As filed with the Securities and Exchange Commission on October 2, 2008
Registration No. 333-152435
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________________
DEEP DOWN, INC.
(Exact name of registrantRegistrant as specified in its charter)
Nevada | 3533 | 75-2263732 |
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number | (I.R.S. Employer Identification No.) |
8827 W. Sam Houston Parkway N., Suite 100
Houston, Texas 77530
(281) 517-5000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Ronald E. Smith, President
Deep Down, Inc.
8827 W. Sam Houston Parkway N., Suite 100
Houston, Texas 77530
(281) 517-5000
(Name, address, including zip code, and address of agent for service)
Copy to:
Scott MacTaggert | ||
Lewis Roca Rothgerber LLP | ||
3993 Howard Hughes Parkway, Suite 600 | ||
Houston, Texas 77056 | Las Vegas, Nevada 89169 | |
Telephone: (713) | Telephone: (702) 949-8200 | |
Facsimile: (713) | ||
Facsimile: (702) 949-8398 |
Approximate date of commencement of proposed sale to the public:
From time to time, after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.xþ
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering.o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering.o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering.o
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered | Amount to be registered (1) | Proposed maximum offering price per share (2) | Proposed maximum aggregate offering price (2) | Amount of registration fee | |||||||
Common Stock, $0.001 par value | 57,142,857 Shares | $ 0.57 | $ 32,571,428 | $ 1,280 |
Title of each class of securities to be registered | Amount to be registered (1) | Proposed maximum offering price | Proposed maximum aggregate offering price (2) | Amount of registration fee | ||||||
Common Stock, $0.001 par value | 4,443,611 Shares | 2.47 | $10,975,719 | $1,417 |
(1) | Pursuant to |
(2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act based upon the average of the high and low sale prices of the Company’s common stock as reported on the |
The registrantRegistrant hereby amends this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordancewith Section 8(a) of the Securities Act of 1933 or until the registration statementRegistration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete and may be changed. The Selling Shareholders may not sell these securities until the registration statementRegistration Statement filed with the Securities and Exchange Commission relating to these securities is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER , 2008
PRELIMINARY PROSPECTUS
4,443,611 Shares
These shares were issued to the Selling Shareholders pursuant to a private placement with closing dates on June 5, 2008,September 10, 2013 and September 26, 2013 (the “Private Placement”), and issued pursuant to an exemption provided by Rule 506 of the Securities Act of 1933, as amended. The term “Selling Shareholders” also covers persons to whom the original Selling Shareholders transfer their shares, including transferees, donees, pledgees, or other successors.
The methods of sale of the common stock offered by this Prospectus are described under the heading “Plan of Distribution” on page 69 .16. We will receive none of the proceeds from the sale of any of the common stock to which this Prospectus relates. See “Use of Proceeds from the Offering”Proceeds” on page 20 .
The prices at which the Selling Shareholders may sell the shares of common stock that are part of this offering will be determined by the prevailing market price for the shares at the time the shares are sold, a price related to the prevailing market price, at negotiated prices, or prices determined from time to time by the Selling Shareholders. See “Plan of Distribution” on page 69 .
Sales of our common stock are reported on the Over-The-Counter Bulletin BoardOTCQX U.S., a segment of the OTCQX marketplace, under the symbol “DPDW.“OTCQX: DPDW.” On September 29, 2008,October 3, 2013, the last reported sale price of our common stock was $0.60$2.34 per share.
A current Prospectus must be in effect at the time of the sale of the shares of common stock discussed above. The Selling Shareholders will be responsible for any commissions or discounts due to brokers or dealers. We will pay all of the other offering expenses.
Each Selling Shareholder or dealer selling the common stock is required to deliver a current Prospectus upon the sale. In addition, for the purposes of the Securities Act of 1933, as amended, Selling Shareholders may be deemed underwriters.
The information in this Prospectus is not complete and may be changed. WeThe Selling Shareholders may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Investing in our common stock involves a high degree of risk. You should carefully read and consider the “Risk Factors” beginning on page 10 ..
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated September 30, 2008.
TABLE OF CONTENTS | |
PART I - INFORMATION REQUIRED IN PROSPECTUS | |
Page No. | |
Prospectus Summary | 1 |
The Offering | 2 |
Risk Factors | 3 |
Special Note About Forward-Looking Statements | 9 |
Use of Proceeds | 9 |
Description of Capital Stock | 10 |
Interest of Named Experts and Counsel | 11 |
Experts | 11 |
Shares Available for Future Sale | 12 |
Selling Shareholders | 13 |
Plan of Distribution | 16 |
Legal Matters | 18 |
Where You Can Find More Information | 18 |
Information Incorporated by Reference | 18 |
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS | |
Other Expenses of Issuance and Distribution | 19 |
Indemnification of Directors and Officers | 19 |
Recent Sales of Unregistered Securities | 20 |
Exhibits and Financial Statement Schedules | 22 |
Undertakings | 25 |
Signatures | 27 |
ii |
This Prospectus is partSummary highlights key aspects of a registration statement on Form S-1our business that weare described in more detail in our reports filed with the Securities and Exchange Commission, orCommission. This Prospectus Summary does not contain all of the “SEC,” usinginformation that you should consider before making a “shelf” registration or continuous offering process. Underfuture investment decision with respect to our securities. You should read this shelf process, certain Selling Shareholders may from time to time sellentire Prospectus carefully, including the shares of common stock described“Risk Factors” and the information incorporated by reference.
Unless the context indicates otherwise, all references in this Prospectus in one or more offerings.
You should rely only on the information contained or incorporated by reference in this Prospectus. Neither we nor the Selling Shareholders have authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Selling Shareholders are not making an offer to sell these securities in any jurisdiction where the offer or sale of these securities is not permitted. You should assume that the information appearing in this Prospectus is accurate only as of the date on the front cover of this Prospectus and that any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference. Our business, financial condition, results of operation and prospects may have changed since these dates.
Our Company” “we,” “us” and “our” refer to
Deep Down, Inc. (OTCQX: DPDW) is a Nevada corporation engaged in the oilfield services industry. Deep Down is publicly traded and its subsidiaries.
Deep Down is the parent company to the following wholly-owned subsidiaries: Deep Down, Inc., a Delaware corporation (“Deep Down Delaware”), Mako Technologies, LLC, a Nevada limited liability company (“Mako”), Deep Down International Holdings, LLC, a Nevada limited-liability company (“DDIH”) and Deep Down Brasil, Ltda, a Brazilian limited liability company (“Deep Down Brasil”). In August 2012, we consolidated the operations of Mako into Deep Down Delaware.
We provide both products and services to the offshore energy industry to support deepwater exploration, development and production of oil and gas and other maritime operations. We are primarily a service company and produce custom-engineeredcustom engineered products that assist us in fulfilling service objectives for specific projects on a contractual basis. We design and manufacture a broad line of deepwaterdeep water equipment, surface equipment and offshore rig equipment that isare used by major integrated, large independent and foreign national oil and gas companies in offshore areas throughout the world. We also manufacture monitoring and control systems used by offshore energy and other maritime operations. Our products are often initially developed in direct response to customer requests for solutions to critical problems in the field. We also serve the growing offshore petroleum and maritime industries with technical management and support services. Set forth below is a more detailed description of important services and products we provide.
This Offering
All 57,142,8574,443,611 shares of common stock offered herein were sold pursuant to a private offering of our common stock in June 2008September 2013 to thirty-five (35)sixty (60) accredited investors pursuant to an exemption from registration provided by Rule 506 of the Securities Act of 1933, as amended (the “Act”).
Risks Affecting Us
We are subject to a number of risks that you should consider before you decide to purchase our common stock. Those risks are discussed more fully under the heading “Risk Factors” on page 10 .
This Prospectus is part of a Registration Statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration or continuous offering process. Under this shelf process, certain Selling Shareholders may from time to time sell the shares of common stock described in this Prospectus in one or more offerings.
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The table below summarizes our shares of common stock outstanding connected with and after this offering.
Common stock offered for resale to the public by the Selling Shareholders (1): | |
Common stock outstanding after this offering (2): | |
Use of proceeds from this offering: | We will not receive any proceeds from the resale of our common stock in this offering (see “Use of Proceeds” on page |
OTCQX: DPDW | |
Risk factors | See “Risk Factors” beginning on page |
____________________
(1)
All(2)
The number of shares of our common stock outstanding after this offering is based on the number of shares outstanding as of September 30,· | Common shares in an amount equal to 15% of the total number of shares outstanding reserved for issuance under our stock purchase plan. |
Historical | Pro forma (6) | |||||||||||||||||||||||
Six Months | Six Months | |||||||||||||||||||||||
Inception | Ended | Ended | Year Ended | Year Ended | ||||||||||||||||||||
June 29, 2006 - | Year Ended | June 30, | June 30, | December 31, | December 31, | |||||||||||||||||||
December 31, | December 31, | 2007 (3) | 2008 (4) | 2006 | 2007 | |||||||||||||||||||
2006 (1) | 2007 (2) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
Results of operations data: | ||||||||||||||||||||||||
Revenues | $ | 978,047 | $ | 19,389,730 | $ | 7,243,182 | $ | 14,199,661 | $ | 13,772,600 | $ | 38,294,120 | ||||||||||||
Cost of sales | 565,700 | 13,020,369 | 4,545,402 | 9,372,798 | 6,678,326 | 23,436,566 | ||||||||||||||||||
Gross profit | 412,347 | 6,369,361 | 2,697,780 | 4,826,863 | 7,094,274 | 14,857,554 | ||||||||||||||||||
Total operating expenses | 3,627,788 | 4,711,517 | 1,917,843 | 6,285,167 | 8,882,822 | 10,524,218 | ||||||||||||||||||
Operating income (loss) | (3,215,441 | ) | 1,657,844 | 779,937 | (1,458,304 | ) | (1,788,548 | ) | 4,333,336 | |||||||||||||||
Total other income (expense) | (62,126 | ) | (335,662 | ) | 507,633 | (3,850,882 | ) | (1,160,488 | ) | (694,460 | ) | |||||||||||||
Income (loss) from continuing operations | (3,277,567 | ) | 1,322,182 | 1,287,570 | (5,309,186 | ) | (2,949,036 | ) | 3,638,876 | |||||||||||||||
Income tax benefit (expense) | (22,250 | ) | (369,673 | ) | (447,363 | ) | 354,366 | (169,203 | ) | (1,296,768 | ) | |||||||||||||
Net income (loss) | $ | (3,299,817 | ) | $ | 952,509 | $ | 840,207 | $ | (4,954,820 | ) | $ | (3,118,239 | ) | $ | 2,342,108 | |||||||||
Basic earnings (loss) per share | $ | (0.04 | ) | $ | 0.01 | $ | 0.01 | $ | (0.05 | ) | $ | (0.02 | ) | $ | 0.02 | |||||||||
Shares used in computing | ||||||||||||||||||||||||
basic per share amounts | 76,701,569 | 73,917,190 | 74,417,132 | 109,326,053 | 144,935,755 | 142,151,376 | ||||||||||||||||||
Diluted earnings (loss) per share | $ | (0.04 | ) | $ | 0.01 | $ | 0.01 | $ | (0.05 | ) | $ | (0.02 | ) | $ | 0.01 | |||||||||
Shares used in computing | ||||||||||||||||||||||||
diluted per share amounts | 76,701,569 | 104,349,455 | 100,315,405 | 109,326,053 | 144,935,755 | 172,583,641 | ||||||||||||||||||
EBITDA (5) | $ | (3,188,280 | ) | $ | 4,084,808 | $ | 2,934,158 | $ | (1,017,135 | ) | $ | (76,228 | ) | $ | 9,485,780 | |||||||||
Cash flow data: | ||||||||||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||||||
Operating activities | $ | (56,242 | ) | $ | (3,006,136 | ) | $ | 427,319 | $ | (1,361,618 | ) | |||||||||||||
Investing activities | 101,497 | (1,358,429 | ) | (633,169 | ) | (23,748,167 | ) | |||||||||||||||||
Financing activities | (32,893 | ) | 6,558,323 | 456,693 | 26,989,108 | |||||||||||||||||||
Balance sheet data (at period end): | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 12,462 | $ | 2,581,220 | $ | 263,305 | $ | 4,085,543 | ||||||||||||||||
Working capital | 932,929 | 6,674,242 | (1,500,828 | ) | 10,842,747 | |||||||||||||||||||
Total assets | 10,129,563 | 36,051,689 | 13,990,699 | 57,635,491 | ||||||||||||||||||||
Total liabilities | 6,358,489 | 19,043,929 | 10,373,084 | 4,762,484 | ||||||||||||||||||||
Total debt | 1,168,348 | 11,693,995 | 3,471,041 | 966,858 | ||||||||||||||||||||
Total temporary equity | 7,070,791 | 4,419,244 | 4,419,244 | - | ||||||||||||||||||||
Stockholders' equity (deficit) | (3,299,717 | ) | 12,588,516 | (801,629 | ) | 52,873,007 |
Historical | Pro forma (6) | |||||||||||||||||||||||
Six Months | Six Months | |||||||||||||||||||||||
Inception | Ended | Ended | Year Ended | Year Ended | ||||||||||||||||||||
June 29, 2006 - | Year Ended | June 30, | June 30, | December 31, | December 31, | |||||||||||||||||||
December 31, | December 31, | 2007 (3) | 2008 (4) | 2006 | 2007 | |||||||||||||||||||
2006 (1) | 2007 (2) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
EBITDA Reconciliation: | ||||||||||||||||||||||||
Net income (loss) | $ | (3,299,817 | ) | $ | 952,509 | $ | 840,207 | $ | (4,954,820 | ) | $ | (3,118,239 | ) | $ | 2,342,108 | |||||||||
Tax expense (benefit) | 22,250 | 369,673 | 447,363 | (354,366 | ) | 169,203 | 1,296,768 | |||||||||||||||||
Interest | 62,126 | 2,335,662 | 1,492,367 | 3,393,054 | 1,121,699 | 3,395,235 | ||||||||||||||||||
Depreciation and amortization expense | 27,161 | 426,964 | 154,221 | 898,997 | 1,751,109 | 2,451,669 |
If you purchase our common stock, you will be taking on a high degree of financial risk. In deciding whether or not to purchase our common stock, you should carefully consider the following discussion of risks, together with the other information contained in this Prospectus. The occurrence of any of the following risks could materially harm our business and financial condition and our ability to raise additional capital in the future. In that event, the market price of our common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business
We derive most of our revenues from companies in the offshore oil and gas industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and gas prices.
We derive most of our revenues from customers in the offshore oil and gas exploration, development and production industry. The offshore oil and gas industry is a historically cyclical industry characterized by significant changes in the levels of exploration and development activities. Oil and gas prices, and market expectations of potential changes in those prices, significantly affect the levels of those activities. Worldwide political, economic and military events have contributed to oil and gas price volatility and are likely to continue to do so in the future. Any prolonged reduction in the overall level of offshore oil and gas exploration and development activities, whether resulting from changes in oil and gas prices or otherwise, could materially and adversely affect our financial condition and results of operations in our segments within our offshore oil and gas business.
Some factors that have affected and are likely to continue affecting oil and gas prices and the level of demand for our services and products include the following:
· | worldwide demand for oil and gas; |
· | the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels and pricing; |
· | the level of production by non-OPEC countries; |
· | domestic and foreign tax policy; |
· | laws and governmental regulations that restrict exploration and development of oil and gas in various offshore jurisdictions; |
· | advances in exploration and development technology; |
· | the political environment of oil-producing regions; |
· | the price and availability of alternative fuels; and |
· | overall economic conditions. |
Our business involves numerous operating hazards that may not be covered by insurance. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations.
Our products are used in potentially hazardous drilling, completion and production applications that can cause personal injury, product liability and environmental claims. A catastrophic occurrence at a location where our equipment and/or services are used may expose us to substantial liability for personal injury, wrongful death, product liability or commercial claims. To the extent available, we maintain insurance coverage that we believe is customary in the industry. Such insurance does not, however, provide coverage for all liabilities, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations.
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We may lose money on fixed-price contracts.
A portion of our business consists of designing, manufacturing, selling and installing equipment for major projects pursuant to competitive bids, and is performed on a fixed-price basis. Under these contracts, we are typically responsible for all cost overruns, other than the amount of any cost overruns resulting from requested changes in order specifications. Our actual costs and any gross profit realized on these fixed-price contracts will often vary from the estimated amounts on which these contracts were originally based. This may occur for various reasons, including:
· | errors in estimates or bidding; |
· | changes in availability and cost of labor and materials; or |
· | variations in productivity from our original estimates. |
These variations and the risks inherent in our projects may result in reduced profitability or losses on projects. Depending on the size of a project, variations from estimated contract performance could have a significant impact on our operating results.
Our business could be adversely affected if we do not develop new products.
Technology is an important component of our business and growth strategy, and our success as a company depends to a significant extent on the development and implementation of new product designs and improvements. Whether we can continue to develop systems and services and related technologies to meet evolving industry requirements and, if so, at prices acceptable to our customers will be significant factors in determining our ability to compete in the industry in which we operate. Many of our competitors are large multinational companies that may have significantly greater financial resources than we have, and they may be able to devote greater resources to research and development of new systems, services and technologies than we are able to do.
Loss of our key management or other personnel could adversely impact our business.
We depend on the services of our executive management team, including Ronald E. Smith Robert E. Chamberlain, Jr. and Eugene L. Butler. The loss of any of these officers could have a material adverse effect on our operations and financial condition. In addition, competition for skilled machinists, fabricators and technical personnel among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities successfully and develop and produce marketable products and services. While we believe that our wage rates are competitive and that our relationship with our skilled labor force is good, a significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates paid by us, or both. If either of these events were to occur, in the near-term, the profits realized by us from work in progress would be reduced and, in the long-term, our production capacity and profitability could be diminished, and our growth potential could be impaired. Additionally, if we were to lose the services of our officers for any reason, we could face substantial costs and expenses to locate individuals with similar capabilities and/or may not be able to find suitable candidates to fill the vacancies left by such individuals, either of which could have a material adverse effect on our results of operations.
We may not be successful in integrating businessbusinesses that we may acquire.
The successful integration of acquired businesses is important to our future financial performance. We may not achieve the anticipated benefits from any acquisition unless the operations of the acquired business are successfully combined with ours in a timely manner. The integration of our acquisitions will require substantial attention from our management. The diversion of the attention of our management, and any difficulties encountered in the transition process, could have a material adverse effect on our operations and financial results. The difficulties of integration may be increased by the necessity of coordinating geographically separated organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. There can be no assurance that there will not be substantial costs associated with such activities or that there will not be other material adverse effects of these integration efforts. In addition, the process of integrating the various businesses could also cause the interruption of, or a loss of momentum in, the activities of some or all of these businesses, which could have a material adverse effect on our operations and financial results. There can be no assurance that we will realize any of the anticipated benefits from our acquisitions. The acquisition of oil service companies that are not profitable, or the acquisition of new facilities that result in significant integration costs and inefficiencies, could also adversely affect our profitability.
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Our current and anticipated future growth has placed, and will continue to place, significant demands on our management, operational and financial resources. Our ability to manage our growth effectively will require us to continue to improve our operational, financial and management information systems and to continue to attract, train, motivate, manage and retain key employees. We may not be able to manage our expanded operations effectively.
We may not be successful in implementing our strategy or in responding to ongoing changes in the oil service industry which may require adjustments to our strategy. If we are unable to implement our strategy successfully or do not respond timely and adequately to ongoing changes in the healthcare industry, our business, financial condition and results of operations will be materially adversely affected.
If we undertake international operations, it will involve additional risks not associated with our domestic operations.
If we become involved in international operations, the effect on our business from the risks we described will not be the same in all countries and jurisdictions. By way of example, recently there has been political instability and civil unrest in Indonesia and West Africa and general economic downturns in Asia and Brazil. However, the specific risks associated with our operations in foreign areas will include risks of:
· | multiple, conflicting, and changing laws and regulations, export and import restrictions, and employment laws; |
· | regulatory requirements, and other government approvals, permits, and licenses; |
· | potentially adverse tax consequences; |
· | political and economic instability, including wars and acts of terrorism; political unrest, boycotts, curtailments of trade, and other business restrictions; |
· | expropriation, confiscation or nationalization of assets; |
· | renegotiation or nullification of existing contracts; |
· | difficulties and costs in recruiting and retaining individuals skilled in international business operations; |
· | foreign exchange restrictions; |
· | foreign currency fluctuations; |
· | foreign taxation; |
· | the inability to repatriate earnings or capital; |
· | changing political conditions; |
· | changing foreign and domestic monetary policies; |
· | regional economic downturns; and |
· | foreign governmental regulations favoring or requiring the awarding of contracts to local contractors or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction that may harm our ability to compete. |
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Our offshore oilfield operations involve a variety of operating hazards and risks that could cause losses.
Our operations are subject to the hazards inherent in the offshore oilfield business. These include blowouts, explosions, fires, collisions, capsizing and severe weather conditions. These hazards could result in personal injury and loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. We may incur substantial liabilities or losses as a result of these hazards. While we maintain insurance protection against some of these risks, and seek to obtain indemnity agreements from our customers requiring the customers to hold us harmless from some of these risks, our insurance and contractual indemnity protection may not be sufficient or effective to protect us under all circumstances or against all risks. The occurrence of a significant event not fully insured or indemnified against or the failure of a customer to meet its indemnification obligations to us could materially and adversely affect our results of operations and financial condition.
Laws and government regulations may add to our costs or adversely affect our operations.
Our business is affected by changes in public policy and by federal, state, local and foreign laws and regulations relating to the energy industry. Oil and gas exploration and production operations are affected by tax, environmental and other laws relating to the petroleum industry, by changes in those laws and changes in related administrative regulations. It is also possible that these laws and regulations may in the future add significantly to our operating costs or those of our customers or otherwise directly or indirectly affect our operations.
Environmental laws and regulations can increase our costs, and our failure to comply with those laws and regulations can expose us to significant liabilities.
Risks of substantial costs and liabilities related to environmental compliance issues are inherent in our operations. Our operations are subject to extensive federal, state, local and foreign laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Permits are required for the operation of various facilities, and those permits are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines, injunctions or both. In some cases, those governmental requirements can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. It is possible that other developments, such as stricter environmental laws and regulations, and claims for damages to property or persons resulting from our operations, would result in substantial costs and liabilities. Our insurance policies and the contractual indemnity protection we seek to obtain from our customers may not be sufficient or effective to protect us under all circumstances or against all risks involving compliance with environmental laws and regulations.
We may be unable to successfully compete with other manufacturers of drilling and production equipment.
