Tuesday, May 20, 2008 5:34:53 PM
DPDW Due Dilligence..
VMC Pick Six Lotto 9
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DPDW.. The first thing I would like to start this report is with this cross post..
Posted by: spec machine
In reply to: None Date:5/17/2008 10:50:32 PM
Post #of 65046
What a difference 12 days makes.
Haven't been able to post much for a few days but I'll toss this tidbit out. (sorry if it is a duplicate of someone else's thoughts).
The filing was great except for one thing. There was an analyst expectation, a fixed quantity target to hit or miss. Some pegged their expectations even higher. If you throw out the expectation and read the filing as if nothing had been quantified, it is an outstanding quarter.
Considering the price tag of some individual contracts and custom items the irregularity in the revenue growth curve is to be expected. The revenues are solid and showing continued management execution on an aggressive growth plan.
I think it is a bit short-sighted to ask (as one poster did) "Why is this company still not profitable?", It looks to me like a large part of that answer is the cost of making the company grow is eating up a significant part of the SG&A.
We may have been tantalizingly close to meeting that pencil mark on the wall represented by the DR estimates. I'll give an example. DDI has stated that revenues are booked when the customer takes delivery of a product or service. The second 4000 Meter LARS was shipped April 11 after being stored at DDI since it was completed (at the customer's request). If it had been requested to be delivered 12 days earlier, IMO the DR estimates would have been met or exceeded.
I know that "IF" goes in the same category of "would'a should'a, and could'a" but I point it out as an example of variables and irregularities that can obscure some of the other important information in the financials, especially in smaller companies such as DDI.
http://www.arabianbusiness.com/518685-deep-water-boom
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DPDW Deep Down, Inc..http://www.deepdowninc.com/
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 Companys 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 Companys 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.
The Companys strategy is to consolidate service providers to the offshore industry, as well as designers and manufacturers of subsea, surface, and offshore rig equipment used by major, independent, and foreign national oil and gas companies in deep-water exploration and production of oil and gas throughout the world. Deep Down's customers include BP Petroleum, Royal Dutch Shell , Exxon Mobil Corporation, Devon Energy Corporation, Chevron Corporation, Anadarko Petroleum Corporation, Marathon Oil Corporation, Kerr-McGee Corporation, Nexen Inc., BHP, Amerada Hess , Helix, Oceaneering International, Inc., Subsea 7, Inc., Transocean Offshore, Diamond Offshore, Marinette Marine Corporation, Acergy, Veolia Environmental Services, Noble Energy Inc., Aker Kvaerner, Cameron, Oil States, Dril-Quip, Inc., Nexans, Cabett, JDR, and Duco, among others.
http://www.deepdowninc.com
http://www.electrowaveusa.com http://www.makotechnologies.com .
ElectroWave USA, Inc., and Mako Technologies, LLC.
acquisitions accounted for $1,985,645 of revenue In the first Qtr.. This was an increase of 94% over the same prior year period.
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ElectroWave USA, Inchttp://www.electrowaveusa.com/index.html
Deep Down acquires ElectroWave USA, Inc.,
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ElectroWave offers products and services in the fields of electronic monitoring and control systems for the energy, military, and commercial business sectors.
ElectroWave USA provides services to the offshore, energy, military, and commercial sectors. We can provide services from concept to completion for new developments, and we can support, troubleshoot, and repair existing equipment. Just some of our services are listed below, please contact us if you would like to collaborate with ElectroWave USA on any project, big or small.
Drillers Display Installation and Support
Drilling relies on fast, accurate information from the down-hole tool. ElectroWave USA has installed Drillers Display systems with over 550 rig-months of up-time resulting in low maintenance costs and increased revenue for each rig.
Ballast Monitoring Installation and Support
Semi-submersible rigs only float one way, upright. ElectroWave USA has installed, repaired, and supported Ballast systems on many rigs, ensuring a safe working environment on the rig.
ElectroWave USA - Overview ElectroWave USA has tackled some of the toughest CCTV security and monitoring systems out there. Post-9/11 New York DOT wanted camera's to watch every available compartment of the three new ferries. ElectroWave USA stepped up to the challange and provided NYDOT one of the most sophisticated CCTV systems available on passenger transportation ferries. A system of camera's, coupled with digital video recording, allow post-event tracing and security on one of the most used transportation devices in New York.
CCTV is also more than just security, many (if not all) oil rigs have CCTV systems installed to keep an eye on the safety of those working on the rig. Camera's watch unmanned spaces, machinery spaces, and potential hazard zones for trouble. This helps to keep the manning requirement on the rigs to a minimum while allowing a safer working environment.
ElectroWave USA typically provides Pelco camera systems, but is capable of integrating existing camera systems into new CCTV installations. ElectroWave USA has also developed hardware and software in-house to allow the use of Pan/Tilt/Zoom cameras from hazardous locations where PTZ keyboards cannot be installed.
ElectroWave USA was founded in August of 1999, and specializes in the design and execution of customized control and monitoring solutions for customers in the energy, military, security, and commercial business sectors. In April of 2007, ElectroWave USA was sold to Deep Down, Inc and is a wholly owned subsidiary of Deep Down. Inc.
ElectroWave USA is primarily a systems integrator of electronic control and monitoring systems using PLC modules and other components from various manufacturers such as Allen Bradley, Siemens, Toshiba, etc. ElectroWave USA's scope of supply includes the design, manufacture, delivery, installation, commissioning, and support of delivered systems for large and small enterprises worldwide.
ElectroWave USA developed Intellectual Property (IP) related to Electronic Control and Monitoring products which have the potential to provide ElectroWave USA with the ability to "exponentially" increase our growth. Four of ElectroWave USA's six patent pending and/or granted inventions are related to drilling instrumentation.
ElectroWaveUSA has the ability to design systems from basic switch and relay control consoles through multiple PLC, multiple thousand point systems. Our unique approach to solving design issues allows us to create solutions that increase our customers productivity while minimizing downtime and cost.
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Mako Technologies, LLC.
http://www.makotechnologies.com/
Deep Down acquires Mako Technologies, LLC..
http://news.thomasnet.com/companystory/523217
Deep Down Moves to Acquire Mako Technologies
Deep Down, Inc. Friday, June 22, 2007
Deep Down, Inc. has executed a letter of intent (LOI) to acquire Mako Technologies, Inc. Headquartered in Morgan City, La., Mako 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), subsea equipment, and diving support systems used in diving operations, offshore construction, and environmental/marine surveys.
"Mako Technologies is the perfect complement to our current operations," commented Robert E. Chamberlain, Jr., Deep Down's chairman. "Preliminary due-diligence on Mako indicates 2006 revenues of approximately $6.46 million with adjusted EBITDA of approximately $2.5 million, subject to final review by our auditing team. We expect total consideration for the acquisition to be $5.0 million in cash, $4.5 million in non-convertible notes, and 7,936,508 shares of common stock of Deep Down."
"We are excited to become a part of the Deep Down family of energy service companies," commented Jacob Marcell, Mako Technologies' chief executive officer. "With the strength of Deep Down's infrastructure and access to capital, we foresee the ability to take advantage of the need for both planned and "emergency" offshore rental equipment in support of the growing level of oil and gas exploration occurring in the Gulf of Mexico. We also plan to expand our operations internationally."
Ron Smith, Deep Down's president and chief executive officer commented, "We intend to execute a definitive agreement once we have satisfactorily completed our due-diligence. We remain committed to both organic growth and expansion through the further consolidation of offshore industry service providers to the petroleum and marine industry."
The Company's strategy is to consolidate service providers to the offshore industry, as well as designers and manufacturers of subsea, surface, and offshore rig equipment used by major, independent, and foreign national oil and gas companies in deep-water exploration and production of oil and gas throughout the world.
Some background PR Releases on Mako...
Mako Distributorship Deal Grows SEAEYE in USA...
Seaeye has expanded in the US with the appointment of Mako Technologies as distributor of its ROVs in the Gulf of Mexico.
16 December 2005..
Mako engineers are being trained to repair, maintain and operate Seaeye vehicles, adding to Seaeye’s position as world leader in the number of skilled ROV pilots available to operate its systems.
Depot stocks of spares will be held in Morgan City, Louisiana, to support Mako sales and their own rental pool operations, along with offering support to other Seaeye customers and distributors across America who will benefit from access to additional repair and stockholding facilities.
The deal follows deliveries to Mako of two Seaeye Falcons in November and the planned delivery of a Seaeye Lynx ROV for its rental pool in February with further systems now being discussed. The suite of vehicles brings to Mako’s fleet some of the most reliable and advanced technological features available in ROV operation today.
The company has already sold more electric powered ROVs to the offshore industry than any other company since its formation in 1987 and this new commitment to support customers’ operations in the United States is forecast to generate further growth in the company’s international business.
http://www.makotechnologies.com/Mako_ROV/Seaeye_Falcon.pdf
http://www.makotechnologies.com/Mako_ROV/Seaeye_Lynx.pdf
Mako Technologies Expands Rental Inventory Into ROV Equipment and Services...
Mako Technologies has recently added to its rental inventory a 2000' depth rated inspection / light work class ROV complete with control van and launch recovery system.
