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

DEEP DOWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)

Basis of Presentation

The accompanying unauditedcondensedconsolidated financial statements of Deep Down, Inc. and its directly and indirectly wholly-owned subsidiariessubsidiary (“Deep Down,” “we,” “us” or the “Company”) were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the “Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those rules, certain footnotesnotes 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, 2016, filed on March 31, 2017 with the Commission.2019.

Preparation of financial statements in conformity withUS GAAPrequires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, then the actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

Liquidity

The Company’s cash on hand was $3,033 and working capital was $3,965 as of March 31, 2020. As of December 31, 2019, cash on hand and working capital was $3,523 and $4,939, respectively. The Company does not have a credit facility in place and depends on cash on hand, cash flows from operations, and the potential opportunistic sales of property, plant and equipment (“PP&E”) to meet its liquidity needs.

Given the abrupt decline in oil prices and global economic activity caused by COVID-19, the Company cannot predict with certainty the overall impact on the Company’s operations and cash flows. The Company has taken steps to mitigate the challenges presented by the current macro environment, including workforce reductions, wage reductions, rent abatement, and limiting capital expenditures and R&D efforts to only critical items. The Company continues to seek further cost reduction opportunities to preserve liquidity.

Additionally, the Company applied for a loan under the Small Business Administration’s Paycheck Protection Program. On April 29, 2020, the Company received a loan in the amount of $1,111, which will be used to finance payroll, rent, and utilities over the balance of the second quarter of 2020. The loan principal and related interest accrued may be forgivable, partially or in full, if certain conditions are met.

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, current working capital, and potential opportunistic sales of PP&E in addition to pursuing a disciplined approach to making capital investments.

Principles of Consolidation

The unaudited condensed consolidated financial statements presented herein include the accounts of Deep Down, Inc. andits directly and indirectly wholly-owned subsidiaries.wholly owned subsidiary. All intercompany transactions and balances have been eliminated.

Segments

For the quartersthree months ended September 30, 2017March 31, 2020 and 2016,2019, we had one operating and reporting segment, Deep Down Delaware.

Recently Issued Accounting Standards Not Yet Adopted

NOTE 2:

LEASES

In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard UpdateASU 2016-02, Leases (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”ASC Topic 842”). This update providesUnder this guidance, lessees are required to recognize on the balance sheet a five-step approach to be applied to all contracts with customerslease liability and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. The effective date for this standard was deferred in July 2015 and will now be effective for us beginning January 1, 2018. The standard provides for different application methods during adoption. We are currently in the process of evaluating the potential impact this new pronouncement will have on our financial statements. We are reviewing our existing contracts to identify any that may be impacted by this standard, and evaluating new contracts we are negotiating to ensure compliance with this standard. We have not completed our full evaluation and therefore cannot conclude whether the pronouncement will have a significant impact on our financial statements at this time, but we expect requirements of this standard to significantly enhance our revenue disclosures. We currently anticipate that we will utilize the modified retrospective method of adoption, however, this expectation may change following the completion of our evaluation of the impact of this pronouncement on our financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”right-of-use (“ASU 2016-02”ROU”). The amendments in this update require, among other things, that lessees recognize the following asset for all leases, (with the exceptionexcept for short-term leases with terms of short-term leases) at the commencement date: (1) atwelve months or less. The lease liability which is a lessee'srepresents the lessee’s obligation to make lease payments arising from a lease and will be measured on a discounted basis; and (2) a right-of-useas the present value of the lease payments. The ROU asset which is an asset that represents the lessee'slessee’s right to use or control the use of, a specified asset for the lease term. Lesseesterm, and lessors mustwill be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs.

Practical Expedients

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 a modified retrospective transition approachits 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 existing at,with an initial term of twelve months or entered into after,less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the beginninglease 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 earliest comparative period presentedunderlying asset at the commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria.

ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and a portion is recorded in cost of sales, and the financial statements.remainder is recorded in selling, general and administrative expenses. The amendments are effectiveaccounting for us beginning January 1, 2019. Wesome of our 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 anticipateprovide an implicit rate and assessing the adoptionlikelihood of ASU 2016-02 willrenewal or termination options.

As of March 31, 2020, we do not have a material effect on our results of operations, howeverany finance lease assets or liabilities, nor do we are still evaluating the impact on our financial position.have any subleases.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)The following tables present information about our operating leases:

In October 2016,

The components of our lease expense were as follows:

Lease term and discount rate:

During the FASB issued ASU No. 2016-16, “Intra-Entity Transfersquarter ended March 31, 2020, the Company did not have any sale/leaseback transactions.

