Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2021 | May 10, 2021 | |
Cover [Abstract] | ||
Entity Registrant Name | Deep Down, Inc. | |
Entity Central Index Key | 0001110607 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2021 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth | false | |
Entity Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation State Country Code | NV | |
Entity File Number | 000-30351 | |
Entity Common Stock, Shares Outstanding | 12,388,865 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2021 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands | Mar. 31, 2021 | Dec. 31, 2020 |
Current assets: | ||
Cash | $ 4,654 | $ 3,745 |
Accounts receivable, net of allowance of $84 and $84, respectively | 5,216 | 4,650 |
Inventory | 187 | 187 |
Contract assets | 214 | 189 |
Prepaid expenses and other current assets | 96 | 151 |
Total current assets | 10,367 | 8,922 |
Property, plant and equipment, net | 2,368 | 2,604 |
Intangibles, net | 42 | 44 |
Right-of-use operating lease assets | 2,805 | 3,174 |
Other assets | 355 | 195 |
Total assets | 15,937 | 14,939 |
Current liabilities: | ||
Accounts payable and accrued expenses | 2,116 | 1,988 |
Contract liabilities | 690 | 730 |
Current portion of PPP loan payable | 1,049 | 863 |
Current lease liabilities | 1,275 | 1,261 |
Total current liabilities | 5,130 | 4,842 |
PPP loan payable | 1,173 | 248 |
Operating lease liability, long-term | 1,568 | 1,951 |
Total liabilities | 7,871 | 7,041 |
Commitments and contingencies (Note 8) | ||
Stockholders' equity: | ||
Common stock, $0.001 par value, 24,500,000 shares authorized and 15,906,010 issued | 16 | 16 |
Additional paid-in capital | 73,658 | 73,638 |
Treasury stock, 3,367,145 shares, at cost | (2,809) | (2,809) |
Accumulated deficit | (62,799) | (62,947) |
Total stockholders' equity | 8,066 | 7,898 |
Total liabilities and stockholders' equity | $ 15,937 | $ 14,939 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Mar. 31, 2021 | Dec. 31, 2020 |
ASSETS | ||
Accounts receivable allowance | $ 84 | $ 84 |
Stockholders' equity: | ||
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 24,500,000 | 24,500,000 |
Common stock outstanding | 15,906,010 | 15,906,010 |
Common stock issued | 15,906,010 | 15,906,010 |
Treasury stock shares | 3,367,145 | 3,367,145 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Income Statement [Abstract] | ||
Revenues | $ 3,922 | $ 3,605 |
Cost of sales: | ||
Cost of sales | 2,011 | 2,241 |
Depreciation expense | 183 | 241 |
Total cost of sales | 2,194 | 2,482 |
Gross profit | 1,728 | 1,123 |
Operating expenses: | ||
Selling, general and administrative | 1,535 | 1,693 |
Depreciation and amortization | 77 | 61 |
Total operating expenses | 1,612 | 1,754 |
Operating income (loss) | 116 | (631) |
Other (income) expense: | ||
Interest expense, net | 13 | 1 |
Gain on sale of property, plant and equipment | (49) | 0 |
Total other (income) expense | (36) | 1 |
Income (loss) before income tax expense | 152 | (632) |
Income tax expense | 4 | 5 |
Net income (loss) | $ 148 | $ (637) |
Net income (loss) per share: | ||
Basic | $ 0.01 | $ (0.05) |
Fully diluted | $ 0.01 | $ (0.05) |
Weighted-average shares outstanding: | ||
Basic | 12,389 | 12,710 |
Fully diluted | 12,432 | 12,710 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) shares in Thousands, $ in Thousands | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Total |
Beginning Balance, Shares at Dec. 31, 2019 | 15,906 | ||||
Beginning Balance, Amount at Dec. 31, 2019 | $ 16 | $ 73,521 | $ (2,284) | $ (56,890) | $ 14,363 |
Net income (loss) | (637) | (637) | |||
Treasury shares purchased | (524) | (524) | |||
Share-based compensation | 50 | 50 | |||
Ending Balance, Shares at Mar. 31, 2020 | 15,906 | ||||
Ending Balance, Amount at Mar. 31, 2020 | $ 16 | 73,571 | (2,808) | (57,527) | 13,252 |
Beginning Balance, Shares at Dec. 31, 2020 | 15,756 | ||||
Beginning Balance, Amount at Dec. 31, 2020 | $ 16 | 73,638 | (2,809) | (62,947) | 7,898 |
Net income (loss) | 148 | 148 | |||
Share-based compensation | 20 | 20 | |||
Ending Balance, Shares at Mar. 31, 2021 | 15,756 | ||||
Ending Balance, Amount at Mar. 31, 2021 | $ 16 | $ 73,658 | $ (2,809) | $ (62,799) | $ 8,066 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Cash flows from operating activities: | ||
Net income (loss) | $ 148 | $ (637) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Share-based compensation | 20 | 50 |
Depreciation and amortization | 260 | 302 |
Gain on sale of property, plant and equipment | (49) | 0 |
Non-cash lease expense | 2 | 5 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (567) | (181) |
Contract assets | (25) | 270 |
Prepaid expenses and other current assets | 52 | 32 |
Other assets | (124) | (94) |
Accounts payable and accrued expenses | 127 | 67 |
Contract liabilities | (40) | 277 |
Net cash (used in) provided by operating activities | (196) | 91 |
Cash flows from investing activities: | ||
Proceeds from sale of property, plant and equipment | 50 | 0 |
Purchases of property, plant and equipment | (60) | (61) |