Several of our primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources than ours and which have been engaged in the manufacturing business for a much longer time than us. If these competitors substantially increase the resources they devote to developing and marketing competitive products and services, we may not be able to compete effectively. Similarly, consolidation among our competitors could enhance their product and service offerings and financial resources, further intensifying competition.
The loss of a significant customer could have an adverse impact on our financial results.
Our principal customers are major integrated oil and gas companies, large independent oil and gas companies and foreign national oil and gas companies. Offshore drilling contractors and engineering and construction companies also represent a portion of our customer base. During the last 12 months,year ended December 31, 2012, our top 5 customers represented approximately 50%53% of total revenues, with our largest customer accounting for more than 16% of our total revenues. While we are not dependent on any one customer or group of customers, the loss of one or more of our significant customers could, at least on a short-term basis, have an adverse effect on our results of operations.
Our customers’ industries are undergoing continuing consolidation that may impact our results of operations.
The oil and gas industry is rapidly consolidating and, as a result, some of our largest customers have consolidated and are using their size and purchasing power to seek economies of scale and pricing concessions. This consolidation may result in reduced capital spending by some of our customers or the acquisition of one or more of our primary customers, which may lead to decreased demand for our products and services. We cannot assure you that we will be able to maintain our level of sales to a customer that has consolidated or replace that revenue with increased business activity with other customers. As a result, the acquisition of one or more of our primary customers may have a significant negative impact on our results of operations or our financial condition. We are unable to predict what effect consolidations in the industry may have on price, capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.
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Increases in the cost of raw materials and energy used in our manufacturing processes could negatively impact our profitability.
Commodity prices for items such as nickel, molybdenum and heavy metal scrap that are used to make the steel alloys required for our products increased significantly, resulting in an increase in our raw material costs. Similarly, energy costs to produce our products have increased significantly. If we are not successful in raising our prices on products, our margins will be negatively impacted.
Future capital needs.
Our growth and continued operations could be impaired by limitations on our access to the capital markets. There can be no assurance that capital from outside sources will be available, or if such financing is available, it may involve issuing securities senior to the common stock or equity financings which are dilutive to holders of the common stock.
We depend on third party suppliers for timely deliveries of raw materials, and our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.
Our manufacturing operations depend upon obtaining adequate supplies of raw materials from third parties. The ability of these third parties to deliver raw materials may be affected by events beyond our control. Any interruption in the supply of raw materials needed to manufacture our products could adversely affect our business, results of operations and reputation with our customers.
Limitation on remedies, indemnification
The Company’s Bylaws provide that the officers and directors will only be liable to the Company for acts or omissions that constitute actual fraud, gross negligence or willful and wanton misconduct. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company’s assets. Stockholders who have questions regarding the fiduciary obligations of the officers and directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange Commission that exculpation from and indemnification for liabilities arising under the 1933 Act and the rules and regulations hereunder is against public policy and therefore unenforceable.
Our internal controls over percentage-of-completion accounting for fixed-price contracts may be inadequate, which could cause our financial reporting to be unreliableunreliable.
At December 31, 2012, the Company reported a material weakness (“Material Weakness”) related to percentage-of-completion (“POC”) accounting for fixed-price contracts. During the fiscal quarter ended March 31, 2013, in order to begin to remediate the Material Weakness, the Company created and leadfilled a financial management position within its project operations function, the primary responsibilities of which are to misinformation being disseminated toensure: (a) that initial and updated detailed cost estimates and POC accounting schedules for fixed-price contracts are timely and accurately prepared; (b) proper segregation of accounting for time and materials aspects from POC aspects of contracts containing both; (c) effective financial management review of contract terms; (d) effective communication with accounting personnel, and (d) along with accounting personnel, effective financial management review of the public.
Based on this remediation effort, the Company’s management, is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13(a)-15(f), internal control over financial reporting is a process designed by, or underwith the supervisionparticipation of the principal executive and principal financial officer, and effectedhas concluded that, although significant progress toward remediation of the Material Weakness has been achieved, the Material Weakness still existed during the fiscal quarter ended June 30, 2013. It is our belief that we will be able to have the Material Weakness fully remediated by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositionsend of the assets of Deep Down; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Deep Down are being made only in accordance with authorizations of management and directors of Deep Down, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Deep Down’s assets that could have a material effect on the financial statements.
-7- |
Risks Related to this Offering
We may face penalties if we fail to timely obtain effectiveness of this Registration Statement.
If this Registration Statement is not declared effective by September 3 , 2008December 9, 2013, or January 8, 2014 in the event of a full review by the Commission (the “Required Effective Date”), then for each daymonth following the Required Effective Date, until but excluding the date the Commission declares the Registration Statement effective, the Company shall, for each such day,month, pay each PurchaserSelling Shareholder with respect to any such failure, as damages, an amount equal to 0.0333%1% (which increases to 2% after the first month) of the purchase price paid by such PurchaserSelling Shareholder for the shares purchased pursuant to the Purchase Agreement. private offering.Furthermore, if a Purchaser is prohibited from selling shares under(i) prior to the effective date of this Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of this Registration Statement within ten (10) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for this Registration Statement to be declared effective or (ii) after the effective date of this Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as a result of a suspension ofto all securities included in such Registration Statement, or the Selling Shareholders are otherwise not permitted to utilize this Prospectus therein to resell such securities, for more than thirty (30)ten (10) consecutive calendar days or suspensions on more than two (2) occasionsan aggregate of fifteen (15) calendar days (which need not more than thirty (30) days each inbe consecutive calendar days) during any 12-month period, then for each day on which a suspension is in effect that exceeds the maximum allowed period for suspensions, but not including any day on which a suspension is lifted, the Company shall pay such Purchaser, as damages an amount equal to 0.0333% of the purchase price paid by such Purchaser for its shares pursuant to the Purchase Agreement for each such day. Assuming that this Registration Statement is not declared effective by the Required Effective Date and/or all Purchasers are prohibited from selling their shares under this Registration Statement, we will be required to pay damages in the same manner as set forth in the previous sentence. All such damages are payable monthly and calculated on a daily pro rata basis for any portion of a month prior to the cure of an event triggering damages. In the event the Company must pay damages as set forth above, we may be required to pay damages of $13,332$159,970 per daymonth to the Purchasers.Selling Shareholders. As a result, our failure to obtain timely effectiveness of this Registration Statement could cause a material adverse effect on our results of operations and/or force us to pay penalties to the Purchasers.
Risks Related to the Securities Market and Ownership of ourOur Common Stock
Our stock price has been and will likely continue to be volatile and you may be unable to resell your shares at or above the price you paid.
The market price of our common stock could be subject to significant fluctuations. Among the factors that could affect our stock price are:
· | quarterly variations in our operating results; |
· | changes in revenue or earnings estimates or publication of research reports by analysts; |
· | failure to meet analysts’ revenue or earnings estimates; |
· | speculation in the press or investment community; |
· | strategic actions by us or our competitors, such as acquisitions or restructurings; |
· | actions by institutional stockholders; |
· | general market conditions; and |
· | domestic and international economic factors unrelated to our performance. |
The stock markets in general and the markets for energy stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In particular, we cannot assure you that you will be able to resell your shares at any particular price, or at all.
Shares eligible for sale in the future could negatively affect our stock price.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. This might also make it more difficult for us to raise funds through the issuance of securities. As of September 30, 2008 ,2013, we had outstanding 177,350,63015,275,081 shares of common stock outstanding, of which 29,002,0527,545,858 shares are freely tradable or covered by a current registration statement,Registration Statement, and 57,142,8574,443,611 shares will bewere freely tradable under this Prospectus. The remaining 91,205,7213,285,612 shares of common stock outstanding are “restricted securities” as defined in Rule 144 and are held by our “affiliates” (as that term is defined in Rule 144 under the Securities Act). These restricted securities may be sold in the future pursuant to registration statementsRegistration Statements filed with the SEC or without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
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As of September 30, 2008 ,2013, there were an aggregate of 8,775,000945,000 shares of common stock issuable upon exercise of outstanding stock options and an aggregate of 638,812 shares of stock issuable upon exercise of outstanding warrants. On July 3, 2008, the holder of 4,960,585 warrants exercised the warrants in a cashless exercise for a total of 2,618,129 shares of common stock.
We may register additional shares in the future in connection with acquisitions, compensation or otherwise. We have not entered into any agreements or understanding regarding any future acquisitions and cannot ensure that we will be able to identify or complete any acquisition in the future. Sales of shares of common stock in the public markets or through Rule 144 may have an adverse effect on prevailing market prices for our common stock.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such preferences, powers and relative, participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as our Board of Directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
Investors may face significant restrictions on the resale of our common stock due to federal regulations of penny stocks.
Our common stock is subject to the requirements of Rule 15(g)-9, promulgated under the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The penny stock disclosures require a broker-dealer to deliver, prior to any transaction, a disclosure schedule explaining the penny stock market and the risks associated with it; disclosure of commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for our common stock; and sending monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks. Such requirements could severely limit the market liquidity of the securities, the pricing of our common stock, and the ability of purchasers to sell their securities in the secondary market.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” and similar words or phrases. These statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those projected. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in this Prospectus or incorporated by reference.
Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons; including the factors described under the heading “Risk Factors” beginning on page 10.
You should not unduly rely on these forward-looking statements, which speak only as of the date on which it is made. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Prospectus or to reflect the occurrence of unanticipated events. You should review the factors and risks we describe in the reports we file from time to time with the SEC after the date of this Prospectus. The reports we file from time to time with the SEC are available to the public over the Internet at the SEC’s websitehttp://www.sec.gov.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the selling shareholders’Selling Shareholders’ shares of common stock registered herein.
High | Low | |||||||
Fiscal 2008: | ||||||||
September 30, 2008 | $ 0.95 | $ 0.44 | ||||||
June 30, 2008 | $ 1.27 | $ 0.68 | ||||||
March 31, 2008 | $ 1.24 | $ 0.35 | ||||||
Fiscal 2007: | ||||||||
December 31, 2007 | $ 2.35 | $ 0.76 | ||||||
September 30, 2007 | $ 0.94 | $ 0.51 | ||||||
June 30, 2007 | $ 0.78 | $ 0.27 | ||||||
March 31, 2007 | $ 0.42 | $ 0.16 | ||||||
Fiscal 2006: | ||||||||
December 31, 2006 | $ 0.85 | $ 0.13 |
Number of securities to be issued upon exercise of outstanding options, | Weighted-average exercise price of outstanding options, | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected | ||||
Plan Category | warrants and rights | warrants and rights | in first column) | |||
Equity compensation | 8,775,000 (1) | $0.93 | 16,627,595 (1) | |||
plans approved by securityholders | ||||||
Equity compensation | ||||||
plans not approved by securityholders | 638,812 (2) | $0.78 | N/A | |||
TOTAL | 9,413,812 | $0.92 | 16,627,595 |
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DESCRIPTION OF CAPITAL STOCK
We have authorized capital stock consisting of 490,000,00024,500,000 common shares, $0.001 par value, and 10,000,000 of all series of preferred stock, $0.01$0.001 par value.
Common Stock
As of outstandingSeptember 30, 2013, there were 15,275,081 shares of our common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine.outstanding, which were held by an estimated 1,101 record owners. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock, after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.
No preferred shares are issued and outstanding as of Directors amended the Bylaws and approved amendments to ourSeptember 30, 2013.
Anti-takeover Effects of Our Articles of Incorporation subject to shareholder approval, which was obtained on May 16, 2008. The amendments are designed to discourage any tender offer or other attempt to gain controland By-laws
Our articles of Deep Down in a transactionincorporation and bylaws contain certain provisions that is not approved by our Board of Directors, bymay have anti-takeover effects, making it more difficult for or preventing a personthird party from acquiring control of our company or groupchanging our board of directors and management. The holders of our common stock do not have cumulative voting rights in the election of our directors, which makes it more difficult for minority stockholders to be represented on the board. Our articles of incorporation allow our board of directors to issue additional shares of our common stock and new series of preferred stock without further approval of our stockholders. The existence of authorized but unissued shares of common stock and preferred could render more difficult or discourage an attempt to obtain control of Deep Downour company by means of a proxy contest, tender offer, merger, or otherwise.
Anti-takeover Effects of Nevada Law
Business Combinations
The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, generally prohibit a Nevada corporation with at least 200 stockholders of record, a “resident domestic corporation,” from engaging in various “combination” transactions with any “interested stockholder” unless certain conditions are met or the corporation has elected in its articles of incorporation to not be subject to these provisions. We have not elected to opt out of these provisions and if we meet the definition of resident domestic corporation, now or in the future, our company will be subject to these provisions.
A “combination” is generally defined to include (a) a merger or consolidation of the resident domestic corporation or any subsidiary of the resident domestic corporation with the interested stockholder or affiliate or associate of the interested stockholder; (b) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition, in one transaction or a series of transactions, by the resident domestic corporation or any subsidiary of the resident domestic corporation to or with the interested stockholder or affiliate or associate of the interested stockholder having: (i) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the resident domestic corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the resident domestic corporation, or (iii) 10% or more of the earning power or net income of the resident domestic corporation; (c) the issuance or transfer in one transaction or series of transactions of shares of the resident domestic corporation or any subsidiary of the resident domestic corporation having an aggregate market value equal to 5% or more of the resident domestic corporation to the interested stockholder or affiliate or associate of the interested stockholder; and (d) certain other transactions with an interested stockholder or affiliate or associate of the interested stockholder.
An “interested stockholder” is generally defined as a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation’s voting stock. An “affiliate” of the interested stockholder is any person that directly or indirectly through one or more intermediaries is controlled by or is under common control with the interested stockholder. An “associate” of an interested stockholder is any (a) corporation or organization of which the interested stockholder is an officer or partner or is directly or indirectly the beneficial owner of 10% or more of any class of voting shares of such corporation or organization; (b) trust or other estate in which the interested stockholder has a substantial beneficial interest or as to which the interested stockholder serves as trustee or in a short time and then impose its will onsimilar fiduciary capacity; or (c) relative or spouse of the remaining stockholders, including:
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If applicable, the prohibition is for a period of Directors and Removaltwo years after the date of Directors
Applicability of the Nevada business combination statute would discourage parties interested in taking control of our company if they cannot obtain the approval of our board of directors. These provisions could prohibit or delay a Securities Redemption Agreement (the “Agreement”) withmerger or other takeover or change in control attempt and, accordingly, may discourage attempts to acquire our company even though such a stockholder (the former CFO of Deep Down)transaction may offer our stockholders the opportunity to redeem 4,000 shares of Series E redeemable, exchangeable preferredsell their stock at a discounted price above the prevailing market price.
Control Share Acquisitions
The “control share” provisions of $500 per share for a total of $2.0 million. The discount of $500 per share from the face value of $1,000 was accounted for as a substantial modification of debt, thereby generating a gain on extinguishment of debt which is reflected in other income. Deep Down accreted the remaining discount of $1,017,707 attributableSections 78.378 to such shares on the date of redemption as interest expense. The shareholder placed all 4,000 shares into an escrow account as78.3793, inclusive, of the executionNRS, apply to “issuing corporations” that are Nevada corporations with at least 200 stockholders of this agreement. Termsrecord, including at least 100 stockholders of record who are Nevada residents, and that conduct business directly or indirectly in Nevada, unless the corporation has elected to not be subject to these provisions.
The control share statute prohibits an acquirer of shares of an issuing corporation, under certain circumstances, from voting its shares of a corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the payment to the shareholder are: 2,800 shares at $500 fortarget corporation’s disinterested stockholders. The statute specifies three thresholds: (a) one-fifth or more but less than one-third, (b) one-third but less than a total of $1.4 million paid in August 2007, with the remaining shares to being redeemed monthly beginning August 31, 2007 atmajority, and (c) a rate of 40 shares at $500 per share,majority or $20,000 per month. The final balance outstanding of $560,000 was paid with 543,689 shares of common stock in October 2007.
Series E | Series G | |||||||
Outstanding at December 31, 2006 | 5,000 | 1,000 | ||||||
Shares issued | 3,250 | - | ||||||
Shares redeemed | (7,750 | ) | (1,000 | ) | ||||
Outstanding at December 31, 2007 | 500 | - | ||||||
Shares redeemed | (500 | ) | ||||||
Outstanding at June 30 , 2008 | - | - |
Summary of assets purchased: | ||||
Cash and cash equivalents | $ | 280,841 | ||
Accounts receivable | 1,411,420 | |||
Construction in progress | 279,590 | |||
Prepaid expenses | 179,583 | |||
Property, plant and equipment, net | 3,192,401 | |||
Intangibles | 4,371,000 | |||
Goodwill | 3,316,258 | |||
Total assets acquired | $ | 13,031,093 | ||
Accounts payable and accrued liabilities | 904,709 | |||
Long term debt | 819,384 | |||
Total liabilities acquired | $ | 1,724,093 | ||
Net assets acquired | $ | 11,307,000 |
Cash | $ | 22,100,000 | ||
Certain transaction costs | 251,180 | |||
Fair market value of common stock | 1,422,857 | |||
Fair market value of warrants issued | 121,793 | |||
Total purchase price | $ | 23,895,830 |
Summary of net assets acquired: | ||||