Present value of Assets Other Than Inventory.” This update requires that income tax consequenceslease liabilities:

NOTE 3: REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenues are recognized onwhen control of the promised goods or services is transferred to our customers in an intra-entity transfer of an asset other than inventory whenamount that reflects the transfer occurs. The amendmentsconsideration we expect to be entitled to in this ASU are effectiveexchange for us on January 1, 2018. We are currently evaluatingthose goods or services. To determine the impact of this ASU onproper revenue recognition method for our consolidated financial statements.

In January 2017,customer contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the FASB issued ASU No. 2017-01, “Business Combinations.” This new ASU clarified the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactionscombined or single contract should be accounted for as acquisitions (or disposals)more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of assetscontracts or businesses. The new standard is effective for us January 1, 2018separate the combined or single contract into multiple performance obligations could change the amount of revenue and will be applied prospectively. We are currently evaluating the impactprofit recorded in a given period.

For most of our pending adoptionfixed 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 new standard, but do not expect it to have a material impact on our consolidated financial position or resultsdelivery of operations.

In February 2017,multiple units). Hence, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets” (“ASU 2017-05”). This update clarifies the scope of accounting for the derecognition or partial sale of nonfinancial assets to exclude all businesses and nonprofit activities. ASU 2017-05 also provides a definition for in-substance nonfinancial assets and additional guidance on partial sales of nonfinancial assets. We are currently evaluating the effect of ASU No. 2017-05 on our consolidated financial statements and will adopt ASU 2017-05 in conjunction with ASU 2014-09 on January 1, 2018.

In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting” (“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements. This update clarifies when a change to the terms or conditions of a share-based payment award should beentire contract is accounted for as a modification. An entity shouldone performance obligation. We account for a contract when it has approval and commitment from both parties, the effects of a modification unless the fair value, vesting conditions and classification, as an entity instrument or a liability instrument,rights of the modified awardparties are identified, payment terms are identified, the same beforecontract has commercial substance and after a change to the terms or conditionscollectability of the share-based payment award. The new standardconsideration is effective for us January 1, 2018. We do not expect ASU 2017-09 to have a material impact on our consolidated financial position or results of operations.probable.

Disaggregation of Revenue

The componentsfollowing table presents the Company’s revenues disaggregated by fixed price and service contracts. Sales taxes are excluded from revenues.

Fixed price contracts

For fixed price contracts, we generally recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. In our fixed price contracts, the customer either controls the work in process or we deliver products with no alternative use to the Company and have rights to payment for work performed to date plus a reasonable profit as evidenced by contractual termination clauses.

Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.

Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

We have a company-wide standard and disciplined quarterly estimate at completion process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. When estimates of total costs to be incurred exceed total estimates of revenue to be earned on a performance obligation related to fixed price contracts, a provision for the entire loss on the performance obligation is recognized in the period the loss is estimated.

Service Contracts

We recognize revenue for service contracts measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically, we recognize revenue as the services are provided as we have the right to invoice the customer for the services performed. Services are billed and paid on a monthly basis. Payment terms for services are usually 30 days from invoice receipt.

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 summarized below: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.

The balance inAssets related to costs and estimated earnings in excess of billings on uncompleted contracts, at September 30, 2017 and December 31, 2016 consisted primarily of earned but unbilled revenuesas well as liabilities related to fixed-price projects.

The balance in billings in excess of costs and estimated earnings on uncompleted contracts, at September 30, 2017have 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, 2020 and December 31, 2016 consisted primarily of unearned billings related to fixed-price projects.2019, there were no contracts with terms that extended beyond one year.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AmountsThe following table summarizes our contract assets, which are “Costs and estimated earnings in thousands except per share amounts)excess of billings on uncompleted contracts” and our contract liabilities, which are “Billings in excess of costs and estimated earnings on uncompleted contracts”.

The contract asset and liability balances at March 31, 2020 and December 31, 2019 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 entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Further, in many of our service contracts, we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient in ASC 606-10-55-18, which allows us to recognize revenue in the amount for which we have the right to invoice.

Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The components of net property,Property, plant and equipment are summarized below:consisted of the following:

From 2008 through June 30, 2016, we maintained a credit facility (the “Facility”) with Whitney Bank.  In March 2016, we paid all borrowings under the Facility with proceeds received from the sale of our Channelview location.Following the expiration of the Facility on June 30, 2016, we no longer have any credit facilities available to us.

Share-based Compensation Plan

We have a share-based compensation plan, the “2003 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan” (the “Plan”). Awards of common stock and options to purchase common stock granted under the Plan have vesting periods of three years and options are exercisable for two years once fully vested. Share-based compensation expense related to awards is based on the fair value at the date of grant, and is recognized over the requisite expected service period, net of estimated forfeitures. Under the Plan, the total number of options permitted is 15 percent of issued and outstanding common shares.