Payments received on note receivable (included in Prepaid expenses and other current assets) | 4 | 4 |
Net cash used in investing activities | (6) | (57) |
Cash flows from financing activities: | ||
Proceeds from PPP loan | 1,111 | 0 |
Repurchase of common shares | 0 | (524) |
Net cash provided by (used in) financing activities | 1,111 | (524) |
Change in cash | 909 | (490) |
Cash, beginning of period | 3,745 | 3,523 |
Cash, end of period | $ 4,654 | $ 3,033 |
1. BASIS OF PRESENTATION
1. BASIS OF PRESENTATION | 3 Months Ended |
Mar. 31, 2021 | |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION | NOTE 1: BASIS OF PRESENTATION Basis of Presentation 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 (“Deep Down Nevada”), and its directly wholly owned subsidiary, Deep Down, Inc., a Delaware corporation (“Deep Down Delaware”). The accompanying unaudited condensed consolidated financial statements of Deep Down, Inc. were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the “Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those rules, certain notes or other financial information that are normally required by United States generally accepted accounting principles (“US GAAP”) can be condensed or omitted. Therefore, these statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2020. Preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, then the actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Liquidity The Company’s cash on hand was $4,654 and working capital was $5,237 as of March 31, 2021. As of December 31, 2020, cash on hand and working capital was $3,745 and $4,080, respectively. Other than loans obtained under the Paycheck Protection Program (“PPP”), the Company does not have a credit facility in place and depends on cash on hand, cash flows from operations, and the potential opportunistic sales of property, plant and equipment (“PP&E”). See Note 11 for further discussion of the PPP loans. 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, cash received from a second PPP loan, and potential opportunistic sales of PP&E in addition to pursuing a disciplined approach to making capital investments. However, given the abrupt decline in oil prices and global economic activity caused by COVID-19 in 2020, the Company cannot predict this with certainty. To mitigate this uncertainty and preserve liquidity, the Company will continue to pursue opportunistic cost containment initiatives, which can include workforce reductions, limiting overhead spending and research and development efforts to only critical items, and actively pursuing further cost reduction opportunities as they become available. Principles of Consolidation The unaudited condensed consolidated financial statements presented herein include the accounts of Deep Down, Inc. and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated. Segments For the three months ended March 31, 2021 and 2020, we had one operating and reporting segment, Deep Down Delaware. |
2. LEASES
2. LEASES | 3 Months Ended |
Mar. 31, 2021 | |
Leases [Abstract] | |
LEASES | NOTE 2: LEASES In February 2016, the FASB issued ASU 2016-02, Leases (“ASC Topic 842”). Under this guidance, lessees are required to recognize on the balance sheet a lease liability and a right-of-use (“ROU”) asset for all leases, except for short-term leases with terms of twelve months or less. The lease liability represents the lessee’s obligation to make lease payments arising from a lease and is initially measured as the present value of the lease payments. The ROU asset represents the lessee’s right to use a specified asset for the lease term, and is measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. ASC Topic 842 provides for certain practical expedients when adopting the guidance. The Company elected the package of practical expedients allowing the Company, for all leases that commenced prior to the adoption date, to not reassess whether any expired or existing contracts are, or contain, leases, the lease classification for any expired or existing leases, or initial direct costs for any expired or existing leases. The Company utilizes the land easements practical expedient allowing the Company to not assess whether any expired or existing land easements are, or contain, leases if they were not previously accounted for as leases under the existing leasing guidance. Instead, the Company will continue to apply its existing accounting policies to historical land easements. The Company elects to apply the short-term lease exception; therefore, the Company will not record an ROU asset or corresponding lease liability for leases with an initial term of twelve months or less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The Company elects to apply the practical expedient to not separate lease components from non-lease components and instead account for both as a single lease component for all asset classes. The Company elects to not capitalize any lease in which the estimated value of the underlying asset at the commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and a