Mako and Perry Enter ROV Agreement
As the leading producer of ROV Systems, Trenchers and ROV Tooling, Perry Slingsby Systems has entered into an agreement with Mako Technologies in order to offer an extensive range of Perry Slingsby Systems ROV Tooling through Mako's rental fleet
Jupiter, Florida , August 2004 - As the leading producer of ROV Systems, Trenchers and ROV Tooling, Perry Slingsby Systems has entered into an agreement with Mako Technologies in order to offer an extensive range of Perry Slingsby Systems ROV Tooling through Mako's rental fleet. Mako Technologies is a leading provider of rental equipment to the offshore industry, and will now significantly expand its ROV Tooling inventory with the latest tooling technology from Perry Slingsby Systems. Mako Technologies will have immediate access to the extensive Perry Slingsby Systems portfolio of ROV tools and technology, as well as their world-class engineering and service support. Under the alliance, Mako will become the exclusive ROV Tooling rental outlet for Perry Slingsby Systems in the Gulf of Mexico and will stock a complete line of spares and also maintain a fully trained support staff. Perry Slingsby Systems and Mako Technologies will work together to ensure that the very latest in ROV tooling is available and fully supported in Mako's rental fleet, meeting the evolving and expanding market for Deepwater Intervention Tooling.
“This agreement with Mako Technologies gives Perry Slingsby Systems the ability to locate ROV tools closer to customer's jobsites, with full spares and local support. The local presence and expanded inventory will allow our customers easier access to our tooling on short notice, for both short and long term requirements.” stated Martin Anderson, Managing Director and CEO. “Perry Slingsby Systems has an extensive portfolio of ROV tooling and technology that our customers require to meet the growing demands of deepwater projects. We're very excited to have this expanded range of equipment in our rental fleet. Using the same extensive spares inventory and trained technicians that support our equipment rental fleet, we can also manage and support equipment that is owned by our customers.” stated Jacob Marcell, President of Mako Technologies Inc.
Perry Slingsby Systems, a member of the Technip Group, is recognized as the world leader in the design and manufacture of underwater remotely operated vehicles ( ROV 's) and related subsea equipment. From facilities in the US and the UK , Perry Slingsby Systems has, for over 40 years, developed subsea intervention technologies for the oil & gas, telecom, military and other specialist markets. Today, Perry Slingsby Systems markets a comprehensive range of state-of-the-art ROV 's, robotic tooling products and robotic engineering capabilities, all backed by a worldwide network of after sales service and support.
Mako Expands ROV Tooling Rental Fleet...
Mako Technologies Inc. of Morgan City recently accepted delivery of two "Tornado" ROV sub-sea torque tools from Oceanworks International of Houston .
http://www.oceanworks.com/videodetail.php?videoID=1
Mako Technologies Inc. of Morgan City recently accepted delivery of two (2) "Tornado" ROV sub-sea torque tools from Oceanworks International of Houston. The "Tornado" tools have been designed with several unique features that sets them apart from the variety of the other tools currently in the market.
In addition to being 40 lbs. lighter than the nearest competitor in overall weight, this tool also contains a power saving, light activated photo cell which activates the tool's on/off feature when being used at depth for extended periods of time to conserve battery life.
A large 1½-inch L.E.D. rotation counter display (± 18 degrees) enables the ROV operator un-parralled visibility and precision.
Spring loaded end-effectators for classes 1 through 4 eliminates problematic valve stem fitting at depth and makes for easier operation for the operators of the ROV system and can be changed on deck without removing the hydraulic motor or disassembly of any oil-filled parts. The clamping latches are fail-safe which permit the removal of the tool from the valve receptacle should hydraulic power be lost on the ROV.
The "Tornado" tool is rated for 10,000 feet depth with 2000 lbs. of torque and is built to A.P.I.17D & H standards and comes with a on-deck and sub-sea calibration "bucket" to insure torque settings both above and below water.
Delivery of a state of the art F.L.O.T. (flying lead orientation tool) easily adaptable to any other torque tool in the market is scheduled for January 2003.
Mako Technologies Inc's. goal to be an independent sub-sea intervention-tooling provider was formed to serve our current and future customers in the sub-sea industry.
The addition of these tools to our rental fleet is a step forward in expanding our product line for the sub-sea market.
Supplier News - "Tornado" Torque Tool at Work..
Mako Technologies Inc. of Morgan City recently provided Sonsub of Houston, with its "Tornado" torque tool for a filter pod change out.
Mako Technologies Inc. of Morgan City, La. recently provided Sonsub of Houston, Tx. with its "Tornado" torque tool for a filter pod change out on the Canyon Express Project in the Gulf of Mexico. Aboard the M/V HOS Innovator at Mississippi Canyon 305, the "Tornado" tool successfully performed all assigned tasks for Sonsub. Operating at depths between 2000' to 7100' feet, the project demonstrated the ease of operation and
performance of the new tool. The "Tornado" torque tool, designed by Oceanworks International of Houston is part of the growing fleet of ROV tools and equipment being offered by Mako Technologies through their independent ROV Tooling Rental Division. "It is the company's goal to provide reliable, cost effective ROV tooling equipment industry wide on an "as needed rental basis." stated Jacob Marcell, President of Mako.
"We're building our business one customer at a time with superior equipment, but most of all, through first class service and support with long-standing relationships."
Mako 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.
During the quarter ended March 31, 2008 and in accordance with the terms of the purchase of Mako, Deep Down paid $916,044 of notes payable.
Purchase of Mako Technologies, Inc.
Effective December 1, 2007, Deep Down purchased 100% of the common stock of Mako Technologies, Inc. Pursuant to the agreement and plan of merger, two installments were paid to the Mako shareholders. The first installment of $2,916,667 in cash and 6,574,074 restricted shares of common stock of Deep Down, valued at $0.76 per share, was paid on January 4, 2008. The second installment of 2,802,969 restricted shares of common stock of Deep Down valued at $0.70 was issued on March 28, 2008. The final cash payment of $1,243,571 which was paid on April 11, 2008,
Rental revenue 941,936 1'st Qtr.08 Vrs. 496,113 1'st Qtr.09
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Flotation Technologies Inc. http://www.flotec.com/
Friday, April 18, 2008... Ocean buoy technology firm Flotation Technologies Inc. has been acquired by Deep Down Inc. in a $23.3 million stock purchase agreement, according to officials at Texas-based Deep Down.
Headquartered in Biddeford, Maine , Flotation Technologies is a recognized leader in the design and manufacture of deepwater buoyancy systems, specializing in Flotec(TM) syntactic foam and polyurethane elastomer products. With extensive engineering, design, fabrication, and analysis capabilities, Flotation Technologies provides quick turnaround, cost-effective buoyancy and elastomer products to the worldwide oceanographic, offshore energy, seismic, and military markets. Within the past few years, Flotation Technologies has received its approved vendor status for the supply of engineered products such as distributed buoyancy, installation buoyancy and bend limiting products from numerous customers including Aker Kvaerner, Cooper Cameron , Chevron , Devon Energy , Exxon Mobil , Oceaneering Multiflex, Petrobras, Shell, Statoil, Technip, and Wellstream International. More information can be obtained at http://www.flotec.com .
Un-audited financial information provided by Flotation Technologies indicates that revenue for the last 12 months, ending March 31, 2008, was approximately $17.27 million, with a pretax of $4.84 million and EBITDA of $5.26 million, adjusted for certain nonrecurring expenses and a gain on sale of real estate assets. Financial results of operations for the years ended December 31, 2007 and 2006 will be presented when audits are finalized. The total price for the acquisition is expected to be approximately $23.3 million.
Last May 2007, Flotation Technologies won a $4 million contract from an unnamed source for flotation devices, and opened a 45,000-square-foot manufacturing plant in Biddeford. In 2006, the company worked with the Maine Manufacturing Extension Partnership, a business development program supported by the U.S. Department of Commerce, to plan the company's business strategy and work force development.
Friday, May 9, 2008.. Officials at Flotation Technologies Inc., a developer and manufacturer of deepwater buoyancy systems, has landed a $5.5 million contract for a custom-designed buoyancy system from an unnamed international energy company.
According to Biddeford, Maine-based Flotation Technologies, the name of the client and any more detailed description of the product are confidential due to the nature of the project. The system should be delivered in the third and fourth quarters of 2008, officials said.
5-13-08 Visit to Flotation Technologies -tombrady12nh
#msg-29255270
#msg-29262257 Flotec Picture #1
#msg-29262305 Flotec Picture #2
#msg-29262336 Flotec Picture #3
#msg-29262377 Flotec Picture #4
#msg-29262730
Last month Flotation Technologies was acquired by Houston-based Deep Down Inc. in a $23.3 million stock purchase agreement. Founded in 1979, Flotation Technologies' deepwater buoyancy systems are used primarily for marine research and the commercial and military markets. Its customers include Chevron, Exxon Mobil, Shell and Statoil.
Ronald E. Smith , Deep Downs president and chief executive officer commented, "We are very excited about this acquisition. Our strategy is to work closely with management to expand their existing business and explore new areas of opportunity. Our view of the future of subsea equipment involves structural integration of buoyancy into various components of the undersea distribution system. Due to our prominence in installation activities of subsea equipment throughout the world, our customers are increasingly asking us to supply the equipment and systems we install. Where appropriate, we intend to manufacture high-demand technology-advantaged products in high-growth markets. Our strategy is to become a major player in many facets of the offshore deepwater industry."