Summary of Nonvested Shares of Restricted Stock

On May 2, 2017, wethe Company granted 30 shares of restricted stock to an independent director.the current Chairman of the Board (“Chairman”). These shares have a fair value grant price of $1.15 per share, based on the closing price of our common stock on that day. These shares vest over three years in equal tranches on the grantanniversary date anniversary,of the grant subject to continued service on our Board of Directors. We are amortizingto the Company. The related share-based compensation of $33$35 is being amortized over the three-year requisite service period.period, and the Company recognized $3 in compensation expense for the quarter ended March 31, 2020.

On July 27, 2018, the Company granted 300 shares of restricted stock to the current Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). These shares have a fair value grant price of $0.79 per share, based on the closing price of our common stock on that day. These shares vest over three years in equal tranches on the anniversary date of his appointment as CFO, subject to continued service to the Company. The related share-based compensation of $237 is being amortized over the three-year requisite service period, and the Company recognized $20 in compensation expense for the quarter ended March 31, 2020.

On June 24, 2019, the three non-employee members of the Board of Directors (the “Board”) were each granted an option to purchase 50 shares of our common stock at a price of $0.75 per share. Fair value of these stock options was $0.44 per share at the date of grant. The options vested 25% on August 31, 2019, 25% on November 30, 2019, 25% on February 29, 2020, and the remainder is scheduled to vest on May 31, 2020, subject to the recipient’s continued service on the Board. Once vested, the options are exercisable until June 24, 2024. The related share-based compensation of $66 is being amortized over the requisite service period, and the Company recognized $16 in compensation expense for the quarter ended March 31, 2020.

On September 23, 2019, the Company granted 200 shares of restricted stock to the former Chief Operating Officer (“COO”). These shares have a fair value grant price of $0.65 per share, based on the closing price of our common stock on that day. One fourth of the shares vested immediately, but the remaining shares will not vest as the position of COO was eliminated by the Company following March 31, 2020. The Company recognized $11 in compensation expense for the quarter ended March 31, 2020.

On September 24, 2019, the Company granted an option to purchase 150 shares of our common stock to the CEO at a price of $0.65 per share. Fair value of these stock options was $0.39 per share at the date of grant. The options are scheduled to vest in two equal tranches on the first and second anniversaries of the grant subject to his continued service as CEO. The related share-based compensation of $59 will be amortized over the two-year requisite service period as the shares vest, and the compensation expense for the quarter ended March 31, 2020 was immaterial.

On January 20, 2020, the Company granted an option to purchase 50 shares of our common stock to the VP of Finance at a price of $0.76 per share. Fair value of these stock options was $0.31 per share at the date of grant. The options are scheduled to vest in two equal tranches on the first and second anniversaries of the grant subject to his continued service to the Company. The related share-based compensation of $16 will be amortized over the two-year requisite service period as the shares vest, and the compensation expense for the quarter ended March 31, 2020 was immaterial.

Summary of Restricted Stock and Stock Options

For the ninethree months endedSeptember 30, 2017 March 31, 2020 and 2016,2019, we recognized a total of $101$50 and $309,$104, respectively, of share-based compensation expense related to restricted stock awards and stock options, which is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. 

The number of unvested shares of restricted stock was 210 and 360 at March 31, 2020 and December 31, 2019, respectively. The unamortized estimated fair value of nonvestedunvested shares of restricted stock awards was $73$101 and $134 atSeptember 30, 2017. March 31, 2020 and December 31, 2019, respectively. These costs are expected to be recognized as expense over a weighted-average period of 0.301.81 years.

The number of unvested of stock options was 238 and 225 at March 31, 2020 and December 31, 2019, respectively. The unamortized estimated fair value of unvested stock options was $107 and $91 at March 31, 2020 and December 31, 2019, respectively.

On MayDecember 23, 2016, our2019, the Board authorized the repurchase of Directors authorized a repurchase programup to 500 shares of the Company’s outstanding common stock (the “Repurchase Program”) under which we were originally authorized to repurchase up to $1,000 of our outstanding stock. Subsequently, on March 29, 2017, our Board of Directors authorized a renewal and extension of the Repurchase Program for an additional $1,000 until March 31, 2018. The purchases could be made from time to time in the open market, through privately negotiated transactions and Rule 10b5-1 trading plans in accordance with applicable laws, rules and regulations.. The Repurchase Program was funded from cash on hand and cash provided by operating activities. The Board separately authorized the repurchase of additional shares during the quarter ended March 31, 2020, in a privately negotiated transaction. During the three months ended March 31, 2020, 744 shares of common stock were purchased for an aggregate amount of $524. As of September 30, 2017, we had exhaustedMarch 31, 2020, the Repurchase Program. As of the date of this report no decisions haverepurchase program has been made on any further stock repurchases. The average price per share of treasury stock throughSeptember 30, 2017 was $1.02. exhausted.