portion is recorded in cost of sales, and the remainder is recorded in selling, general and administrative expenses. The accounting for some leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rate to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options. As of March 31, 2021, we do not have any finance lease assets or liabilities, nor do we have any subleases. The following tables present information about our operating leases: March 31, 2021 December 31, 2020 Assets: Right-of-use assets $ 2,805 $ 3,174 Liabilities: Current lease liabilities 1,275 1,261 Non-current lease liabilities 1,568 1,951 Total lease liabilities $ 2,843 $ 3,212 The components of our lease expense were as follows: Three Months Ended March 31, 2021 2020 Operating lease expense included in cost of sales $ 317 $ 308 Operating lease expense included in selling, general and administrative 73 60 Short term lease expense 45 34 Total lease expense $ 435 $ 402 Lease term and discount rate: March 31, 2021 December 31, 2020 Weighted-average remaining lease terms on operating leases (yrs.) 2.21 2.43 Weighted-average discount rates on operating leases 5.374% 5.374% During the three months ended March 31, 2021, the Company did not have any sale/leaseback transactions. Present value of lease liabilities: Operating Leases April 1, 2021 - March 31, 2022 $ 1,392 April 1, 2022 - March 31, 2023 1,361 April 1, 2023 - March 31, 2024 245 April 1, 2024 - March 31, 2025 8 Thereafter 3 Total lease payments $ 3,009 Less: Interest (166 ) Present value of lease liabilities $ 2,843 |
3. REVENUE FROM CONTRACTS WITH
3. REVENUE FROM CONTRACTS WITH CUSTOMERS | 3 Months Ended |
Mar. 31, 2021 | |
Revenue from Contract with Customer [Abstract] | |
REVENUE FROM CONTRACTS WITH CUSTOMERS | NOTE 3: REVENUE FROM CONTRACTS WITH CUSTOMERS Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. To determine the proper revenue recognition method for our customer contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our fixed price contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability even if that single project results in the delivery of multiple units. Hence, the entire contract is accounted for as one performance obligation. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Disaggregation of Revenue The following table presents the Company’s revenues disaggregated by fixed price and service contracts. Sales taxes are excluded from revenues. Three Months Ended March 31, 2021 2020 Fixed Price Contracts $ 1,294 $ 1,744 Service Contracts 2,628 1,861 Total $ 3,922 $ 3,605 Fixed price contracts For fixed price contracts, we generally recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. In our fixed price contracts, the customer either controls the work in process or we deliver products with no alternative use to the Company and have rights to payment for work performed to date plus a reasonable profit as evidenced by contractual termination clauses. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. We have a company-wide standard and disciplined quarterly estimate at completion process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. When estimates of total costs to be incurred exceed total estimates of revenue to be earned on a performance obligation related to fixed price contracts, a provision for the entire loss on the performance obligation is recognized in the period the loss is estimated. Service Contracts We recognize revenue for service contracts measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically, we recognize revenue as the services are provided as we have the right to invoice the customer for the services performed. Services are invoiced and are payable on a monthly basis. Payment terms for services are usually 30 days from invoice receipt. Contract balances Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues are recorded based on the extent of progress towards completion but cannot be invoiced under the terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have not yet been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are not shown as complete until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer. Assets related to costs and estimated earnings in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings on uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year; thus, complete collection of amounts related to these contracts may extend beyond one year though such long-term contracts include contractual milestone billings as discussed above. At March 31, 2021 and December 31, 2020, there were no contracts with terms that extended beyond one year. The following table summarizes our contract assets, which are “Costs and estimated earnings in excess of billings on uncompleted contracts” and our contract liabilities, which are “Billings in excess of costs and estimated earnings on uncompleted contracts”. March 31, 2021 December 31, 2020 Costs incurred on uncompleted contracts $ 2,072 $ 2,098 Estimated earnings on uncompleted contracts 3,155 3,153 5,227 5,251 Less: Billings to date on uncompleted contracts (5,703 ) (5,792 ) $ (476 ) $ (541 ) Included in the accompanying unaudited condensed consolidated balance sheets under the following captions: Contract assets $ 214 $ 189 Contract liabilities (690 ) (730 ) $ (476 ) $ (541 ) The contract asset and liability balances at March 31, 2021 and December 31, 2020 consisted primarily of revenue related to fixed-price projects. Remaining Performance Obligations Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options, potential orders, and any remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be considered a contract with a customer pursuant to the requirements of ASC 606. Practical Expedients and Exemptions We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Many of our services contracts are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service is expected to be one year or less. Further, in many of our service contracts, we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient in ASC 606-10-55-18, which allows us to recognize revenue in the amount for which we have the right to invoice. Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. |
4. PROPERTY, PLANT AND EQUIPMEN
4. PROPERTY, PLANT AND EQUIPMENT | 3 Months Ended |
Mar. 31, 2021 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY, PLANT AND EQUIPMENT | NOTE 4: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: Range of March 31, 2021 December 31, 2020 Asset Lives Buildings and improvements $ 285 $ 285 7 - 36 years Leasehold improvements 906 906 2 - 5 years Equipment 12,380 12,343 2 - 30 years Furniture, computers and office equipment 907 907 2 - 8 years Construction in progress 50 84 - Total property, plant and equipment 14,528 14,525 Less: Accumulated depreciation and amortization (12,160 ) (11,921 ) Property, plant and equipment, net $ 2,368 $ 2,604 |
5. SHARE-BASED COMPENSATION
5. SHARE-BASED COMPENSATION | 3 Months Ended |
Mar. 31, 2021 | |
Share-based Payment Arrangement [Abstract] | |
SHARE-BASED COMPENSATION | NOTE 5: SHARE-BASED COMPENSATION Share-based compensation is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and additional paid-in capital in the accompanying unaudited consolidated balance sheets. During the three months ended March 31, 2021 and 2020, the Company recognized a total of $20 and $50 of share-based compensation expense, respectively. The unamortized estimated fair value of nonvested shares of restricted stock and stock options was $28 and $48 at March 31, 2021 and December 31, 2020, respectively. These costs are expected to be recognized as expenses over a weighted-average period of 0.39 years. |
6. TREASURY STOCK
6. TREASURY STOCK | 3 Months Ended |
Mar. 31, 2021 | |
Equity [Abstract] | |
TREASURY STOCK | NOTE 6: TREASURY STOCK On December 23, 2019, the Board authorized the repurchase of up to 500 shares of the Company’s outstanding common stock (the “Repurchase Program”). The Repurchase Program was funded from cash on hand and cash provided by operating activities. The Board separately authorized the repurchase of additional shares during the three months ended March 31, 2020, in a privately negotiated transaction. During the three months ended March 31, 2020, 744 shares of common stock were purchased for an aggregate amount of $524. The repurchase program was exhausted as of March 31, 2020. Treasury shares are accounted for using the cost method. |
7. INCOME TAXES
7. INCOME TAXES | 3 Months Ended |
Mar. 31, 2021 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 7: INCOME TAXES Income tax expense during interim periods is based on applying the estimated annual effective income tax rate to interim period operations. The estimated annual effective income tax rate may vary from the statutory rate due to the impact of permanent items relative to our pre-tax income, as well as by any valuation allowance recorded. We employ an asset and liability approach that results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial basis and the tax basis of those assets and liabilities. A valuation allowance is established when it is more likely than not that some of the deferred tax assets will not be realized. At March 31, 2021 and December 31, 2020, management has recorded a full deferred tax asset valuation allowance. |
8. COMMITMENTS AND CONTINGENCIE
8. COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 8: COMMITMENTS AND CONTINGENCIES Letters of Credit Certain customers could require us to issue standby letters of credit in the normal course of business to ensure performance under terms of contracts or as a form of product warranty. The beneficiary of a letter of credit could demand payment from the issuing bank for the amount of the outstanding letter of credit. We had no outstanding letters of credit at March 31, 2021 or December 31, 2020. Employment Agreement Our Chief Executive Officer is employed under an employment agreement containing severance provisions. In the event of termination of the CEO’s employment for any reason, the CEO will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination and all benefits to which the CEO is entitled or