Cash and cash equivalents | $ | 235,040 | ||
Accounts receivable | 2,105,519 | |||
Construction in progress | 871,183 | |||
Prepaid expenses | 15,904 | |||
Property, plant and equipment, net | 4,846,190 | |||
Intangibles | 14,797,000 | |||
Goodwill | 2,157,307 | |||
Total assets acquired | $ | 25,028,143 | ||
Accounts payable and accrued liabilities | 1,132,313 | |||
Total liabilities acquired | $ | 1,132,313 | ||
Net assets acquired | $ | 23,895,830 |
Estimated | Average Remaining | |||||||
Fair Value | Useful Life | |||||||
Trademarks | $ | 2,039,000 | 40 | |||||
Technology | 11,209,000 | 25 | ||||||
Non-compete covenant | 879,000 | 3 | ||||||
Customer relationship | 670,000 | 25 | ||||||
$ | 14,797,000 |
Historical | |||||||||||||||||
Four Months | |||||||||||||||||
Ending | Combined | ||||||||||||||||
April 30, 2008 | Pro Forma | Pro Forma | |||||||||||||||
Deep Down | Flotation | Entries | Results | ||||||||||||||
Revenues | $ | 14,199,661 | $ | 5,941,472 | $ | - | $ | 20,141,133 | |||||||||
Cost of sales | 9,372,798 | 4,005,179 | - | 13,377,977 | |||||||||||||
Gross profit | 4,826,863 | 1,936,293 | - | 6,763,156 | |||||||||||||
Total operating expenses | 6,285,167 | 968,179 | 302,416 | (d/e) | 7,555,762 | ||||||||||||
Operating income (loss) | (1,458,304 | ) | 968,114 | (302,416 | ) | (792,606 | ) | ||||||||||
Total other expense | (3,850,882 | ) | (57,335 | ) | - | (3,908,217 | ) | ||||||||||
Income (loss) from continuing operations | (5,309,186 | ) | 910,779 | (302,416 | ) | (4,700,823 | ) | ||||||||||
Income tax (expense) benefit | 354,366 | - | (225,094 | ) | (f) | 129,272 | |||||||||||
Net income (loss) | $ | (4,954,820 | ) | $ | 910,779 | $ | (527,510 | ) | $ | (4,571,551 | ) | ||||||
Basic earnings (loss) per share | $ | (0.05 | ) | $ | (0.03 | ) | |||||||||||
Shares used in computing basic per share amounts | 109,326,053 | (g) | 161,161,117 | ||||||||||||||
Diluted earnings (loss) per share | $ | (0.05 | ) | $ | (0.03 | ) | |||||||||||
Shares used in computing diluted per share amounts | 109,326,053 | (g) | 161,161,117 | ||||||||||||||
Historical | ||||||||||||||||||||||||||
Mako | ||||||||||||||||||||||||||
Deep Down | Eleven | Flotation | ||||||||||||||||||||||||
Year Ended | Months Ended | Year Ended | Mako | Flotation | Combined | |||||||||||||||||||||
December 31, | November 30, | December 31, | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||
2007 | 2007 | 2007 | Entries | Entries | Results | |||||||||||||||||||||
Revenues | $ | 19,389,730 | $ | 5,494,388 | $ | 13,410,002 | $ | - | $ | - | $ | 38,294,120 | ||||||||||||||
Cost of sales | 13,020,369 | 2,298,597 | 8,117,600 | - | - | 23,436,566 | ||||||||||||||||||||
Gross profit | 6,369,361 | 3,195,791 | 5,292,402 | - | - | 14,857,554 | ||||||||||||||||||||
Total operating expenses | 4,711,517 | 2,455,728 | 2,001,047 | 448,679 | (a) | 907,247 | (d/e) | 10,524,218 | ||||||||||||||||||
Operating income (loss) | 1,657,844 | 740,063 | 3,291,355 | (448,679 | ) | (907,247 | ) | 4,333,336 | ||||||||||||||||||
Total other income (expense) | (335,662 | ) | (65,702 | ) | 766,477 | (1,059,573 | ) | (b) | - | (694,460 | ) | |||||||||||||||
Income (loss) from continuing operations | 1,322,182 | 674,361 | 4,057,832 | (1,508,252 | ) | (907,247 | ) | 3,638,876 | ||||||||||||||||||
Income tax (expense) benefit | (369,673 | ) | (319,432 | ) | - | 558,053 | (1,165,716 | ) | (f) | (1,296,768 | ) | |||||||||||||||
Net income (loss) | $ | 952,509 | $ | 354,929 | $ | 4,057,832 | $ | (950,199 | ) | $ | (2,072,963 | ) | $ | 2,342,108 | ||||||||||||
Basic earnings per share | $ | 0.01 | $ | 0.02 | ||||||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||||||
basic per share amounts | 73,917,190 | (c/g) | 142,151,376 | |||||||||||||||||||||||
Diluted earnings per share | $ | 0.01 | $ | 0.01 | ||||||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||||||
diluted per share amounts | 104,349,455 | (c/g) | 172,583,641 | |||||||||||||||||||||||
Historical | ||||||||||||||||||||||||||
Deep Down | ||||||||||||||||||||||||||
Inception | Mako | Flotation | ||||||||||||||||||||||||
June 29, 2006 - | Year Ended | Year Ended | Mako | Flotation | Combined | |||||||||||||||||||||
December 31, | December 31, | December 31, | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||
2006 | 2006 | 2006 | Entries | Entries | Results | |||||||||||||||||||||
Revenues | $ | 978,047 | $ | 6,414,979 | $ | 6,379,574 | $ | - | $ | - | $ | 13,772,600 | ||||||||||||||
Cost of sales | 565,700 | 2,413,551 | 3,699,075 | - | - | 6,678,326 | ||||||||||||||||||||
Gross profit | 412,347 | 4,001,428 | 2,680,499 | - | - | 7,094,274 | ||||||||||||||||||||
Total operating expenses | 3,627,788 | 2,222,567 | 1,635,752 | 489,468 | (a) | 907,247 | (d/e) | 8,882,822 | ||||||||||||||||||
Operating income (loss) | (3,215,441 | ) | 1,778,861 | 1,044,747 | (489,468 | ) | (907,247 | ) | (1,788,548 | ) | ||||||||||||||||
Total other expense | (62,126 | ) | (31,765 | ) | (7,024 | ) | (1,059,573 | ) | (b) | - | (1,160,488 | ) | ||||||||||||||
Income (loss) from continuing operations | (3,277,567 | ) | 1,747,096 | 1,037,723 | (1,549,041 | ) | (907,247 | ) | (2,949,036 | ) | ||||||||||||||||
Income tax (expense) benefit | (22,250 | ) | (671,822 | ) | - | 573,145 | (48,276 | ) | (f) | (169,203 | ) | |||||||||||||||
Net income (loss) | $ | (3,299,817 | ) | $ | 1,075,274 | $ | 1,037,723 | $ | (975,896 | ) | $ | (955,523 | ) | $ | (3,118,239 | ) | ||||||||||
Basic earnings (loss) per share | $ | (0.04 | ) | $ | (0.02 | ) | ||||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||||||
basic per share amounts | 76,701,569 | 144,935,755 | ||||||||||||||||||||||||
Diluted earnings (loss) per share | $ | (0.04 | ) | $ | (0.02 | ) | ||||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||||||
diluted per share amounts | 76,701,569 | 144,935,755 | ||||||||||||||||||||||||
Historical | ||||||||||||||||
Six Months | Six Months | |||||||||||||||
Inception | Ended | Ended | ||||||||||||||
June 29, 2006 - | Year Ended | June 30, | June 30, | |||||||||||||
December 31, | December 31, | 2007 (3) | 2008 (4) | |||||||||||||
2006 (1) | 2007 (2) | (unaudited) | (unaudited) | |||||||||||||
Results of operations data: | ||||||||||||||||
Revenues | $ | 978,047 | $ | 19,389,730 | $ | 7,243,182 | $ | 14,199,661 | ||||||||
Cost of sales | 565,700 | 13,020,369 | 4,545,402 | 9,372,798 | ||||||||||||
Gross profit | 412,347 | 6,369,361 | 2,697,780 | 4,826,863 | ||||||||||||
Total operating expenses | 3,627,788 | 4,711,517 | 1,917,843 | 6,285,167 | ||||||||||||
Operating income (loss) | (3,215,441 | ) | 1,657,844 | 779,937 | (1,458,304 | ) | ||||||||||
Total other income (expense) | (62,126 | ) | (335,662 | ) | 507,633 | (3,850,882 | ) | |||||||||
Income (loss) from continuing operations | (3,277,567 | ) | 1,322,182 | 1,287,570 | (5,309,186 | ) | ||||||||||
Income tax benefit (expense) | (22,250 | ) | (369,673 | ) | (447,363 | ) | 354,366 | |||||||||
Net income (loss) | $ | (3,299,817 | ) | $ | 952,509 | $ | 840,207 | $ | (4,954,820 | ) | ||||||
Basic earnings (loss) per share | $ | (0.04 | ) | $ | 0.01 | $ | 0.01 | $ | (0.05 | ) | ||||||
Shares used in computing | ||||||||||||||||
basic per share amounts | 76,701,569 | 73,917,190 | 74,417,132 | 109,326,053 | ||||||||||||
Diluted earnings (loss) per share | $ | (0.04 | ) | $ | 0.01 | $ | 0.01 | $ | (0.05 | ) | ||||||
Shares used in computing | ||||||||||||||||
diluted per share amounts | 76,701,569 | 104,349,455 | 100,315,405 | 109,326,053 | ||||||||||||
EBITDA (5) | $ | (3,188,280 | ) | $ | 4,084,808 | $ | 2,934,158 | $ | (1,017,135 | ) | ||||||
Cash flow data: | ||||||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operating activities | $ | (56,242 | ) | $ | (3,006,136 | ) | $ | 427,319 | $ | (1,361,618 | ) | |||||
Investing activities | 101,497 | (1,358,429 | ) | (633,169 | ) | (23,748,167 | ) | |||||||||
Financing activities | (32,893 | ) | 6,558,323 | 456,693 | 26,989,108 | |||||||||||
Balance sheet data (at period end): | ||||||||||||||||
Cash and cash equivalents | $ | 12,462 | $ | 2,581,220 | $ | 263,305 | $ | 4,085,543 | ||||||||
Working capital | 932,929 | 6,674,242 | (1,500,828 | ) | 10,842,747 | |||||||||||
Total assets | 10,129,563 | 36,051,689 | 13,990,699 | 57,635,491 | ||||||||||||
Total liabilities | 6,358,489 | 19,043,929 | 10,373,084 | 4,762,484 | ||||||||||||
Total debt | 1,168,348 | 11,693,995 | 3,471,041 | 966,858 | ||||||||||||
Total temporary equity | 7,070,791 | 4,419,244 | 4,419,244 | - | ||||||||||||
Stockholders' equity (deficit) | (3,299,717 | ) | 12,588,516 | (801,629 | ) | 52,873,007 | ||||||||||
See accompanying notes to pro forma combined condensed financial statements. |
Historical | ||||||||||||||||
Six Months | Six Months | |||||||||||||||
Inception | Ended | Ended | ||||||||||||||
June 29, 2006 - | Year Ended | June 30, | June 30, | |||||||||||||
December 31, | December 31, | 2007 (3) | 2008 (4) | |||||||||||||
2006 (1) | 2007 (2) | (unaudited) | (unaudited) | |||||||||||||
EBITDA Reconciliation: | ||||||||||||||||
Net income (loss) | $ | (3,299,817 | ) | $ | 952,509 | $ | 840,207 | $ | (4,954,820 | ) | ||||||
Tax expense (benefit) | 22,250 | 369,673 | 447,363 | (354,366 | ) | |||||||||||
Interest | 62,126 | 2,335,662 | 1,492,367 | 3,393,054 | ||||||||||||
Depreciation and amortization expense | 27,161 | 426,964 | 154,221 | 898,997 | ||||||||||||
EBITDA | $ | (3,188,280 | ) | $ | 4,084,808 | $ | 2,934,158 | $ | (1,017,135 | ) |
A corporation which was founded in 1997. Under the terms of this transaction, Subsea acquired all of Deep Down’s common stock in exchange for 5,000 shares of Subsea’s Series D Preferred Stock and 5,000 shares of Subsea’s Series E Preferred Stock resulting in Deep Down becoming a wholly-owned subsidiary of Subsea. The transaction was accounted for under SFAS 141, “Business Combinations,” as a purchase as there was a change of control. The purchase price, based on the fair valuemay elect to not be governed by, or “opt out” of, the Series D and E Preferred stock, was $7.9 million .
Historical Results | Unaudited Pro forma | |||||||
Year Ended | Year Ended | |||||||
December 31, 2007 | December 31, 2006 | |||||||
Revenues | $ | 19,389,730 | $ | 8,821,149 | ||||
Cost of sales | 13,020,369 | 5,155,399 | ||||||
Gross profit | 6,369,361 | 3,665,750 | ||||||
Operating expenses: | ||||||||
Selling, general & administrative (1) | 4,284,553 | 5,710,324 | ||||||
Depreciation | 426,964 | 166,468 | ||||||
Total operating expenses | 4,711,517 | 5,876,792 | ||||||
Operating income (loss) | 1,657,844 | (2,211,042 | ) | |||||
Other income (expense): | ||||||||
Gain on debt extinguishment | 2,000,000 | - | ||||||
Interest income | 94,487 | - | ||||||
Interest expense (2) | (2,430,149 | ) | (578,335 | ) | ||||
Total other income (loss) | (335,662 | ) | (578,335 | ) | ||||
Income (loss) before income taxes | 1,322,182 | (2,789,377 | ) | |||||
Income tax expense | (369,673 | ) | (22,250 | ) | ||||
Net income (loss) | $ | 952,509 | $ | (2,811,627 | ) | |||
Basic earnings per share | $ | 0.01 | $ | (0.04 | ) | |||
Weighted-average shares outstanding | 73,917,190 | 75,862,484 | ||||||
Diluted earnings per share | $ | 0.01 | $ | (0.04 | ) | |||
Weighted-average shares outstanding | 104,349,455 | 75,862,484 | ||||||
(1) Includes $3.3 million compensation expense from the issuance of Series F and G preferred shares in 2006. | ||||||||
(2) Includes approximately $423,258 additional interest expense from the accretion of the Series E preferred shares in 2006. |
2007 | Pro forma 2006 | Change | % | ||||||||||
Revenues | $ | 19,389,730 | $ | 8,821,149 | $ | 10,568,581 | 119.8% |
2007 | Pro Forma 2006 | Change | % | |||||||||||||
Cost of sales | $ | 13,020,369 | $ | 5,155,399 | $ | 7,864,970 | 152.6% |
2007 | Pro Forma 2006 | Change | % | ||||||||||
Selling, general and administrative | $ | 4,284,553 | $ | 5,710,324 | $ | (1,425,771 | ) | -25.0% | |||||
Stock based compensation expense | (187,394 | ) | (3,340,792 | ) | 3,153,398 | -94.4% | |||||||
Selling, general and administrative | $ | 4,097,159 | $ | 2,369,532 | $ | 1,727,627 | 72.9% |
2007 | Pro Forma 2006 | Change | % | |||||||||||||
Depreciation | $ | 398,610 | $ | 166,468 | $ | 232,142 | 139.5% | |||||||||
Amortization | 28,354 | - | 28,354 | - | ||||||||||||
Depreciation and amortization | $ | 426,964 | $ | 166,468 | $ | 260,496 | 156.5% |
2007 | Pro Forma 2006 | Change | % | |||||||||||||
Cash interest expense | $ | 594,667 | $ | 155,077 | $ | 439,590 | 283.5% | |||||||||
Amount related to amortization of debt discounts and deferred financing costs | 190,491 | - | 190,491 | - | ||||||||||||
Amount related to accretion | 1,644,991 | 423,258 | 1,221,733 | 288.6% | ||||||||||||
Total interest expense | $ | 2,430,149 | $ | 578,335 | $ | 1,851,814 | 320.2% |
2007 | Pro Forma 2006 | Change | % | |||||||||||||
Net income (loss) | $ | 952,509 | $ | (2,811,627 | ) | $ | 3,764,136 | 133.9% | ||||||||
Tax expense | 369,673 | 22,250 | 347,423 | - | ||||||||||||
Interest | 2,335,662 | 578,335 | 1,757,327 | 303.9% | ||||||||||||
Depreciation and amortization expense | 426,964 | 166,468 | 260,496 | 156.5% | ||||||||||||
EBITDA | $ | 4,084,808 | $ | 2,044,574 | $ | 6,129,382 | 299.8% |
The effect of the Nevada control share statute is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of our operations.
Name and address of beneficial owner (2) | Shares | Vested Options / Warrants | Percentage of Voting Rights (1) |
Ronald E. Smith (3)(4) | 44,629,876 | - | 25.16% |
Mary L. Budrunas (3) | 44,629,876 | - | 25.16% |
Robert E. Chamberlain, Jr.(4) | 25,358,375 | - | 14.30% |
Eugene L. Butler (4) | 350,000 | 1,000,000 (5) | 0.76% (6) |
All directors and officers as a group (four persons) | 70,338,251 | 1,000,000 | 40.00%(6) |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (5) | Option Awards ($) (3) | All Other Compensation ($) | Total ($) | ||||||||||||||
Ronald E. Smith (4) | 2007 | $ | 269,231 | $ | - | $ | - | $ | - | $ | - | $ | 269,231 | ||||||||
President, Chief Executive Officer and Director | 2006 | $ | 27,110 | $ | 1,710 | $ | - | $ | - | $ | - | $ | 28,820 | ||||||||
Robert E. Chamberlain, Jr. (1) (4) | 2007 | $ | 180,000 | $ | - | $ | - | $ | - | $ | 20,655 | $ | 200,655 | ||||||||
Chairman of the Board, Chief Acquisition Officer and Director | 2006 | $ | 16,670 | $ | - | $ | - | $ | - | $ | - | $ | 16,670 | ||||||||
Mary L. Budrunas | 2007 | $ | 134,615 | $ | - | $ | - | $ | - | $ | - | $ | 134,615 | ||||||||
Vice-President, Corporate Secretary and Director | 2006 | $ | 13,070 | $ | 12,670 | $ | - | $ | - | $ | - | $ | 25,740 | ||||||||
Eugene L. Butler (2) (4) | 2007 | $ | 105,000 | $ | - | $ | - | $ | 618,300 | $ | 14,568 | $ | 737,868 | ||||||||
Chief Financial Officer and Director | 2006 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | |||||||||
Eugene L. Butler, Chief Financial Officer | - | 3,000,000 | - | $ | 0.515 | May 31, 2010 |
INTEREST OF NAMED EXPERTS AND COUNSEL
The validity of the common stock offered by this Prospectus is being passed upon for us by Sonfield & Sonfield, Houston, Texas, whoLewis Roca Rothgerber LLP, which does not hold any interest in the Company, contingent or otherwise.
EXPERTS
The consolidated financial statements of Deep Down, Inc. as of December 31, 2007 and 2006 and for the period from June 29, 2006 (inception) toyears ended December 31, 2006 included2012 and 2011, incorporated by reference in this prospectusProspectus, have been included in reliance on the report dated March 31, 200828, 2013 of MaloneHein & Bailey PC,Associates LLC, an independent registered public accounting firm, given on the authority of such firm as experts on accounting and auditing. In addition, the historical financial statements of Flotation Technologies, Inc. included in this prospectus have been included in reliance on the report dated June 16, 2008 of Bruzgo & Kremer, LLC, an independent public accounting firm, given on the authority of such firm as experts on accounting and auditing. Further, the financial statements of Mako Technologies, Inc. as of and for the period ended September 30, 2007 and as of and for the year ended December 31, 2006, included in this prospectus have been included in reliance on the report dated March 17, 2008 of Malone & Bailey PC, an independent registered public accounting firm, given on the authority of such firm as experts on accounting and auditing
-11- |
SHARES AVAILABLE FOR FUTURE SALE
As of September 30, 2008,2013 we had outstanding 177,350,63015,275,081 shares of our Common Stock outstanding, of which 29,002,0527,545,858 shares arewere freely tradable or covered by a current registration statementRegistration Statement and 57,142,8574,443,611 shares will be freely tradable under this Prospectus. The remaining 91,205,7213,285,612 shares of our Common Stock outstanding are “restricted securities” as defined in Rule 144 and are held by our “affiliates” (as that term is defined in Rule 144 under the Securities Act). These restricted securities may be sold in the future pursuant to registration statementsRegistration Statements filed with the SEC or without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
As of September 30, 2008 ,2013, there were an aggregate of 8,775,000985,000 shares of our Common Stock issuable upon exercise of outstanding stock options and an aggregate of 638,812 shares of stock issuable upon exercise of outstanding warrants. On July 3, 2008, the holder of 4,960,585 warrants exercised the warrants in a cashless exercise for a total of 2,618,129 shares of common stock.
We may register additional shares in the future in connection with acquisitions, compensation or otherwise. We have not entered into any agreements or understanding regarding any future acquisitions and cannot ensure that we will be able to identify or complete any acquisition in the future. Sales of shares of common stock in the public markets or through Rule 144 may have an adverse effect on prevailing market prices for our common stock.
Rule 144 governs resale of "restricted securities" for the account of any person (other than an issuer), and restricted and unrestricted securities for the account of an "affiliate" of the issuer. Restricted securities generally include any securities acquired directly or indirectly from an issuer or its affiliates which were not issued or sold in connection with a public offering registered under the Securities Act. An affiliate of the issuer is any person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. Affiliates of the Company may include its directors, executive officers, and persons directly or indirectly owning 10% or more of the outstanding common stock. Under new rules adopted by the Commission, unregistered resales of restricted securities of reporting companies are able to be made by non-affiliates and affiliates after such securities have been held for six (6) months (assuming the issuer remains current in its SEC periodic reporting obligations for an additional six months, and subject to any affiliates complying with certain volume limitations and other resale requirements as set forth in Rule 144), and after one (1) year by affiliates and non-affiliates of non-reporting companies, subject to certain requirements under Rule 144, as it has been amended (including that there is current public information regarding the issuer for sales by affiliates and that other volume limitations are complied with for sales of affiliates, as described in greater detail in Rule 144).
-12- |
SELLING SHAREHOLDERS
On June 5, 2008,September 10, 2013 and September 26, 2013, in a private placement we sold 57,142,857an aggregate of 4,443,611 shares of our common stock to the thirty-five (35)sixty (60) Selling Shareholders listed below. Under the securities purchase agreement that we entered into with the investors, we agreed to register the shares sold for resale to the public under the Securities Act of 1933 the shares sold.
We are registering the shares to permit the Selling Shareholders to resell them in the manner contemplated under the “Plan of Distribution” beginning on page 69.16. When we refer to “Selling Shareholders” in this Prospectus, we mean the persons listed in the table below, and the pledgees, donees, transferees, successors, and others who later come to hold any of the Selling Shareholders’ interests in shares of our common stock other than through a public sale.
The shares offered by this Prospectus may be offered from time to time by the Selling Shareholders. They may sell some, all or none of their shares. We do not know how long the Selling Shareholders will hold the shares before selling them. We currently have no agreements, arrangements or understandings with the Selling Shareholders regarding the sale of any of the shares.
The following table sets forth the name of each selling shareholder,Selling Shareholder, the number of shares owned by each Selling Shareholder before this offering,the private placement, the number of shares that may be offered under this Prospectus,purchased by each Selling Shareholder in the private placement, and the number of shares of our common stock owned by the Selling Shareholders after this offering is completed.private placement. The number of shares in the column “Number of Shares Being Offered”Purchased” represents all of the shares that a Selling Shareholder may offer under this Prospectus. The number of shares in the column “Shares Owned after the Offering” assumes the sale of all of the shares offered by the Selling Shareholder under this Prospectus.
The ownership of shares reported in the table below is based upon information provided by each Selling Shareholder and SEC Form 4s, SEC Schedules 13D and 13G, and other public documents filed with the Securities and Exchange Commission. Unless otherwise noted, none of the share amounts set forth below represents more than 5% of our outstanding common stock as of September 30, 2008. The percentages of shares owned after the offering are based on 177,350,630 shares of our common stock outstanding as of September 30, 2008 .
None of the Selling Shareholders have, or within the past three years has had, any position, office or other material relationship with us.
Based on the information provided to us by the Selling Shareholders, none of the Selling Shareholders is, or is affiliated with, a broker-dealer other than Crestview Capital Master, L.L.C.Lake Street Fund, L.P., D.E. Shaw Valence Portfolios, L.L.C.Wedbush Opportunity Partners, LP., Dean O’Connor, Ernest J. Dahlman, III, IOU Limited Partnership, Jefferies & Co., OGI AssociatesWellington Trust Company, National Association Multiple Collective Investment Funds Trust, Micro Cap Equity Portfolio and Schottenfeld Group, LLC.Wellington Trust Company, National Association Multiple Common Trust Funds Trust, Micro Cap Equity Portfolio. Each of the Selling Shareholders has represented to us that he or it had no agreements or understanding, directly or indirectly, with any person to distribute the securities.
The Selling Shareholders may have sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their shares since the date on which the information in the table is presented. Information about the Selling Shareholders may change over time.
The percentages of shares owned after the offering are based on 15,275,081, shares of our common stock outstanding as of September 30, 2013.
For all of the selling shareholders who are not natural persons, unless noted otherwise, the investment managers, general partners, trustees or principals named in the footnotes below have the sole voting and dispositive power over the shares held by the selling shareholders.