Deep Downs closing of the purchase of Flotation Technologies remains subject to several conditions, including Deep Down's obtaining financing for the payment of the purchase price.
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Three months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007..
Revenues...
Revenue generated in the three months ended March 31, 2008 was $6,279,465 compared to $2,098,394 for the three months ended March 31, 2007, an increase of $4,181,071 or 199%. Increased activity from Deep Down's offshore subsea business, including service activity related to installation of recoveries of subsea equipment, the delivery of launch and recovery systems, loose tube steel flying leads, winch system refurbishments, and an active heave compensated in-line winch system accounted for $4,293,820 of this revenue, an increase of $2,195,426, or 105% over the same prior year period. The Mako and ElectroWave acquisitions accounted for $1,985,645 of this revenue, an increase of 94% over the same prior year period.
Gross Profits,, Gross margins
For the three months ended March 31, 2008 was $2,403,094 compared to $846,305 in the same prior year period, an increase of $1,556,789 or 184%. Gross margin as a percentage of revenue was 38% in the current period as compared to 40% in the prior period.
Selling, General and Administrative Expenses. SG&A for the three months ended March 31, 2008 was $1,762,247 compared to $659,651 for the same prior-year period. The increase was primarily due to costs related to our acquisitions of Mako and Electrowave. However, SG&A as a percent of net revenue was lower for the three months ended March 31, 2008 at approximately 28% compared to 31% for the same prior period.
Interest Expense. Interest expense for the three months ended March 31, 2008 was $769,030 compared to $231,887 for the same prior year period. This increase is the result of the interest of debt related to the Credit Agreement in the three months ended March 31, 2008 which did not exist for the same prior period (See below “Capital Resources and Liquidity”).
Net loss. Net loss for the three months ended March 31, 2008 was $89,447, compared to a net loss of $109,258 for the same prior year period.
EBITDA. EBITDA is a non-GAAP financial measure. Deep Down defines EBITDA as net income plus interest expense, income taxes, depreciation, amortization and other non-cash, non-operating expense. Deep Down uses EBITDA as an unaudited supplemental financial measure to assess (1) the financial performance of its assets without regard to financing methods, capital structures, taxes or historical cost basis; (2) its liquidity and operating performance over time in relation to other companies that own similar assets and that the Company believes calculate EBITDA in a similar manner; and (3) the ability of Deep Down assets to generate cash sufficient for Deep Down to pay potential interest costs. Deep Down also understands that such data are used by investors to assess the Company's performance. However, the term EBITDA is not defined under generally accepted accounting principles, and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing Deep Down’s operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles. Excluding the one-time gain and non-cash interest and stock based compensation charges, earnings before depreciation, interest, amortization, taxes and other non-cash charges (“EBITDA”) for the three months ended March 31, 2008 was $749,958 compared to $186,654, an increase of $563,304, or 302% over the same prior year period.
The unaudited pro-forma results were as follows:
Deep Down, Inc.
Unaudited Pro forma Statements of Operations
Historical Historical
Deep Down Mako Pro-Forma
Quarter Ended Quarter Ended Quarter Ended
March 31, March 31, Pro-Forma March 31,
2007 2007 Adjustments 2007
Revenues $ 2,098,394 $ 849,929 $ - $ 2,948,323
Cost of sales 1,252,089 561,116 1,813,205
Gross profit 846,305 288,813 - 1,135,118
Operating expenses 723,676 406,933 93,039 (a) 1,223,648
Total other income (expense) (231,887 ) (17,974 ) (266,123 ) (b) (515,984 )
Net loss $ (109,258 ) $ (136,094 ) $ (359,162 ) $ (604,514 )
Earnings per share:
Basic and diluted $ - $ (0.01 )
Weighted-average common shares outstanding 85,976,526 (c) 95,353,569
(a) Amortization of the intangible assets at a rate of $28,353 per month for three months; plus $7,980 adjustment to historical depreciation expense to adjust to purchase accounting asset values.
(b) Represents cash interest plus amortization of deferred financing costs and debt discounts. Interest is payable at 15.5% on the outstanding principal, and the related fees are amortized using the effective interest method over the four-year life of the loan.
(c) A total of 9,377,043 shares were issued for the total transaction. These pro forma amounts give effect as if shares were issued January 1, 2007
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The following unaudited pro-forma combined condensed financial statements are based on the historical financial statements of Mako and Deep Down after giving effect to the acquisition of Mako. The unaudited pro-forma condensed combined statements of operations for the three months ended March 31, 2007 is presented as if the acquisition had taken place on January 1, 2007 by combining the historical results of Mako and Deep Down.
DEEP DOWN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2008 2007
Revenues:
Contract revenue $ 5,337,529 $ 1,602,281
Rental revenue 941,936 496,113
Total revenues 6,279,465 2,098,394
Cost of sales 3,876,371 1,252,089
Gross Profit 2,403,094 846,305
Operating expenses:
Selling, general & administrative 1,762,247 659,651
Depreciation and amortization 298,149 64,025
Total operating expenses 2,060,396 723,676
Operating income 342,698 122,629
Other income (expense):
Gain on sale of assets 28,355 -
Interest income 39,164 -
Interest expense (769,030 ) (231,887 )
Total other expense (701,511 ) (231,887 )
Loss before income taxes (358,813 ) (109,258 )
Income tax benefit 269,366 -
Net loss $ (89,477 ) $ (109,258 )
Earnings per share:
Basic and diluted $ (0.00 ) $ (0.00 )
Weighted-average common shares outstanding 87,185,242 81,036,838
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See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
March 31,
2008 2007
Cash Flow from Operations
As of March 31, 2008, our cash and cash equivalents were $3,115,818 plus restricted cash of $562,500. Cash and cash equivalents were $2,206,220 plus restricted cash of $375,000 as of December 31, 2007. Management believes that the Company has adequate capital resources when combined with its cash position and cash flow from operations to meet current operating requirements.
On April 11, 2008, the shareholders of Mako received the final cash installment of $1,243,571 under the terms of the securities redemption and shareholder payable agreement.
For the three months ended March 31, 2008, cash used in operating activities was $543,444 as compared to cash provided by operating activities for the same prior year period of 2007 of $144,083. Our working capital balances vary due to delivery terms and payments on key contracts, work in progress, and outstanding receivables and payables.
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Cash flows from operating activities:
Net loss $ (89,447 ) $ (109,258 )
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of debt discount 231,760 179,587
Amortization of deferred financing costs 56,915 -
Share-based compensation 105,162 -
Allowance for doubtful accounts 3,949 -
Depreciation and amortization 298,150 64,025
Gain on disposal of equipment 58,115 -
Changes in assets and liabilities:
Accounts receivable (282,869 ) (181,220 )
Prepaid expenses and other current assets (107,239 ) 15,111
Finished goods - (355,568 )
Construction in progress (161,279 ) 64,170
Accounts payable and accrued liabilities (603,631 ) 395,236
Deferred revenue (53,030 ) 72,000
Net cash provided by (used in) operating activities (543,444 ) 144,083
Cash flows from investing activities:
Cash paid for final acquisition costs (66,525 ) -
Cash paid for third party debt - (366,134 )
Cash received from sale of ElectroWave receivables - 261,068
Purchases of equipment (156,958 ) (290,373 )
Restricted cash (187,500 ) -
Net cash used in investing activities (410,983 ) (395,439 )
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 - 950,000
Proceeds from sales-type lease 103,500 -
Proceeds from Prospect Capital 2,687,333 -
Payments of long-term debt (926,808 ) (113,129 )
Net cash provided by financing activities 1,864,025 336,871
Change in cash and equivalents 909,598 85,515
Cash and equivalents, beginning of period 2,206,220 12,462
Cash and equivalents, end of period $ 3,115,818 $ 97,977
Supplemental schedule of noncash investing
and financing activities:
Fixed assets purchased with capital lease $ - $ 525,000
Exchange of preferred stock $ 4,419,244 $ 3,366,778
Redemption of preferred stock for debt $ 500,000 $ -
Common Shares issued as restricted stock $ 1,200 $ -
Stock issued for payment of shareholder debt $ 1,962,078 $ -
Supplemental Disclosures:
Cash paid for interest $ 480,356 $ 52,301
Cash paid for taxes $ 275,000 $ -
Accounts receivable includes an allowance for uncollectible accounts of $141,736 and $139,787 as of March 31, 2008 and December 31, 2007, respectively. Bad debt expense totaled $3,949 and $1,852 for the three months ended March 31, 2008 and March 31, 2007, respectively.