vested under the terms of all employee benefit and compensation plans, agreements, and arrangements in which the CEO participants as of the date of termination. In addition, subject to executing a general release in favor of the Company, the CEO 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 CEO with “good reason.” These severance payments include: (i) a lump sum in cash equal to one to two times the CEO’s annual base salary; (ii) a lump sum in cash equal to one to two times the average annual bonus paid to the CEO 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 the Company’s annual incentive bonus arrangement, but no less than fifty percent of the CEO’s annual base salary; and (iv) if the CEO’s termination occurs prior to the date that is twelve months following a change of control, then each and every share option, restricted share award and other equity-based award that is outstanding and held by the CEO shall immediately vest and become exercisable. On April 1, 2020, the Company eliminated the position of Chief Operating Officer (“COO”) and relieved the COO of his duties pursuant to the terms of his employment agreement. In addition to payment of accrued and unpaid salary, vacation time, and other benefits referred to above, the Company is required to pay the former COO one time his contractual annual base salary of $245, payable over 12 months. Litigation From time to time, the Company is party to various legal proceedings arising in the ordinary course of business. The Company expenses or accrues legal costs as incurred and is involved in only one material legal proceeding as of the date of this Report. In November 2011, the Company delivered equipment to Aker Solutions, Inc. (“Aker”), but Aker declined to pay the final invoice in the aggregate amount of $270 alleging some warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly attempted to collect on the receivable and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently filed a counter claim on March 20, 2013 in the aggregate amount of $1,000 for reimbursement of insurance payments allegedly made for repairs. The parties have not reached a resolution on this matter. At this point, it is not clear as to whether an unfavorable outcome is either probable or remote, and the Company is unable to determine the likelihood of an unfavorable outcome or the amount or range of potential loss if the outcome should be unfavorable. On August 6, 2018, GE Oil and Gas UK Ltd. (“GE”) requested that the Company mediate a dispute between the parties in the ICC International Centre for ADR (“ICC”). The dispute involved alleged delays and defects in products manufactured by the Company for GE dating back to 2013. During the second quarter of 2020, the parties finalized the terms of a definitive settlement agreement which is now final and binding. Per the terms of the settlement, the Company shall pay GE $750 in total, which shall be paid on a monthly basis through December 2021. The Company accrued a liability related to this matter in the amount of $750 for the year ended December 31, 2019. The remaining liability was $270 at March 31, 2021. |
9. EARNINGS PER COMMON SHARE
9. EARNINGS PER COMMON SHARE | 3 Months Ended |
Mar. 31, 2021 | |
Net income (loss) per share: | |
EARNINGS PER COMMON SHARE | NOTE 9: EARNINGS PER COMMON SHARE Basic earnings per share (“EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive effect of common stock equivalents (warrants, nonvested stock awards and stock options) using the treasury method. In each relevant period, the net income used in the basic and dilutive EPS calculations is the same. The following table reconciles the weighted-average basic number of common shares outstanding and the weighted-average diluted number of common shares outstanding for the purpose of calculating basic and diluted EPS. Three Months Ended 2021 2020 Weighted average common shares outstanding - basic 12,389 12,710 Dilutive effect of common stock equivalents 44 – Weighted average common shares outstanding - diluted 12,432 12,710 |
10. RELATED PARTY TRANSACTIONS
10. RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2021 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 10: RELATED PARTY TRANSACTIONS On August 15, 2019, Mr. Ronald E. Smith, the Company's Founder, resigned as Chief Executive Officer and as a member of the Board, effective as of August 31, 2019. In connection with Mr. Smith's resignation, the Company and Mr. Smith entered into a Transition Agreement, effective as of September 1, 2019 (the “Transition Agreement”). The Transition Agreement provides for Mr. Smith to serve as an independent consultant to the Company from September 1, 2019 through December 31, 2021. The Company agreed to pay Mr. Smith $42 per month, from September 1, 2019 through December 31, 2019, and $15 per month, from January 1, 2020 through December 31, 2021, in exchange for his future services. The Company therefore recorded consulting expenses related to the Transition Agreement totaling $45 for the three months ended March 31, 2021. In addition to the other payments provided for under the Transition Agreement, the Company also agreed to pay Mr. Smith 1.5% of the net sale or lease value of two carousels owned by Company, if such sale or lease occurs prior to December 31, 2021, unless those assets are sold or leased in conjunction with a sale of all or substantially all the assets or stock of Deep Down. As part of the Transition Agreement, Mr. Smith is bound by certain non-disclosure and confidentiality provisions, and a non-compete and non-hire agreement. |