-13- |
Shares Owned After Offering (3) | |||||
Name | Shares of Common Stock Owned Prior to Offering | Number of Shares Being Offered | Number | Percent | |
Amended and Restated Declaration of Trust of Morton A. Cohen, dated May 9, 2005 | (a) | 142,857 | 142,857 | 142,857 | * |
Andrew Steven Codispoti | (b) | 71,429 | 71,429 | 71,429 | * |
Aquanaut Master Fund Ltd. | (c) | 1,428,571 | 1,428,571 | 1,428,571 | * |
BlackGold Capital Master Fund L.P. | (d) | 1,428,571 | 1,428,571 | 1,428,571 | * |
Calm Waters Partnership | (e) | 3,571,429 | 3,571,429 | 3,571,429 | * |
Capital Structure Opportunities, LP | (f) | 102,000 | 102,000 | 102,000 | * |
Cardinal Bear LLC | (g) | 1,071,429 | 1,071,429 | 1,071,429 | * |
Clarion Capital Corporation | (h) | 428,572 | 428,572 | 428,572 | * |
Clarion World Offshore Fund, Ltd. | (i) | 142,857 | 142,857 | 142,857 | * |
Crestview Capital Master, LLC | (j) | 357,143 | 357,143 | 357,143 | * |
D.E. Shaw Valence Portfolios, L.L.C. | (k) | 7,142,857 | 7,142,857 | 7,142,857 | * |
Dubuque Bank and Trust (DBCTO) | (l) | 2,857,143 | 2,857,143 | 2,857,143 | * |
Dean O'Connor (1) | (m) | 50,000 | 50,000 | 50,000 | * |
Ernest J. Dahlman, III (2) | (n) | 93,239 | 93,239 | 93,239 | * |
Greg Imbruce | (o) | 500,000 | 500,000 | 500,000 | * |
Hare & Co. | (p) | 38,750 | 38,750 | 38,750 | * |
Invenio Partners | (q) | 285,714 | 285,714 | 285,714 | * |
IOU Limited Partnership | (r) | 2,071,428 | 2,071,428 | 2,071,428 | * |
Jacobe Partners, L.P. | (s) | 428,571 | 428,571 | 428,571 | * |
Jefferies & Co. | (t) | 10,999 | 10,999 | 10,999 | * |
Mac & Co. | (u) | 106,570 | 106,570 | 106,570 | * |
Millennium Partners, L.P. | (v) | 7,857,143 | 7,857,143 | 7,857,143 | * |
Newland Master Fund, Ltd. | (w) | 3,000,000 | 3,000,000 | 3,000,000 | * |
OGI Associates, LLC | (x) | 2,071,429 | 2,071,429 | 2,071,429 | * |
PENFIRN Co F/B/O: Roge Partners Fund | (y) | 428,571 | 428,571 | 428,571 | * |
PENFIRN Co F/B/O: Roge Select Opportunities Fund | (z) | 428,571 | 428,571 | 428,571 | * |
Oppenheimer Capital Structure Opportunities Master Fund, Ltd. | (aa) | 167,000 | 167,000 | 167,000 | * |
Perella Weinberg Partners Oasis Master Fund L.P. | (bb) | 5,000,000 | 5,000,000 | 5,000,000 | * |
Peter Kaltmon | (cc) | 74,300 | 74,300 | 74,300 | * |
Schottenfeld Group, LLC | (dd) | 1,000,000 | 1,000,000 | 1,000,000 | * |
Tracy W. Krohn | (ee) | 5,714,286 | 5,714,286 | 5,714,286 | * |
UBS O’Connor LLC F/B/O: O’Connor Pipes Corporate Strategies Master Limited | (ff) | 1,428,571 | 1,428,571 | 1,428,571 | * |
Wexford Capital, LLC | (gg) | 1,785,715 | 1,785,715 | 1,785,715 | * |
Wexford Spectrum Trading Limited | (hh) | 5,357,142 | 5,357,142 | 5,357,142 | * |
Stamatis Molaris | (ii) | 500,000 | 500,000 | 500,000 | * |
57,142,857 | 57,142,857 | 57,142,857 |
Shares of Common Stock Owned Prior to Private | Number of Shares Purchased in Private | Shares of Common Stock Owned After Private Placement | ||||||||||||||
Name | Placement | Placement | (#) | (%) | ||||||||||||
Adam Boyd Sellers | – | 5,000 | 5,000 | * | ||||||||||||
Alexis B. Johnson | – | 8,000 | 8,000 | * | ||||||||||||
Allan R Schuman | – | 5,000 | 5,000 | * | ||||||||||||
Anne Hampson Ross | – | 15,000 | 15,000 | * | ||||||||||||
Bard Micro-Cap Value Fund, L.P. | (a) | – | 20,000 | 20,000 | * | |||||||||||
Blue Clay Capital Master Fund Ltd. | (b) | – | 85,000 | 85,000 | * | |||||||||||
Bradley Louis Radoff | 480,000 | 164,000 | 644,000 | 4.2 | % | |||||||||||
Carol Clark Coolidge Trust UAD 3/13/97 | – | 5,000 | 5,000 | * | ||||||||||||
Charles M Hale Living Trust | – | 200,000 | 200,000 | 1.3 | % | |||||||||||
Christina D. Collier Trust UAD 12/23/2003 | – | 4,500 | 4,500 | * | ||||||||||||
Christine Elizabeth Coolidge Rev Living Trust UAD 12/9/02 | – | 4,000 | 4,000 | * | ||||||||||||
Citadel Industries, Inc. | (c) | – | 17,500 | 17,500 | * | |||||||||||
Deborah B. Dewing Trust UAD 6/1/99 | – | 4,500 | 4,500 | * | ||||||||||||
Dale F. Snavely Trust UAD 3/30/93 | – | 20,000 | 20,000 | * | ||||||||||||
Henry J Underwood Trust UAD 6/25/02 | – | 8,500 | 8,500 | * | ||||||||||||
J. Scott Etzler | – | 5,000 | 5,000 | * | ||||||||||||
JAMAKA Capital L.P. | (d) | – | 200,000 | 200,000 | 1.3 | % | ||||||||||
Jane Lois Kaplan Revocable Trust UAD 9/6/2000 | – | 8,000 | 8,000 | * | ||||||||||||
Janet J. Underwood Trust UAD 6/25/02 | – | 10,000 | 10,000 | * | ||||||||||||
Jennifer Bard Trust UAD 6/30/05 | – | 4,000 | 4,000 | * | ||||||||||||
John Bard Manulis | – | 5,000 | 5,000 | * | ||||||||||||
Joseph H. Ballway, Jr. | – | 3,000 | 3,000 | * | ||||||||||||
Joshua Herrendorf | – | 4,000 | 4,000 | * | ||||||||||||
Julien D Lebourgeois | – | 4,000 | 4,000 | * | ||||||||||||
Katharine B. Dickson & Mark A Dickson JTWROS | – | 20,000 | 20,000 | * | ||||||||||||
Lake Street Fund, L.P. | (e) | – | 416,667 | 416,667 | 2.7 | % | ||||||||||
Lucy H. Underwood | – | 6,000 | 6,000 | * | ||||||||||||
M. Edwards Sellers & Susan D. Boyd JTWROS | – | 20,000 | 20,000 | * | ||||||||||||
Marc E. Nicholson | – | 6,000 | 6,000 | * | ||||||||||||
Marcia E. Cremin Revocable Trust UAD 3/1/06 | – | 6,000 | 6,000 | * | ||||||||||||
Marshall I Steinbaum | – | 5,000 | 5,000 | * | ||||||||||||
Marvin J. Pollack Trust UAD 5/22/90 | – | 5,000 | 5,000 | * | ||||||||||||
Mary A Heatter Trust UAD 6/28/2004 | – | 3,000 | 3,000 | * | ||||||||||||
Mary E. McAvoy Trust UAD 9/5/84 | – | 3,000 | 3,000 | * | ||||||||||||
Mary M. Schwartz Trust UAD 9/5/06 | – | 3,000 | 3,000 | * | ||||||||||||
Matthew Moog | – | 5,000 | 5,000 | * | ||||||||||||
MAZ Partners L.P. | (f) | – | 125,000 | 125,000 | * | |||||||||||
Michael D. Watt Trust UAD 3/15/02 | – | 5,000 | 5,000 | * | ||||||||||||
N. Shaw Family Ltd Partnership | (g) | – | 4,000 | 4,000 | * | |||||||||||
Option Opportunities Corp | (h) | – | 41,667 | 41,667 | * | |||||||||||
Patrick T. Underwood | – | 5,000 | 5,000 | * | ||||||||||||
Perritt Ultra Microcap Fund | (i) | – | 250,000 | 250,000 | 1.6 | % | ||||||||||
Perry J. Radoff, P.C., Profit Sharing Plan | – | 55,556 | 55,556 | * | ||||||||||||
Peter L. Abeles and Jonnet S. Abeles, JTWROS | – | 3,000 | 3,000 | * | ||||||||||||
R. Stuyvesant Pierrepont Trust V/W/D 1932 | (j) | – | 12,000 | 12,000 | * | |||||||||||
Robert E. Logan, Jr. | – | 3,000 | 3,000 | * | ||||||||||||
Robert S. Steinbaum | – | 7,000 | 7,000 | * | ||||||||||||
Serenity Now LLC | (k) | – | 33,333 | 33,333 | * | |||||||||||
Seville Enterprises, LP | (l) | – | 10,000 | 10,000 | * | |||||||||||
Sidney N. Herman | – | 15,000 | 15,000 | * | ||||||||||||
T. Michael Johnson & Patricia R. Johnson JTWROS | – | 5,000 | 5,000 | * | ||||||||||||
The Perlus Micro Cap Fund L.P. | (m) | 1,100,000 | 194,444 | 1,294,444 | 8.5 | % | ||||||||||
Timothy B. Johnson | – | 20,000 | 20,000 | * | ||||||||||||
Warberg Opportunistic Trading Fund LP | (n) | – | 69,444 | 69,444 | * | |||||||||||
Wedbush Opportunity Partners, LP | (o) | – | 250,000 | 250,000 | 1.6 | % | ||||||||||
Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Micro Cap Equity Portfolio | (p) | – | 223,200 | 223,200 | 1.5 | % | ||||||||||
Wellington Trust Company, National Association Multiple Common Trust Funds Trust, Micro Cap Equity Portfolio | (q) | – | 1,776,800 | 1,776,800 | 11.6 | % | ||||||||||
William A. Carey & Amanda C. Carey JTWROS | – | 3,000 | 3,000 | * | ||||||||||||
William G Escamilla Revocable Trust DTD 7/29/03 | – | 4,500 | 4,500 | * | ||||||||||||
William K. Kellogg III 1992 Trust UAD 7/24/92 | – | 20,000 | 20,000 | * | ||||||||||||
1,580,000 | 4,443,611 | 6,023,611 |
_________________
* Less than 1%
-14- |
(a) Mr. O’Connor is an employee of Dahlman Rose & Company, LLC, the placement agent in the Company’s private placement of the shares of common stock being registered for resale by the Selling Shareholders hereby.
(b) Andrew Steven Codispoti, of 142 W. 57th. St. 18th Floor, New York, NY, 10019,Mr. Brian Durst, Managing Director, has voting and investment control of these shares. The security holder is a registered broker-dealer and member of FINRA.
(c) Aquanaut Master Fund, Ltd. represented by Magnus Fyhr, of 700 Louisiana # 4260, Houston, TX 77002, has investment and voting control of these shares.
(d) Mr. David J. Douglas, Manager of 115 S. 84th. St.JAMAKA Capital Management LLC, the G.P., Suite 200, Milwaukee, WI, 53214, has voting and investment control of these shares.
(e) Mr. Scott Hood, Managing Director of the Libertyview Building, 457 Haddonfield Road Suite 210, Cherry Hill, NJ, 08002,Lake Street Mgmt, LLC, has voting and investment control of these shares. (See notes o, t, u, aa and cc.)
(f) Mr. Walter Schenker, Principal, has voting and investment control of these shares.
(g) Mr. Bruce P. Shaw, Partner, has voting and investment control of these shares. (See note i.)
(h) Messrs. Jonathon Blumberg, Daniel Warsh and David Dury exercise voting and investment control of these shares.
(i) Clarion World Offshore Fund, Ltd. represented by Morton A. Cohen, Chairman, of 3690 Orange Place Suite 400, Beachwood, OH 44122,Mr. Michael Corbett, President and CIO, has voting and investment control of these shares. (See note h.)
(j) Crestview Capital Master, LLC represented by Stewart Flink, Robert Hoyt and Daniel Warsh, of 95 Revere Drive Suite A, Northbrook, IL, 60062, has voting and investment control over these shares. The security holder is a registered broker-dealer and member of FINRA.
(k) Messrs. Jonathon Blumberg, Dan Warsh and Eugene Rintels exercise voting and investment control with D.E. Shaw & Co, L.P., a registered broker-dealer and member of FINRA.
(l) Dubuque Bank and Trust (DBTCO), represented by Tom Peckosh and/or Sarah Reicks, of P.O. Box 747, Dubuque, IA, 52004-0747,Mr. Marvin J. Pollack, Partner, has voting and investment control of these shares.
(m) Dean O’ Connor represented by Dean O’Connor, Dahlman Rose & Co., of 420 East 54th Street, Apt. 25C, New York, NY, 10022, hasMessrs. David Aaron LaSalle, James Lincoln Boucherat, Ashley Le Feuvre, Trevor Lennard Norman and Robert Anthony Christensen exercise voting and investment control of these shares. The security holder is a registered broker-dealer
(n) Messrs. Jonathon Blumberg and member of FINRA.
(o) The securities are held directly by Wedbush Opportunity Partners, L.P. (the Fund) for the benefit of the Fund’s investors. Such securities may be deemed to be indirectly beneficially owned by Wedbush Opportunity Capital, LLC represented(the General Partner), as the general partner of the Fund, and Jeremy Q. Zhu as a Managing Director of the General Partner and lead member of the General Partners investment team that manages the Fund’s portfolio. Wedbush Opportunity Capital, LLC and Jeremy Zhu, Managing Director, disclaim beneficial ownership of shares owned by George A. Weiss ( WeissWedbush Opportunity Partners L.P., except to the extent of any pecuniary interest therein.
(p) Wellington Management Company, LLP (“Wellington Management”) is an investment adviser registered under the Investment Advisers Act of 1940, as amended. Wellington Management LLC), of One State Street 20th Floor, Hartford, CT 06103, hasis the investment adviser to Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Micro Cap Equity Portfolio and in such capacity may be deemed to have shared voting and dispositive power over shares held by such entity.
(q) Wellington Management Company, LLP (“Wellington Management”) is an investment controladviser registered under the Investment Advisers Act of these shares. The selling security holder1940, as amended. Wellington Management is a registered broker-dealerthe investment adviser to Wellington Trust Company, National Association Multiple Common Trust Funds Trust, Micro Cap Equity Portfolio and member of FINRA. (See note r.)
-15- |
We are registering shares of common stock to permit the resale of such common stock by the holders from time to time after the date of this Prospectus. We will not receive any of the proceeds from the sale by the Selling Shareholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.
The Selling Shareholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the Selling Shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time
Each Selling Shareholder of the sale, at varying prices determined atsecurities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the time of sale,OTC Bulletin Board or at negotiated prices.any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be effected in transactions, whichat fixed or negotiated prices. A Selling Shareholder may involve crossesuse any one or block transactions,
· | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
· | block trades in which the broker-dealer will attempt to sell the |
· | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
· | an exchange distribution in accordance with the rules of the applicable exchange; |
· | privately negotiated transactions; |
· | settlement of short sales; |
· |
in transactions through broker-dealers |
· | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
· | a combination of any such methods of sale; |
· | any other method permitted pursuant to applicable law. |
The Selling Shareholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this Prospectus.
Broker-dealers engaged by the Selling Shareholders effect such transactions by selling shares of common stockmay arrange for other brokers-dealers to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agentsparticipate in sales. Broker-dealers may receive commissions in the form ofor discounts concessions or commissions from the Selling Shareholders or commissions from purchasers of the shares of common stock for whom they may act(or, if any broker-dealer acts as agent orfor the purchaser of securities, from the purchaser) in amounts to whom they may sellbe negotiated, but, except as principal (which discounts, concessions or commissions asset forth in a supplement to particular underwriters, broker-dealers or agents may bethis Prospectus, in the case of an agency transaction not in excess of thosea customary brokerage commission in compliance with FINRA Rule 2440; and in the typescase of transactions involved). a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with salesthe sale of the shares of common stocksecurities or otherwise,interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares of common stocksecurities in the course of hedging inthe positions they assume. The Selling Shareholders may also sell shares of common stocksecurities short and deliver shares of common stock covered by this Prospectusthese securities to close out their short positions, and to return borrowed shares in connection with such short sales. The Selling Shareholders may alsoor loan or pledge shares of common stockthe securities to broker-dealers that in turn may sell such shares.
The Selling Shareholders and any broker-dealer participatingbroker-dealers or agents that are involved in selling the distribution of the shares of common stocksecurities may be deemed to be “underwriters” within the meaning of the 1933Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any commission paid, or any discounts or concessions allowed to, any such broker-dealerprofit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the 1933Securities Act. AtEach Selling Shareholder has informed the time a particular offeringCompany that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
-16- |
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares of common stock is made, a Prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation fromsecurities. The Company has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because Selling Shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the Prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any discounts, commissions or concessions allowed or reallowed or paidsecurities covered by this Prospectus which qualify for sale pursuant to broker-dealers.
We agreed to keep this Prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Shareholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers.dealers if required under applicable state securities laws. In addition, in somecertain states, the shares of common stockresale securities covered hereby may not be sold unless such shares of common stockthey have been registered or qualified for sale in suchthe applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders may choose not to sell any or may choose to sell less than all of the shares of common stock registered pursuant to the registration statement, of which this Prospectus forms a part.
-17- |
LEGAL MATTERS
The validity of the common stock offered by this Prospectus is being passed upon for us by Sonfield & Sonfield, Houston, Texas.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports on Form 10-K, quarterly andreports on Form 10-Q, current reports proxy statements,on Form 8-K and other information with the SEC. You may read and copy any document we file at the SEC’s public reference roomPublic Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.operation of the Public Reference Room. Our filings with the SEC are also available to the public at the SEC’s website athttp://www.sec.gov. You may also obtain copies of the documents at prescribed rates by writing to the SEC’s Public Reference Section at 100 F Street, N.E., Washington, D.C. 20549 or from us at no cost by request to our address or telephone below.
We have filed with the Commission a registration statement,Registration Statement, which contains this Prospectus, on Form S-1 under the Securities Act of 1933. The registration statementRegistration Statement relates to the common stock offered by the Selling Shareholders. This Prospectus does not contain all of the information set forth in the registration statementRegistration Statement and the exhibits and schedules to the registration statement.Registration Statement. Please refer to the registration statementRegistration Statement and its exhibits and schedules for further information about us and the common stock. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, we refer you to the copy of that contract or document filed as an exhibit to the registration statement.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate information by reference into this Prospectus. The information incorporated by reference is considered part of this Prospectus.
We incorporate by reference the documents listed below (other than information furnished under Items 2.02 or 7.01 of any Current Report on Form 8-K, which is not deemed filed under the Exchange Act):
· |
· | ||||
· | ||||
· | our Current Report on Form 8-K, as filed with the SEC on September 16, 2013. |
· | our Current Report on Form 8-K, as filed with the SEC on August 13, 2013; |
· | our Current Report on Form 8-K, as filed with the SEC on June 21, 2013; |
· | our Current Report on Form 8-K, as filed with the SEC on May 31, 2013; |
· | our Current Report on Form 8-K, as filed with the SEC on May 15, 2013; |
· | our Current Report on Form 8-K, as filed with the SEC on April 2, 2013; |
· | our Current Report on Form 8-K, as filed with the SEC on March | |||||
29, 2013; |
our Current Report on Form 8-K, as filed with the SEC on March 12, 2013; |
June 30, 2008 | December 31, 2007 | |||||||
ASSETS | ||||||||
Cash and equivalents | $ | 4,085,543 | $ | 2,206,220 | ||||
Restricted cash | - | 375,000 | ||||||
Accounts receivable, net of allowance of $818,992 and $139,787 respectively | 8,614,961 | 7,190,466 | ||||||
Prepaid expenses and other current assets | 710,213 | 312,058 | ||||||
Inventory | 179,343 | 502,253 | ||||||
Lease receivable, short-term | 414,000 | 414,000 | ||||||
Work in progress | 681,790 | 945,612 | ||||||
Receivable from Prospect, net | - | 2,687,333 | ||||||
Total current assets | 14,685,850 | 14,632,942 | ||||||
Property and equipment, net | 10,651,053 | 5,172,804 | ||||||
Other assets, net of accumulated amortization of $0 and $54,560 respectively | 550,819 | 1,109,152 | ||||||
Lease receivable, long-term | 500 | 173,000 | ||||||
Intangibles, net | 18,745,713 | 4,369,647 | ||||||
Goodwill | 13,001,556 | 10,594,144 | ||||||
Total assets | $ | 57,635,491 | $ | 36,051,689 | ||||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
Accounts payable and accrued liabilities | $ | 3,070,105 | $ | 3,569,826 | ||||
Deferred revenue | 725,521 | 188,030 | ||||||
Payable to Mako shareholders | - | 3,205,667 | ||||||
Current portion of long-term debt | 47,477 | 995,177 | ||||||
Total current liabilities | 3,843,103 | 7,958,700 | ||||||
Long-term debt, net of accumulated discount of $0 and $1,703,258 respectively | 919,381 | 10,698,818 | ||||||
Series E redeemable exchangeable preferred stock, par value $0.01, face value and liquidation | ||||||||
preference of $1,000 per share, no dividend preference, authorized 10,000,000 aggregate shares of all series of preferred stock, -0- and 500 issued and outstanding, respectively | - | 386,411 | ||||||
Total liabilities | 4,762,484 | 19,043,929 | ||||||
Temporary equity: | ||||||||
Series D redeemable convertible preferred stock, $0.01 par value, face value and | ||||||||
liquidation preference of $1,000 per share, no dividend preference, authorized 10,000,000 aggregate shares of all series of preferred stock, -0- and 5,000 issued and outstanding, respectively | - | 4,419,244 | ||||||
Total temporary equity | - | 4,419,244 | ||||||
Stockholders' equity: | ||||||||
Common stock, $0.001 par value, 490,000,000 shares authorized, 174,732,501 | ||||||||
and 85,976,526 shares issued and outstanding, respectively | 174,733 | 85,977 | ||||||
Paid-in capital | 60,000,402 | 14,849,847 | ||||||
Accumulated deficit | (7,302,128 | ) | (2,347,308 | ) | ||||
Total stockholders' equity | 52,873,007 | 12,588,516 | ||||||
Total liabilities and stockholders' equity | $ | 57,635,491 | $ | 36,051,689 | ||||
See accompanying notes to unaudited consolidated financial statements. |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenues | ||||||||||||||||
Contract revenue | $ | 5,670,385 | $ | 4,508,635 | $ | 11,007,914 | $ | 6,110,916 | ||||||||
Rental revenue | 2,249,811 | 636,153 | 3,191,747 | 1,132,266 | ||||||||||||
Total revenues | 7,920,196 | 5,144,788 | 14,199,661 | 7,243,182 | ||||||||||||
Cost of sales | 5,496,427 | 3,293,313 | 9,372,798 | 4,545,402 | ||||||||||||
Gross profit | 2,423,769 | 1,851,475 | 4,826,863 | 2,697,780 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general & administrative | 3,681,643 | 1,103,902 | 5,443,890 | 1,763,622 | ||||||||||||
Depreciation and amortization | 543,128 | 90,196 | 841,277 | 154,221 | ||||||||||||
Total operating expenses | 4,224,771 | 1,194,098 | 6,285,167 | 1,917,843 | ||||||||||||
Operating income (loss) | (1,801,002 | ) | 657,377 | (1,458,304 | ) | 779,937 | ||||||||||
Other income (expense): | ||||||||||||||||
Gain (loss) on debt extinguishment | (446,412 | ) | 2,000,000 | (446,412 | ) | 2,000,000 | ||||||||||
Interest income | 27,346 | 16,290 | 66,510 | 16,290 | ||||||||||||
Interest expense | (2,690,534 | ) | (1,276,770 | ) | (3,459,564 | ) | (1,508,657 | ) | ||||||||
Other expense | (39,771 | ) | - | (11,416 | ) | - | ||||||||||
Total other income (expense) | (3,149,371 | ) | 739,520 | (3,850,882 | ) | 507,633 | ||||||||||
Income (loss) before income taxes | (4,950,373 | ) | 1,396,897 | (5,309,186 | ) | 1,287,570 | ||||||||||
Benefit from (provision for) income taxes | 85,000 | (447,363 | ) | 354,366 | (447,363 | ) | ||||||||||
Net income (loss) | $ | (4,865,373 | ) | $ | 949,534 | $ | (4,954,820 | ) | $ | 840,207 | ||||||
Earnings per share: | ||||||||||||||||
Basic | $ | (0.04 | ) | $ | 0.01 | $ | (0.05 | ) | $ | 0.01 | ||||||
Weighted-average common shares outstanding | 132,666,860 | 67,870,171 | 109,326,053 | 74,417,132 | ||||||||||||
Diluted | $ | (0.04 | ) | $ | 0.01 | $ | (0.05 | ) | $ | 0.01 | ||||||
Weighted-average common shares outstanding | 132,666,860 | 93,799,839 | 109,326,053 | 100,315,405 | ||||||||||||
See accompanying notes to unaudited consolidated financial statements. |
For the Six Months Ended June 30, 2008 | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance at December 31, 2007 | 85,976,532 | $ | 85,977 | $ | 14,849,847 | $ | (2,347,308 | ) | $ | 12,588,516 | ||||||||||
Net loss | - | - | - | (4,954,820 | ) | (4,954,820 | ) | |||||||||||||
Exchange of Series D preferred stock | 25,866,518 | 25,867 | 4,393,377 | 4,419,244 | ||||||||||||||||
Stock issued for acquisition of Mako | 2,802,969 | 2,803 | 1,959,275 | 1,962,078 | ||||||||||||||||
Stock issued for acquisition of Flotation | 1,714,286 | 1,714 | 1,421,143 | 1,422,857 | ||||||||||||||||
Warrants issued for acquisition of Flotation | - | 121,793 | 121,793 | |||||||||||||||||
Restricted stock issued | 1,200,000 | 1,200 | (1,200 | ) | - | |||||||||||||||
Stock issued in private placement | 57,142,857 | 57,143 | 37,002,527 | 37,059,670 | ||||||||||||||||
Cashless exercise of stock options | 29,339 | 29 | (29 | ) | - | |||||||||||||||
Stock based compensation | - | - | 253,669 | 253,669 | ||||||||||||||||
Balance at June 30, 2008 | 174,732,501 | $ | 174,733 | $ | 60,000,402 | $ | (7,302,128 | ) | $ | 52,873,007 | ||||||||||
See accompanying notes to unaudited consolidated financial statements. |
Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,954,820 | ) | $ | 840,208 | |||
Adjustments to reconcile net income to net cash | ||||||||
used in operating activities: | ||||||||
Gain on extinguishment of debt | - | (2,000,000 | ) | |||||
Interest income | (30,467 | ) | (16,290 | ) | ||||
Amortization of debt discount | 1,816,847 | 1,391,506 | ||||||
Amortization of deferred financing costs | 762,700 | - | ||||||
Share-based compensation | 253,669 | 39,565 | ||||||
Bad debt expense | 832,328 | - | ||||||
Depreciation and amortization | 898,998 | 154,221 | ||||||
Loss on disposal of equipment | 9,136 | - | ||||||
Changes in assets and liabilities: | ||||||||
Lease receivable | - | (750,000 | ) | |||||
Accounts receivable | (254,958 | ) | (531,356 | ) | ||||
Prepaid expenses and other current assets | (586,618 | ) | 1,655 | |||||
Inventory | (179,343 | ) | (472,253 | ) | ||||
Work in progress | 1,135,005 | (119,552 | ) | |||||
Accounts payable and accrued liabilities | (1,601,586 | ) | 1,808,987 | |||||
Deferred revenue | 537,491 | 80,628 | ||||||
Net cash provided by operating activities | $ | (1,361,618 | ) | $ | 427,319 | |||
Cash flows from investing activities: | ||||||||
Cash paid for acquisition of Flotation | (22,116,140 | ) | - | |||||
Cash paid for acquisition of Mako | (1,319,967 | ) | - | |||||
Cash paid for third party debt | - | (432,475 | ) | |||||
Cash received from sale of ElectroWave receivables | - | 261,068 | ||||||
Cash deficit acquired an acquisition of a business | - | (18,974 | ) | |||||
Purchases of equipment | (687,060 | ) | (442,788 | ) | ||||
Restricted cash | 375,000 | - | ||||||
Net cash used in investing activities | $ | (23,748,167 | ) | $ | (633,169 | ) | ||
Cash flows from financing activities: | ||||||||
Payment for cancellation of common stock | - | (250,000 | ) | |||||
Redemption of preferred stock | - | (250,000 | ) | |||||
Proceeds from sale of common stock, net of expenses | 37,059,670 | 960,000 | ||||||
Proceeds from long term debt | 2,687,333 | - | ||||||
Proceeds from sales-type lease | 172,500 | 69,000 | ||||||
Borrowings on debt - related party | - | 150,000 | ||||||
Payments of long-term debt | (12,930,395 | ) | (222,307 | ) | ||||
Net cash provided by (used in) financing activities | $ | 26,989,108 | $ | 456,693 | ||||
Change in cash and equivalents | 1,879,323 | 250,843 | ||||||
Cash and equivalents, beginning of period | 2,206,220 | 12,462 | ||||||
Cash and equivalents, end of period | $ | 4,085,543 | $ | 263,305 | ||||
See accompanying notes to unaudited consolidated financial statements. |
Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
Supplemental schedule of noncash investing | ||||||||
and financing activities: | ||||||||
Acquisition of a business | $ | - | $ | (190,381 | ) | |||
Exchange of receivables for acquisition of a business | $ | - | $ | 171,407 | ||||
Warrants issued for acquisition of Flotation | $ | 121,793 | $ | - | ||||
Stock issued for acquisition of Flotation | $ | 1,422,857 | $ | - | ||||
Stock issued for acquisition of Mako | $ | 1,962,078 | $ | - | ||||
Fixed assets purchased with capital lease | $ | - | $ | 525,000 | ||||
Fixed assets transferred from Inventory | $ | 502,253 | $ | - | ||||
Exchange of Series D preferred stock | $ | 4,419,244 | ||||||
Exchange of Series E preferred stock | $ | - | $ | 3,366,778 | ||||
Redemption of Series E preferred stock | $ | - | $ | 2,000,000 | ||||
Exchange of Series E preferred stock for subordinated debenture | $ | 500,000 | $ | - | ||||
Common shares issued as restricted stock | $ | 1,200 | $ | - | ||||
Supplemental Disclosures: | ||||||||
Cash paid for interest | $ | 880,017 | $ | 117,151 | ||||
Cash paid for pre-payment penalties | $ | 446,413 | $ | - | ||||
Cash paid for taxes | $ | 275,000 | $ | - | ||||
See accompanying notes to unaudited consolidated financial statements. |
DEEP DOWN, INC.
