||||||
| Cash and equivalents | $ | 4,085,543 | $ | 2,206,220 | ||||
| Restricted cash | - | 375,000 | ||||||
| Accounts receivable, net of allowance of $818,992 and $139,787 respectively | 8,614,961 | 7,190,466 | ||||||
| Prepaid expenses and other current assets | 710,213 | 312,058 | ||||||
| Inventory | 179,343 | 502,253 | ||||||
| Lease receivable, short-term | 414,000 | 414,000 | ||||||
| Work in progress | 681,790 | 945,612 | ||||||
| Receivable from Prospect, net | - | 2,687,333 | ||||||
| Total current assets | 14,685,850 | 14,632,942 | ||||||
| Property and equipment, net | 10,651,053 | 5,172,804 | ||||||
| Other assets, net of accumulated amortization of $0 and $54,560 respectively | 550,819 | 1,109,152 | ||||||
| Lease receivable, long-term | 500 | 173,000 | ||||||
| Intangibles, net | 18,745,713 | 4,369,647 | ||||||
| Goodwill | 13,001,556 | 10,594,144 | ||||||
| Total assets | $ | 57,635,491 | $ | 36,051,689 | ||||
| LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
| Accounts payable and accrued liabilities | $ | 3,070,105 | $ | 3,569,826 | ||||
| Deferred revenue | 725,521 | 188,030 | ||||||
| Payable to Mako shareholders | - | 3,205,667 | ||||||
| Current portion of long-term debt | 47,477 | 995,177 | ||||||
| Total current liabilities | 3,843,103 | 7,958,700 | ||||||
| Long-term debt, net of accumulated discount of $0 and $1,703,258 respectively | 919,381 | 10,698,818 | ||||||
Series E redeemable exchangeable preferred stock, par value $0.01, face value and liquidation preference of $1,000 per share, no dividend preference, authorized 10,000,000 aggregate shares of all series of preferred stock, -0- and 500 issued and outstanding, respectively | - | 386,411 | ||||||
| Total liabilities | 4,762,484 | 19,043,929 | ||||||
| Temporary equity: | ||||||||
Series D redeemable convertible preferred stock, $0.01 par value, face value and liquidation preference of $1,000 per share, no dividend preference, authorized 10,000,000 aggregate shares of all series of preferred stock, -0- and 5,000 issued and outstanding, respectively | - | 4,419,244 | ||||||
| Total temporary equity | - | 4,419,244 | ||||||
| Stockholders' equity: | ||||||||
Common stock, $0.001 par value, 490,000,000 shares authorized, 174,732,501 and 85,976,526 shares issued and outstanding, respectively | 174,733 | 85,977 | ||||||
| Paid-in capital | 60,000,402 | 14,849,847 | ||||||
| Accumulated deficit | (7,302,128 | ) | (2,347,308 | ) | ||||
| Total stockholders' equity | 52,873,007 | 12,588,516 | ||||||
| Total liabilities and stockholders' equity | $ | 57,635,491 | $ | 36,051,689 | ||||
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DEEP DOWN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Revenues | ||||||||||||||||
| Contract revenue | $ | 5,670,385 | $ | 4,508,635 | $ | 11,007,914 | $ | 6,110,916 | ||||||||
| Rental revenue | 2,249,811 | 636,153 | 3,191,747 | 1,132,266 | ||||||||||||
| Total revenues | 7,920,196 | 5,144,788 | 14,199,661 | 7,243,182 | ||||||||||||
| Cost of sales | 5,496,427 | 3,293,313 | 9,372,798 | 4,545,402 | ||||||||||||
| Gross profit | 2,423,769 | 1,851,475 | 4,826,863 | 2,697,780 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general & administrative | 3,681,643 | 1,103,902 | 5,443,890 | 1,763,622 | ||||||||||||
| Depreciation and amortization | 543,128 | 90,196 | 841,277 | 154,221 | ||||||||||||
