Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2019 | May 13, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | Deep Down, Inc. | |
Entity Central Index Key | 0001110607 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 13,390,680 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2019 | |
Entity Small Business | true | |
Entity Emerging Growth | false |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Current assets: | ||
Cash | $ 1,776 | $ 2,015 |
Short term investment (certificate of deposit) | 1,040 | 1,035 |
Accounts receivable, net of allowance of $10 and $10, respectively | 6,981 | 4,388 |
Contract assets | 827 | 1,931 |
Prepaid expenses and other current assets | 148 | 621 |
Total current assets | 10,772 | 9,990 |
Property, plant and equipment, net | 9,328 | 9,691 |
Intangibles, net | 55 | 56 |
Right-of-use operating lease assets | 5,403 | 0 |
Other assets | 354 | 383 |
Total assets | 25,912 | 20,120 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 2,155 | 1,982 |
Contract liabilities | 1,037 | 973 |
Current lease liabilities | 1,236 | 0 |
Current portion of long-term debt | 9 | 9 |
Total current liabilities | 4,437 | 2,964 |
Non-current lease liabilities | 4,176 | 0 |
Long-term debt (Auto loan) | 44 | 47 |
Total long term liabilities | 4,220 | 47 |
Total liabilities | 8,657 | 3,011 |
Commitments and contingencies (Note 9) | ||
Stockholders' equity: | ||
Common stock, $0.001 par value, 24,500,000 shares authorized, 15,706,010 and 15,706,010 shares issued, respectively | 16 | 16 |
Additional paid-in capital | 73,375 | 73,271 |
Treasury stock, 2,255,330 and 2,027,217 shares, respectively, at cost | (2,232) | (2,062) |
Accumulated deficit | (53,904) | (54,116) |
Total stockholders' equity | 17,255 | 17,109 |
Total liabilities and stockholders' equity | $ 25,912 | $ 20,120 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
ASSETS | ||
Accounts receivable allowance | $ 10 | $ 10 |
Stockholders' equity: | ||
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 24,500,000 | 24,500,000 |
Common stock issued | 15,706,010 | 15,706,010 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Statement [Abstract] | ||
Revenues | $ 6,300 | $ 3,706 |
Cost of sales: | ||
Cost of sales | 3,765 | 2,218 |
Depreciation expense | 277 | 354 |
Total cost of sales | 4,042 | 2,572 |
Gross profit | 2,258 | 1,134 |
Operating expenses: | ||
Selling, general and administrative | 1,995 | 1,911 |
Depreciation and amortization | 68 | 77 |
Total operating expenses | 2,063 | 1,988 |
Operating income (loss) | 195 | (854) |
Other income: | ||
Interest income, net | 7 | 9 |
Gain on sale of property, plant and equipment | 15 | 0 |
Total other income | 22 | 9 |
Income (loss) before income taxes | 217 | (845) |
Income tax expense | (5) | (5) |
Net income (loss) | $ 212 | $ (850) |
Net income (loss) per share: | ||
Basic | $ 0.02 | $ (0.06) |
Fully diluted | $ 0.02 | $ (0.06) |
Weighted-average shares outstanding: | ||
Basic | 13,511 | 13,436 |
Fully diluted | 13,511 | 13,436 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Total |
Beginning balance, shares at Dec. 31, 2017 | 15,438 | ||||
Beginning balance, value at Dec. 31, 2017 | $ 15 | $ 73,247 | $ (2,040) | $ (49,375) | $ 21,847 |
Net income (loss) | (850) | (850) | |||
Share-based compensation | 4 | 4 | |||
Ending balance, shares at Mar. 31, 2018 | 15,438 | ||||
Ending balance, value at Mar. 31, 2018 | $ 15 | 73,251 | (2,040) | (50,225) | 21,001 |
Beginning balance, shares at Dec. 31, 2018 | 15,706 | ||||
Beginning balance, value at Dec. 31, 2018 | $ 16 | 73,271 | (2,062) | (54,116) | 17,109 |
Net income (loss) | 212 | 212 | |||
Treasury shares purchased | (170) | (170) | |||
Share-based compensation | 104 | 104 | |||
Ending balance, shares at Mar. 31, 2019 | 15,706 | ||||
Ending balance, value at Mar. 31, 2019 | $ 16 | $ 73,375 | $ (2,232) | $ (53,904) | $ 17,255 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities: | ||
Net income (loss) | $ 212 | $ (850) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||
Share-based compensation | 104 | 4 |
Depreciation and amortization | 345 | 431 |
Gain on sale of property, plant and equipment | (15) | 0 |
Non-cash lease expense | 9 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (2,566) | (1,368) |
Contract Assets | 1,104 | 666 |
Prepaid expenses and other current assets | (34) | 64 |
Other assets | 21 | 37 |
Accounts payable and accrued liabilities | 173 | (238) |
Contract Liabilities | 64 | (505) |
Net cash used in operating activities | (583) | (1,759) |
Cash flows from investing activities: | ||
Proceeds from sale of property, plant and equipment | 15 | 0 |
Purchases of property, plant and equipment | 0 | (277) |
Repayments on notes receivable (included in prepaid expenses and other current assets) | 507 | 4 |
Short term investment - (certificate of deposit) | (5) | 0 |