We also make available free of Flotation are included in the consolidated financial statements herein effective May 1, 2008, the effective date of acquisition for accounting purposes.
June 30, 2008 | December 31, 2007 | |||||||
Land | $ | 2,270,439 | $ | 13,148 | ||||
Building | 1,246,072 | 182,156 | ||||||
Furniture and fixtures | 139,044 | 63,777 | ||||||
Vehicles and trailers | 99,837 | 112,162 | ||||||
Leasehold improvements | 301,919 | 75,149 | ||||||
Equipment | 3,834,594 | 2,004,167 | ||||||
Rental Equipment | 3,659,714 | 3,144,559 | ||||||
Total | 11,551,619 | 5,595,117 | ||||||
Less: Accumulated depreciation | (900,566 | ) | (422,314 | ) | ||||
Property and equipment, net | $ | 10,651,053 | $ | 5,172,804 |
June 30, 2008 | December 31, 2007 | |||||||
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 | ||||
Debt discount, net of amortization of $254,101 and $135,931 respectively | - | (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 | - | 11,212,786 | ||||||
6% Subordinated Debenture beginning March 31, 2008; annual | - | |||||||
interest payments, interest fixed at 6%; matures March 31, 2011 | 507,479 | - | ||||||
Capital lease of equipment, monthly lease payments, | ||||||||
interest imputed at 11.2% | 459,379 | 481,209 | ||||||
Total long-term debt | 966,858 | 11,693,995 | ||||||
Current portion of long-term debt | (47,477 | ) | (995,177 | ) | ||||
Long-term debt, net of current portion | $ | 919,381 | $ | 10,698,818 |
Summary of purchase price: | ||||
Cash | $ | 22,100,000 | ||
Certain transaction costs | 251,180 | |||
Fair market value of common stock | 1,422,857 | |||
Fair market value of warrants issued | 121,793 | |||
Total purchase price | $ | 23,895,830 |
Summary of net assets acquired: | ||||
Cash and cash equivalents | $ | 235,040 | ||
Accounts receivable | 2,105,519 | |||
Construction in progress | 871,183 | |||
Prepaid expenses | 15,904 | |||
Property, plant and equipment, net | 4,846,190 | |||
Intangibles | 14,797,000 | |||
Goodwill | 2,157,307 | |||
Total assets acquired | $ | 25,028,143 | ||
Accounts payable and accrued liabilities | 1,132,313 | |||
Total liabilities acquired | $ | 1,132,313 | ||
Net assets acquired | $ | 23,895,830 |
Estimated | Average Remaining | |||||||
Fair Value | Useful Life | |||||||
Trademarks | $ | 2,039,000 | 40 | |||||
Technology | 11,209,000 | 25 | ||||||
Non-compete covenant | 879,000 | 3 | ||||||
Customer relationship | 670,000 | 25 | ||||||
$ | 14,797,000 |
Unaudited Pro Forma Combined Condensed Statements of Operations | ||||||||||||||||||||||||||||
For the Three Months ended June 30, 2008 | For the Six Months ended June 30, 2008 | |||||||||||||||||||||||||||
Historical | Historical | |||||||||||||||||||||||||||
One Month | Four Months | Combined | ||||||||||||||||||||||||||
April 30, | Flotation | Combined | April 30, | Flotation | Condensed | |||||||||||||||||||||||
2008 | Pro Forma | Pro Forma | 2008 | Pro Forma | Pro Forma | |||||||||||||||||||||||
Deep Down | Flotation | Entries | Results | Deep Down | Flotation | Entries | Results | |||||||||||||||||||||
Revenues | $ | 7,920,196 | $ | 1,064,364 | $ | - | $ | 8,984,560 | $ | 14,199,661 | $ | 5,941,472 | $ | - | $ | 20,141,133 | ||||||||||||
Cost of sales | 5,496,427 | 627,224 | - | 6,123,651 | 9,372,798 | 4,005,179 | - | 13,377,977 | ||||||||||||||||||||
Gross profit | 2,423,769 | 437,140 | - | 2,860,909 | 4,826,863 | 1,936,293 | - | 6,763,156 | ||||||||||||||||||||
Total operating expenses | 4,224,771 | 305,220 | 75,604 | (d/e | ) | 4,605,595 | 6,285,167 | 968,179 | 302,416 | (d/e | ) | 7,555,762 | ||||||||||||||||
Operating income (loss) | (1,801,002 | ) | 131,920 | (75,604 | ) | (1,744,686 | ) | (1,458,304 | ) | 968,114 | (302,416 | ) | (792,606 | ) | ||||||||||||||
Total other income (expense) | (3,149,371 | ) | (22,467 | ) | - | (3,171,838 | ) | (3,850,882 | ) | (57,335 | ) | - | (3,908,217 | ) | ||||||||||||||
Income (loss) from | ||||||||||||||||||||||||||||
continuing operations | (4,950,373 | ) | 109,453 | (75,604 | ) | (4,916,524 | ) | (5,309,186 | ) | 910,779 | (302,416 | ) | (4,700,823 | ) | ||||||||||||||
Income tax benefit (expense) | 85,000 | - | (12,524 | ) | (f) | 72,476 | 354,366 | - | (225,094 | ) | (f) | 129,272 | ||||||||||||||||
Net income (loss) | $ | (4,865,373 | ) | $ | 109,453 | $ | (88,128 | ) | $ | (4,844,048 | ) | $ | (4,954,820 | ) | $ | 910,779 | $ | (527,510 | ) | $ | (4,571,551 | ) | ||||||
Basic earnings (loss) per share | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.03 | ) | ||||||||||||||||
Shares used in computing | ||||||||||||||||||||||||||||
basic per share amounts | 132,666,860 | (g) | 174,707,676 | 109,326,053 | (g) | 161,161,117 | ||||||||||||||||||||||
Diluted earnings (loss) per share | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.03 | ) | ||||||||||||||||
Shares used in computing | ||||||||||||||||||||||||||||
diluted per share amounts | 132,666,860 | (g) | 174,707,676 | 109,326,053 | (g) | 161,161,117 |
Unaudited Pro Forma Combined Condensed Statement of Operations | ||||||||||||||||||||||
For the Three Months ended June 30, 2007 | ||||||||||||||||||||||
Combined | ||||||||||||||||||||||
Historical | Mako | Flotation | Condensed | |||||||||||||||||||
Pro Forma | Pro Forma | Pro Forma | ||||||||||||||||||||
Deep Down | Mako | Flotation | Entries | Entries | Results | |||||||||||||||||
Revenues | $ | 5,144,788 | $ | 1,768,876 | $ | 1,329,446 | $ | - | $ | - | $ | 8,243,110 | ||||||||||
Cost of sales | 3,293,313 | 561,385 | 974,265 | - | - | 4,828,963 | ||||||||||||||||
Gross profit | 1,851,475 | 1,207,491 | 355,181 | - | - | 3,414,147 | ||||||||||||||||
Total operating expenses | 1,177,876 | 957,572 | 711,176 | 122,367 | (a) | 226,811 | (d/e | ) | 3,195,802 | |||||||||||||
Operating income (loss) | 673,599 | 249,919 | (355,995 | ) | (122,367 | ) | (226,811 | ) | 218,345 | |||||||||||||
Total other income (expense) | 723,230 | (28,571 | ) | 1,399,087 | (266,269 | ) | (b) | - | 1,827,477 | |||||||||||||
Income (loss) from | ||||||||||||||||||||||
continuing operations | 1,396,829 | 221,348 | 1,043,092 | (388,636 | ) | (226,811 | ) | 2,045,822 | ||||||||||||||
Income tax benefit (expense) | (447,363 | ) | (17,309 | ) | - | 143,795 | (302,024 | ) | (f) | (622,901 | ) | |||||||||||
Net income (loss) | $ | 949,466 | $ | 204,039 | $ | 1,043,092 | $ | (244,841 | ) | $ | (528,835 | ) | $ | 1,422,921 | ||||||||
Basic earnings (loss) per share | $ | 0.01 | $ | 0.01 | ||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||
basic per share amounts | 67,870,171 | (c/g | ) | 136,104,357 | ||||||||||||||||||
Diluted earnings (loss) per share | $ | 0.01 | $ | 0.01 | ||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||
diluted per share amounts | 93,799,839 | (c/g | ) | 162,034,025 |
Unaudited Pro Forma Combined Condensed Statement of Operation | ||||||||||||||||||||||
For the Six Months ended June 30, 2007 | ||||||||||||||||||||||
Combined | ||||||||||||||||||||||
Historical | Mako | Flotation | Condensed | |||||||||||||||||||
Pro Forma | Pro Forma | Pro Forma | ||||||||||||||||||||
Deep Down | Mako | Flotation | Entries | Entries | Results | |||||||||||||||||
Revenues | $ | 7,243,182 | $ | 2,618,805 | $ | 2,351,057 | $ | - | $ | - | $ | 12,213,044 | ||||||||||
Cost of sales | 4,545,402 | 1,122,501 | 1,463,530 | - | - | 7,131,433 | ||||||||||||||||
Gross profit | 2,697,780 | 1,496,304 | 887,527 | - | - | 5,081,611 | ||||||||||||||||
Total operating expenses | 1,901,552 | 1,364,505 | 1,376,736 | 244,734 | (a) | 453,624 | (d/e | ) | 5,341,151 | |||||||||||||
Operating income (loss) | 796,228 | 131,799 | (489,209 | ) | (244,734 | ) | (453,624 | ) | (259,540 | ) | ||||||||||||
Total other income (expense) | 491,343 | (46,545 | ) | 1,390,538 | (532,391 | ) | (b) | - | 1,302,945 | |||||||||||||
Income (loss) from continuing operations | 1,287,571 | 85,254 | 901,329 | (777,125 | ) | (453,624 | ) | 1,043,405 | ||||||||||||||
Income tax expense | (447,363 | ) | (17,309 | ) | - | 287,536 | (165,651 | ) | (f) | (342,787 | ) | |||||||||||
Net income (loss) | $ | 840,208 | $ | 67,945 | $ | 901,329 | $ | (489,589 | ) | $ | (619,275 | ) | $ | 700,618 | ||||||||
Basic earnings per share | $ | 0.01 | $ | - | ||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||
basic per share amounts | 74,417,132 | (c/g | ) | 142,651,318 | ||||||||||||||||||
Diluted earnings per share | $ | 0.01 | $ | - | ||||||||||||||||||
Shares used in computing | ||||||||||||||||||||||
diluted per share amounts | 100,315,405 | (c/g | ) | 168,549,591 |
Restricted Shares | Weighted- Average Grant Price | Aggregate Intrinsic Value | ||||||||||
Outstanding at December 31, 2007 | - | |||||||||||
Grants | 1,200,000 | $ | 0.42 | |||||||||
Outstanding at June 30,2008 | 1,200,000 | $ | 0.42 | $ | 624,000 |
Shares Underlying Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (In-The-Money) | |||||||||
Outstanding at December 31, 2007 | 5,500,000 | $ | 0.58 | |||||||||
Grants | 4,200,000 | 1.35 | ||||||||||
Exercises | (50,000 | ) | 0.50 | |||||||||
Forfeitures | (875,000 | ) | 0.74 | |||||||||
Outstanding at June 30,2008 | 8,775,000 | $ | 0.93 | 3.0 | $ | 1,944,750 | ||||||
Exerciseable at June 30,2008 | 1,970,834 | $ | 0.60 | 2.7 | $ | 729,292 |
Shares Underlying Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (In-The-Money) | |||||||||
Outstanding at December 31, 2007 | 5,399,397 | $ | 0.53 | |||||||||
Grants | 200,000 | 0.70 | ||||||||||
Outstanding at June 30,2008 | 5,599,397 | $ | 0.54 | 4.4 | $ | 2,241,852 | ||||||
Exerciseable at June 30,2008 | 5,399,397 | $ | 0.54 | 4.4 | $ | 2,193,852 |
Exercise Price | Shares Underlying Warrants | ||||
$ | 0.51 | 4,960,585 | |||
$ | 0.70 - 0.99 | 520,000 | |||
$ | 1.01 | 118,812 | |||
5,599,397 |
December 31, 2007 | December 31, 2006 | |||||||
Assets | ||||||||
Cash and equivalents | $ | 2,206,220 | $ | 12,462 | ||||
Restricted cash | 375,000 | - | ||||||
Accounts receivable, net of allowance of $139,787 and $81,809 | 7,190,466 | 1,264,228 | ||||||
Prepaid expenses and other current assets | 312,058 | 156,975 | ||||||
Inventory | 502,253 | - | ||||||
Lease receivable, short term | 414,000 | - | ||||||
Work in progress | 945,612 | 916,485 | ||||||
Receivable from Prospect, net | 2,687,333 | - | ||||||
Total current assets | 14,632,942 | 2,350,150 | ||||||
Property and equipment, net | 5,172,804 | 845,200 | ||||||
Other assets, net of accumulated amortization of $54,560 and $0 | 1,109,152 | - | ||||||
Lease receivable, long term | 173,000 | - | ||||||
Intangibles, net | 4,369,647 | - | ||||||
Goodwill | 10,594,144 | 6,934,213 | ||||||
Total assets | $ | 36,051,689 | $ | 10,129,563 | ||||
Liabilities and Stockholders' Equity (Deficit) | ||||||||
Accounts payable and accrued liabilities | $ | 3,569,826 | $ | 816,490 | ||||
Deferred revenue | 188,030 | 190,000 | ||||||
Payable to Mako Shareholders | 3,205,667 | - | ||||||
Current portion of long-term debt | 995,177 | 410,731 | ||||||
Total current liabilities | 7,958,700 | 1,417,221 | ||||||
Long-term debt, net of accumulated discount of $1,703,258 and $0 | 10,698,818 | 757,617 | ||||||
Series E redeemable exchangeable preferred stock, face value and | ||||||||
liquidation preference of $1,000 per share, no dividend preference, | ||||||||
authorized 10,000,000 aggregate shares of all series of Preferred stock | ||||||||
500 and 5,000 issued and outstanding, respectively | 386,411 | 3,486,376 | ||||||
Series G redeemable exchangeable preferred stock, face value and | ||||||||
liquidation preference of $1,000 per share, no dividend preference, | ||||||||
authorized 10,000,000 aggregate shares of all series of Preferred stock | ||||||||
-0- and 1,000 issued and outstanding, respectively | - | 697,275 | ||||||
Total liabilities | 19,043,929 | 6,358,489 | ||||||
Temporary equity: | ||||||||
SeriSeries D redeemable convertible preferred stock, $0.01 par value, face value and liquidation preference of $1,000 per share, no dividend preference, authorized 10,000,000 aggregate shares of all series of Preferred stock 5,000 issued and outstanding | 4,419,244 | 4,419,244 | ||||||
SeriSeries F redeemable convertible preferred stock, $0.01 par value, face value and liquidation preference of $1,000 per share, no dividend preference, authorized 10,000,000 aggregate of all series of Preferred stock -0- and 3,000 issued and outstanding, respectively | - | 2,651,547 | ||||||
Total temporary equity | 4,419,244 | 7,070,791 | ||||||
Stockholders' equity (deficit): | ||||||||
Series C convertible preferred stock, $0.001 par value, 7% cumulative dividend, | ||||||||
authorized 10,000,000 aggregate shares of all series of Preferred stock | ||||||||
-0- and 22,000 shares issued and outstanding, respectively | - | 22 | ||||||
Common stock, $0.001 par value, 490,000,000 shares authorized, 85,976,526 | ||||||||
and 82,870,171 shares issued and outstanding, respectively | 85,977 | 82,870 | ||||||
Paid in capital | 14,849,847 | (82,792 | ) | |||||
Accumulated deficit | (2,347,308 | ) | (3,299,817 | ) | ||||
Total stockholders' equity (deficit) | 12,588,516 | (3,299,717 | ) | |||||
Total liabilities and stockholders' equity | $ | 36,051,689 | $ | 10,129,563 |
From Inception | ||||||||
Year Ended | June 29, 2006 to | |||||||
December 31, 2007 | December 31, 2006 | |||||||
Revenues | ||||||||
Contract revenue | $ | 15,652,848 | $ | 978,047 | ||||
Rental revenue | 3,736,882 | - | ||||||
Total revenues | 19,389,730 | 978,047 | ||||||
Cost of sales | 13,020,369 | 565,700 | ||||||
Gross profit | 6,369,361 | 412,347 | ||||||
Operating expenses: | ||||||||
Selling, general & administrative | 4,284,553 | 3,600,627 | ||||||
Depreciation and amortization | 426,964 | 27,161 | ||||||
Total operating expenses | 4,711,517 | 3,627,788 | ||||||
Operating income (loss) | 1,657,844 | (3,215,441 | ) | |||||
Other income (expense): | ||||||||
Gain on debt extinguishment | 2,000,000 | - | ||||||
Interest income | 94,487 | - | ||||||
Interest expense | (2,430,149 | ) | (62,126 | ) | ||||
Total other income (expense) | (335,662 | ) | (62,126 | ) | ||||
Income (loss) before income taxes | 1,322,182 | (3,277,567 | ) | |||||
Income tax expense | (369,673 | ) | (22,250 | ) | ||||
Net income (loss) | $ | 952,509 | $ | (3,299,817 | ) | |||
Basic earnings (loss) per share | $ | 0.01 | $ | (0.04 | ) | |||
Weighted-average shares outstanding, basic | 73,917,190 | 76,701,569 | ||||||
Diluted earnings (loss) per share | $ | 0.01 | $ | (0.04 | ) | |||
Weighted-average shares outstanding, fully-diluted | 104,349,455 | 76,701,569 |
Common Stock | Series C Preferred Stock | Paid-in | Retained | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||
Balance at June 29, 2006 (inception) (a) | 75,000,000 | $ | 75,000 | - | $ | - | $ | (74,900 | ) | $ | - | $ | 100 | |||||||||||||||
Net income (loss) | - | - | - | - | - | (3,299,817 | ) | (3,299,817 | ) | |||||||||||||||||||
Reverse merger with MediQuip (a) | 7,870,171 | 7,870 | 22,000 | 22 | (7,892 | ) | - | - | ||||||||||||||||||||
Balance at December 31, 2006 | 82,870,171 | 82,870 | 22,000 | 22 | (82,792 | ) | $ | (3,299,817 | ) | (3,299,717 | ) | |||||||||||||||||
Net income (loss) | - | - | - | - | - | 952,509 | 952,509 | |||||||||||||||||||||
Shares repurchased | (25,000,000 | ) | (25,000 | ) | - | - | (225,000 | ) | - | (250,000 | ) | |||||||||||||||||
Redemption of Series E Preferred Stock | 3,463,592 | 3,464 | - | - | 3,840,314 | - | 3,843,778 | |||||||||||||||||||||
Redemption of Series C Preferred Stock | 4,400,000 | 4,400 | (22,000 | ) | (22 | ) | (4,378 | ) | - | - | ||||||||||||||||||
Stock issued for debt payment | 543,689 | 544 | 559,456 | - | 560,000 | |||||||||||||||||||||||
Stock issued for acquisition of a business | 6,574,074 | 6,574 | - | - | 4,989,723 | - | 4,996,297 | |||||||||||||||||||||
Private Placement offering | 13,125,000 | 13,125 | - | - | 3,946,875 | - | 3,960,000 | |||||||||||||||||||||
Stock based compensation | - | - | - | - | 187,394 | - | 187,394 | |||||||||||||||||||||
Warrants issued to lender | - | - | - | - | 1,479,189 | - | 1,479,189 | |||||||||||||||||||||
Warrants issued to third party for deferred financing costs | - | - | - | - | 159,066 | - | 159,066 | |||||||||||||||||||||
Balance at December 31, 2007 | 85,976,526 | $ | 85,977 | - | $ | - | $ | 14,849,847 | $ | (2,347,308 | ) | $ | 12,588,516 |
For the Year Ended December 31, 2007 | From Inception June 29, 2006 to December 31, 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 952,509 | $ | (3,299,817 | ) | |||
Adjustments to reconcile net income to net cash | ||||||||
used in operating activities: | ||||||||
Gain on extinguishment of debt | (2,000,000 | ) | - | |||||
Amortization of debt discount | 1,780,922 | 48,179 | ||||||
Amortization of deferred financing costs | 54,016 | - | ||||||
Share-based compensation | 187,394 | 3,340,792 | ||||||
Allowance for doubtful accounts | 108,398 | - | ||||||
Depreciation and amortization | 426,964 | 27,163 | ||||||
Gain on disposal of equipment | 24,336 | - | ||||||
Changes in assets and liabilities: | ||||||||
Lease receivable | (863,000 | ) | - | |||||
Accounts receivable | (4,388,146 | ) | (251,001 | ) | ||||
Prepaid expenses and other current assets | (54,310 | ) | 23,335 | |||||
Inventory | (502,253 | ) | - | |||||
Work in progress | 246,278 | (90,326 | ) | |||||
Accounts payable and accrued liabilities | 1,022,726 | 145,433 | ||||||
Deferred revenue | (1,970 | ) | - | |||||
Net cash used in operating activities | (3,006,136 | ) | (56,242 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash acquired in acquisition of a business | 261,867 | 101,497 | ||||||