Treasury shares are accounted for using the cost method.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)

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. Although our future projections indicate that we may be able to realize some of these deferred tax assets, due to the degree of uncertainty of these projections, atSeptember 30, 2017At March 31, 2020 and December 31, 20162019, management has recorded a full deferred tax asset valuation allowance.

Employment Agreements

The Company’s CEO and COO (the “Executives”) are employed under employment agreements containing severance provisions. In the event of termination of the Executives’ employment for any reason, the Executive will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination and all benefits to which the Executives are entitled or vested under the terms of all employee benefit and compensation plans, agreements and arrangements in which the Executives are participants as of the date of termination.

In addition, subject to executing a general release in favor of the Company, the Executive will be entitled to receive certain severance payments in the event of termination of the Executive’s employment by the Company “other than for cause” or by the Executive with “good reason.” These severance payments include: (i) a lump sum in cash equal to one to two times the Executive’s annual base salary; (ii) a lump sum in cash equal to one to two times the average annual bonus paid to the Executive for the prior two full fiscal years preceding the date of termination; (iii) a 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 Executive’s annual base salary; and (iv) if the Executive’s termination occurs prior to the date that is twelve months following a change of control, then each and every share option, restricted share award and other equity-based award that is outstanding and held by the Executive shall immediately vest and become exercisable.

Subsequent to March 31, 2020, the Company eliminated the position of COO and relieved the COO of his duties pursuant to the terms of his employment agreement, and placed him on garden leave for the remainder of his employment through May 31, 2020. In addition to payment of accrued and unpaid salary, vacation time, and other benefits referred to above, and subject to execution of a release of claims by the COO, the Company is required to pay him one time his current annual base salary of $245,000, payable over 12 months.

Litigation

From time to time, we are involved inthe Company is party to various legal proceedings arising fromin the normalordinary course of business. AsThe Company expenses or accrues legal costs as incurred. A summary of the date of this Report, we were not involved in anyCompany’s material legal proceedings.proceedings is as follows:

On August 6, 2018, GE Oil and Gas UK Ltd. (“GE”) requested that the Company mediate a dispute between the parties in the ICC International Centre for ADR (“ICC”). The dispute involved alleged delays and defects in products manufactured by the Company for GE dating back to 2013. The Company disputed GE’s allegations and vigorously defended itself against these allegations. Mediation took place on November 28, 2018 but was not resolved. On February 22, 2019, GE initiated arbitration proceedings with the ICC. The total amount in dispute was originally $2,630 but was later reduced to $2,252. On February 26, 2020, the parties agreed in principle to settle the dispute, and the parties are working toward finalizing the terms of a definitive settlement agreement. The Company therefore accrued a liability related to this matter in the amount of $750 for the year ended December 31, 2019.

In November 2011, the Company delivered equipment to Aker Solutions, Inc. (“Aker”), but Aker declined to pay the final invoice in the aggregate amount of $270 alleging some warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly attempted to collect on the receivable, and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently filed a counterclaim on March 20, 2013 in the aggregate amount of $1,000 for reimbursement of insurance payments allegedly made for repairs. The parties have not reached a resolution on this matter. At this point, it is not clear as to whether an unfavorable outcome is either probable or remote, and the Company is unable to determine the likelihood of an unfavorable outcome or the amount or range of potential loss if the outcome should be unfavorable.

Operating Leases

We lease certain offices, facilities, equipment and vehicles under non-cancellable operating and capital leases expiring at various dates through 2023.

Basic earnings per share (“EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive common stock equivalents (warrants, nonvested stock awards and stock options) outstanding during the period. Diluted EPS reflects the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock and all nonvested stock awards vest.

At September 30, 2017March 31, 2020 and 2016, there2019, all such securities were potentially dilutive securities outstanding, but they were not taken into consideration in calculating diluted EPS because there were losses, so including them would have been anti-dilutive.

On August 15, 2019, Mr. Ronald E. Smith, the Company's Founder, resigned as Chief Executive Officer and as a member of the Board, effective as of August 31, 2019. In connection with Mr. Smith's resignation, the Company and Mr. Smith entered into a Transition Agreement, effective as of September 1, 2019 (the “Transition Agreement”). The Transition Agreement provides for Mr. Smith to serve as an independent consultant to the Company from September 1, 2019 through December 31, 2021. The Company agreed to pay Mr. Smith $15 per month, from January 1, 2020 through December 31, 2021, in exchange for his future services. The Company therefore recorded consulting expenses related to the Transition Agreement totaling $45 for the quarter ended March 31, 2020.