Net cash provided by (used in) investing activities | 517 | (273) |
Cash flows from financing activities: | ||
Principal payment on long-term debt | (3) | (1) |
Cash paid for treasury shares purchased | (170) | 0 |
Net cash used in financing activities | (173) | (1) |
Change in cash | (239) | (2,033) |
Cash, beginning of period | 2,015 | 3,939 |
Cash, end of period | 1,776 | 1,906 |
Supplemental schedule of investing and financing activities: | ||
Property, plant and equipment sold for accounts receivable | 27 | 0 |
Financing of property, plant and equipment | $ 0 | $ 67 |
1. BASIS OF PRESENTATION
1. BASIS OF PRESENTATION | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION | NOTE 1: BASIS OF PRESENTATION Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Deep Down, Inc. and its wholly-owned subsidiary (“Deep Down,” “we,” “us” or the “Company”) were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the “Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those rules, certain notes or other financial information that are normally required by United States generally accepted accounting principles (“US GAAP”) can be condensed or omitted. Therefore, these statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2018. Preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, then the actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Liquidity The Company’s primary and potential sources of liquidity include cash on hand, cash from operating activities, and proceeds from opportunistic sales of non-core equipment. The Company’s cash and cash equivalents as of March 31, 2019 and December 31, 2018 was $1,776 and $2,015, respectively. The Company’s plans to mitigate its limited liquidity include: closely monitoring capital expenditures planned for the remainder of 2019 and beyond to conserve capital; possibly selling certain non-core equipment; further reducing administrative costs; and pursuing a line of credit to further supplement our operating requirements. The Company’s operations are influenced by a number of factors that are beyond its control, including general conditions of the offshore energy sector, oil and gas operators’ willingness to spend development capital, and other factors that could adversely affect the Company’s financial position, results of operations and liquidity. Principles of Consolidation The unaudited condensed consolidated financial statements presented herein include the accounts of Deep Down, Inc. and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated. Segments For the three months ended March 31, 2019 and 2018, we had one operating and reporting segment, Deep Down Delaware. Recently Issued Accounting Standards Not Yet Adopted In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as modified by subsequently issued ASU No. 2018-19. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss ("CECL") model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires estimating all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. These ASUs affect an entity to varying degrees depending on the credit quality for the assets held by the entity, their duration and how the entity applies current US GAAP. These ASUs will become effective for us beginning January 1, 2020. We are currently evaluating the impact the adoption of this guidance will have on our financial statements and related disclosures. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which modifies the disclosure requirements of fair value measurements. ASU 2018-13 is effective for us beginning January 1, 2020. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. We are currently evaluating the impact the adoption of this guidance will have on our financial statement disclosures. All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated to determine if they will have a material impact on our financial position or results of operations. |
2. LEASES_ ADOPTION OF ASC 842,
2. LEASES: ADOPTION OF ASC 842, LEASES | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
LEASES: ADOPTION OF ASC 842, LEASES | NOTE 2: LEASES: ADOPTION OF ASC 842, “LEASES” In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in US GAAP and requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing arrangements. We adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. Financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. There were no adjustments to opening retained earnings on adoption. The Company leases certain properties, buildings and equipment under various arrangements that provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases, which expire at various dates through 2023. The new standard provides a number of optional practical expedients for transition. We elected the package of practical expedients under the transition guidance which permitted us not to reassess under the new standard our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under