Cash paid for third party debt | (432,475 | ) | - | |||||
Cash received from sale of ElectroWave receivables | 261,068 | - | ||||||
Cash paid for final acquisition costs | (242,924 | ) | - | |||||
Purchases of equipment | (830,965 | ) | - | |||||
Restricted cash | (375,000 | ) | - | |||||
Net cash (used in) provided by investing activities | (1,358,429 | ) | 101,497 | |||||
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 | 3,960,000 | - | ||||||
Proceeds from sales-type lease | 276,000 | - | ||||||
Borrowings on debt - related party | (150,000 | ) | - | |||||
Payments on debt - related party | 150,000 | - | ||||||
Borrowings on long-term debt | 6,204,779 | - | ||||||
Deferred financing fees | (442,198 | ) | - | |||||
Prepaid points | (180,000 | ) | - | |||||
Payments of long-term debt | (2,760,258 | ) | (32,893 | ) | ||||
Net cash provided by (used in) financing activities | 6,558,323 | (32,893 | ) | |||||
Change in cash and equivalents | 2,193,758 | 12,362 | ||||||
Cash and equivalents at beginning of year | 12,462 | 100 | ||||||
Cash and equivalents at end of period | $ | 2,206,220 | $ | 12,462 |
From Inception | ||||||||
Year Ended | June 29, 2006 to | |||||||
December 31, 2007 | December 31, 2006 | |||||||
Supplemental schedule of noncash investing and financing activities: | ||||||||
Acquisition of a business – Electrowave | $ | (190,381 | ) | $ | - | |||
Exchange of receivables for acquisition of a business | $ | 171,407 | $ | - | ||||
Acquisition of a business – Mako | $ | 280,680 | $ | - | ||||
Net receivable from lender-Prospect Capital | $ | 2,687,333 | $ | - | ||||
Transfer work in progress to fixed assets | $ | 110,181 | $ | - | ||||
Fixed assets purchased with capital lease | $ | 525,000 | $ | - | ||||
Exchange of preferred stock | $ | 3,366,778 | $ | - | ||||
Redemption of preferred stock | $ | 4,935,463 | $ | - | ||||
Common stock issued for notes payable | $ | 560,000 | $ | - | ||||
Creation of debt discount due to warrants issued to lender | $ | 1,479,189 | $ | - | ||||
Creation of deferred financing cost due to warrants issued to third party | $ | 159,066 | $ | - | ||||
Supplemental Disclosures: | ||||||||
Cash paid for interest | $ | 594,667 | $ | - | ||||
Cash paid for taxes | $ | 114,970 | $ | - |
From Inception | ||||||||
Year Ended | June 26, 2006 to | |||||||
December 31, 2007 | December 31, 2006 | |||||||
Numerator for basic and diluted earnings per share: | ||||||||
Net income (loss) | $ | 952,509 | $ | (3,299,817 | ) | |||
Denominator for basic earnings per share: | ||||||||
Weighted average shares outstanding (basic) | 73,917,190 | 76,701,659 | ||||||
Denominator for diluted earnings per share: | ||||||||
Weighted average shares outstanding (basic) | 73,917,190 | 76,701,659 | ||||||
Effect of dilutive securities | 30,432,265 | - | ||||||
Weighted average shares outstanding (diluted) | 104,349,455 | 76,701,659 |
Principal | Unearned income | |||||||||||
Minimum lease payments receivable | $ | 828,000 | ||||||||||
Estimated residual value of leased property | 35,000 | |||||||||||
863,000 | $ | 863,000 | $ | (113,000 | ) | |||||||
Less: Unearned interest income | (113,000 | ) | ||||||||||
Net investment in sales-type leases | 750,000 | |||||||||||
Net payments received | (217,975 | ) | (276,000 | ) | 58,025 | |||||||
Lease balance December 31, 2007 | $ | 532,025 | $ | 587,000 | $ | (54,975 | ) | |||||
Current portion | $ | 414,000 | $ | (54,975 | ) | |||||||
Long-term portion | $ | 173,000 |
1st Installment | 2nd Installment | Total | ||||||||||
Common Stock Par | $ | 6,574 | $ | 2,803 | $ | 9,377 | ||||||
Common Stock Paid in Capital | 4,989,723 | 1,959,287 | 6,949,010 | |||||||||
Cash | 2,916,667 | 1,243,577 | 4,160,244 | |||||||||
Amounts for Mako Shareholders | $ | 7,912,964 | $ | 3,205,667 | $ | 11,118,631 |
Cash and cash equivalents | $ | 280,841 | ||
Accounts receivable | 1,515,074 | |||
Construction in progress | 279,590 | |||
Prepaid expenses | 179,583 | |||
Property, plant and equipment | 3,235,456 | |||
Intangibles | 4,398,000 | |||
Goodwill | 3,066,153 | |||
Total assets acquired | 12,954,697 | |||
Accounts payable and accrued expenses | 828,313 | |||
Long term debt | 819,384 | |||
Total liabilities acquired | 1,647,697 | |||
Net assets acquired | $ | 11,307,000 |
Estimated | Remaining | |||||||
Fair Value | Useful Life | |||||||
Customer List | $ | 1,071,000 | 8 | |||||
Non-Compete Covenant | 458,000 | 5 | ||||||
Trademarks | 2,869,000 | 25 | ||||||
$ | 4,398,000 |
Historical | |||||||||||||||||
Historical | Mako | ||||||||||||||||
Deep Down | Eleven Months | Pro Forma | |||||||||||||||
Year Ended | Ended | Year Ended | |||||||||||||||
December 31, | November 30, | Pro Forma | December 31, | ||||||||||||||
2007 | 2007 | Adjustments | 2007 | ||||||||||||||
Revenues | $ | 19,389,730 | $ | 5,494,388 | $ | - | $ | 24,884,118 | |||||||||
Cost of sales | 13,020,369 | 2,298,597 | - | 15,318,966 | |||||||||||||
Gross profit | 6,369,361 | 3,195,791 | - | 9,565,152 | |||||||||||||
Operating expenses | 4,711,517 | 2,455,728 | 311,882 | (c) | 7,479,127 | ||||||||||||
Total other income | (335,662 | ) | (65,705 | ) | (1,059,573 | ) | (d) | (1,460,940 | ) | ||||||||
Income tax expense | (369,673 | ) | (319,432 | ) | - | (689,105 | ) | ||||||||||
Net income (loss) | $ | 952,509 | $ | 354,926 | $ | (1,371,455 | ) | $ | (64,020 | ) | |||||||
Basic earnings per share | $ | 0.01 | $ | - | |||||||||||||
Shares used in computing basic per share amounts | 73,917,190 | (e) | 83,276,238 | ||||||||||||||
Diluted earnings per share | $ | 0.01 | $ | - | |||||||||||||
Shares used in computing diluted per share amounts | 104,349,455 | (e) | 113,708,503 |
Purchase Price: | ||||
Cash paid for third party debt | $ | 432,475 | ||
Cash received from sale of ElectroWave receivables | (261,068 | ) | ||
Cash purchase price | $ | 171,407 | ||
Accounts receivable | $ | 133,587 | ||
Construction in progress | 105,723 | |||
Property, plant and equipment, net | 45,502 | |||
Capitalized R&D assets | 270,094 | |||
Goodwill | 350,854 | |||
Total assets acquired | 905,760 | |||
Cash deficit | $ | 18,974 | ||
Accrued liabilities | 715,379 | |||
Total liabilities acquired | 734,353 | |||
Net assets acquired | $ | 171,407 |
Cash and cash equivalents | $ | 101,497 | ||
Accounts receivable | 1,013,227 | |||
Inventory | 168,672 | |||
Prepaid expenses | 11,638 | |||
Construction in progress | 826,159 | |||
Property, plant and equipment, net | 872,363 | |||
Goodwill | 7,177,137 | |||
Total assets acquired | 10,170,693 | |||
Accounts payable | 671,057 | |||
Accrued liabilities | 432,924 | |||
Current portion of long term debt | 403,057 | |||
Long term debt | 798,184 | |||
Total liabilities acquired | 2,305,222 | |||
Net assets acquired | $ | 7,865,471 |
December 31, 2007 | December 31, 2006 | |||||||
Building | $ | 195,305 | $ | 46,474 | ||||
Furniture and fixtures | 63,777 | 11,806 | ||||||
Vehicles and trailers | 112,162 | 66,662 | ||||||
Leasehold improvements | 75,149 | - | ||||||
Rental equipment | 3,144,559 | - | ||||||
Equipment | 2,004,166 | 747,419 | ||||||
Total | 5,595,118 | 872,361 | ||||||
Less: Accumulated depreciation | (422,314 | ) | (27,161 | ) | ||||
Property and equipment, net | $ | 5,172,804 | $ | 845,200 |
December 31, 2007 | December 31, 2006 | |||||||
Secured credit agreement with | ||||||||
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 | $ | - | ||||
Debt discount, net of amortization of $135,931 | (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 | - | ||||||
Note payable with a bank, monthly principal and | ||||||||
interest payments, interest fixed at 7.5%, | ||||||||
paid in full August 2007 | - | 438,812 | ||||||
Note payable with a bank, monthly principal and | ||||||||
interest payments, interest fixed at 7.5%, | ||||||||
paid in full August 2007 | - | 729,536 | ||||||
Total secured credit agreement and bank debt | 11,212,786 | 1,168,348 | ||||||
Capital lease of equipment, monthly lease payments, | ||||||||
interest imputed at 11.2% | 481,209 | - | ||||||
Total long-term debt | 11,693,995 | 1,168,348 | ||||||
Current portion of long-term debt | (995,177 | ) | (410,731 | ) | ||||
Long-term debt, net of current portion | $ | 10,698,818 | $ | 757,617 |
Years ended December 31, | Principal | Unamortized Debt Discount | Total | |||||||
2008 | $ | 1,416,044 | $ | (465,776 | ) | $ | 950,268 | |||
2009 | 1,000,000 | (468,291 | ) | �� | 531,709 | |||||
2010 | 1,000,000 | (461,413 | ) | 538,587 | ||||||
2011 | 9,500,000 | (307,778 | ) | 9,192,222 | ||||||
$ | 12,916,044 | $ | (1,703,258 | ) | $ | 11,212,786 |
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (In-The-Money) Options) | |||||||||||||
Outstanding at December 31, 2006 | - | $ | - | |||||||||||||
Grants | 5,500,000 | $ | 0.58 | |||||||||||||
Outstanding at December 31, 2007 | 5,500,000 | $ | 0.58 | 3.2 | $ | 2,292,000 | ||||||||||
Exercisable at December 31, 2007 | 562,500 | $ | 0.76 | 4.3 | $ | 156,375 |
Exercise Price | Number of Shares | ||||
$ | 0.30 | 300,000 | |||
$ | 0.50 - 0.52 | 4,300,000 | |||
$ | 0.75 | 300,000 | |||
$ | 1.00 | 300,000 | |||
$ | 1.25 | 300,000 | |||
5,500,000 |
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (In-The-Money) Options | |||||||||||||
Outstanding at December 31, 2006 | - | $ | - | |||||||||||||
Grants | 5,399,397 | $ | 0.53 | |||||||||||||
Outstanding at December 31, 2007 | 5,399,397 | $ | 0.53 | 4.6 | $ | 2,405,075 | ||||||||||
Exercisable at December 31, 2007 | - | $ | - |
Exercise Price | Number of Shares | ||||
$ | 0.51 | 4,960,585 | |||
$ | 0.75 | 320,000 | |||
$ | 1.01 | 118,812 | |||
5,399,397 |
December 31, 2007 | December 31, 2006 | |||||||
Series E preferred stock - face value at $1,000 per share | $ | 500,000 | $ | 5,000,000 | ||||
Less unamortized discount | (113,589 | ) | (1,513,624 | ) | ||||
Balance net of unamortized discount | 386,411 | 3,486,376 | ||||||
Series G preferred stock - face value at $1,000 per share | - | 1,000,000 | ||||||
Less unamortized discount | - | (302,725 | ) | |||||
Balance net of unamortized discount | - | 697,275 | ||||||
$ | 386,411 | $ | 4,183,651 |
Series E | Series G | |||||||
Outstanding at December 31, 2006 | 5,000 | 1,000 | ||||||
Shares issued | 3,250 | - | ||||||
Shares redeemed | (7,750 | ) | (1,000 | ) | ||||
Outstanding at December 31, 2007 | 500 | - |
From Inception | ||||||||||||||||
Year | June 26, 2006 | |||||||||||||||
Ended | to | |||||||||||||||
December 31, | Tax | December 31, | Tax | |||||||||||||
2007 | Rate | 2006 | Rate | |||||||||||||
Federal statutory rates | $ | 449,540 | 34% | $ | (1,121,938 | ) | 34% | |||||||||
Stock based compensation | 69,335 | 5% | 1,135,869 | -35% | ||||||||||||
Goodwill | (189,829 | ) | -14% | - | 0% | |||||||||||
Other | 40,627 | 3% | 8,319 | 0% | ||||||||||||
Effective rate | $ | 369,673 | 28% | $ | 22,250 | -1% |
Years ended December 31,: | Capital | Operating | ||||||
2008 | $ | 96,428 | $ | 403,684 | ||||
2009 | 96,428 | 333,974 | ||||||
2010 | 96,428 | 234,915 | ||||||
2011 | 96,428 | 124,500 | ||||||
2012 | 96,428 | - | ||||||
Thereafter | 112,501 | - | ||||||
Total minimum lease payments | 594,641 | $ | 1,097,073 | |||||
Residual principal balance | 105,000 | |||||||
Amount representing interest | (218,432 | ) | ||||||
Present value of minimum lease payments | 481,209 | |||||||
Less current maturities of capital lease obligations | 44,909 | |||||||
Long-term capital lease obligations | $ | 436,300 |
Reviewed | Audited | |||||||
3-31-08 | 12-31-07 | |||||||
Current assets | ||||||||
Cash | $ | 852,444 | $ | 1,197,451 | ||||
Trade accounts receivable | 2,704,565 | 2,303,411 | ||||||
Inventories | 807,551 | 1,278,212 | ||||||
Prepaid expenses | 22,225 | 20,602 | ||||||
Total current assets | 4,386,785 | 4,799,676 | ||||||
Property, plant and equipment, at cost | ||||||||
Land, buildings, and improvements | 3,088,565 | 3,044,565 | ||||||
Machinery and equipment | 1,471,608 | 1,430,433 | ||||||
Office furniture and fixtures | 81,102 | 81,102 | ||||||
4,641,275 | 4,556,100 | |||||||
Less accumulated depreciation | (988,301 | ) | (877,722 | ) | ||||
Net property, plant and equipment | 3,652,974 | 3,678,378 | ||||||
Other assets | ||||||||
Intangible assets, net of amortization | 21,050 | 21,415 | ||||||
Total assets | $ | 8,060,809 | $ | 8,499,469 |
Reviewed | Audited | |||||||
3-31-08 | 12-31-07 | |||||||
Current liabilities | ||||||||
Bank lines of credit | $ | - | $ | - | ||||
Current portion of long-term debt | 52,700 | 66,000 | ||||||
Accounts payable | 1,340,550 | 878,576 | ||||||
Customer deposits | 63,593 | 1,530,959 | ||||||
Accrued expenses | 111,104 | 312,937 | ||||||
Due to stockholders | 631,719 | 651,446 | ||||||
Total current liabilities | 2,199,666 | 3,439,918 | ||||||
Long-term debt, excluding current portion | 1,697,763 | 1,697,497 | ||||||
Total liabilities | 3,897,429 | 5,137,415 | ||||||
Stockholders’ equity | ||||||||
Common stock, no par value; authorized 1,000 shares, | ||||||||
issued and outstanding 1,000 shares | 200 | 200 | ||||||
Retained earnings | 4,163,180 | 3,361,854 | ||||||
Total stockholders’ equity | 4,163,380 | 3,362,054 | ||||||
Total liabilities and stockholders' equity | $ | 8,060,809 | $ | 8,499,469 |
Reviewed | Unaudited | |||||||
3-31-08 | 3-31-07 | |||||||
Revenues | $ | 4,877,108 | $ | 1,021,611 | ||||
Cost of goods sold | 3,377,955 | 649,929 | ||||||
Gross profit | 1,499,153 | 371,682 | ||||||
General and administrative expenses | 662,959 | 511,554 | ||||||
Income (loss) from operations | 836,194 | (139,872 | ) | |||||
Other income (expense) | ||||||||
Other income, interest & exchange rate | 2,119 | 7,336 | ||||||
Interest expense | (36,987 | ) | (9,227 | ) | ||||
Net other income (expense) | (34,868 | ) | (1,891 | ) | ||||
Net income (loss) | $ | 801,326 | $ | (141,763 | ) |
Common Stock | Retained Earnings | Total Stockholders' Equity | ||||||||||
Balances, December 31, 2006 | $ | 200 | $ | 1,269,747 | $ | 1,269,947 | ||||||
Net income for 2007 | - | 4,057,832 | 4,057,832 | |||||||||
Distributions | - | (1,965,725 | ) | (1,965,725 | ) | |||||||
Balances, December 31, 2007 | $ | 200 | $ | 3,361,854 | $ | 3,362,054 | ||||||
Net income for 2008, 1/1 to 3/31 | - | 801,326 | 801,326 | |||||||||
Distributions | - | - | - | |||||||||
Balance, March 31, 2008, Interim | $ | 200 | $ | 4,163,180 | $ | 4,163,380 |
Reviewed | Unaudited | |||||||
3-31-08 | 3-31-07 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 801,326 | $ | (141,763 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 110,944 | 79,637 | ||||||
Decrease (increase) in: | ||||||||
Accounts receivable | (401,154 | ) | 475,131 | |||||
Inventory | 470,661 | (340,039 | ) | |||||
Prepaid expenses | (1,623 | ) | (25,574 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable | 461,974 | 129,517 | ||||||
Accrued expenses and other | (201,833 | ) | 21,015 | |||||
Customer deposits | (1,467,366 | ) | 690,195 | |||||
Net cash provided (used) by operating activities | (227,071 | ) | 888,119 | |||||
Cash flows from investing activities | ||||||||
Acquisition of equipment and plant improvements | (85,176 | ) | (512,452 | ) | ||||
Other investing activities | - | - | ||||||
Net cash provided (used) by investing activities | (85,176 | ) | (512,452 | ) | ||||
Cash flows from financing activities | ||||||||
Net borrowings (repayments) on lines of credit | - | - | ||||||
Borrowings, long term bank debt | - | 142,768 | ||||||
Receipt (repayment) of stockholder advances | (19,727 | ) | - | |||||
Distributions to stockholders | - | (45,000 | ) | |||||
Payments on long-term debt, bank and related party | (13,033 | ) | (16,803 | ) | ||||
Net cash provided (used) by financing activities | (32,760 | ) | 80,965 | |||||
Net increase (decrease) in cash | (345,007 | ) | 456,632 | |||||
Cash, beginning of period(01/01/08-01/01/07) | 1,197,451 | 747,744 | ||||||
Cash, end of period | $ | 852,444 | $ | 1,204,376 | ||||
Supplemental disclosure of cash flow information | ||||||||
Interest paid | $ | 36,987 | $ | 9,227 |
Reviewed | Audited | ||||||||
Inventory consists of the following: | 3-31-08 | 12-31-07 | |||||||
Raw materials | $ | 341,621 | $ | 390,294 | |||||
Work in process | 321,691 | 827,554 | |||||||
Finished goods | 144,239 | 60,364 | |||||||
$ | 807,551 | $ | 1,278,212 |
Reviewed | Audited | ||||||||
The following is a summary of intagible assets: | 3-31-08 | 12-31-07 | |||||||
Loan costs | $ | 21,902 | $ | 21,902 | |||||
Less accumulated amortization | (852 | ) | (487 | ) | |||||
$ | 21,050 | $ | 21,415 | ||||||
Amortization expense | $ | 365 | $ | 2,087 |
Reviewed | Audited | |||||||
Bank Debt | 3-31-08 | 12-31-07 | ||||||
Note payable to bank, monthly installments of $13,287, | ||||||||
interest at 7%. Amortization on 20 year schedule. | ||||||||
Collateralized by substantially all assets | ||||||||
of the Company; guaranteed by stockholders. | $ | 1,667,831 | $ | 1,674,785 | ||||
Related Party Debt | ||||||||
Note payable to stockholder at fixed 7% rate, due in | ||||||||
monthly installments of $1,360, including interest; | ||||||||
final payment due January 2011; uncollateralized. | 40,155 | 43,900 | ||||||
Note payable to stockholder at fixed 7.5% rate, due in | ||||||||
monthly installments of $550, including interest; | ||||||||
final payment is due September 2011; uncollateralized. | 21,017 | 21,852 | ||||||
Note payable to stockholders’ relative, interest at prime | ||||||||
rate plus 1% per annum payable biannually; principal | ||||||||
due in monthly installments of $500; uncollateralized. | 21,460 | 22,960 | ||||||
Less current portion | (52,700 | ) | (66,000 | ) | ||||
Long-term debt, excluding current portion | $ | 1,697,763 | $ | 1,697,497 |