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PROPERTY AND EQUIPMENT
Property and equipment include the following:
March 31, 2008 December 31, 2007
Building $ 231,055 $ 195,305
Furniture and fixtures 63,777 63,777
Vehicles and trailers 112,162 112,162
Leasehold improvements 113,614 75,149
Equipment 2,021,054 2,004,167
Rental Equipment 3,144,560 3,144,559
Total 5,686,222 5,595,118
Less: Accumulated depreciation (627,665 ) (422,314 )
Property and equipment, net $ 5,058,557 $ 5,172,804
Depreciation expense for the three months ended March 31, 2008 and March 31, 2007 was approximately $213,090 and $64,025, respectively
Secured credit agreement with Prospect Capital Corporation
quarterly principal payments of $250,000 beginning
September 30, 2008; monthly interest payments,
interest fixed at 15.5%; balance due August 2011;
secured by all assets $ 12,000,000 $ 12,000,000
Debt discount, net of amortization of $254,101 and $135,931 respectively (1,585,088 ) (1,703,258 )
Note payable to a bank, payable in monthly
installments bearing interest at 8.25% per annum,
maturing June 10, 2008, cross-collateralized
by Mako assets, paid January 2008. - 289,665
Note payable to a bank, payable in monthly
installments bearing interest at 7.85% per annum,
maturing September 28, 2010, collateralized by Mako
life insurance policy and equipment, paid January 2008. - 320,027
Revolving line-of-credit of $500,000 from a bank,
matured October 13, 2007 or on demand, interest rate is
at a variable rate resulting in a rate of 8.30% as of
September 30, 2007, collateralized by Mako equipment,
paid January 2008. - 151,705
Note payable to a bank payable in monthly
installments bearing interest at 7.85% per annum,
maturing January 25, 2011, collateralized by Mako
equipment and life insurance policy, paid January 2008 - 154,647
Total secured credit agreement and bank debt 10,414,912 11,212,786
6% Subordinated Debenture beginning March 31, 2008; annual -
interest payments, interest fixed at 6%; matures March 31, 2011 500,000 -
Capital lease of equipment, monthly lease payments,
interest imputed at 11.2% 470,446 481,209
Total long-term debt 11,385,358 11,693,995
Current portion of long-term debt (330,399 ) (995,177 )
Long-term debt, net of current portion $ 11,054,959 $ 10,698,818
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Secured Credit Agreement
On December 21, 2007, Deep Down entered into an amendment to our Credit Agreement (the “Amendment”) to provide the funding for the cash portion of the purchase of Mako. The total commitment available under the Amendment was increased from $6.5 million to $13.0 million. Quarterly principal payments increased to $250,000 beginning September 30, 2008, with the remaining balance outstanding due August 6, 2011. Interest paid through March 31, 2008 was $480,356. Under the Credit Agreement, we are required to meet certain covenants and restrictions. We must also maintain a debt service reserve account of $750,000. As of March 31, 2008, $562,500 is separately classified as “Restricted cash” on the accompanying balance sheet. At March 31, 2008, Deep Down is not in compliance with certain financial covenants or the requirement to have life insurance on the CEO in the amount of $3,000,000. Deep Down has obtained waivers from the lender for all the covenants that are not in compliance.
In connection with the second advance under the Credit Agreement on January 4, 2008, Deep Down capitalized an additional $261,941 in deferred financing costs. Of this amount, $216,000 was paid in cash to various third parties related to the financing, and the remainder of $45,946 represents the Black Scholes valuation of warrants issued to one of these third party vendors. The warrant was granted to purchase up to 118,812 shares of common stock at an exercise price of $1.01 per share. The warrant has a five-year term and is immediately exercisable. The fair value of the warrant was estimated to be $45,946 based on the Black Scholes pricing model. The assumptions used in the model included (1) expected volatility of 61.3%, (2) expected term of 2.5 years, (3) discount rate of 3.2% and (4) zero expected dividends. Provisions in the warrant agreement allow for a cashless exercise provision, not to exceed 2% of outstanding common stock at the time of exercise.
The following table summarizes interest expense for the three months ended March 31, 2008 and March 31, 2007:
Three Months Ended
March 31,
2008 2007
Interest Expense $ 480,356 $ 52,300
Accretion 113,589 179,587
Amortization of debt discount 118,171 -
Amortization of deferred financing 56,914 -
$ 769,030 $ 231,887
Exchange of Remaining Series E Redeemable Exchangeable Preferred Stock to 6% Subordinated Debenture
On March 31, 2008, 500 shares of the Series E Redeemable Exchangeable Preferred Stock (“Series E”) were exchanged into a 6% Subordinated Debenture in an outstanding principal amount of $500,000 (the “Debenture”). The Debenture has a fixed interest rate of 6% interest per annum to be paid annually on March 31st through maturity on March 31, 2011. The Series E had a face value and liquidation preference of $1,000 per share, no dividend preference, and were exchangeable at the holder’s option into 6% Subordinated Debenture due three years from the date of the exchange. These shares carried voting rights equal to 690 votes per share. The Series E Preferred Stock was valued based on the discounted value of expected future cash flows (using a discount rate of 20%). At inception, Deep Down evaluated the Series E and has classified as debt instruments from the date of issuance since the Series E are exchangeable at the option of the holder thereof into Debenture. The difference between the face value of the Series E and the discounted book value recorded on the balance sheet, or original issue discount, was recorded as non-cash interest expense for the duration of the term. Upon exchange into the $500,000 subordinated debenture Deep Down recorded $113,589 in interest expense for the accretion up to face value.
During the quarter ended March 31, 2008 and in accordance with the terms of the purchase of Mako, Deep Down paid $916,044 of notes payable.
The unaudited pro-forma results were as follows:
Deep Down, Inc.
Unaudited Pro forma Statements of Operations
Historical Historical
Deep Down Mako Pro-Forma
Quarter Ended Quarter Ended Quarter Ended
March 31, March 31, Pro-Forma March 31,
2007 2007 Adjustments 2007
Revenues $ 2,098,394 $ 849,929 $ - $ 2,948,323
Cost of sales 1,252,089 561,116 1,813,205
Gross profit 846,305 288,813 - 1,135,118
Operating expenses 723,676 406,933 93,039 (a) 1,223,648
Total other income (expense) (231,887 ) (17,974 ) (266,123 ) (b) (515,984 )
Net loss $ (109,258 ) $ (136,094 ) $ (359,162 ) $ (604,514 )
Earnings per share:
Basic and diluted $ - $ (0.01 )
Weighted-average common shares outstanding 85,976,526 (c) 95,353,569
(a) Amortization of the intangible assets at a rate of $28,353 per month for three months; plus $7,980 adjustment to historical depreciation expense to adjust to purchase accounting asset values.
(b) Represents cash interest plus amortization of deferred financing costs and debt discounts. Interest is payable at 15.5% on the outstanding principal, and the related fees are amortized using the effective interest method over the four-year life of the loan.
(c) A total of 9,377,043 shares were issued for the total transaction. These pro forma amounts give effect as if shares were issued January 1, 2007
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STOCK OPTIONS AND WARRANTS
Deep Down has a stock based compensation plan - the 2003 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (the “Plan”). The exercise price of the options, as well as the vesting period, is established by Deep Down’s board of directors. The options granted under the Plan have vesting periods that range from immediate vesting to vesting over five years, and the contract terms of the options granted are up to ten years. Under the Plan the total number of options permitted is 15% of issued and outstanding common shares. During the three months ended March 31, 2008, Deep Down granted 3,250,000 options and cancelled 625,000 options under the Plan.
The total stock based compensation expense for the three months ended March 31, 2008 and March 31, 2007, was $105,162 and -0-, respectively. The unamortized portion of the estimated fair value of these stock options is $ 1,203,721 at March 31, 2008. Based on the shares of common stock outstanding at March 31, 2008, there are 9,252,000 options available for grant under the Plan as of that date.
During the three months ended March 31, 2008, Deep Down granted 1,200,000 shares of restricted common stock to certain officers and employees of Deep Down. These restricted shares vest over a period of two years. Deep Down determined the fair market value on the date of grant to be $504,000 and is recognizing the expense ratably over the vesting period.
Related to the financing of Secured Credit Agreement Amendment and second advance in January 2008, Deep Down issued warrants to purchase up to 118,812 shares of common stock at an exercise price of $1.01 per share to a third party. The warrant has a five-year term and is immediately exercisable. The assumptions used in the Black Scholes model included (1) expected volatility of 61.3%, (2) expected term of 2.5 years, (3) discount rate of 3.18% and (4) zero expected dividends.
During the three months ended March 31, 2008, 1,200,000 shares of restricted common stock were granted to certain employees and officers of Deep Down.
The following table summarizes outstanding warrants and their respective exercise prices at March 31, 2008:
==================================
COMMITMENTS AND CONTINGENCIES
We are from time to time involved in legal proceedings arising in the normal course of business. As of the date of this Quarterly Report on Form 10-Q, there are no pending or threatened material legal proceedings.
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Barrel – unit of measure for oil and petroleum products, equivalent to 42 U.S. gallons.
BOE – barrels of oil equivalent, used to equate natural gas volumes to liquid barrels at a general conversion rate of 6,000 cubic feet of gas per barrel.
BOE/d – barrels of oil equivalent per day.
Field – an area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
FTP – flowing tubing pressure.
MBOE – thousand barrels of oil equivalent.
MMBOE – million barrels of oil equivalent.
MD – measured depth.
Net Pay – cumulative hydrocarbon-bearing formations.
Spud – to begin drilling a well.
TD – target total depth of a well.
TD’d – to finish drilling a well.
TVD – total vertical depth.
Workover – operations on a producing well to restore or increase production. A workover may be performed to stimulate the well, remove sand or wax from the wellbore, to mechanically repair the well, or for other reasons.