In addition to the other payments provided for under the Transition Agreement, the Company also agreed to pay Mr. Smith 1.5% of the net sale or lease value of two carousels owned by Company, if such sale or lease occurs prior to December 31, 2021, unless those assets are sold or leased in conjunction with a sale of all or substantially all of the assets or stock of Deep Down, in which case no commission is due.

As part of the Transition Agreement, Mr. Smith is bound by certain non-disclosure and confidentiality provisions, and a non-compete and non-hire agreement.

We have evaluated subsequent events through the date the condensed consolidated financial statements included in this Report were filed with the Securities and Exchange Commission.

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 Paycheck Protection Program, and on April 29, 2020, the Company received a loan in the amount of $1,111, which will be used to finance payroll, rent, and utilities over the balance of the second quarter of 2020. The loan principal and related interest accrued may be forgivable, partially or in full, if certain conditions are met.

Also, on April 6, 2020, the Company signed a Letter of Understanding for Landlord to Temporarily and Partially Abate Rent (the “Abatement Letter”) provided by the Company’s landlord of our corporate office and facility. According to the Abatement Letter, our landlord agreed to reduce rent payments over a four-month period beginning with the April 2020 payment. Over this four-month period, the Company’s rent will be lowered by a total of $253. In exchange for the rent abatement, the Company agreed to extend the lease by two months.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis providesprovide information that management believes is relevant for an assessment and understanding of our results of operations and financial condition. This information should be read in conjunction with our audited historical consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission (“SEC”) on March 31, 20172019, and our unaudited condensed consolidated financial statements, and notes thereto, included with this Quarterly Report on Form 10-Q (“Report”) in Part I. Item 1. “Financial Statements.Statements,” and is available on the SEC’s website. Dollar amounts are in thousands, except backlog amount.

General

We areDeep Down is an oilfield product and services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services servingand subsea distribution products used between the worldwide offshore explorationproduction facility and production industry.the wellhead. Our core services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, buoyancy products and services, remotely operated vehicles (“ROVs”) and toolings. Werelated services.  Additionally, our highly experienced, specialized service teams can support subsea engineering, installation, commissioning, and maintenance projects through specialized, highly experiencedlocated anywhere in the world.  

Industry and Executive Outlook

The dual challenges of the global coronavirus pandemic and the oil price crash continue to impact our business and that of our customers. Our service teamsbusiness is particularly dependent on our personnel being able to travel domestically and engineered technological solutions.internationally, and travel restrictions imposed by various governments partially contributed to reduced revenues during the first quarter of 2020.

While revenues of $3,605 for the quarter ended March 31, 2020 declined by $2,695 compared to the quarter ended March 31, 2019, revenues for the first quarter of 2020 increased by $651 compared to the quarter ended December 31, 2019. The year-over-year decline in revenues was primarily driven by a lower proportion of fixed-price contract activity during the first quarter of 2020.

We could potentially experience additional headwinds as our customers continue to adjust their operations based on the current oil price environment. This includes customers delaying new purchase orders, extending timelines for existing purchase orders, and delaying the payment of outstanding invoices. To help navigate these headwinds, the Company applied for a loan under the Small Business Administration’s Paycheck Protection Program, and on April 29, 2020, the Company received a loan in the amount of $1,111, which will be used to finance payroll, rent, and utilities over the balance of the second quarter of 2020. The loan principal and related interest accrued may be forgivable, partially or in full, if certain conditions are met.

In Part I. Item 2. “Management’s DiscussionAugust of 2019, we announced a change in leadership and Analysis of Financial Condition and Results of Operations,” all dollar and share amounts aresubsequently made some additions to our management team to focus on growth. However, considering recent developments in thousands of dollars and shares, respectively, unless otherwise indicated.

Industry and Executive Outlook

Three years into the downturn in oil prices, the industry has largely come to terms with the lower prices, and adjusted accordingly. So much so, that the recent slight uptick in prices is giving rise to optimism about the future. However, even without increases in prices, oil companies have modified their strategies to manage their operations with the lower prices, with projects being executed at breakeven prices as low as $50 a barrel.

One key strategy being employed across the industry is the increased use of strategic partnerships. Whether between oil and gas operatorsindustry, the Company adjusted its strategy to prepare for a longer cycle of lower oil prices while maintaining adequate support for existing projects. This strategy includes maintaining a disciplined capital structure, workforce reductions, wage reductions, rent abatement, and their suppliers, or between suppliers who serve different steps along the value chain, these partnerships are realizing increased value duelimiting capital expenditures and R&D efforts to only critical items. The Company continues to seek further cost reduction opportunities to preserve liquidity.

As we look to the alignmentfuture, we currently project the service side of incentives, while spreading project risks.