Topic 842. We also elected the practical expedient related to land easements, which allowed us not to reassess our current accounting treatment for existing agreements on land easements, which are not accounted for as leases. We did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. We do not separate lease and non-lease components. We therefore elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we do not recognize ROU assets or lease liabilities. Some of these agreements contain variable payment provisions that depend on an index or rate, initially measured using the index or rate at the lease commencement date, and are therefore not included in our future minimum lease payments. These variable lease agreements include usage-based payments for equipment under service contracts and other properties. Our long-term lease agreements do not contain any material restrictive covenants. Our equipment leases have remaining terms of between 1 year and 3 years, and property leases have remaining terms of between 1 year and 5 years. Some of these leases may include options to extend the leases, and some may include options to terminate the leases within 30 days. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and associated payments are excluded from future minimum lease payments. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and a portion is recorded in cost of sales, and the remainder is recorded in selling, general and administrative expenses. March 31, 2019 January 1, 2019 Assets: ROU Assets $ 5,403 $ 5,707 Liabilities: Current lease liabilities 1,236 1,215 Non-current lease liabilities 4,176 4,492 Total lease liabilities $ 5,412 $ 5,707 The components of our lease expense were as follows: Operating lease expense included in Cost of sales $ 306 Operating lease expense included in SG&A 66 Short term lease expense 65 Total lease expense $ 437 As of March 31, 2019, we do not have any finance lease assets or liabilities, nor do we have any subleases Other information related to operating leases were as follows: Operating cash flows from operating leases $ 370 Lease Term and Discount Rate: March 31, 2019 January 1, 2019 Weighted average remaining lease (years) terms on operating leases 4.1 4.5 Weighted average discount rates on operating leases 5.374% 5.374% During the first quarter, we did not have any sale/leaseback transactions. Future minimum lease payments under non cancelable operating leases were as follows March 31, 2019 2020 1,494 2021 1,489 2022 1,395 2023 1,411 2024 236 Thereafter – Total lease payments 6,025 Less: Interest (613 ) Present value of lease liabilities 5,412 |
3. REVENUES_ ADOPTION OF ASC 60
3. REVENUES: ADOPTION OF ASC 606 | 3 Months Ended |
Mar. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
REVENUES: ADOPTION OF ASC 606 | NOTE 3: REVENUES: ADOPTION OF ASC 606, “REVENUE FROM CONTRACTS WITH CUSTOMERS” On January 1, 2018, we adopted ASC Topic 606 (“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. There was no significant impact on the Company’s results of operations or financial position upon the adoption of ASC 606. We did not record any adjustments to opening retained earnings as of January 1, 2018 because the Company’s revenue recognition methodologies for both fixed price contracts (over time using cost to cost as an input measure of performance) and for service contracts (over time as services are performed) do not materially change by the adoption of the new standard. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. To determine the proper revenue recognition method for our customer contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our fixed price contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Disaggregation of Revenue The following table presents our revenues disaggregated by revenue sources of fixed price and service contracts. Sales taxes are excluded from revenues. March 31, 2019 March 31, 2018 Fixed Price Contracts $ 3,531 $ 1,843 Service Contracts 2,769 1,863 Total $ 6,300 $ 3,706 Fixed price contracts For fixed price contracts, we generally recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Additionally, in other fixed price contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit in connection with delivery of products or services that do not have an alternative use to the Company. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. We have a company-wide standard and disciplined quarterly estimate at completion process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. When estimates of total costs to be incurred exceed total estimates of revenue to be earned on a performance obligation related to fixed price contracts, a provision for the entire loss on the performance obligation is recognized in the period the loss is estimated. Service Contracts We recognize revenue for service contracts measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically, we recognize revenue as the services are provided as we have the right to invoice the customer for the services performed. Services are billed and are generally required to be paid on a monthly basis. Payment terms for services are usually 30 days from invoice receipt, but during the recent downturn in the industry, some of our customers have begun instituting new payment terms of up to 60 days from invoice receipt. Contract balances Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues are recorded on a percentage-of-completion basis but cannot be invoiced under the terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have not yet been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are not shown as complete until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer. Assets related to costs and estimated earnings in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings on uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year, thus complete collection of amounts related to these contracts may extend beyond one year, though such long-term contracts include contractual milestone billings as discussed above. At March 31, 2019 and December 31, 2018, we had no contracts whose term extended beyond one year. The following table summarizes our contract assets, which are “Costs and estimated earnings in excess of billings on uncompleted contracts” and our contract liabilities, which are “Billings in excess of costs and estimated earnings on uncompleted contracts”. March 31, 2019 December 31, 2018 Costs incurred on uncompleted contracts $ 3,033 $ 9,697 Estimated earnings on uncompleted contracts 3,474 10,787 6,507 20,484 Less: Billings to date on uncompleted contracts (6,717 ) (19,526 ) $ (210 ) $ 958 Included in the accompanying unaudited condensed consolidated balance sheets under the following captions: Contract assets $ 827 $ 1,931 Contract liabilities (1,037 ) (973 ) $ (210 ) $ 958 Remaining Performance Obligations Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential orders and also any remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be considered a contract with a customer pursuant to the requirements of ASC 606. At March 31, 2019 and December 31, 2018, all of our fixed price contracts are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. Practical Expedients and Exemptions We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Many of our services contracts are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Further, in many of our service contracts we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient in ASC 606-10-55-18, which allows us to recognize revenue in the amount for which we have the right to invoice. Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. |
4. PROPERTY, PLANT AND EQUIPMEN
4. PROPERTY, PLANT AND EQUIPMENT | 3 Months Ended |
Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY, PLANT AND EQUIPMENT | NOTE 4: PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment, net are summarized below: March 31, 2019 December 31, 2018 Range of Asset Lives Buildings and improvements $ 285 $ 285 7 - 36 years Leasehold improvements 896 908 2 - 5 years Equipment 19,016 18,640 2 - 30 years Furniture, computers and office equipment 596 1,166 2 - 8 years Construction in progress 45 158 – Total property, plant and equipment 20,838 21,157 Less: Accumulated depreciation and amortization (11,510 ) (11,466 ) Property, plant and equipment, net $ 9,328 $ 9,691 |
5. LONG-TERM DEBT
5. LONG-TERM DEBT | 3 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
LONG-TERM DEBT | NOTE 5: LONG-TERM DEBT In January 2018, we financed a new Company vehicle. The financed amount was $67 and is for a term of six years with an interest rate of 0.9%, with monthly payments of $1. The financing company will hold a lien on the vehicle until all payments have been made. |
6. SHARE-BASED COMPENSATION
6. SHARE-BASED COMPENSATION | 3 Months Ended |
Mar. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
SHARE-BASED COMPENSATION | NOTE 6: SHARE-BASED COMPENSATION On July 27, 2018, we granted 300 shares of restricted stock to our Chief Financial Officer (“CFO”). These shares have a fair value grant price of $0.79 per share, based on the closing price of our common stock on that day. These shares vest over three years in equal tranches on the anniversary date of his appointment to the role, subject to continued service as our CFO. We are amortizing the related share-based compensation of $237 over the three-year requisite service period. For the three months ended March 31, 2019 and 2018, we recognized a total of $104 and $4 respectively, of share-based compensation expense related to restricted stock awards, which is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The unamortized estimated fair value of unvested shares of restricted stock was $118 at March 31, 2019 and $222 at December 31, 2018. These costs are expected to be recognized as expense over a weighted-average period of 2.04 years. At March 31, 2019 and December 31, 2018 there were no other unvested restricted shares or options. |