VMC Pick Six Lotto 9
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DPDW.. The first thing I would like to start this report is with this cross post..
Posted by: spec machine
In reply to: None Date:5/17/2008 10:50:32 PM
Post #of 65046
What a difference 12 days makes.
Haven't been able to post much for a few days but I'll toss this tidbit out. (sorry if it is a duplicate of someone else's thoughts).
The filing was great except for one thing. There was an analyst expectation, a fixed quantity target to hit or miss. Some pegged their expectations even higher. If you throw out the expectation and read the filing as if nothing had been quantified, it is an outstanding quarter.
Considering the price tag of some individual contracts and custom items the irregularity in the revenue growth curve is to be expected. The revenues are solid and showing continued management execution on an aggressive growth plan.
I think it is a bit short-sighted to ask (as one poster did) "Why is this company still not profitable?", It looks to me like a large part of that answer is the cost of making the company grow is eating up a significant part of the SG&A.
We may have been tantalizingly close to meeting that pencil mark on the wall represented by the DR estimates. I'll give an example. DDI has stated that revenues are booked when the customer takes delivery of a product or service. The second 4000 Meter LARS was shipped April 11 after being stored at DDI since it was completed (at the customer's request). If it had been requested to be delivered 12 days earlier, IMO the DR estimates would have been met or exceeded.
I know that "IF" goes in the same category of "would'a should'a, and could'a" but I point it out as an example of variables and irregularities that can obscure some of the other important information in the financials, especially in smaller companies such as DDI.
http://www.arabianbusiness.com/518685-deep-water-boom
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DPDW Deep Down, Inc..http://www.deepdowninc.com/
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 Companys 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 Companys 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.
The Companys strategy is to consolidate service providers to the offshore industry, as well as designers and manufacturers of subsea, surface, and offshore rig equipment used by major, independent, and foreign national oil and gas companies in deep-water exploration and production of oil and gas throughout the world. Deep Down's customers include BP Petroleum, Royal Dutch Shell , Exxon Mobil Corporation, Devon Energy Corporation, Chevron Corporation, Anadarko Petroleum Corporation, Marathon Oil Corporation, Kerr-McGee Corporation, Nexen Inc., BHP, Amerada Hess , Helix, Oceaneering International, Inc., Subsea 7, Inc., Transocean Offshore, Diamond Offshore, Marinette Marine Corporation, Acergy, Veolia Environmental Services, Noble Energy Inc., Aker Kvaerner, Cameron, Oil States, Dril-Quip, Inc., Nexans, Cabett, JDR, and Duco, among others.
http://www.deepdowninc.com
http://www.electrowaveusa.com http://www.makotechnologies.com .
ElectroWave USA, Inc., and Mako Technologies, LLC.
acquisitions accounted for $1,985,645 of revenue In the first Qtr.. This was an increase of 94% over the same prior year period.
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ElectroWave USA, Inchttp://www.electrowaveusa.com/index.html
Deep Down acquires ElectroWave USA, Inc.,
http://investorshub.advfn.com/boards/read_msg.asp?message_id=29388998
ElectroWave offers products and services in the fields of electronic monitoring and control systems for the energy, military, and commercial business sectors.
ElectroWave USA provides services to the offshore, energy, military, and commercial sectors. We can provide services from concept to completion for new developments, and we can support, troubleshoot, and repair existing equipment. Just some of our services are listed below, please contact us if you would like to collaborate with ElectroWave USA on any project, big or small.
Drillers Display Installation and Support
Drilling relies on fast, accurate information from the down-hole tool. ElectroWave USA has installed Drillers Display systems with over 550 rig-months of up-time resulting in low maintenance costs and increased revenue for each rig.
Ballast Monitoring Installation and Support
Semi-submersible rigs only float one way, upright. ElectroWave USA has installed, repaired, and supported Ballast systems on many rigs, ensuring a safe working environment on the rig.
ElectroWave USA - Overview ElectroWave USA has tackled some of the toughest CCTV security and monitoring systems out there. Post-9/11 New York DOT wanted camera's to watch every available compartment of the three new ferries. ElectroWave USA stepped up to the challange and provided NYDOT one of the most sophisticated CCTV systems available on passenger transportation ferries. A system of camera's, coupled with digital video recording, allow post-event tracing and security on one of the most used transportation devices in New York.
CCTV is also more than just security, many (if not all) oil rigs have CCTV systems installed to keep an eye on the safety of those working on the rig. Camera's watch unmanned spaces, machinery spaces, and potential hazard zones for trouble. This helps to keep the manning requirement on the rigs to a minimum while allowing a safer working environment.
ElectroWave USA typically provides Pelco camera systems, but is capable of integrating existing camera systems into new CCTV installations. ElectroWave USA has also developed hardware and software in-house to allow the use of Pan/Tilt/Zoom cameras from hazardous locations where PTZ keyboards cannot be installed.
ElectroWave USA was founded in August of 1999, and specializes in the design and execution of customized control and monitoring solutions for customers in the energy, military, security, and commercial business sectors. In April of 2007, ElectroWave USA was sold to Deep Down, Inc and is a wholly owned subsidiary of Deep Down. Inc.
ElectroWave USA is primarily a systems integrator of electronic control and monitoring systems using PLC modules and other components from various manufacturers such as Allen Bradley, Siemens, Toshiba, etc. ElectroWave USA's scope of supply includes the design, manufacture, delivery, installation, commissioning, and support of delivered systems for large and small enterprises worldwide.
ElectroWave USA developed Intellectual Property (IP) related to Electronic Control and Monitoring products which have the potential to provide ElectroWave USA with the ability to "exponentially" increase our growth. Four of ElectroWave USA's six patent pending and/or granted inventions are related to drilling instrumentation.
ElectroWaveUSA has the ability to design systems from basic switch and relay control consoles through multiple PLC, multiple thousand point systems. Our unique approach to solving design issues allows us to create solutions that increase our customers productivity while minimizing downtime and cost.
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Mako Technologies, LLC.
http://www.makotechnologies.com/
Deep Down acquires Mako Technologies, LLC..
http://news.thomasnet.com/companystory/523217
Deep Down Moves to Acquire Mako Technologies
Deep Down, Inc. Friday, June 22, 2007
Deep Down, Inc. has executed a letter of intent (LOI) to acquire Mako Technologies, Inc. Headquartered in Morgan City, La., Mako 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), subsea equipment, and diving support systems used in diving operations, offshore construction, and environmental/marine surveys.
"Mako Technologies is the perfect complement to our current operations," commented Robert E. Chamberlain, Jr., Deep Down's chairman. "Preliminary due-diligence on Mako indicates 2006 revenues of approximately $6.46 million with adjusted EBITDA of approximately $2.5 million, subject to final review by our auditing team. We expect total consideration for the acquisition to be $5.0 million in cash, $4.5 million in non-convertible notes, and 7,936,508 shares of common stock of Deep Down."
"We are excited to become a part of the Deep Down family of energy service companies," commented Jacob Marcell, Mako Technologies' chief executive officer. "With the strength of Deep Down's infrastructure and access to capital, we foresee the ability to take advantage of the need for both planned and "emergency" offshore rental equipment in support of the growing level of oil and gas exploration occurring in the Gulf of Mexico. We also plan to expand our operations internationally."
Ron Smith, Deep Down's president and chief executive officer commented, "We intend to execute a definitive agreement once we have satisfactorily completed our due-diligence. We remain committed to both organic growth and expansion through the further consolidation of offshore industry service providers to the petroleum and marine industry."
The Company's strategy is to consolidate service providers to the offshore industry, as well as designers and manufacturers of subsea, surface, and offshore rig equipment used by major, independent, and foreign national oil and gas companies in deep-water exploration and production of oil and gas throughout the world.
Some background PR Releases on Mako...
Mako Distributorship Deal Grows SEAEYE in USA...
Seaeye has expanded in the US with the appointment of Mako Technologies as distributor of its ROVs in the Gulf of Mexico.
16 December 2005..
Mako engineers are being trained to repair, maintain and operate Seaeye vehicles, adding to Seaeye’s position as world leader in the number of skilled ROV pilots available to operate its systems.
Depot stocks of spares will be held in Morgan City, Louisiana, to support Mako sales and their own rental pool operations, along with offering support to other Seaeye customers and distributors across America who will benefit from access to additional repair and stockholding facilities.
The deal follows deliveries to Mako of two Seaeye Falcons in November and the planned delivery of a Seaeye Lynx ROV for its rental pool in February with further systems now being discussed. The suite of vehicles brings to Mako’s fleet some of the most reliable and advanced technological features available in ROV operation today.
The company has already sold more electric powered ROVs to the offshore industry than any other company since its formation in 1987 and this new commitment to support customers’ operations in the United States is forecast to generate further growth in the company’s international business.
http://www.makotechnologies.com/Mako_ROV/Seaeye_Falcon.pdf
http://www.makotechnologies.com/Mako_ROV/Seaeye_Lynx.pdf
Mako Technologies Expands Rental Inventory Into ROV Equipment and Services...
Mako Technologies has recently added to its rental inventory a 2000' depth rated inspection / light work class ROV complete with control van and launch recovery system.