Whileour business to recover first as we expect our customers to be focused on extending the life of existing assets, rather than sanctioning new projects. Therefore, we are disheartened by delaysdetermined to further position ourselves as the service provider of choice in some key projects wesuch an environment. We expect to be workingexecute this strategy while remaining laser-focused on managing our cash flows and the resulting disappointing results, we are cautiously optimistic that partnerships we are pursuing will provide material benefits for us in 2018 and beyond, even as we continue to engage with our existing and new customers on their projects. We are especially looking to take advantage of such partnerships to pursue opportunities in international markets, where there is an increase in the focus on local content regulations, in order to enhance local capacity.

We are continuing to engage in more discussions with different customers on what is commonly referred to as brownfield work, which is where operators seek to derive further benefit from their existing infrastructure, rather than develop new fields. We continue to view this as a growth opportunity for us, especially as a mitigation for continued delays in new projects, and are making concerted efforts to enhance our market position in this area.

Our balance sheet continues to be strong, we continue to evaluate opportunities to optimize our cost structure, and we are continuing to engage with our customers as they make plans for their projects in 2018 and beyond. Through these efforts we remain strongly committed to creating the mostmaximizing value for our customers, shareholders and employees.shareholders.

Results of Operations

Three Months Ended September 30, 2017March 31, 2020 Compared to Three Months Ended September 30, 2016March 31, 2019

Revenues. Revenues for the three months ended September 30, 2017March 31, 2020 were $3,470$3,605 compared to revenues of $9,165$6,300 for the three months ended SeptemberMarch 30, 2016.2019. The $5,695,$2,695, or 6243 percent, decrease from the same period in 2019 was primarily the result of delays in the commencement of certain customer projects, and fewerless fixed-price projects in process, in 2017, coupled withCOVID-19 related travel restrictions, and the commencement of procurement and manufacturing activities on certain customer orders that resulted in higher than normal revenuesrecent developments in the three month period ended September 30, 2016.global oil markets.

Gross profit.Cost of Sales. Gross profitCost of sales decreased by $1,560, or 39 percent, to $2,482 for the three months ended September 30, 2017March 31, 2020 from $4,042 for the same period in 2019. The decrease in cost of sales was $1,034, or 30 percentprimarily driven by the decrease in revenues. Our cost of sales as a percentage of revenues compared to $3,297, or 36 percent of revenues, for the three months ended September 30, 2016. The $2,263 decrease in gross profit, or 6 percent decrease in gross profit percentage respectively, wasincreased primarily due to the lower revenues in the three months ended September 30, 2017.absorption of fixed costs reported under cost of sales.

Selling, general and administrative expenses.Selling, general and administrative (“SG&A”) expenses were $2,264,$1,693, or 6547 percent of revenues, for the three months ended September 30, 2017March 31, 2020 compared to $2,210,$1,995, or 2432 percent of revenues, for the three months ended September 30, 2016.March 31, 2019. The $54$302, or 15 percent, decrease in SG&A is a result of cost reduction initiatives implemented by the Company as a result of a renewed focus on the Company’s core business. The increase in 2017 resulted primarily from labor costs directed to SG&A activitiesexpense as a percentage of revenues was due to lower manufacturing and/or service activities.

Other income (expense). During the three months ended September 30, 2017, we recognized a gain on the sale of property, plant and equipment of $559 related to the sale of one of our ROVs.There was no gain or loss on the sale of property, plant and equipmentrevenues during the three months ended September 30, 2016.March 31, 2020 as compared to the three months ended March 31, 2019.

Modified EBITDA. Our management evaluates our performance based on a non-GAAPnon-US GAAP measure which consists of earnings (net income or loss) available to common shareholders before net interest expense,income, income taxes, depreciation and amortization, non-cash share-based compensation expense, equity in net income or loss of joint venture, non-cash impairments, depreciation and amortization,non-cash gains or losses on the sale of PP&E, other non-cash items and one-time charges (“Modified EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with US GAAP. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Modified EBITDA calculation, however, are derived from amounts included in the accompanying unaudited condensed consolidated statements of operations.

We believe Modified EBITDA is useful to investors in evaluating our operating performance because it is widely used to measure a company’s operating performance, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired. It helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest); asset base (primarily depreciation and amortization); and actions that do not affect liquidity (share-based compensation expense equity in net income or loss of joint venture) from our operating results; and it helps investors identify items that are within our operational control. Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.

The following is a reconciliation of net income (loss) to Modified EBITDA (EBITDA loss)(loss) for the three months ended September 30, 2017March 31, 2020 and 2016:2019:

Modified EBITDA loss was ($863) for the three months ended September 30, 2017 compared to Modified EBITDA of $1,492 for the three months ended September 30, 2016. The $2,355$923 decrease in Modified EBITDA was due primarily to the decrease in net income, which was driven byrevenues and the previously discussed decreased revenues, as well as the gain on sale of assets during the 2017 period.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Revenues. Revenues for the nine months ended September 30, 2017 were $14,458 compared to revenues of $19,489 for the nine months ended September 30, 2016. The $5,031, or 26 percent,resulting decrease was primarily a result of project delays and fewer projects in process in 2017, coupled with the previously discussed above average activity levels in the same period in 2016.