7. TREASURY STOCK
7. TREASURY STOCK | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
TREASURY STOCK | NOTE 7: TREASURY STOCK On March 26, 2018, the Board of Directors authorized the repurchase of up to $1,000 of the Company’s outstanding common stock (the “Repurchase Program”). The Repurchase Program was funded from cash on hand. During the three months ended March 31, 2019, 228 shares of our outstanding common stock were purchased under the Repurchase Program. The Repurchase Program expired on March 31, 2019. |
8. INCOME TAXES
8. INCOME TAXES | 3 Months Ended |
Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 8: INCOME TAXES Income tax expense during interim periods is based on applying the estimated annual effective income tax rate to interim period operations. The estimated annual effective income tax rate may vary from the statutory rate due to the impact of permanent items relative to our pre-tax income, as well as by any valuation allowance recorded. We employ an asset and liability approach that results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial basis and the tax basis of those assets and liabilities. A valuation allowance is established when it is more likely than not that some of the deferred tax assets will not be realized. At March 31, 2019 and December 31, 2018 management has recorded a full deferred tax asset valuation allowance. |
9. COMMITMENTS AND CONTINGENCIE
9. COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 9: COMMITMENTS AND CONTINGENCIES From time to time we are involved in legal proceedings arising from the normal course of business. We expense or accrue legal costs as we incur them. A summary of our material legal proceedings is as follows: On August 6, 2018, GE Oil and Gas UK Ltd (“GE”) requested that the Company mediate a dispute between the parties in the ICC International Centre for ADR. The dispute involves alleged delays and defects in products manufactured by the Company for GE dating back to 2013. Mediation took place on November 28, 2018, but no resolution was reached. The total amount in dispute was originally $2,630, but as of GE’s latest filing with the ICC, the amount in dispute has been reduced to $2,252. The parties are in the process of filing preliminary submissions, and the arbitration date has not yet been set. The Company disputes GE’s allegations and intends to vigorously defend itself against these allegations. At this point in the legal process, we do not believe a loss to us is probable, therefore we have not recorded a liability related to this matter. In November 2011, the Company delivered equipment to Aker Solutions, Inc. (“Aker”), but Aker declined to pay the final invoice in the aggregate amount of $270 alleging some warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly attempted to collect on the receivable, and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently filed a counter-claim on March 20, 2013 in the aggregate amount of $1,000, for reimbursement of insurance payments allegedly made for repairs. Trial is scheduled for July 2019. At this point in the legal process, we do not believe a loss to us is probable, therefore we have not recorded a liability related to this matter. |
10. EARNINGS PER COMMON SHARE
10. EARNINGS PER COMMON SHARE | 3 Months Ended |
Mar. 31, 2019 | |
Net income (loss) per share: | |
EARNINGS PER COMMON SHARE | NOTE 10: EARNINGS PER COMMON SHARE Basic earnings per share (“EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive common stock equivalents (warrants, nonvested stock awards and stock options) outstanding during the period. Diluted EPS reflects the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock and all nonvested stock awards vest. At March 31, 2019 and 2018, there were no potentially dilutive securities outstanding. |
1. BASIS OF PRESENTATION (Polic
1. BASIS OF PRESENTATION (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Deep Down, Inc. and its wholly-owned subsidiary (“Deep Down,” “we,” “us” or the “Company”) were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the “Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those rules, certain notes or other financial information that are normally required by United States generally accepted accounting principles (“US GAAP”) can be condensed or omitted. Therefore, these statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2018. Preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, then the actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. |