Mako and Perry Enter ROV Agreement
As the leading producer of ROV Systems, Trenchers and ROV Tooling, Perry Slingsby Systems has entered into an agreement with Mako Technologies in order to offer an extensive range of Perry Slingsby Systems ROV Tooling through Mako's rental fleet
Jupiter, Florida , August 2004 - As the leading producer of ROV Systems, Trenchers and ROV Tooling, Perry Slingsby Systems has entered into an agreement with Mako Technologies in order to offer an extensive range of Perry Slingsby Systems ROV Tooling through Mako's rental fleet. Mako Technologies is a leading provider of rental equipment to the offshore industry, and will now significantly expand its ROV Tooling inventory with the latest tooling technology from Perry Slingsby Systems. Mako Technologies will have immediate access to the extensive Perry Slingsby Systems portfolio of ROV tools and technology, as well as their world-class engineering and service support. Under the alliance, Mako will become the exclusive ROV Tooling rental outlet for Perry Slingsby Systems in the Gulf of Mexico and will stock a complete line of spares and also maintain a fully trained support staff. Perry Slingsby Systems and Mako Technologies will work together to ensure that the very latest in ROV tooling is available and fully supported in Mako's rental fleet, meeting the evolving and expanding market for Deepwater Intervention Tooling.
“This agreement with Mako Technologies gives Perry Slingsby Systems the ability to locate ROV tools closer to customer's jobsites, with full spares and local support. The local presence and expanded inventory will allow our customers easier access to our tooling on short notice, for both short and long term requirements.” stated Martin Anderson, Managing Director and CEO. “Perry Slingsby Systems has an extensive portfolio of ROV tooling and technology that our customers require to meet the growing demands of deepwater projects. We're very excited to have this expanded range of equipment in our rental fleet. Using the same extensive spares inventory and trained technicians that support our equipment rental fleet, we can also manage and support equipment that is owned by our customers.” stated Jacob Marcell, President of Mako Technologies Inc.
Perry Slingsby Systems, a member of the Technip Group, is recognized as the world leader in the design and manufacture of underwater remotely operated vehicles ( ROV 's) and related subsea equipment. From facilities in the US and the UK , Perry Slingsby Systems has, for over 40 years, developed subsea intervention technologies for the oil & gas, telecom, military and other specialist markets. Today, Perry Slingsby Systems markets a comprehensive range of state-of-the-art ROV 's, robotic tooling products and robotic engineering capabilities, all backed by a worldwide network of after sales service and support.
Mako Expands ROV Tooling Rental Fleet...
Mako Technologies Inc. of Morgan City recently accepted delivery of two "Tornado" ROV sub-sea torque tools from Oceanworks International of Houston .
http://www.oceanworks.com/videodetail.php?videoID=1
Mako Technologies Inc. of Morgan City recently accepted delivery of two (2) "Tornado" ROV sub-sea torque tools from Oceanworks International of Houston. The "Tornado" tools have been designed with several unique features that sets them apart from the variety of the other tools currently in the market.
In addition to being 40 lbs. lighter than the nearest competitor in overall weight, this tool also contains a power saving, light activated photo cell which activates the tool's on/off feature when being used at depth for extended periods of time to conserve battery life.
A large 1½-inch L.E.D. rotation counter display (± 18 degrees) enables the ROV operator un-parralled visibility and precision.
Spring loaded end-effectators for classes 1 through 4 eliminates problematic valve stem fitting at depth and makes for easier operation for the operators of the ROV system and can be changed on deck without removing the hydraulic motor or disassembly of any oil-filled parts. The clamping latches are fail-safe which permit the removal of the tool from the valve receptacle should hydraulic power be lost on the ROV.
The "Tornado" tool is rated for 10,000 feet depth with 2000 lbs. of torque and is built to A.P.I.17D & H standards and comes with a on-deck and sub-sea calibration "bucket" to insure torque settings both above and below water.
Delivery of a state of the art F.L.O.T. (flying lead orientation tool) easily adaptable to any other torque tool in the market is scheduled for January 2003.
Mako Technologies Inc's. goal to be an independent sub-sea intervention-tooling provider was formed to serve our current and future customers in the sub-sea industry.
The addition of these tools to our rental fleet is a step forward in expanding our product line for the sub-sea market.
Supplier News - "Tornado" Torque Tool at Work..
Mako Technologies Inc. of Morgan City recently provided Sonsub of Houston, with its "Tornado" torque tool for a filter pod change out.
Mako Technologies Inc. of Morgan City, La. recently provided Sonsub of Houston, Tx. with its "Tornado" torque tool for a filter pod change out on the Canyon Express Project in the Gulf of Mexico. Aboard the M/V HOS Innovator at Mississippi Canyon 305, the "Tornado" tool successfully performed all assigned tasks for Sonsub. Operating at depths between 2000' to 7100' feet, the project demonstrated the ease of operation and
performance of the new tool. The "Tornado" torque tool, designed by Oceanworks International of Houston is part of the growing fleet of ROV tools and equipment being offered by Mako Technologies through their independent ROV Tooling Rental Division. "It is the company's goal to provide reliable, cost effective ROV tooling equipment industry wide on an "as needed rental basis." stated Jacob Marcell, President of Mako.
"We're building our business one customer at a time with superior equipment, but most of all, through first class service and support with long-standing relationships."
Mako 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.
During the quarter ended March 31, 2008 and in accordance with the terms of the purchase of Mako, Deep Down paid $916,044 of notes payable.
Purchase of Mako Technologies, Inc.
Effective December 1, 2007, Deep Down purchased 100% of the common stock of Mako Technologies, Inc. Pursuant to the agreement and plan of merger, two installments were paid to the Mako shareholders. The first installment of $2,916,667 in cash and 6,574,074 restricted shares of common stock of Deep Down, valued at $0.76 per share, was paid on January 4, 2008. The second installment of 2,802,969 restricted shares of common stock of Deep Down valued at $0.70 was issued on March 28, 2008. The final cash payment of $1,243,571 which was paid on April 11, 2008,
Rental revenue 941,936 1'st Qtr.08 Vrs. 496,113 1'st Qtr.09
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Flotation Technologies Inc. http://www.flotec.com/
Friday, April 18, 2008... Ocean buoy technology firm Flotation Technologies Inc. has been acquired by Deep Down Inc. in a $23.3 million stock purchase agreement, according to officials at Texas-based Deep Down.
Headquartered in Biddeford, Maine , Flotation Technologies is a recognized leader in the design and manufacture of deepwater buoyancy systems, specializing in Flotec(TM) syntactic foam and polyurethane elastomer products. With extensive engineering, design, fabrication, and analysis capabilities, Flotation Technologies provides quick turnaround, cost-effective buoyancy and elastomer products to the worldwide oceanographic, offshore energy, seismic, and military markets. Within the past few years, Flotation Technologies has received its approved vendor status for the supply of engineered products such as distributed buoyancy, installation buoyancy and bend limiting products from numerous customers including Aker Kvaerner, Cooper Cameron , Chevron , Devon Energy , Exxon Mobil , Oceaneering Multiflex, Petrobras, Shell, Statoil, Technip, and Wellstream International. More information can be obtained at http://www.flotec.com .
Un-audited financial information provided by Flotation Technologies indicates that revenue for the last 12 months, ending March 31, 2008, was approximately $17.27 million, with a pretax of $4.84 million and EBITDA of $5.26 million, adjusted for certain nonrecurring expenses and a gain on sale of real estate assets. Financial results of operations for the years ended December 31, 2007 and 2006 will be presented when audits are finalized. The total price for the acquisition is expected to be approximately $23.3 million.
Last May 2007, Flotation Technologies won a $4 million contract from an unnamed source for flotation devices, and opened a 45,000-square-foot manufacturing plant in Biddeford. In 2006, the company worked with the Maine Manufacturing Extension Partnership, a business development program supported by the U.S. Department of Commerce, to plan the company's business strategy and work force development.
Friday, May 9, 2008.. Officials at Flotation Technologies Inc., a developer and manufacturer of deepwater buoyancy systems, has landed a $5.5 million contract for a custom-designed buoyancy system from an unnamed international energy company.
According to Biddeford, Maine-based Flotation Technologies, the name of the client and any more detailed description of the product are confidential due to the nature of the project. The system should be delivered in the third and fourth quarters of 2008, officials said.
5-13-08 Visit to Flotation Technologies -tombrady12nh
#msg-29255270
#msg-29262257 Flotec Picture #1
#msg-29262305 Flotec Picture #2
#msg-29262336 Flotec Picture #3
#msg-29262377 Flotec Picture #4
#msg-29262730
Last month Flotation Technologies was acquired by Houston-based Deep Down Inc. in a $23.3 million stock purchase agreement. Founded in 1979, Flotation Technologies' deepwater buoyancy systems are used primarily for marine research and the commercial and military markets. Its customers include Chevron, Exxon Mobil, Shell and Statoil.
Ronald E. Smith , Deep Downs president and chief executive officer commented, "We are very excited about this acquisition. Our strategy is to work closely with management to expand their existing business and explore new areas of opportunity. Our view of the future of subsea equipment involves structural integration of buoyancy into various components of the undersea distribution system. Due to our prominence in installation activities of subsea equipment throughout the world, our customers are increasingly asking us to supply the equipment and systems we install. Where appropriate, we intend to manufacture high-demand technology-advantaged products in high-growth markets. Our strategy is to become a major player in many facets of the offshore deepwater industry."