Gross Profit. Gross profit for the nine months ended September 30, 2017 was $6,341, or 44 percent of revenues, compared to gross profit of $6,672, or 34 percent of revenues, for the nine months ended September 30, 2016. Though we had a slight decrease of $331 in gross profit we maintained higher margins as a percentage of revenues, due to a larger proportion of higher margin service work, as well as the resolution of an outstanding customer issue, during the ninethree months ended September 30, 2017.

Selling, general and administrative expenses.SG&A expenses for the nine months ended September 30, 2017 were $6,995, or 48 percent of revenues, compared to $7,376, or 38 percent of revenues, for the nine months ended September 30, 2016. The $381 decrease in 2017 resulted primarily due to a reduction in certain SG&A salaries and rent expense incurred in 2016, related to the sale and move from our Channelview location in 2016, as well as a decrease in our legal expenses.

Equity in net income of joint venture. During the nine months ended September 30, 2017, we recorded $94 of equity in net income of joint venture, related to net income, for the year ended DecemberMarch 31, 2016, of Cuming Flotation Technologies, LLC, in which we previously owned a 20 percent interest.

Other income (expense). During the nine months ended September 30, 2017, we recognized a gain on the sale of property, plant and equipment of $574 primarily related to the sale of one of our ROVs, while during the nine months ended September 30, 2016, we recognized a gain on the sale of property, plant and equipment of $1,070 related to the sale of our Channelview location.

Modified EBITDA. As noted above, our management evaluates our performance based on Modified EBITDA.  This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance with GAAP. The amounts included in the Modified EBITDA calculation, however, are derived from amounts included in the accompanying condensed consolidated statements of operations.

The following is a reconciliation of net loss to Modified EBITDA for the nine months ended September 30, 2017 and 2016:

Modified EBITDA for the nine months ended September 30, 2017 was $507 compared to Modified EBITDA of $587 for the nine months ended September 30, 2016.  The $80 decrease was primarily due to the decrease in gain on sale of assets, the decrease in share-based compensation, and the increase in net loss in 20172020 as compared to 2016.the three months ended March 31, 2019.

Liquidity and Capital Resources

Overview

Historically, we have supplemented the financing of our capital needs through debt and equity financings.

From 2008 through June 30, 2016, we maintained a credit facility (the “Facility”) with Whitney Bank. In March 2016, we paid all borrowings under the Facility with proceeds received from the sale of our Channelview location.Following the expiration of the Facility on June 30, 2016, we no longer have any credit facilities available to us.

As a result of cash we expect to generate from operations, we believe weThe Company believes it will have adequate liquidity to meet ourits future operating requirements for the foreseeable future.through a combination of cash on hand, cash expected to be generated from operations, working capital of $3,965 as of March 31, 2020, and potential opportunistic sales of PP&E in addition to pursuing a disciplined approach to making capital investments.

InflationGiven the abrupt decline in oil prices and Seasonalityglobal economic activity caused by COVID-19, the Company cannot predict with certainty the overall impact on the Company’s operations and cash flows. The Company has taken steps to mitigate the challenges presented by the current macro environment, including workforce reductions, wage reductions, rent abatement, and limiting capital expenditures and R&D efforts to only critical items. The Company continues to seek further cost reduction opportunities to preserve liquidity.

We do not believeAdditionally, the Company applied for a loan under the Small Business Administration’s Paycheck Protection Program, and on April 29, 2020, the Company received a loan in the amount of $1,111, which will be used to finance payroll, rent, and utilities over the balance of the second quarter of 2020. The loan principal and related interest accrued may be forgivable, partially or in full, if certain conditions are met. The Company also continues to engage in discussions with several financial institutions if a credit facility is needed to further support operations. There can be no assurance that our operations are significantly impactedthe Company could obtain a credit facility, if needed.

During the three months ended March 31, 2020, the Company generated $91 in net cash provided by inflation. Our business is not significantly seasonaloperating activities primarily due to improvements in nature.cost containment measures. The Company used $57 of net cash provided by investing activities, which was primarily related to the purchase of PP&E. The Company also used $524 of net cash in financing activities for share repurchases, which resulted in a decrease of $490 in cash for the period.