11. SMALL BUSINESS ADMINISTRATI
11. SMALL BUSINESS ADMINISTRATION'S PAYCHECK PROTECTION PROGRAM LOAN | 3 Months Ended |
Mar. 31, 2021 | |
Debt Disclosure [Abstract] | |
SMALL BUSINESS ADMINISTRATION'S PAYCHECK PROTECTION PROGRAM LOAN | NOTE 11. SMALL BUSINESS ADMINISTRATION’S PAYCHECK PROTECTION PROGRAM LOAN As a result of the abrupt decline in oil prices and global economic activity caused by COVID-19, the Company applied for a loan under the Small Business Administration’s (“SBA”) Paycheck Protection Program, and on April 29, 2020, the Company received a loan (“April 2020 PPP loan”) in the amount of $1,111, which was used to finance payroll during the second and third quarters of 2020. The April 2020 PPP loan is evidenced by a promissory note, dated to be effective as of April 27, 2020, between the Company and the lender. The promissory note matures on April 27, 2022 and bears interest at a fixed rate of 1.00 percent per annum, payable in eighteen monthly payments commencing on November 27, 2020. Subsequent to the effective date of the April 2020 PPP loan, the U.S. Treasury and SBA refined its payment deferral guidance whereby payment of principal, interest, and fees for PPP loans are to be deferred until the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender if the loan forgiveness application is submitted within ten months after the end of the loan forgiveness covered period. Additionally, certain conditions detailed in the loan agreement could cause the note to become immediately due and payable at the lender’s option. The Company applied for forgiveness of the April 2020 PPP loan in its entirety in October 2020, which falls within ten months after the end of the Company’s loan forgiveness covered period. The Company has not received guidance from its lender regarding the timing or ultimate outcome of its forgiveness application. The Company applied for a second PPP loan and on March 1, 2021 received a potentially forgivable loan (“March 2021 PPP loan”) in the amount of $1,111. The March 2021 PPP loan is evidenced by a promissory note, dated to be effective as of March 1, 2021, between the Company and the lender. The promissory note matures on March 1, 2026 and bears interest at a fixed rate of 1.00 percent per annum, beginning on the date of advance until the loan maturity date. The March 2021 PPP loan is subject to the same payment deferral guidance as described for the April 2020 PPP loan. |
1. BASIS OF PRESENTATION (Polic
1. BASIS OF PRESENTATION (Policies) | 3 Months Ended |
Mar. 31, 2021 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation 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 (“Deep Down Nevada”), and its directly wholly owned subsidiary, Deep Down, Inc., a Delaware corporation (“Deep Down Delaware”). The accompanying unaudited condensed consolidated financial statements of Deep Down, Inc. were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the “Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those rules, certain notes or other financial information that are normally required by United States generally accepted accounting principles (“US GAAP”) can be condensed or omitted. Therefore, these statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2020. Preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, then the actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. |
Liquidity | Liquidity The Company’s cash on hand was $4,654 and working capital was $5,237 as of March 31, 2021. As of December 31, 2020, cash on hand and working capital was $3,745 and $4,080, respectively. Other than loans obtained under the Paycheck Protection Program (“PPP”), the Company does not have a credit facility in place and depends on cash on hand, cash flows from operations, and the potential opportunistic sales of property, plant and equipment (“PP&E”). See Note 11 for further discussion of the PPP loans. 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, cash received from a second PPP loan, and potential opportunistic sales of PP&E in addition to pursuing a disciplined approach to making capital investments. However, given the abrupt decline in oil prices and global economic activity caused by COVID-19 in 2020, the Company cannot predict this with certainty. To mitigate this uncertainty and preserve liquidity, the Company will continue to pursue opportunistic cost containment initiatives, which can include workforce reductions, limiting overhead spending and research and development efforts to only critical items, and actively pursuing further cost reduction opportunities as they become available. |
Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements presented herein include the accounts of Deep Down, Inc. and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated. |
Segments | Segments For the three months ended March 31, 2021 and 2020, we had one operating and reporting segment, Deep Down Delaware. |
2. LEASES (Tables)
2. LEASES (Tables) | 3 Months Ended |
Mar. 31, 2021 | |
Leases [Abstract] | |
Operating lease right to use | The following tables present information about our operating leases: March 31, 2021 December 31, 2020 Assets: Right-of-use assets $ 2,805 $ 3,174 Liabilities: Current lease liabilities 1,275 1,261 Non-current lease liabilities 1,568 1,951 Total lease liabilities $ 2,843 $ 3,212 |
Components of lease expense | Three Months Ended March 31, 2021 2020 Operating lease expense included in cost of sales $ 317 $ 308 Operating lease expense included in selling, general and administrative 73 60 Short term lease expense 45 34 Total lease expense $ 435 $ 402 |
Lease term and discount rate | Lease term and discount rate: March 31, 2021 December 31, 2020 Weighted-average remaining lease terms on operating leases (yrs.) 2.21 2.43 Weighted-average discount rates on operating leases 5.374% 5.374% |
Future minimum lease payments | Operating Leases April 1, 2021 - March 31, 2022 $ 1,392 April 1, 2022 - March 31, 2023 1,361 April 1, 2023 - March 31, 2024 245 April 1, 2024 - March 31, 2025 8 Thereafter 3 Total lease payments $ 3,009 Less: Interest (166 ) Present value of lease liabilities $ 2,843 |
3. REVENUE FROM CONTRACTS WIT_2
3. REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables) | 3 Months Ended |
Mar. 31, 2021 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of Revenue - Contract Revenue | The following table presents the Company’s revenues disaggregated by fixed price and service contracts. Sales taxes are excluded from revenues. Three Months Ended March 31, 2021 2020 Fixed Price Contracts $ 1,294 $ 1,744 Service Contracts 2,628 1,861 Total $ 3,922 $ 3,605 |
Schedule of earnings in excess of billings on uncompleted contracts | The following table summarizes our contract assets, which are “Costs and estimated earnings in excess of billings on uncompleted contracts” and our contract liabilities, which are “Billings in excess of costs and estimated earnings on uncompleted contracts”. March 31, 2021 December 31, 2020 Costs incurred on uncompleted contracts $ 2,072 $ 2,098 Estimated earnings on uncompleted contracts 3,155 3,153 5,227 5,251 Less: Billings to date on uncompleted contracts (5,703 ) (5,792 ) $ (476 ) $ (541 ) Included in the accompanying unaudited condensed consolidated balance sheets under the following captions: Contract assets $ 214 $ 189 Contract liabilities (690 ) (730 ) $ (476 ) $ (541 ) |
4. PROPERTY, PLANT AND EQUIPM_2
4. PROPERTY, PLANT AND EQUIPMENT (Tables) | 3 Months Ended |
Mar. 31, 2021 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property, plant and equipment | Property, plant and equipment consisted of the following: Range of March 31, 2021 December 31, 2020 Asset Lives Buildings and improvements $ 285 $ 285 7 - 36 years Leasehold improvements 906 906 2 - 5 years Equipment 12,380 12,343 2 - 30 years Furniture, computers and office equipment 907 907 2 - 8 years Construction in progress 50 84 - Total property, plant and equipment 14,528 14,525 Less: Accumulated depreciation and amortization (12,160 ) (11,921 ) Property, plant and equipment, net $ 2,368 $ 2,604 |
9. EARNINGS PER COMMON SHARE (T
9. EARNINGS PER COMMON SHARE (Tables) | 3 Months Ended |
Mar. 31, 2021 | |
Net income (loss) per share: | |
Reconciliation of number of shares in earnings per share calculation | The following table reconciles the weighted-average basic number of common shares outstanding and the weighted-average diluted number of common shares outstanding for the purpose of calculating basic and diluted EPS. Three Months Ended 2021 2020 Weighted average common shares outstanding - basic 12,389 12,710 Dilutive effect of common stock equivalents 44 – Weighted average common shares outstanding - diluted 12,432 12,710 |
1. BASIS OF PRESENTATION (Detai
1. BASIS OF PRESENTATION (Details Narrative) $ in Thousands | 3 Months Ended | |||
Mar. 31, 2021USD ($)Integer | Mar. 31, 2020USD ($)Integer | Dec. 31, 2020USD ($) | Dec. 31, 2019USD ($) | |
Accounting Policies [Abstract] | ||||
Cash | $ | $ 4,654 | $ 3,033 | $ 3,745 | $ 3,523 |
Working capital | $ | $ 5,237 | $ 4,080 | ||
Number of reportable segments | Integer | 1 | 1 | ||
Number of operating segments | Integer | 1 | 1 |
2. LEASES (Details - Operating
2. LEASES (Details - Operating lease info) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2021 | Mar. 31, 2020 | Dec. 31, 2020 | |
Right of use operating lease assets | $ 2,805 | $ 3,174 | |
Current lease liabilities | 1,275 | 1,261 | |
Non-current lease liabilities | 1,568 | 1,951 | |
Total lease liabilities | 2,843 | $ 3,212 | |
Components of lease expense | |||
Short term lease expense | 45 | $ 34 | |
Total lease expense | $ 435 | 402 | |