Deep Downs closing of the purchase of Flotation Technologies remains subject to several conditions, including Deep Down's obtaining financing for the payment of the purchase price.
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Three months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007..
Revenues...
Revenue generated in the three months ended March 31, 2008 was $6,279,465 compared to $2,098,394 for the three months ended March 31, 2007, an increase of $4,181,071 or 199%. Increased activity from Deep Down's offshore subsea business, including service activity related to installation of recoveries of subsea equipment, the delivery of launch and recovery systems, loose tube steel flying leads, winch system refurbishments, and an active heave compensated in-line winch system accounted for $4,293,820 of this revenue, an increase of $2,195,426, or 105% over the same prior year period. The Mako and ElectroWave acquisitions accounted for $1,985,645 of this revenue, an increase of 94% over the same prior year period.
Gross Profits,, Gross margins
For the three months ended March 31, 2008 was $2,403,094 compared to $846,305 in the same prior year period, an increase of $1,556,789 or 184%. Gross margin as a percentage of revenue was 38% in the current period as compared to 40% in the prior period.
Selling, General and Administrative Expenses. SG&A for the three months ended March 31, 2008 was $1,762,247 compared to $659,651 for the same prior-year period. The increase was primarily due to costs related to our acquisitions of Mako and Electrowave. However, SG&A as a percent of net revenue was lower for the three months ended March 31, 2008 at approximately 28% compared to 31% for the same prior period.
Interest Expense. Interest expense for the three months ended March 31, 2008 was $769,030 compared to $231,887 for the same prior year period. This increase is the result of the interest of debt related to the Credit Agreement in the three months ended March 31, 2008 which did not exist for the same prior period (See below “Capital Resources and Liquidity”).
Net loss. Net loss for the three months ended March 31, 2008 was $89,447, compared to a net loss of $109,258 for the same prior year period.
EBITDA. EBITDA is a non-GAAP financial measure. Deep Down defines EBITDA as net income plus interest expense, income taxes, depreciation, amortization and other non-cash, non-operating expense. Deep Down uses EBITDA as an unaudited supplemental financial measure to assess (1) the financial performance of its assets without regard to financing methods, capital structures, taxes or historical cost basis; (2) its liquidity and operating performance over time in relation to other companies that own similar assets and that the Company believes calculate EBITDA in a similar manner; and (3) the ability of Deep Down assets to generate cash sufficient for Deep Down to pay potential interest costs. Deep Down also understands that such data are used by investors to assess the Company's performance. However, the term EBITDA is not defined under generally accepted accounting principles, and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing Deep Down’s operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income, cash flow from operating activities, or other cash flow data calculated in accordance with generally accepted accounting principles. Excluding the one-time gain and non-cash interest and stock based compensation charges, earnings before depreciation, interest, amortization, taxes and other non-cash charges (“EBITDA”) for the three months ended March 31, 2008 was $749,958 compared to $186,654, an increase of $563,304, or 302% over the same prior year period.
The unaudited pro-forma results were as follows:
Deep Down, Inc.
Unaudited Pro forma Statements of Operations
Historical Historical
Deep Down Mako Pro-Forma
Quarter Ended Quarter Ended Quarter Ended
March 31, March 31, Pro-Forma March 31,
2007 2007 Adjustments 2007
Revenues $ 2,098,394 $ 849,929 $ - $ 2,948,323
Cost of sales 1,252,089 561,116 1,813,205
Gross profit 846,305 288,813 - 1,135,118
Operating expenses 723,676 406,933 93,039 (a) 1,223,648
Total other income (expense) (231,887 ) (17,974 ) (266,123 ) (b) (515,984 )
Net loss $ (109,258 ) $ (136,094 ) $ (359,162 ) $ (604,514 )
Earnings per share:
Basic and diluted $ - $ (0.01 )
Weighted-average common shares outstanding 85,976,526 (c) 95,353,569
(a) Amortization of the intangible assets at a rate of $28,353 per month for three months; plus $7,980 adjustment to historical depreciation expense to adjust to purchase accounting asset values.
(b) Represents cash interest plus amortization of deferred financing costs and debt discounts. Interest is payable at 15.5% on the outstanding principal, and the related fees are amortized using the effective interest method over the four-year life of the loan.
(c) A total of 9,377,043 shares were issued for the total transaction. These pro forma amounts give effect as if shares were issued January 1, 2007
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The following unaudited pro-forma combined condensed financial statements are based on the historical financial statements of Mako and Deep Down after giving effect to the acquisition of Mako. The unaudited pro-forma condensed combined statements of operations for the three months ended March 31, 2007 is presented as if the acquisition had taken place on January 1, 2007 by combining the historical results of Mako and Deep Down.
DEEP DOWN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2008 2007
Revenues:
Contract revenue $ 5,337,529 $ 1,602,281
Rental revenue 941,936 496,113
Total revenues 6,279,465 2,098,394
Cost of sales 3,876,371 1,252,089
Gross Profit 2,403,094 846,305
Operating expenses:
Selling, general & administrative 1,762,247 659,651
Depreciation and amortization 298,149 64,025
Total operating expenses 2,060,396 723,676
Operating income 342,698 122,629
Other income (expense):
Gain on sale of assets 28,355 -
Interest income 39,164 -
Interest expense (769,030 ) (231,887 )
Total other expense (701,511 ) (231,887 )
Loss before income taxes (358,813 ) (109,258 )
Income tax benefit 269,366 -
Net loss $ (89,477 ) $ (109,258 )
Earnings per share:
Basic and diluted $ (0.00 ) $ (0.00 )
Weighted-average common shares outstanding 87,185,242 81,036,838
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See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
March 31,
2008 2007
Cash Flow from Operations
As of March 31, 2008, our cash and cash equivalents were $3,115,818 plus restricted cash of $562,500. Cash and cash equivalents were $2,206,220 plus restricted cash of $375,000 as of December 31, 2007. Management believes that the Company has adequate capital resources when combined with its cash position and cash flow from operations to meet current operating requirements.
On April 11, 2008, the shareholders of Mako received the final cash installment of $1,243,571 under the terms of the securities redemption and shareholder payable agreement.
For the three months ended March 31, 2008, cash used in operating activities was $543,444 as compared to cash provided by operating activities for the same prior year period of 2007 of $144,083. Our working capital balances vary due to delivery terms and payments on key contracts, work in progress, and outstanding receivables and payables.
=================================
Cash flows from operating activities:
Net loss $ (89,447 ) $ (109,258 )
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of debt discount 231,760 179,587
Amortization of deferred financing costs 56,915 -
Share-based compensation 105,162 -
Allowance for doubtful accounts 3,949 -
Depreciation and amortization 298,150 64,025
Gain on disposal of equipment 58,115 -
Changes in assets and liabilities:
Accounts receivable (282,869 ) (181,220 )
Prepaid expenses and other current assets (107,239 ) 15,111
Finished goods - (355,568 )
Construction in progress (161,279 ) 64,170
Accounts payable and accrued liabilities (603,631 ) 395,236
Deferred revenue (53,030 ) 72,000
Net cash provided by (used in) operating activities (543,444 ) 144,083
Cash flows from investing activities:
Cash paid for final acquisition costs (66,525 ) -
Cash paid for third party debt - (366,134 )
Cash received from sale of ElectroWave receivables - 261,068
Purchases of equipment (156,958 ) (290,373 )
Restricted cash (187,500 ) -
Net cash used in investing activities (410,983 ) (395,439 )
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 - 950,000
Proceeds from sales-type lease 103,500 -
Proceeds from Prospect Capital 2,687,333 -
Payments of long-term debt (926,808 ) (113,129 )
Net cash provided by financing activities 1,864,025 336,871
Change in cash and equivalents 909,598 85,515
Cash and equivalents, beginning of period 2,206,220 12,462
Cash and equivalents, end of period $ 3,115,818 $ 97,977
Supplemental schedule of noncash investing
and financing activities:
Fixed assets purchased with capital lease $ - $ 525,000
Exchange of preferred stock $ 4,419,244 $ 3,366,778
Redemption of preferred stock for debt $ 500,000 $ -
Common Shares issued as restricted stock $ 1,200 $ -
Stock issued for payment of shareholder debt $ 1,962,078 $ -
Supplemental Disclosures:
Cash paid for interest $ 480,356 $ 52,301
Cash paid for taxes $ 275,000 $ -
Accounts receivable includes an allowance for uncollectible accounts of $141,736 and $139,787 as of March 31, 2008 and December 31, 2007, respectively. Bad debt expense totaled $3,949 and $1,852 for the three months ended March 31, 2008 and March 31, 2007, respectively.