Liquidity | Liquidity The Company’s primary and potential sources of liquidity include cash on hand, cash from operating activities, and proceeds from opportunistic sales of non-core equipment. The Company’s cash and cash equivalents as of March 31, 2019 and December 31, 2018 was $1,776 and $2,015, respectively. The Company’s plans to mitigate its limited liquidity include: closely monitoring capital expenditures planned for the remainder of 2019 and beyond to conserve capital; possibly selling certain non-core equipment; further reducing administrative costs; and pursuing a line of credit to further supplement our operating requirements. The Company’s operations are influenced by a number of factors that are beyond its control, including general conditions of the offshore energy sector, oil and gas operators’ willingness to spend development capital, and other factors that could adversely affect the Company’s financial position, results of operations and liquidity. |
Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements presented herein include the accounts of Deep Down, Inc. and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated. |
Segments | Segments For the three months ended March 31, 2019 and 2018, we had one operating and reporting segment, Deep Down Delaware. |
Recently Issued Adopted Accounting Standards:Not Yet Adopted | Recently Issued Accounting Standards Not Yet Adopted In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as modified by subsequently issued ASU No. 2018-19. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss ("CECL") model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires estimating all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. These ASUs affect an entity to varying degrees depending on the credit quality for the assets held by the entity, their duration and how the entity applies current US GAAP. These ASUs will become effective for us beginning January 1, 2020. We are currently evaluating the impact the adoption of this guidance will have on our financial statements and related disclosures. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which modifies the disclosure requirements of fair value measurements. ASU 2018-13 is effective for us beginning January 1, 2020. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. We are currently evaluating the impact the adoption of this guidance will have on our financial statement disclosures. All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated to determine if they will have a material impact on our financial position or results of operations. |
2. LEASES_ ADOPTION OF ASC 84_2
2. LEASES: ADOPTION OF ASC 842, LEASES (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Operating lease right to use | March 31, 2019 January 1, 2019 Assets: ROU Assets $ 5,403 $ 5,707 Liabilities: Current lease liabilities 1,236 1,215 Non-current lease liabilities 4,176 4,492 Total lease liabilities $ 5,412 $ 5,707 |
Components of lease expense | Operating lease expense included in Cost of sales $ 306 Operating lease expense included in SG&A 66 Short term lease expense 65 Total lease expense $ 437 |
3. REVENUES_ ADOPTION OF ASC _2
3. REVENUES: ADOPTION OF ASC 606 (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of Revenue - Contract Revenue | March 31, 2019 March 31, 2018 Fixed Price Contracts $ 3,531 $ 1,843 Service Contracts 2,769 1,863 Total $ 6,300 $ 3,706 |
Schedule of earnings in excess of billings on uncompleted contracts | March 31, 2019 December 31, 2018 Costs incurred on uncompleted contracts $ 3,033 $ 9,697 Estimated earnings on uncompleted contracts 3,474 10,787 6,507 20,484 Less: Billings to date on uncompleted contracts (6,717 ) (19,526 ) $ (210 ) $ 958 Included in the accompanying unaudited condensed consolidated balance sheets under the following captions: Contract assets $ 827 $ 1,931 Contract liabilities (1,037 ) (973 ) $ (210 ) $ 958 |
4. PROPERTY, PLANT AND EQUIPM_2
4. PROPERTY, PLANT AND EQUIPMENT (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property, plant and equipment | March 31, 2019 December 31, 2018 Range of Asset Lives Buildings and improvements $ 285 $ 285 7 - 36 years Leasehold improvements 896 908 2 - 5 years Equipment 19,016 18,640 2 - 30 years Furniture, computers and office equipment 596 1,166 2 - 8 years Construction in progress 45 158 – Total property, plant and equipment 20,838 21,157 Less: Accumulated depreciation and amortization (11,510 ) (11,466 ) Property, plant and equipment, net $ 9,328 $ 9,691 |
1. BASIS OF PRESENTATION (Detai
1. BASIS OF PRESENTATION (Details Narrative) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019USD ($)Integer | Dec. 31, 2018USD ($) | |
Accounting Policies [Abstract] | ||
Cash and Cash Equivalents | $ | $ 1,776 | $ 2,015 |
Operating segments | Integer | 1 |
2. LEASES_ ADOPTION OF ASC 84_3
2. LEASES: ADOPTION OF ASC 842, LEASES (Details - Operating lease info) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2019 | Jan. 02, 2019 | Dec. 31, 2018 | |