| Total operating expenses | 4,224,771 | 1,194,098 | 6,285,167 | 1,917,843 | ||||||||||||
| Operating income (loss) | (1,801,002 | ) | 657,377 | (1,458,304 | ) | 779,937 | ||||||||||
| Other income (expense): | ||||||||||||||||
| Gain (loss) on debt extinguishment | (446,412 | ) | 2,000,000 | (446,412 | ) | 2,000,000 | ||||||||||
| Interest income | 27,346 | 16,290 | 66,510 | 16,290 | ||||||||||||
| Interest expense | (2,690,534 | ) | (1,276,770 | ) | (3,459,564 | ) | (1,508,657 | ) | ||||||||
| Other expense | (39,771 | ) | - | (11,416 | ) | - | ||||||||||
| Total other income (expense) | (3,149,371 | ) | 739,520 | (3,850,882 | ) | 507,633 | ||||||||||
| Income (loss) before income taxes | (4,950,373 | ) | 1,396,897 | (5,309,186 | ) | 1,287,570 | ||||||||||
| Benefit from (provision for) income taxes | 85,000 | (447,363 | ) | 354,366 | (447,363 | ) | ||||||||||
| Net income (loss) | $ | (4,865,373 | ) | $ | 949,534 | $ | (4,954,820 | ) | $ | 840,207 | ||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | (0.04 | ) | $ | 0.01 | $ | (0.05 | ) | $ | 0.01 | ||||||
| Weighted-average common shares outstanding | 132,666,860 | 67,870,171 | 109,326,053 | 74,417,132 | ||||||||||||
| Diluted | $ | (0.04 | ) | $ | 0.01 | $ | (0.05 | ) | $ | 0.01 | ||||||
| Weighted-average common shares outstanding | 132,666,860 | 93,799,839 | 109,326,053 | 100,315,405 | ||||||||||||
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DEEP DOWN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Six Months Ended June 30, 2008 | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2007 | 85,976,532 | $ | 85,977 | $ | 14,849,847 | $ | (2,347,308 | ) | $ | 12,588,516 | ||||||||||
| Net loss | - | - | - | (4,954,820 | ) | (4,954,820 | ) | |||||||||||||
| Exchange of Series D preferred stock | 25,866,518 | 25,867 | 4,393,377 | 4,419,244 | ||||||||||||||||
| Stock issued for acquisition of Mako | 2,802,969 | 2,803 | 1,959,275 | 1,962,078 | ||||||||||||||||
| Stock issued for acquisition of Flotation | 1,714,286 | 1,714 | 1,421,143 | 1,422,857 | ||||||||||||||||
| Warrants issued for acquisition of Flotation | - | 121,793 | 121,793 | |||||||||||||||||
| Restricted stock issued | 1,200,000 | 1,200 | (1,200 | ) | - | |||||||||||||||
| Stock issued in private placement | 57,142,857 | 57,143 | 37,002,527 | 37,059,670 | ||||||||||||||||
| Cashless exercise of stock options | 29,339 | 29 | (29 | ) | 0 | |||||||||||||||
| Warrant exercises | - | - | - | - | ||||||||||||||||
| Stock based compensation | - | - | 253,669 | 253,669 | ||||||||||||||||
| Balance at June 30, 2008 | 174,732,501 | $ | 174,733 | $ | 60,000,402 | $ | (7,302,128 | ) | $ | 52,873,007 | ||||||||||
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DEEP DOWN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended June 30, | ||||||||
| 2008 | 2007 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (4,954,820 | ) | $ | 840,208 | |||
| Adjustments to reconcile net income to net cash | ||||||||
| used in operating activities: | ||||||||
| Gain on extinguishment of debt | - | (2,000,000 | ) | |||||
| Interest income | (30,467 | ) | (16,290 | ) | ||||
| Amortization of debt discount | 1,816,847 | 1,391,506 | ||||||
| Amortization of deferred financing costs | 762,700 | - | ||||||
| Share-based compensation | 253,669 | 39,565 | ||||||