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PROPERTY AND EQUIPMENT
Property and equipment include the following:
March 31, 2008 December 31, 2007
Building $ 231,055 $ 195,305
Furniture and fixtures 63,777 63,777
Vehicles and trailers 112,162 112,162
Leasehold improvements 113,614 75,149
Equipment 2,021,054 2,004,167
Rental Equipment 3,144,560 3,144,559
Total 5,686,222 5,595,118
Less: Accumulated depreciation (627,665 ) (422,314 )
Property and equipment, net $ 5,058,557 $ 5,172,804
Depreciation expense for the three months ended March 31, 2008 and March 31, 2007 was approximately $213,090 and $64,025, respectively
Secured credit agreement with Prospect Capital Corporation
quarterly principal payments of $250,000 beginning
September 30, 2008; monthly interest payments,
interest fixed at 15.5%; balance due August 2011;
secured by all assets $ 12,000,000 $ 12,000,000
Debt discount, net of amortization of $254,101 and $135,931 respectively (1,585,088 ) (1,703,258 )
Note payable to a bank, payable in monthly
installments bearing interest at 8.25% per annum,
maturing June 10, 2008, cross-collateralized
by Mako assets, paid January 2008. - 289,665
Note payable to a bank, payable in monthly
installments bearing interest at 7.85% per annum,
maturing September 28, 2010, collateralized by Mako
life insurance policy and equipment, paid January 2008. - 320,027
Revolving line-of-credit of $500,000 from a bank,
matured October 13, 2007 or on demand, interest rate is
at a variable rate resulting in a rate of 8.30% as of
September 30, 2007, collateralized by Mako equipment,
paid January 2008. - 151,705
Note payable to a bank payable in monthly
installments bearing interest at 7.85% per annum,
maturing January 25, 2011, collateralized by Mako
equipment and life insurance policy, paid January 2008 - 154,647
Total secured credit agreement and bank debt 10,414,912 11,212,786
6% Subordinated Debenture beginning March 31, 2008; annual -
interest payments, interest fixed at 6%; matures March 31, 2011 500,000 -
Capital lease of equipment, monthly lease payments,
interest imputed at 11.2% 470,446 481,209
Total long-term debt 11,385,358 11,693,995
Current portion of long-term debt (330,399 ) (995,177 )
Long-term debt, net of current portion $ 11,054,959 $ 10,698,818
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Secured Credit Agreement
On December 21, 2007, Deep Down entered into an amendment to our Credit Agreement (the “Amendment”) to provide the funding for the cash portion of the purchase of Mako. The total commitment available under the Amendment was increased from $6.5 million to $13.0 million. Quarterly principal payments increased to $250,000 beginning September 30, 2008, with the remaining balance outstanding due August 6, 2011. Interest paid through March 31, 2008 was $480,356. Under the Credit Agreement, we are required to meet certain covenants and restrictions. We must also maintain a debt service reserve account of $750,000. As of March 31, 2008, $562,500 is separately classified as “Restricted cash” on the accompanying balance sheet. At March 31, 2008, Deep Down is not in compliance with certain financial covenants or the requirement to have life insurance on the CEO in the amount of $3,000,000. Deep Down has obtained waivers from the lender for all the covenants that are not in compliance.
In connection with the second advance under the Credit Agreement on January 4, 2008, Deep Down capitalized an additional $261,941 in deferred financing costs. Of this amount, $216,000 was paid in cash to various third parties related to the financing, and the remainder of $45,946 represents the Black Scholes valuation of warrants issued to one of these third party vendors. The warrant was granted to purchase up to 118,812 shares of common stock at an exercise price of $1.01 per share. The warrant has a five-year term and is immediately exercisable. The fair value of the warrant was estimated to be $45,946 based on the Black Scholes pricing model. The assumptions used in the model included (1) expected volatility of 61.3%, (2) expected term of 2.5 years, (3) discount rate of 3.2% and (4) zero expected dividends. Provisions in the warrant agreement allow for a cashless exercise provision, not to exceed 2% of outstanding common stock at the time of exercise.
The following table summarizes interest expense for the three months ended March 31, 2008 and March 31, 2007:
Three Months Ended
March 31,
2008 2007
Interest Expense $ 480,356 $ 52,300
Accretion 113,589 179,587
Amortization of debt discount 118,171 -
Amortization of deferred financing 56,914 -
$ 769,030 $ 231,887
Exchange of Remaining Series E Redeemable Exchangeable Preferred Stock to 6% Subordinated Debenture
On March 31, 2008, 500 shares of the Series E Redeemable Exchangeable Preferred Stock (“Series E”) were exchanged into a 6% Subordinated Debenture in an outstanding principal amount of $500,000 (the “Debenture”). The Debenture has a fixed interest rate of 6% interest per annum to be paid annually on March 31st through maturity on March 31, 2011. The Series E had a face value and liquidation preference of $1,000 per share, no dividend preference, and were exchangeable at the holder’s option into 6% Subordinated Debenture due three years from the date of the exchange. These shares carried voting rights equal to 690 votes per share. The Series E Preferred Stock was valued based on the discounted value of expected future cash flows (using a discount rate of 20%). At inception, Deep Down evaluated the Series E and has classified as debt instruments from the date of issuance since the Series E are exchangeable at the option of the holder thereof into Debenture. The difference between the face value of the Series E and the discounted book value recorded on the balance sheet, or original issue discount, was recorded as non-cash interest expense for the duration of the term. Upon exchange into the $500,000 subordinated debenture Deep Down recorded $113,589 in interest expense for the accretion up to face value.
During the quarter ended March 31, 2008 and in accordance with the terms of the purchase of Mako, Deep Down paid $916,044 of notes payable.
The unaudited pro-forma results were as follows:
Deep Down, Inc.
Unaudited Pro forma Statements of Operations
Historical Historical
Deep Down Mako Pro-Forma
Quarter Ended Quarter Ended Quarter Ended
March 31, March 31, Pro-Forma March 31,
2007 2007 Adjustments 2007
Revenues $ 2,098,394 $ 849,929 $ - $ 2,948,323
Cost of sales 1,252,089 561,116 1,813,205
Gross profit 846,305 288,813 - 1,135,118
Operating expenses 723,676 406,933 93,039 (a) 1,223,648
Total other income (expense) (231,887 ) (17,974 ) (266,123 ) (b) (515,984 )
Net loss $ (109,258 ) $ (136,094 ) $ (359,162 ) $ (604,514 )
Earnings per share:
Basic and diluted $ - $ (0.01 )
Weighted-average common shares outstanding 85,976,526 (c) 95,353,569
(a) Amortization of the intangible assets at a rate of $28,353 per month for three months; plus $7,980 adjustment to historical depreciation expense to adjust to purchase accounting asset values.
(b) Represents cash interest plus amortization of deferred financing costs and debt discounts. Interest is payable at 15.5% on the outstanding principal, and the related fees are amortized using the effective interest method over the four-year life of the loan.
(c) A total of 9,377,043 shares were issued for the total transaction. These pro forma amounts give effect as if shares were issued January 1, 2007
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STOCK OPTIONS AND WARRANTS
Deep Down has a stock based compensation plan - the 2003 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (the “Plan”). The exercise price of the options, as well as the vesting period, is established by Deep Down’s board of directors. The options granted under the Plan have vesting periods that range from immediate vesting to vesting over five years, and the contract terms of the options granted are up to ten years. Under the Plan the total number of options permitted is 15% of issued and outstanding common shares. During the three months ended March 31, 2008, Deep Down granted 3,250,000 options and cancelled 625,000 options under the Plan.
The total stock based compensation expense for the three months ended March 31, 2008 and March 31, 2007, was $105,162 and -0-, respectively. The unamortized portion of the estimated fair value of these stock options is $ 1,203,721 at March 31, 2008. Based on the shares of common stock outstanding at March 31, 2008, there are 9,252,000 options available for grant under the Plan as of that date.
During the three months ended March 31, 2008, Deep Down granted 1,200,000 shares of restricted common stock to certain officers and employees of Deep Down. These restricted shares vest over a period of two years. Deep Down determined the fair market value on the date of grant to be $504,000 and is recognizing the expense ratably over the vesting period.
Related to the financing of Secured Credit Agreement Amendment and second advance in January 2008, Deep Down issued warrants to purchase up to 118,812 shares of common stock at an exercise price of $1.01 per share to a third party. The warrant has a five-year term and is immediately exercisable. The assumptions used in the Black Scholes model included (1) expected volatility of 61.3%, (2) expected term of 2.5 years, (3) discount rate of 3.18% and (4) zero expected dividends.
During the three months ended March 31, 2008, 1,200,000 shares of restricted common stock were granted to certain employees and officers of Deep Down.
The following table summarizes outstanding warrants and their respective exercise prices at March 31, 2008:
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COMMITMENTS AND CONTINGENCIES
We are from time to time involved in legal proceedings arising in the normal course of business. As of the date of this Quarterly Report on Form 10-Q, there are no pending or threatened material legal proceedings.
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Barrel – unit of measure for oil and petroleum products, equivalent to 42 U.S. gallons.
BOE – barrels of oil equivalent, used to equate natural gas volumes to liquid barrels at a general conversion rate of 6,000 cubic feet of gas per barrel.
BOE/d – barrels of oil equivalent per day.
Field – an area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
FTP – flowing tubing pressure.
MBOE – thousand barrels of oil equivalent.
MMBOE – million barrels of oil equivalent.
MD – measured depth.
Net Pay – cumulative hydrocarbon-bearing formations.
Spud – to begin drilling a well.
TD – target total depth of a well.
TD’d – to finish drilling a well.
TVD – total vertical depth.
Workover – operations on a producing well to restore or increase production. A workover may be performed to stimulate the well, remove sand or wax from the wellbore, to mechanically repair the well, or for other reasons.
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