During the three months ended March 31, 2019, the Company used $756 to fund its operating and financing activities. The Company used $583 of net cash in operating activities, which was primarily due to a $2,566 increase in accounts receivable, partially offset by net income and a decrease in contract assets. The Company generated $517 in net cash from investing activities, primarily due to receipt of $507 in repayments on a note receivable. The Company also used $173 of net cash in financing activities primarily for share repurchases.

Inflation and Seasonality

The Company does not believe that its operations are significantly impacted by inflation, and its business is not significantly seasonal in nature.

Off-Balance Sheet Arrangements

We haveThe Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on ourits financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates used in ourthe financial statements relate to revenue recognition where we use percentage-ofthe Company measures progress towards completion accounting on our largea cost-to-cost basis for fixed-price contracts, the allowance for doubtful accounts, and the valuation allowance for deferred income tax assets. These estimates require judgments, which we baseare based on historical experience and on various other assumptions, as well as specific circumstances. Estimates may change as new events occur, additional information becomes available or operating environments change.

Refer to Part II. Item 2.7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 20162019 for a discussion of our critical accounting policies and estimates.

Recently Issued Accounting Standards

Except as set forth inRefer to Note 1 toin Part II. Item 8. “Financial Statements and Supplemental Data,” in our unaudited condensed consolidated financial statements, management has not yet determined whetherAnnual Report on Form 10-K for the year ended December 31, 2019 for a discussion of recently issued accounting standards, which are not yet effective, will have a material impact on our condensed consolidated financial statements upon adoption.standards.

Share Repurchase Program

On MayDecember 23, 2016, our2019, the Board of Directors authorized athe repurchase program (the “Repurchase Program”) under which we may repurchaseof up to $1,000 of our outstanding stock. Subsequently, on March 29, 2017, our Board of Directors authorized a renewal and extension500 shares of the Repurchase Program for an additional $1,000 until March 31, 2018. The purchases may be made from time to time in the open market, through privately negotiated transactions and Rule 10b5-1 trading plans in accordance with applicable laws, rules and regulations. The Repurchase ProgramCompany’s outstanding common stock. This repurchase program was funded from cash on hand and cash provided by operating activities.

The Board separately authorized the repurchase of additional shares during the quarter ended March 31, 2020, in a privately negotiated transaction. During the three months ended March 31, 2020, 744 shares of common stock were purchased for an aggregate amount of $524. As of September 30, 2017, we had exhaustedMarch 31, 2020, the Repurchase Program. As of the date of this Report no decisions haverepurchase program has been made on any further stock repurchases.exhausted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

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

The Company’s management, with the participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2017,March 31, 2020, as required by Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the principal executive and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.March 31, 2020.

Management’s Report on Internal Control Over Financial Reporting.   The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Although the internal controls over financial reporting were not audited, the Company’s management, including the principal executive and principal financial officer, assessed the effectiveness of internal controls over financial reporting as ofSeptember 30, 2017, March 31, 2020, based on criteria issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled“Internal Control-Integrated Framework.” Upon evaluation, the Company’s management has concluded that the Company’s internal controls over financial reporting were effective as ofSeptember 30, 2017. March 31, 2020.

Changes in Internal Control Over Financial Reporting.   The Company’s management, with the participation of the principal executive and principal financial officer, have concluded there were no changes in internal control over financial reporting during the fiscal quarter ended September 30, 2017.March 31, 2020. 

PART II. – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we are involved inthe Company is party to various legal proceedings arising fromin the normalordinary course of business. AsA summary of the date of this Report, we were not involved in anyCompany’s material legal proceedings.proceedings is as follows:

On August 6, 2018, GE Oil and Gas UK Ltd. (“GE”) requested that the Company mediate a dispute between the parties in the ICC International Centre for ADR (“ICC”). The dispute involved alleged delays and defects in products manufactured by the Company for GE dating back to 2013. The Company disputed GE’s allegations and vigorously defended itself against these allegations. Mediation took place on November 28, 2018 but was not resolved. On February 22, 2019, GE initiated arbitration proceedings with the ICC. The total amount in dispute was originally $2,630,000 but was later reduced to $2,252,000. On February 26, 2020, the parties agreed in principle to settle the dispute, and the parties are working toward finalizing the terms of a definitive settlement agreement. The Company therefore accrued a liability related to this matter in the amount of $750,000 for the year ended December 31, 2019.

In November 2011, the Company delivered equipment to Aker Solutions, Inc. (“Aker”), but Aker declined to pay the final invoice in the aggregate amount of $270,000 alleging some warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly attempted to collect on the receivable, and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently filed a counterclaim on March 20, 2013 in the aggregate amount of $1,000,000 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.

ITEM 1A. RISK FACTORS

Not applicable

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below summarizes information about our purchases of common stock, based on trade date, during the quarter ended September 30, 2017:March 31, 2020:

ISSUER PURCHASES OF EQUITY SECURITIES