| Bad debt expense | 832,328 | - | ||||||
| Depreciation and amortization | 898,998 | 154,221 | ||||||
| Loss on disposal of equipment | 9,136 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Lease receivable | - | (750,000 | ) | |||||
| Accounts receivable | (254,958 | ) | (531,356 | ) | ||||
| Prepaid expenses and other current assets | (586,618 | ) | 1,655 | |||||
| Inventory | (179,343 | ) | (472,253 | ) | ||||
| Work in progress | 1,135,005 | (119,552 | ) | |||||
| Accounts payable and accrued liabilities | (1,601,586 | ) | 1,808,987 | |||||
| Deferred revenue | 537,491 | 80,628 | ||||||
| Net cash provided by operating activities | $ | (1,361,618 | ) | $ | 427,319 | |||
| Cash flows from investing activities: | ||||||||
| Cash paid for acquisition of Flotation | (22,116,140 | ) | - | |||||
| Cash paid for acquisition of Mako | (1,319,967 | ) | - | |||||
| Cash paid for third party debt | - | (432,475 | ) | |||||
| Cash received from sale of ElectroWave receivables | - | 261,068 | ||||||
| Cash deficit acquired an acquisition of a business | - | (18,974 | ) | |||||
| Purchases of equipment | (687,060 | ) | (442,788 | ) | ||||
| Restricted cash | 375,000 | - | ||||||
| Net cash used in investing activities | $ | (23,748,167 | ) | $ | (633,169 | ) | ||
| Cash flows from financing activities: | ||||||||
| Payment for cancellation of common stock | - | (250,000 | ) | |||||
| Redemption of preferred stock | - | (250,000 | ) | |||||
| Proceeds from sale of common stock, net of expenses | 37,059,670 | 960,000 | ||||||
| Proceeds from long term debt | 2,687,333 | - | ||||||
| Proceeds from sales-type lease | 172,500 | 69,000 | ||||||
| Borrowings on debt - related party | - | 150,000 | ||||||
| Payments of long-term debt | (12,930,395 | ) | (222,307 | ) | ||||
| Net cash provided by (used in) financing activities | $ | 26,989,108 | $ | 456,693 | ||||
| Change in cash and equivalents | 1,879,323 | 250,843 | ||||||
| Cash and equivalents, beginning of period | 2,206,220 | 12,462 | ||||||
| Cash and equivalents, end of period | $ | 4,085,543 | $ | 263,305 | ||||
| Supplemental schedule of noncash investing | ||||||||
| and financing activities: | ||||||||
| Acquisition of a business | $ | - | $ | (190,381 | ) | |||
| Exchange of receivables for acquisition of a business | $ | - | $ | 171,407 | ||||
| Warrants issued for acquisition of Flotation | $ | 121,793 | $ | - | ||||
| Stock issued for acquisition of Flotation | $ | 1,422,857 | $ | - | ||||
| Stock issued for acquisition of Mako | $ | 1,962,078 | $ | - | ||||
| Fixed assets purchased with capital lease | $ | - | $ | 525,000 | ||||
| Fixed assets transferred from Inventory | $ | 502,253 | $ | - | ||||
| Exchange of Series D preferred stock | $ | 4,419,244 | ||||||
| Exchange of Series E preferred stock | $ | - | $ | 3,366,778 | ||||
| Redemption of Series E preferred stock | $ | - | $ | 2,000,000 | ||||
| Exchange of Series E preferred stock for subordinated debenture | $ | 500,000 | $ | - | ||||
| Common shares issued as restricted stock | $ | 1,200 | $ | - | ||||
| Supplemental Disclosures: | ||||||||
| Cash paid for interest | $ | 880,017 | $ | 117,151 | ||||
| Cash paid for pre-payment penalties | $ | 446,413 | $ | - | ||||
| Cash paid for taxes | $ | 275,000 | $ | - | ||||
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