Right of use assets obtained in exchange for new operating liabilities | |||
Weighted average remaining lease (years) terms on operating leases | 2 years 2 months 16 days | 2 years 5 months 5 days | |
Weighted average discount rates on operating leases | 5.374% | 5.374% | |
Cost of Sales [Member] | |||
Components of lease expense | |||
Operating lease expense | $ 317 | 308 | |
Selling, General and Administrative Expenses [Member] | |||
Components of lease expense | |||
Operating lease expense | $ 73 | $ 60 |
2. LEASES (Details - Minimum le
2. LEASES (Details - Minimum lease payments) - USD ($) $ in Thousands | Mar. 31, 2021 | Dec. 31, 2020 |
Leases [Abstract] | ||
Future minimum lease payment 2021 | $ 1,392 | |
Future minimum lease payment 2022 | 1,361 | |
Future minimum lease payment 2023 | 245 | |
Future minimum lease payment 2024 | 8 | |
Future minimum lease payment thereafter | 3 | |
Total lease payments | 3,009 | |
Less: interest | (166) | |
Present value of lease liabilities | $ 2,843 | $ 3,212 |
3. REVENUE FROM CONTRACTS WIT_3
3. REVENUE FROM CONTRACTS WITH CUSTOMERS (Details - Disaggregation of Revenue) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Revenues | $ 3,922 | $ 3,605 |
Fixed-price Contract [Member] | ||
Revenues | 1,294 | 1,744 |
Service Contracts [Member] | ||
Revenues | $ 2,628 | $ 1,861 |
3. REVENUE FROM CONTRACTS WIT_4
3. REVENUE FROM CONTRACTS WITH CUSTOMERS (Details - Contract balances) - USD ($) $ in Thousands | Mar. 31, 2021 | Dec. 31, 2020 |
Billings In Excess Of Costs And Estimated Earnings On Uncompleted Contracts And Deferred Revenues | ||
Costs incurred on uncompleted contracts | $ 2,072 | $ 2,098 |
Estimated earnings on uncompleted contracts | 3,155 | 3,153 |
Gross costs and estimated earnings | 5,227 | 5,251 |
Less: Billings to date on uncompleted contracts | (5,703) | (5,792) |
Costs incurred plus estimated earning less billings on uncompleted contracts, net | (476) | (541) |
Included in the accompanying condensed consolidated balance sheets under the following captions: | ||
Contract Assets | 214 | 189 |
Contract Liabilities | (690) | (730) |
Costs incurred plus estimated earning less billings on uncompleted contracts | $ (476) | $ (541) |
4. PROPERTY, PLANT AND EQUIPM_3
4. PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2021 | Dec. 31, 2020 | |
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 14,528 | $ 14,525 |
Less: Accumulated depreciation and amortization | (12,160) | (11,921) |
Property, plant and equipment, net | 2,368 | 2,604 |
Building and improvements [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 285 | 285 |
Range of Asset Lives | 7 to 36 years | |
Leasehold Improvements [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 906 | 906 |
Range of Asset Lives | 2 to 5 years | |
Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 12,380 | 12,343 |
Range of Asset Lives | 2 to 30 years | |
Furniture, computers and office equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 907 | 907 |
Range of Asset Lives | 2 to 8 years | |
Construction in Progess [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 50 | $ 84 |
5. SHARE-BASED COMPENSATION (De
5. SHARE-BASED COMPENSATION (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2021 | Mar. 31, 2020 | Dec. 31, 2020 | |
Share-based compensation | $ 20 | $ 50 | |
Restricted Stock [Member] | |||
Unamortized estimated fair value of restricted stock awards | $ 28 | $ 48 | |
Unamortized expense recognition period | 4 months 20 days |
6. TREASURY STOCK (Details Narr
6. TREASURY STOCK (Details Narrative) shares in Thousands, $ in Thousands | 3 Months Ended |
Mar. 31, 2020USD ($)shares | |
Equity [Abstract] | |
Stock purchased, value | $ | $ 524 |
Stock repurchases, shares | shares | 744 |
8. COMMITMENTS AND CONTINGENC_2
8. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |||
Letters Of Credit Outstanding | $ 0 | $ 0 | |
Severance payable | 245 | ||
Litigation settlement | 750 | ||
Litigation liability | $ 270 | $ 750 |
9. EARNINGS PER COMMON SHARE (D
9. EARNINGS PER COMMON SHARE (Details) - shares shares in Thousands | 3 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Net income (loss) per share: | ||
Weighted average common shares outstanding - basic | 12,389 | 12,710 |
Dilutive effect of common stock equivalents | 44 | 0 |
Weighted average common shares outstanding - diluted | 12,432 | 12,710 |
10. RELATED PARTY TRANSACTIONS
10. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2021 | Dec. 31, 2021 | Dec. 31, 2019 | |
Severance payable | $ 245 | ||
Consulting expenses | $ 45 | ||
Mr. Ronald E. Smith | |||
Severance payable | $ 42 | ||
Mr. Ronald E. Smith | Subsequent Event [Member] | |||
Severance payable | $ 15 |
11. SMALL BUSINESS ADMINISTRA_2
11. SMALL BUSINESS ADMINISTRATION'S PAYCHECK PROTECTION PROGRAM LOAN (Details Narrative) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended |
Apr. 29, 2020 | Mar. 01, 2021 | |
Debt Disclosure [Abstract] | ||
Proceeds from loans | $ 1,111 | $ 1,111 |
Maturity date | Apr. 27, 2022 | Mar. 1, 2026 |
Interest rate | 1.00% | 1.00% |