Right of use asset | $ 5,403 | $ 5,707 | $ 0 |
Current lease liabilities | 1,236 | 1,215 | 0 |
Non-current lease liabilities | 4,176 | 4,492 | $ 0 |
Total lease liabilities | 5,412 | $ 5,707 | |
Components of lease expense | |||
Short term lease expense | 65 | ||
Total lease expense | 437 | ||
Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ 370 | ||
Right of use assets obtained in exchange for new operating liabilities | |||
Weighted average remaining lease (years) terms on operating leases | 4 years 1 month 6 days | 4 years 6 months | |
Weighted average discount rates on operating leases | 5.374% | 5.374% | |
Cost of Sales [Member] | |||
Components of lease expense | |||
Operating lease expense | $ 306 | ||
Selling, General and Administrative Expenses [Member] | |||
Components of lease expense | |||
Operating lease expense | $ 66 |
2. LEASES_ ADOPTION OF ASC 84_4
2. LEASES: ADOPTION OF ASC 842, LEASES (Details - Minimum lease payments) $ in Thousands | Mar. 31, 2019USD ($) |
Leases [Abstract] | |
Future minimum lease payment 2019 | $ 1,494 |
Future minimum lease payment 2020 | 1,489 |
Future minimum lease payment 2021 | 1,395 |
Future minimum lease payment 2022 | 1,411 |
Future minimum lease payment 2023 | 236 |
Future minimum lease payment 2024 and subsequent years | 0 |
Total lease payments | 6,025 |
Less: interest | (613) |
Present value of lease liabilities | $ 5,412 |
3. REVENUES_ ADOPTION OF ASC _3
3. REVENUES: ADOPTION OF ASC 606 (Details - Disaggregation of Revenue) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenues | $ 6,300 | $ 3,706 |
Fixed-price Contract [Member] | ||
Revenues | 3,531 | 1,843 |
Service Contracts [Member] | ||
Revenues | $ 2,769 | $ 1,863 |
3. REVENUES_ ADOPTION OF ASC _4
3. REVENUES: ADOPTION OF ASC 606 (Details - Contract balances) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Billings In Excess Of Costs And Estimated Earnings On Uncompleted Contracts And Deferred Revenues | ||
Costs incurred on uncompleted contracts | $ 3,033 | $ 9,697 |
Estimated earnings on uncompleted contracts | 3,474 | 10,787 |
Total costs and estimated earnings on uncompleted contracts | 6,507 | 20,484 |
Less: Billings to date on uncompleted contracts | (6,717) | (19,526) |
Costs incurred and estimated earnings less billings on uncompleted contracts | (210) | 958 |
Included in the accompanying condensed consolidated balance sheets under the following captions: | ||
Contract Assets | 827 | 1,931 |
Contract Liabilities | (1,037) | (973) |
Contract assets less contract liabilities | $ (210) | $ 958 |
4. PROPERTY, PLANT AND EQUIPM_3
4. PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | |
Total property, plant and equipment | $ 20,838 | $ 21,157 |
Less: Accumulated depreciation and amortization | (11,510) | (11,466) |
Property, plant and equipment,net | 9,328 | 9,691 |
Buildings and improvements | ||
Total property, plant and equipment | $ 285 | 285 |
Range of Asset lives | 7-36 years | |
Leasehold Improvements | ||
Total property, plant and equipment | $ 896 | 908 |
Range of Asset lives | 2-5 years | |
Equipment | ||
Total property, plant and equipment | $ 19,016 | 18,640 |
Range of Asset lives | 2-30 years | |
Furniture, computers and office equipment | ||
Total property, plant and equipment | $ 596 | 1,166 |
Range of Asset lives | 2-8 years | |
Construction in Progress | ||
Total property, plant and equipment | $ 45 | $ 158 |
5. LONG-TERM DEBT (Details Narr
5. LONG-TERM DEBT (Details Narrative) - Vehicle [Member] $ in Thousands | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Debt face amount | $ 67 |
Debt term | 6 years |
Debt stated interest rate | 0.90% |
Debt period payment | $ 1 |
Debt periodic payment frequency | monthly |
6. SHARE-BASED COMPENSATION (De
6. SHARE-BASED COMPENSATION (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 7 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | Jul. 27, 2018 | |
Share-based compensation | $ 104 | $ 4 | |
Unamortized estimated fair value of non-vested stock options | $ 118 | ||
Weighted average period of unamortized fair value | 2 years 15 days | ||
CFO [Member] | Restricted Stock [Member] | |||
Stock grants during period, shares | 300 | ||
Fair value grant price | $ 0.79 | ||
Share vesting term | 3 years | ||
Stock grants during period, value | $ 237 |
7. TREASURY STOCK (Details Narr
7. TREASURY STOCK (Details Narrative) $ in Thousands | 3 Months Ended |
Mar. 31, 2019USD ($)shares | |
Equity [Abstract] | |
Stock repurchase program, amount authorized | $ | $ 1,000 |
Stock repurchase program, expiration date | Mar. 31, 2019 |
Stock repurchases | shares | 0 |
10. EARNINGS PER COMMON SHARE (
10. EARNINGS PER COMMON SHARE (Details Narrative) - shares | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Net income (loss) per share: | ||
Potentially dilutive securities | 0 | 0 |