2007 | 2006 | |||||||
Current assets | ||||||||
Cash | $ | 1,197,451 | $ | 747,744 | ||||
Trade accounts receivable | 2,303,411 | 1,319,724 | ||||||
Inventories | 1,278,212 | 274,818 | ||||||
Prepaid expenses | 20,602 | 20,302 | ||||||
Total current assets | 4,799,676 | 2,362,588 | ||||||
Property, plant and equipment, at cost | ||||||||
Land, buildings, and improvements | 3,044,565 | 799,312 | ||||||
Machinery and equipment | 1,430,433 | 651,935 | ||||||
Office furniture and fixtures | 81,102 | 73,866 | ||||||
4,556,100 | 1,525,113 | |||||||
Less accumulated depreciation | (877,722 | ) | (731,433 | ) | ||||
Net property, plant and equipment | 3,678,378 | 793,680 | ||||||
Other assets | ||||||||
Intangible assets, net of amortization | 21,415 | 1,600 | ||||||
Total assets | $ | 8,499,469 | $ | 3,157,868 | ||||
2007 | 2006 | |||||||
Current liabilities | ||||||||
Bank lines of credit | $ | - | $ | - | ||||
Current portion of long-term debt | 66,000 | 90,602 | ||||||
Accounts payable | 878,576 | 256,246 | ||||||
Customer deposits | 1,530,959 | 1,025,700 | ||||||
Accrued expenses | 312,937 | 67,197 | ||||||
Due to stockholders | 651,446 | 10,337 | ||||||
Total current liabilities | 3,439,918 | 1,450,082 | ||||||
Long-term debt, excluding current portion | 1,697,497 | 437,839 | ||||||
Total liabilities | 5,137,415 | 1,887,921 | ||||||
Stockholders’ equity | ||||||||
Common stock, no par value; authorized 1,000 shares, | ||||||||
issued and outstanding 1,000 shares | 200 | 200 | ||||||
Retained earnings | 3,361,854 | 1,269,747 | ||||||
Total stockholders’ equity | 3,362,054 | 1,269,947 | ||||||
Total liabilities and stockholders' equity | $ | 8,499,469 | $ | 3,157,868 |
2007 | 2006 | |||||||
Revenues | $ | 13,410,002 | $ | 6,379,575 | ||||
Cost of goods sold | 8,117,600 | 3,699,075 | ||||||
Gross profit | 5,292,402 | 2,680,500 | ||||||
General and administrative expenses | 2,001,047 | 1,635,752 | ||||||
Income from operations | 3,291,355 | 1,044,748 | ||||||
Other income (expense) | ||||||||
Other income, interest & exchange rate | 40,401 | 43,292 | ||||||
Interest expense | (65,039 | ) | (50,316 | ) | ||||
Gain on plant sale | 791,115 | - | ||||||
Net other income (expense) | 766,477 | (7,024 | ) | |||||
Net income | $ | 4,057,832 | $ | 1,037,724 |
Common Stock | Retained Earnings | Total Stockholders’ Equity | ||||||||||
Balances, December 31, 2005 - Compiled | $ | 200 | $ | 352,288 | $ | 352,488 | ||||||
Net income for 2006 | - | 1,037,724 | 1,037,724 | |||||||||
Distributions | - | (120,265 | ) | (120,265 | ) | |||||||
Balances, December 31, 2006 - Audited | $ | 200 | $ | 1,269,747 | $ | 1,269,947 | ||||||
Net income for 2007 | - | 4,057,832 | 4,057,832 | |||||||||
Distributions | - | (1,965,725 | ) | (1,965,725 | ) | |||||||
Balance, December 31, 2007 - Audited | $ | 200 | $ | 3,361,854 | $ | 3,362,054 |
2007 | 2006 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 4,057,832 | $ | 1,037,724 | ||||
Adjustments to reconcile net income to net | ||||||||
cash provided by operating activities: | ||||||||
Depreciation and amortization | 322,130 | 72,365 | ||||||
Book gain on plant sale | (791,115 | ) | - | |||||
Decrease (increase) in: | ||||||||
Accounts receivable | (983,687 | ) | (769,280 | ) | ||||
Inventory | (1,003,394 | ) | (463 | ) | ||||
Prepaid expenses | (300 | ) | (8,919 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable | 622,330 | 26,694 | ||||||
Accrued expenses and other | 245,740 | 18,729 | ||||||
Customer deposits | 505,259 | 892,170 | ||||||
Net cash provided (used) by operating activities | 2,974,795 | 1,269,020 | ||||||
Cash flows from investing activities | ||||||||
Intangibles acquired | (21,902 | ) | - | |||||
Acquisition of new plant, related improvements & equipment | (3,805,236 | ) | (184,207 | ) | ||||
Sale of plant, proceeds | 1,391,610 | - | ||||||
Net cash provided (used) by investing activities | (2,435,528 | ) | (184,207 | ) | ||||
Cash flows from financing activities | ||||||||
Net borrowings (repayments) on lines of credit | - | (223,570 | ) | |||||
Borrowings, long term bank debt | 1,885,387 | - | ||||||
Receipt (repayment) of stockholder advance | (10,337 | ) | 2,101 | |||||
Distributions to stockholders | (1,314,279 | ) | (120,265 | ) | ||||
Payments on long-term debt, bank and related party | (650,331 | ) | (78,642 | ) | ||||
Net cash provided (used) by financing activities | (89,560 | ) | (420,376 | ) | ||||
Net increase (decrease) in cash | 449,707 | 664,437 | ||||||
Cash, beginning of year | 747,744 | 83,307 | ||||||
Cash, end of year | $ | 1,197,451 | $ | 747,744 | ||||
Supplemental disclosure of cash flow information | ||||||||
Interest paid | $ | 65,039 | $ | 50,316 | ||||
Schedule of non-cash financing activity | ||||||||
Accrued shareholder distributions | $ | 651,446 | $ | - | ||||
Inventory consists of the following: | 2007 | 2006 | ||||||
Raw materials | $ | 390,294 | $ | 160,361 | ||||
Work in process | 827,554 | 45,773 | ||||||
Finished goods | 60,364 | 68,684 | ||||||
$ | 1,278,212 | $ | 274,818 |
The following is a summary of intangible assets: | 2007 | 2006 | ||||||
Loan costs | $ | 21,902 | $ | 3,597 | ||||
Licenses/trademark | -0- | 16,000 | ||||||
21,902 | 19,597 | |||||||
Less accumulated amortization | (487 | ) | (17,997 | ) | ||||
$ | 21,415 | $ | 1,600 | |||||
Amortization expense | $ | 2,087 | $ | 3,220 |
Bank Debt | 2007 | 2006 | ||||||
Note payable to bank, monthly installments of $13,287, | ||||||||
interest at 7%. Amortization on 20 year schedule. | ||||||||
Collateralized by substantially all assets | ||||||||
of the Company; guaranteed by stockholders. | $ | 1,674,785 | $ | 398,186 | ||||
Equipment notes (2), paid off before term in 2007. | - | 18,020 | ||||||
Related Party Debt | ||||||||
Note payable to stockholder at fixed 7% rate, due in | ||||||||
monthly installments of $1,360, including interest; | ||||||||
final payment due January 2011; uncollateralized. | 43,900 | 56,658 | ||||||
Note payable to stockholder at fixed 7.5% rate, due in | ||||||||
monthly installments of $550, including interest; | ||||||||
final payment is due September 2011; uncollateralized. | 21,852 | 26,617 | ||||||
Note payable to stockholders’ relative, interest at prime rate plus 1% per annum payable biannually; principal | ||||||||
due in monthly installments of $500; uncollateralized. | 22,960 | 28,960 | ||||||
Less current portion | 66,000 | 90,602 | ||||||
Long-term debt, excluding current portion | $ | 1,697,497 | $ | 437,839 |
2008 | $ | 66,000 | ||
2009 | 71,300 | |||
2010 | 76,000 | |||
2011 | 64,400 | |||
2012 | 55,900 | |||
2007 | 2006 | |||||||
Direct materials | $ | 3,891,841 | $ | 1,866,264 | ||||
Indirect material | 1,048,627 | 324,430 | ||||||
Direct labor | 1,372,030 | 793,138 | ||||||
Workers compensation, employee health insurance | 126,521 | 69,125 | ||||||
Freight | 449,886 | 152,206 | ||||||
Outside services/engineering | 324,189 | 167,583 | ||||||
Commissions | 35,574 | 19,884 | ||||||
Depreciation | 274,212 | 64,833 | ||||||
Plant insurance | 48,514 | 27,130 | ||||||
Repairs, maintenance and small tools | 355,927 | 141,174 | ||||||
Utilities | 98,139 | 73,308 | ||||||
Rent, Plant | 92,140 | - | ||||||
Total cost of goods sold | $ | 8,117,600 | $ | 3,699,075 |
2007 | 2006 | |||||||
Officers’ compensation | $ | 244,579 | $ | 203,531 | ||||
Administrative and sales payroll | 807,789 | 648,206 | ||||||
Advertising | 61,356 | 10,997 | ||||||
Trade shows | 36,501 | 39,537 | ||||||
Depreciation | 45,831 | 4,312 | ||||||
Amortization | 2,087 | 3,220 | ||||||
Dues and licenses | 709 | 4,814 | ||||||
Worker’s compensation, employee health insurance | 74,674 | 63,852 | ||||||
Supplies, postage and break room costs | 89,074 | 57,934 | ||||||
Real estate and property taxes | 15,997 | 16,168 | ||||||
Equipment rental | 32,474 | 9,451 | ||||||
Telephone | 17,374 | 15,687 | ||||||
Education, travel and vehicle | 148,279 | 129,178 | ||||||
Research and development | 184,313 | 202,556 | ||||||
Employee retirement plan | 29,208 | 26,195 | ||||||
Data base and computer operations | 48,225 | 69,016 | ||||||
Professional services | 65,572 | 40,123 | ||||||
Morin Street rental, repairs, and utilities | 48,823 | 39,425 | ||||||
Lankhorst Flotec Offshore marketing costs | 37,661 | 42,198 | ||||||
Other Expenses | 10,521 | 9,352 | ||||||
Total general and administrative expenses | $ | 2,001,047 | $ | 1,635,752 | ||||
September 30, | December 31, | |||||||||||||||
2007 | 2006 | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash | $ | 183,065 | $ | 487,773 | ||||||||||||
Accounts receivable (less allowance of $47,643 and $24,221) | 1,540,452 | 1,140,557 | ||||||||||||||
Other receivables | 7,950 | - | ||||||||||||||
Prepaid expenses and other current assets | 222,539 | 123,510 | ||||||||||||||
Work in progress | 234,745 | 252,991 | ||||||||||||||
Total current assets | 2,188,751 | 2,004,831 | ||||||||||||||
PROPERTY, PLANT, AND EQUIPMENT, NET | 2,074,014 | 2,084,989 | ||||||||||||||
OTHER ASSETS | ||||||||||||||||
Deposits | 545 | 545 | ||||||||||||||
TOTAL ASSETS | $ | 4,263,310 | $ | 4,090,365 | ||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable | $ | 648,305 | $ | 338,086 | ||||||||||||
Accounts payable - related party | 141,905 | 193,214 | ||||||||||||||
Accrued expenses | 84,221 | 339,056 | ||||||||||||||
Notes payable and current maturities | 605,158 | 597,066 | ||||||||||||||
Total current liabilities | 1,479,589 | 1,467,422 | ||||||||||||||
LONG-TERM LIABILITIES | ||||||||||||||||
Long-term debt, net of current maturities | 285,367 | 340,355 | ||||||||||||||
Deferred tax liability | 492,950 | 443,286 | ||||||||||||||
Total long-term liabilities | 778,317 | 783,641 | ||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||
Common stock, no par value; 10,000 shares | ||||||||||||||||
authorized, 200 issued and outstanding | 3,000 | 3,000 | ||||||||||||||
Retained earnings | 2,002,404 | 1,836,302 | ||||||||||||||
Total stockholders' equity | 2,005,404 | 1,839,302 | ||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 4,263,310 | $ | 4,090,365 |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
REVENUE | ||||||||
Service revenue | $ | 3,001,561 | $ | 3,798,045 | ||||
Rental revenue | 960,347 | 2,300,380 | ||||||
Sales revenue | 329,354 | 316,554 | ||||||
Total revenue | 4,291,262 | 6,414,979 | ||||||
EXPENSES | ||||||||
Cost of services, rentals, and sales | 1,833,323 | 2,413,551 | ||||||
Operating expenses | 1,245,259 | 1,572,106 | ||||||
Depreciation expense | 351,439 | 342,980 | ||||||
Executive compensation | 416,563 | 307,481 | ||||||
Total expenses | 3,846,584 | 4,636,118 | ||||||
Net income from operations | 444,678 | 1,778,861 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Litigation settlement | 7,950 | - | ||||||
Gain (loss) on sale of equipment | (14,609 | ) | 21,255 | |||||
Interest expense | (49,041 | ) | (53,020 | ) | ||||
Total other income (expense) | (55,700 | ) | (31,765 | ) | ||||
Net income before provision for income tax expense | 388,978 | 1,747,096 | ||||||
PROVISION FOR INCOME TAX EXPENSE | ||||||||
Income tax expense - deferred | 49,664 | 182,030 | ||||||
Income tax expense - current | 173,212 | 489,792 | ||||||
Total provision for income tax expense | 222,876 | 671,822 | ||||||
NET INCOME | $ | 166,102 | $ | 1,075,274 | ||||
EARNINGS PER SHARE | $ | 830.51 | $ | 5,376.37 | ||||
SHARES USED IN COMPUTING PER SHARE AMOUNTS | 200 | 200 |
Common | Retained | |||||||
Stock | Earnings | |||||||
BALANCE, December 31, 2005 | $ | 3,000 | $ | 761,028 | ||||
Net income | - | 1,075,274 | ||||||
BALANCE, December 31, 2006 | 3,000 | 1,836,302 | ||||||
Net income | - | 166,102 | ||||||
BALANCE, September 30, 2007 | $ | 3,000 | $ | 2,002,404 |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 166,102 | $ | 1,075,274 | ||||
Adjustments to reconcile net income to net cash provided | ||||||||
by operating activities: | ||||||||
Depreciation | 351,439 | 342,980 | ||||||
(Gain)/loss on sale of equipment | 14,609 | (21,255 | ) | |||||
Deferred taxes | 49,664 | 182,030 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (399,895 | ) | 255,851 | |||||
Increase in other receivables | (7,950 | ) | - | |||||
Increase in prepaid expenses and other current assets | (99,029 | ) | (75,890 | ) | ||||
Decrease in work in progress | 18,246 | 31,391 | ||||||
Increase in other assets | - | (105 | ) | |||||
Increase (decrease) in accounts payable | 310,219 | (236,181 | ) | |||||
Increase (decrease) in accounts payable - related party | (51,309 | ) | 46,579 | |||||
Increase (decrease) in accrued expenses | (254,835 | ) | 250,336 | |||||
(68,841 | ) | 775,736 | ||||||
Net cash provided by operating activities | 97,261 | 1,851,010 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from sale of equipment | 1,009 | 27,785 | ||||||
Purchase of property, plant and equipment | (356,082 | ) | (1,239,654 | ) | ||||
Net cash used by investing activities | (355,073 | ) | (1,211,869 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from debt | 1,054,724 | 1,051,149 | ||||||
Repayment of debt | (1,101,620 | ) | (1,336,247 | ) | ||||
Net cash used by financing activities | (46,896 | ) | (285,098 | ) | ||||
Net increase (decrease) in cash | (304,708 | ) | 354,043 | |||||
CASH at beginning of period | 487,773 | 133,730 | ||||||
CASH at end of period | $ | 183,065 | $ | 487,773 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
CASH PAID DURING THE YEAR FOR: | ||||||||
Interest | $ | 49,041 | $ | 53,020 | ||||
Income tax | $ | 334,739 | $ | 246,553 |
September 30, 2007 | December 31, 2006 | ||||||||
Equipment | $ | 113,241 | $ | 92,950 | |||||
Equipment - Rental | 3,310,413 | 3,038,515 | |||||||
Vehicles | 71,698 | 71,698 | |||||||
Furniture and fixtures | 97,049 | 80,424 | |||||||
Leasehold improvements | 63,373 | 63,373 | |||||||
3,655,774 | 3,346,960 | ||||||||
Less: accumulated depreciation | (1,581,760 | ) | (1,261,971 | ) | |||||
$ | 2,074,014 | $ | 2,084,989 |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Note payable to MidSouth Bank, payable in monthly | ||||||||
installments bearing interest at 7.75% per annum, | ||||||||
maturing February 12, 2007, collateralized by insurance | ||||||||
policies. | $ | - | $ | 41,607 | ||||
Note payable to Regions Bank, payable in monthly | ||||||||
installments bearing interest at 8.25% per annum, | ||||||||
maturing June 10, 2008, cross-collateralized. | 228,514 | - | ||||||
$ | 228,514 | $ | 41,607 |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Note payable to Regions Bank, payable in monthly | ||||||||
installments bearing interest at 7.85% per annum, | ||||||||
maturing September 28, 2010, collateralized by life | ||||||||
insurance policy and equipment. | $ | 350,985 | $ | 457,746 | ||||
Revolving line-of-credit of $500,000 from Regions Bank, | ||||||||
maturing 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 new equipment. | 131,893 | 438,068 | ||||||
Note payable to Regions Bank payable in monthly | ||||||||
installments bearing interest at 7.85% per annum, | ||||||||
maturing January 25, 2011, collateralized by equipment | ||||||||
and life insurance policy. | 179,133 | - | ||||||
662,011 | 895,814 | |||||||
Less: current portion | (376,644 | ) | (555,459 | ) | ||||
Long-term portion | $ | 285,367 | $ | 340,355 | ||||
Maturities of long-term debt are as follows: | ||||||||
2007 | $ | 191,297 | $ | 555,459 | ||||
2008 | 249,586 | 126,945 | ||||||
2009 | 168,350 | 137,277 | ||||||
2010 | 52,778 | 76,133 | ||||||
$ | 662,011 | $ | 895,814 |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Current | ||||||||
Federal | $ | 169,052 | $ | 480,567 | ||||
State | 4,160 | 9,225 | ||||||
173,212 | 489,792 | |||||||
Deferred | 49,664 | 182,030 | ||||||
Total | $ | 222,876 | $ | 671,822 |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Deferred tax asset relating to: | ||||||||
Allowance for uncollectible accounts receivable | $ | 16,199 | $ | 8,235 | ||||
Deferred tax liability relating to: | ||||||||
Property and equipment, net | (509,149 | ) | (451,521 | ) | ||||
Net deferred tax liability | $ | (492,950 | ) | $ | (443,286 | ) |
Year | ||||
2007 | $ | 87,600 | ||
2008 | 87,600 | |||
2009 | 87,600 | |||
2010 | 87,600 | |||
2011 | 36,500 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the Registrant in connection with the sale and distribution of the securities being registered hereby. Normal commission expenses and brokerage fees are payable individually by the Selling Shareholders. All amounts are estimated except the SEC registration fee.
Amount | ||||
SEC registration fee | $ | 1,280 | ||
Accounting fees and expenses | $ | 25,000 | * | |
Legal fees and expenses | $ | 25,000 | * | |
Blue Sky and related expenses | $ | 15,000 | * | |
Printing expenses | $ | - | * | |
Miscellaneous fees and expenses | $ | 7,500 | (1) * | |
Total | $ | 73,780 | * |
Amount | ||||
SEC registration fee | $ | 1,417 | ||
Accounting fees and expenses | 25,000 | |||
Legal fees and expenses | 25,000 | |||
Blue Sky and related expenses | 3,250 | |||
Printing expenses | 7,500 | |||
Transfer agents’ fees | 5,840 | |||
Miscellaneous fees and expenses | 7,500 | (1) | ||
Total | $ | 75,507 |
____________________
(1)
To be borne 100% by the Registrant.ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are a Nevada corporation and Restated Articles of Incorporation and Section 78.7502generally governed by the Nevada Private Corporations Code, Title 78 of the Nevada Revised Statutes, provide in relevant part that the Company shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the rightNRS.
Section 78.138 of the Company) by reasonNRS provides that, unless the corporation’s Articles of Incorporation provide otherwise, a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud, or a knowing violation of the factlaw. Our Articles of Incorporation provide that such person isno director or was a director, officer employeeshall be personally liable to the corporation or agentany of the Company, or is or was serving at the requestits stockholders for damages for any breach of the Companyfiduciary duty as a director or officer employeeexcept (i) for acts or agentomissions that involve intentional misconduct or a knowing violation of another corporation, partnership, joint venture, trustlaw by he director, (ii) for conduct violating the NRS, or other enterprise,(iii) for any transaction from which the director will personally receive a benefit in money, property, or services to which the director is not legally entitled.
Section 78.7502 of the NRS permits a company to indemnify its directors and officers against expenses, including attorneys’ fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with thea threatened, pending, or completed action, suit, or proceeding, if such personthe officer or director (i) is not liable under Sectionpursuant to NRS 78.138, of the Nevada Revised Statutes or it is determined that he(ii) acted in good faith and in a manner hethe officer or director reasonably believed to be in or not opposed to the best interests of the Company,corporation and, with respect to anyif a criminal action or proceeding, had no reasonable cause to believe histhe conduct was unlawful.
Section 78.751 of the NRS permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, referredsuit, or proceeding as they are incurred and in advance of final disposition thereof, upon determination by the stockholders, the disinterested board members, or by independent legal counsel. Section 78.751 of NRS requires a corporation to above, we must indemnify him againstadvance expenses as incurred upon receipt of an undertaking by or on behalf of the expenses whichofficer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director actuallyis not entitled to be indemnified by the company if so provided in the corporations articles of incorporation, bylaws, or reasonably incurred.
-19- |
Section 78.752 of the NRS provides that a Nevada Revised Statutes,company may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the Registrant's Amendedcompany, or is or was serving at the request of the company as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, for any liability asserted against him and Restatedliability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.
Our Articles of Incorporation eliminateand Bylaws implement the liabilityindemnification provisions permitted by Chapter 78 of itsthe NRS by providing that we shall indemnify our directors and officers to the Registrantfullest extent and its stockholders for damages for breachunder all circumstances permitted by the NRS against expense, liability, and loss reasonably incurred or suffered by them in connection with their service as an officer or director. Our Articles of fiduciary duty, except for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or for the payment of distributions in violation of Section 78.300 of the Nevada Revised Statutes. To the extentIncorporation also provide that this provision limits the remedies of the Registrant and its stockholders to equitable remedies, it might reduce the likelihood of derivative litigation and discourage the Registrant's management or stockholders from initiating litigation against its directors or officers for breach of their fiduciary duties. Additionally, equitable remedies may not be effective in many situations. If a stockholder's only remedy is to enjoin the completion of an action, such remedy would be ineffective if the stockholder does not become aware of a transaction or event until after it has been completed. In such a situation, it is possible that the Registrant and its stockholders would have no effective remedy against directors or officers.
At the present time, there is no pending litigation or proceeding involving anya director, officer, employee, or other agent as toof ours in which indemnification willwould be required or permitted under the Certificate.permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 31, 2010, the Company issued 1,000,000 shares of Incorporation include any specific indemnification provisions for our officers or directors against liability undercommon stock of Deep Down, at a per-share price of $1.40, in a private placement resulting in total proceeds of $1,400,000. The Company relied upon the Securities Act of 1933, as amended. Additionally, insofar as indemnification for liabilities arisingexemption from registration set forth in Section 4(2) under the Securities Act of 1933, as amended, (the "Act") may be permitted to directors, officers and controlling persons ofin connection with the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
On August 9, 2011, but effective as of Deep Down. Funds were used to redeem certain outstanding exchangeable preferred stock and for working capital. We claim an exemption from registration provided by Section 4(2)June 8, 2011, our board of the Securities Act and/or Regulation D promulgated thereunder.
On May 29, 2013,the Board of Directors approved a grant of 30,000 shares of restricted common stock, are exemptwith a fair value of $2.00 per share,to a newly-appointed independent director.On June 5, 2013, the board of directors approved a grant of 700,000 shares of restricted stock, with a fair value of $2.03 per share, to certain key employees.These grants were made generally under our 2003 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan, which has been approved by the shareholders, andwere exempted from registration requirements provided bygenerally under Section 4(2) of the Securities Act and/of 1933, as amended. The Company did not receive any consideration at the time of grant of such restricted shares or Regulation D promulgated thereunder.
Reverse Stock Split
On July 18, 2012, the Company effected a one-for-twenty reverse stock split (“Reverse Stock Split”) of the Securities Act and/or Regulation D promulgated thereunder.
-20- |
Name | Number of Shares Purchased in September 10, 2013 Private Placement | |||
Blue Clay Capital Master Fund Ltd. | 85,000 | |||
Bradley Louis Radoff | 164,000 | |||
Charles M Hale Living Trust | 200,000 | |||
JAMAKA Capital L.P. | 200,000 | |||
Lake Street Fund, L.P. | 416,667 | |||
MAZ Partners L.P. | 125,000 | |||
Option Opportunities Corp | 41,667 | |||
Perritt Ultra Microcap Fund | 250,000 | |||
Perry J. Radoff, P.C., Profit Sharing Plan | 55,556 | |||
Serenity Now LLC | 33,333 | |||
The Perlus Micro Cap Fund L.P. | 194,444 | |||
Warberg Opportunistic Trading Fund LP | 69,444 | |||
Wedbush Opportunity Partners, LP | 250,000 | |||
Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Micro Cap Equity Portfolio | 223,200 | |||
Wellington Trust Company, National Association Multiple Common Trust Funds Trust, Micro Cap Equity Portfolio | 1,776,800 | |||
Total | 4,085,111 |
Name | Number of Shares Purchased in September 26, 2013 Private Placement | |||
Adam Boyd Sellers | 5,000 | |||
Alexis B. Johnson | 8,000 | |||
Allan R Schuman | 5,000 | |||
Anne Hampson Ross | 15,000 | |||
Bard Micro-Cap Value Fund, L.P. | 20,000 | |||
Carol Clark Coolidge Trust UAD 3/13/97 | 5,000 | |||
Christina D. Collier Trust UAD 12/23/2003 | 4,500 | |||
Christine Elizabeth Coolidge Rev Living Trust UAD 12/9/02 | 4,000 | |||
Citadel Industries, Inc. | 17,500 | |||
Deborah B. Dewing Trust UAD 6/1/99 | 4,500 | |||
Dale F. Snavely Trust UAD 3/30/93 | 20,000 | |||
Henry J Underwood Trust UAD 6/25/02 | 8,500 | |||
J. Scott Etzler | 5,000 | |||
Jane Lois Kaplan Revocable Trust UAD 9/6/2000 | 8,000 | |||
Janet J. Underwood Trust UAD 6/25/02 | 10,000 | |||
Jennifer Bard Trust UAD 6/30/05 | 4,000 | |||
John Bard Manulis | 5,000 | |||
Joseph H. Ballway, Jr. | 3,000 | |||
Joshua Herrendorf | 4,000 | |||
Julien D Lebourgeois | 4,000 | |||
Katharine B. Dickson & Mark A Dickson JTWROS | 20,000 | |||
Lucy H. Underwood | 6,000 | |||
M. Edwards Sellers & Susan D. Boyd JTWROS | 20,000 | |||
Marc E. Nicholson | 6,000 | |||
Marcia E. Cremin Revocable Trust UAD 3/1/06 | 6,000 | |||
Marshall I Steinbaum | 5,000 | |||
Marvin J. Pollack Trust UAD 5/22/90 | 5,000 | |||
Mary A Heatter Trust UAD 6/28/2004 | 3,000 | |||
Mary E. McAvoy Trust UAD 9/5/84 | 3,000 | |||
Mary M. Schwartz Trust UAD 9/5/06 | 3,000 | |||
Matthew Moog | 5,000 | |||
Michael D. Watt Trust UAD 3/15/02 | 5,000 | |||
N. Shaw Family Ltd Partnership | 4,000 | |||
Patrick T. Underwood | 5,000 | |||
Peter L. Abeles and Jonnet S. Abeles, JTWROS | 3,000 | |||
R. Stuyvesant Pierrepont Trust V/W/D 1932 | 12,000 | |||
Robert E. Logan, Jr. | 3,000 | |||
Robert S. Steinbaum | 7,000 | |||
Seville Enterprises, LP | 10,000 | |||
Sidney N. Herman | 15,000 | |||
T. Michael Johnson & Patricia R. Johnson JTWROS | 5,000 | |||
Timothy B. Johnson | 20,000 | |||
William A. Carey & Amanda C. Carey JTWROS | 3,000 | |||
William G Escamilla Revocable Trust DTD 7/29/03 | 4,500 | |||
William K. Kellogg III 1992 Trust UAD 7/24/92 | 20,000 | |||
Total | 358,500 |
-21- |
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit Number | |
2.1 | Agreement and Plan of Reorganization among MediQuip Holdings, Inc., Deep Down, Inc., and the majority shareholders of Deep Down, Inc. (incorporated by reference from Exhibit 2.1 to our Form 10-KSB/A filed on May 1, 2008). |
3.1 | Articles of Incorporation of Deep Down, Inc. (conformed to include the amendment of the Articles of Incorporation filed with the Secretary of State of the State of Nevada on September 29, 2008 (incorporated by reference from Exhibit A to our Schedule 14C filed on August 15, 2008). |
3.2 | Amended and Restated By Laws of Deep Down, Inc. (incorporated by reference from Exhibit B to our Schedule 14C filed on August 15, 2008). |
4.1 | Common Stock Purchase Warrant for 320,000 shares of common stock of Deep Down, Inc. issued to Dragonfly Capital Partners, LLC dated August 6, 2007 (incorporated herein by reference from Exhibit 4.2 to our Form 10-KSB filed on April 1, 2008). |
4.2 | Common Stock Purchase Warrant for 118,812 shares of common stock of Deep Down, Inc. issued to Dragonfly Capital Partners, LLC dated January 4, 2008 (incorporated herein by reference from Exhibit 4.3 to our Form 10-KSB filed on April 1, 2008). |
4.3 | Securities Purchase Agreement, dated December 31, 2010, by and among Deep Down, Inc. and Flotation Investor, LLC (incorporated herein by reference from Exhibit 10.3 to our Form 8-K filed on January 5, 2011). |
4.4 | 6% Subordinated Debenture of Deep Down, Inc. dated March 31, 2008 (incorporated herein by reference from Exhibit 4.1 to our Form 10-Q filed on May 16, 2008). |
5.1* | Opinion of Lewis Roca Rothgerber LLP, counsel to the Company, as to the legality of the Common Stock being registered |
10.1 | Amended and Restated Credit Agreement, entered into as of April 14, 2010, between Deep Down, Inc., as borrower, and Whitney National Bank, as lender, including the Guarantor’s Consent and Agreement as signed on behalf of ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC, Deep Down, Inc. and Deep Down International Holdings, LLC (incorporated herein by reference from Exhibit |
10.2 | First Amendment to Amended and Restated Credit Agreement, dated December 31, 2010, by and among Deep Down, Inc., as borrower, and Whitney National Bank, as lender, including the |
10.3 | Guaranty, dated as of November 11, 2008, by ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down, Inc. for the benefit of Whitney National Bank (incorporated herein by reference from Exhibit 10.2 to our Form 10-Q filed on November 14, 2008). |
10.4 | Joinder to Guaranty, dated as of February 13, 2009, by Deep Down International Holdings, LLC (incorporated herein by reference from Exhibit 10.5 to our Form 10-K filed on March 16, 2009). |
10.5 | Security Agreement, dated as of November 11, 2008, among Deep Down, Inc., ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down, Inc. for the benefit of Whitney National Bank (incorporated herein by reference from Exhibit 10.3 to our Form 10-Q filed on November 14, 2008). |
10.6 | Joinder to Security Agreement, dated as of February 13, 2009, by Deep Down International Holdings, LLC (incorporated herein by reference from Exhibit 10.7 to our Form 10-K filed on March 16, 2009). |
10.7 | First Amendment to Security Agreement, dated as of December 18, 2008, by Deep Down, Inc., ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down, Inc. for the benefit of Whitney National Bank (incorporated herein by reference from Exhibit 10.3 to our Form 8-K filed on December 19, 2008). |
10.8 | Second Amendment to Security Agreement, executed as of May 29, 2009, by Deep Down, Inc., ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down, Inc., for the benefit of Whitney National Bank (incorporated by reference from Exhibit 10.4 to our Form 8-K filed on June 2, 2009). |
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10.9 | Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing, executed as of May 29, 2009, by Deep Down, Inc., as grantor, in favor of Gary M. Olander, as trustee, for the benefit of Whitney National Bank, as beneficiary (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on June 2, 2009). |
10.10 | Ratification of Guaranty, Security Agreement, and Intercreditor Agreement, dated April 14, 2010, among Deep Down, Inc., a Nevada corporation, as borrower, and ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC, Deep Down, Inc., a Delaware corporation, each a guarantor, and Whitney National Bank, a national banking association, as lender (incorporated by reference from Exhibit 10.36 to our Form 10-K filed on April 15, 2011). |
10.11 | First Modification to Deed of Trust, dated April 14, 2010, executed by Deep Down, Inc., as grantor, for the benefit of Whitney National Bank, as lender (incorporated by reference from Exhibit 10.37 to our Form 10-K filed on April 15, 2010). |
10.12 | First Modification to Assignment of Leases and Rents, dated April 14, 2010, executed by Deep Down, Inc., as assignor, and Whitney National Bank, as assignee (incorporated by reference from Exhibit 10.38 to our Form 10-K filed on April 15, 2010). |
10.13 | ROV Term Loan, dated April 14, 2010, executed by Deep Down, Inc. and paid to the order of Whitney National Bank (incorporated by reference from Exhibit 10.32 to our Form 10-K filed on April 15, 2010). |
10.14 | RE Term Loan, dated April 14, 2010, executed by Deep Down, Inc. and paid to the order of Whitney National Bank (incorporated by reference from Exhibit 10.33 to our Form 10-K filed on April 15, 2010). |
10.15 | RLOC Term Loan, dated April 14, 2010, executed by Deep Down, Inc. and paid to the order of Whitney National Bank (incorporated by reference from Exhibit 10.34 to our Form 10-K filed on April 15, 2010). |
10.16 | LC Note, dated April 14, 2010, executed by Deep Down, Inc. and paid to the order of Whitney National Bank (incorporated by reference from Exhibit 10.35 to our Form 10-K filed on April 15, 2010). |
10.17 | Office Building Lease, dated November 24, 2008, between Deep Down, Inc. and A-K-S-L 49 Beltway 8, L.P. (incorporated herein by reference from Exhibit 10.18 to our Form 10-K filed on March 16, 2009). |
10.18 | Purchase and Sale Agreement, dated May 22, 2009, by and between Deep Down, Inc. and JUMA Properties, LLC (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on June 2, 2009). |
10.19 | Employment Agreement, dated effective as of January 1, 2010, between Deep Down, Inc. and Eugene L. Butler (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on January 15, 2010). |
10.20 | Amended and Restated Employment Agreement, dated effective as of January 1, 2010, between Deep Down, Inc. and Ronald E. Smith (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on January 15, 2010). |
10.21 | Employment Agreement, dated effective as of February 17, 2010, between Deep Down, Inc. and Michael J. Newbury (incorporated by reference from Exhibit 10.30 to our Form 10-K filed on April 15, 2010). |
10.22 | Stock Option, Stock Warrant and Stock Award Plan (incorporated by reference from Exhibit 4.10 to our Form S-1 Registration Statement (file no. 333-152435) filed on July 21, 2008). |
10.23 | Stock Purchase Agreement, dated May 3, 2010, among Deep Down, Inc., Cuming Corporation and the Selling Stockholders named therein (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on May 5, 2010). |
10.24 | Amendment No. 1 to Stock Purchase Agreement, dated July 13, 2010, among Deep Down, Inc., Cuming Corporation and the Selling Stockholders named therein (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on July 14, 2010). |
10.25 | Amendment No. 2 to Stock Purchase Agreement, dated October 4, 2010, among Deep Down, Inc., Cuming Corporation and the Selling Stockholders named therein (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on October 4, 2010). |
10.26 | Amendment No. 3 to Stock Purchase Agreement, dated effective as of October 31, 2010, among Deep Down, Inc., Cuming Corporation and the Selling Stockholders named therein (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on November 8, 2010). |
10.27 | Agreement and Amendment No. 4 to Stock Purchase Agreement, dated effective as of November 30, 2010, among Deep Down, Inc., Cuming Corporation and the Selling Stockholders named therein (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on December 9, 2010). |
10.28 | Waiver Agreement, dated April 28, 2010, by and between Whitney National Bank, as lender, and Deep Down, Inc., as borrower (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on May 5, 2010). |
10.29 | Contribution Agreement, dated December 31, 2010, by and among Deep Down, Inc., Flotation Technologies, Inc., Cuming Flotation Technologies, LLC and Flotation Investor, LLC (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on January 5, 2011). |
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10.30 | Contract Assignment and Amendment Agreement, dated December 31, 2010, by and among Deep Down, Inc., Cuming Flotation Technologies, LLC and Cuming Corporation (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on January 5, 2011). |
10.31 | Amended and Restated Limited Liability Company Agreement of Cuming Flotation Technologies, LLC, dated December 31, 2010 (incorporated by reference from Exhibit 10.5 to our Form 8-K filed on January 5, 2011). |
10.32 | Management Services Agreement, dated effective as of January 1, 2011, by and among Deep Down, Inc. and Cuming Flotation Technologies, LLC (incorporated by reference from Exhibit 10.6 to our Form 8-K filed on January 5, 2011). |
10.33 | First Amendment to Management Services Agreement, dated effective as of March 1, 2011, by and among Deep Down, Inc. and Cuming Flotation Technologies, LLC (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on March 8, 2011). |
10.34 | Waiver dated March 25, 2011, by and between Whitney National Bank, as lender, and Deep Down, Inc., as borrower (incorporated by reference from Exhibit 10.41 to our Form 10-K filed on April 15, 2011). |
10.35 | Second Amendment to Amended and Restated Credit Agreement, dated April 12, 2011, by and among Deep Down, Inc., as borrower, and Whitney National Bank, as lender, including the Guarantor’s Consent and Agreement as signed on behalf of ElectroWave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC, Deep Down, Inc. and Deep Down International Holdings, LLC (incorporated by reference from Exhibit 10.42 to our Form 10-K filed on April 15, 2011). |
10.36 | Third Amendment to Amended and Restated Credit Agreement, dated as of June 9, 2011, by and among Deep Down, Inc. and Whitney Bank (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on June 15, 2011). |
10.37 | Stock Repurchase Agreement, dated as of June 9, 2011, by and among Deep Down, Inc. and Whitney Bank (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on June 15, 2011). |
10.38 | Acquisition Term Note, dated June 9, 2011, by and among Deep Down, Inc. and Whitney Bank (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on June 15, 2011). |
10.39 | Indemnification and Contribution Agreement, dated October 7, 2011, by and among Deep Down, Inc., York Special Opportunities Fund, L.P., Flotation Investor, LLC and Cuming Flotation Technologies, LLC (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on October 14, 2011). |
10.40 | Fourth Amendment to Amended and Restated Credit Agreement, dated April 15, 2012, by and among Deep Down, Inc. and Whitney Bank (incorporated by reference from Exhibit 10.1 to our Form 10-Q filed on May 15, 2012). |
10.41 | Fifth Amendment to Amended and Restated Credit Agreement, dated as of March 5, 2013, by and among Deep Down, Inc. and Whitney Bank (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on March 12, 2013). |
10.42 | Equipment Term Note, dated as of March 5, 2013, made by Deep Down, Inc. to the order of Whitney Bank (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on March 12, 2013). |
10.43 | Building and Land Lease Agreement between W&P Development Corporation, as Landlord, and Deep Down, Inc., as Tenant, dated effective June 1, 2013 (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on June 21, 2013). |
10.44 | Securities Purchase Agreement, dated September 9, 2013, between Deep Down, Inc. and the purchaser parties thereto (incorporated by reference from Exhibit 10.1 to our Form 8-K filed on September 16, 2013). |
10.45 | Registration Rights Agreement, dated September 9, 2013, between Deep Down, Inc. and the purchaser parties thereto (incorporated by reference from Exhibit 10.2 to our Form 8-K filed on September 16, 2013). |
21.1* | Subsidiary list. |
23.1* | Consent of HEIN & Associates LLP, Independent Registered Public Accounting Firm |
23.2* | Consent of Lewis Roca Rothgerber LLP (included in Exhibit 5.1) |
______________________
* Filed herewith.
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ITEM 17. UNDERTAKINGS.
(a) | The undersigned Registrant hereby undertakes: |
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: |
(i) | to include any Prospectus required by Section 10(a)(3) of the Securities Act; |
(ii) | to reflect in the Prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment hereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; and | |
(iii) | to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; |
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement or is contained in a form of Prospectus filed pursuant to 424(b) that is part of this Registration Statement.
(2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(4) | That, for the purpose of determining liability under the Securities Act to any purchaser: |
(A) | Each Prospectus filed by the |
(B) | Each Prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of this |
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(C) | If the |
(5) | That, for the purpose of determining liability of the |
(i) | Any preliminary Prospectus or Prospectus of the undersigned |
(ii) | Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned |
(iii) | The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned |
(iv) | Any other communication that is an offer in the offering made by the undersigned |
(b) | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 25th day of August, 2008.
DEEP DOWN, INC. (Registrant) By: /s/ Ronald | |||
Ronald E. Smith, Chief Executive Officer
(Principal Executive Officer)
By: /s/ Eugene L. Butler
Eugene L. Butler, Chief Financial Officer
(Principal Financial Officer)
By: /s/ Ira B. Selya
Ira B. Selya, Corporate Controller
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated:
Signatures | Title | Date | ||
/s/ Ronald E. Smith | President, Chief Executive Officer and Director | October | ||
Ronald E. Smith | (Principal Executive Officer) | |||
Executive Chairman and Chief Financial Officer | October | |||
Eugene L. Butler | (Principal Executive Officer) | |||
/s/ Mary L. Budrunas | Corporate Secretary and Director | October 4, 2013 | ||
/s/ | Director | October 4, 2013 | ||
Randolph W. Warner | ||||