Nevada
|
75-2263732
|
|
(State
or other jurisdiction of incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
15473
East Freeway Channelview,Texas
|
77530
|
|
(Address
of Principal Executive Office)
|
(Zip
Code)
|
Large
accelerated filer ¨
|
Accelerated
filer
¨
|
|
Non-accelerated
filer ¨ (Do not
check is smaller reporting company)
|
Smaller
reporting company x
|
|
PART I FINANCIAL
INFORMATION
|
Page
No.
|
|
Item
1.
|
Financial
Statements
|
|
Unaudited
Consolidated Balance Sheets - June 30, 2008 and December 31,
2007
|
4
|
|
Unaudited
Consolidated Statements of Operations - For the Three and Six Months
Ended June 30, 2008 and 2007
|
5
|
|
Unaudited
Consolidated Statements of Stockholders’ Equity - For the Six Months
Ended June 30, 2008
|
6
|
|
Unaudited
Consolidated Statements of Cash Flows - For the Six Months Ended June
30, 2008 and 2007
|
7
|
|
Notes
to Unaudited Consolidated Financial Statements
|
9
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
Item
4T.
|
Controls
and Procedures
|
27
|
PART
II OTHER INFORMATION
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
29
|
Signatures
|
31
|
|
Exhibit
Index
|
32
|
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.
|
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 |
|
a)
|
Amortization
of the intangible assets at a rate of $40,789 per month for the respective
periods.
|
|
b)
|
Represents
cash interest plus amortization of deferred financing costs and debt
discounts for the Credit Agreement. Interest is payable at
15.5% on the outstanding principal, and the related fees are amortized
using the effective interest method over the four-year life of the
loan.
|
|
c)
|
A
total of 9,377,043 shares were issued for the total transaction. These pro
forma amounts give effect as if shares were issued January 1,
2007.
|
|
d)
|
Recognition
of stock based compensation from employee stock options issued in
connection with the acquisition of Flotation. Deep Down estimated $7,343
per month for the respective time
periods.
|
|
e)
|
Amortization
of the intangible assets at a rate of $68,261 per month based on the lives
in the table above.
|
|
f)
|
Represents
estimated income tax accruals for the historical income plus all pro forma
adjustments for the respective periods at Deep Down’s estimated combined
effective rate of 37%. Flotation was an S-Corp, and as such did not accrue
income taxes in its historical financial
statements.
|
|
g)
|
A
total of 58,857,143 common shares of Deep Down were issued; 57,142,857 in
connection with the Private Placement, and 1,714,286 to Flotation
shareholders. These pro forma amounts give effect as if shares were issued
January 1, 2007.
|
Risk
free interest rate
|
2.52%
- 3.18%
|
Expected
life of options
|
2 -
2.5 years
|
Expected
volatility
|
51.7%
- 61.3%
|
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 |
Exercise
Price
|
Shares
Underlying Options
|
||||
$ | 0.30 - 0.49 | 175,000 | |||
$ | 0.50 - 0.69 | 4,125,000 | |||
$ | 0.70 - 0.99 | 525,000 | |||
$ | 1.00 - 1.29 | 950,000 | |||
$ | 1.30 - 1.50 | 3,000,000 | |||
8,775,000 |
Dividend
yield
|
0%
|
Risk
free interest rate
|
2.64%
- 2.84%
|
Expected
life of options
|
3
years
|
Expected
volatility
|
53.3%
- 63.3%
|
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 |
Dividend
yield
|
0%
|
Risk
free interest rate
|
2.52%
- 3.18%
|
Expected
life of options
|
2 -
2.5 years
|
Expected
volatility
|
51.7%
- 61.3%
|
Exhibit
Number
|
Description
of Exhibit
|
2.1
(1)
|
Agreement
and Plan of Reorganization among MediQuip Holdings, Inc., Deep Down, Inc.,
and the majority shareholders of Deep Down, Inc.
|
3.1
(1)
|
Certificate
of Incorporation of MediQuip Holdings, Inc.
|
3.2
(2)
|
Certificate
of Amendment to Articles of Incorporation providing for Change of Name to
Deep Down, Inc.
|
3.3
(1)
|
By
Laws of Deep Down, Inc.
|
3.4
(1)
|
Form
of Certificate Designation of Series D Redeemable Convertible Preferred
Stock
|
3.5
(1)
|
Form
of Certificate Designation of Series E Redeemable Exchangeable Preferred
Stock
|
3.6
(1)
|
Form
of Certificate Designation of Series F Redeemable Convertible Preferred
Stock
|
3.7
(1)
|
Form
of Certificate Designation of Series G Redeemable Exchangeable Preferred
Stock
|
3.8(7)
|
Amendment
to Articles of Incorporation
|
3.9(7)
|
Amended
and Restated Bylaws
|
4.7
(3)
|
Securities
Purchase Agreement
|
4.8
(3)
|
Common
Stock Purchase Warrant (No. 4), dated June 5, 2008
|
4.9 † (6)
|
2003
Directors, Officers and Consultants Stock Option, Stock Warrant and Stock
Award Plan.
|
5.1 (6)
|
Opinion
of Sonfield & Sonfield, counsel to the Company, as to the legality of
the Common Stock being registered.
|
10.1
(3)
|
Private
Placement Memorandum
|
10.2
(6)
|
Supplement
No. 1 to Private Placement Memorandum
|
10.4*
|
Dahlman
Rose Underwriting Agreement
|
10.5
(4)
|
Stock
Purchase Agreement dated April 17, 2008, among Deep down, Inc., Flotation
Technologies, Inc. and the selling stockholders named
therein.
|
10.6
† (6)
|
Employment
Agreement with David A. Capotosto
|
10.7
† (6)
|
Employment
Agreement with Bradley M. Parro
|
10.8*
|
Amended
Lease Agreement dated May 1, 2008 between Deep Down, Inc., a Delaware
corporation, as tenant, and JUMA, L.L.C. December 31, 2007 filed on March
31, 2008).
|
DEEP
DOWN, INC.
|
(Registrant)
|
Signature
|
Title
|
Date
|
||
/s/
RONALD E. SMITH
|
President,
CEO and Director
|
August
15, 2008
|
||
Ronald
E. Smith
|
(Principal
Executive Officer)
|
|||
/s/
EUGENE L. BUTLER
|
Chief
Financial Officer
|
August
15, 2008
|
||
Eugene
L. Butler
|
(Principal
Financial Officer)
|
Exhibit
Number
|
Description
of Exhibit
|
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 Annual Report on Form 10-KSB/A
(Amendment No. 2) for the fiscal year ended December 31, 2007 filed on May
1, 2008).
|
3.1
|
Certificate
of Incorporation of MediQuip Holdings, Inc. (incorporated by reference
from Exhibit 3.1 to our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2007 filed on March 31, 2008).
|
3.2
|
Certificate
of Amendment to Articles of Incorporation providing for Change of Name to
Deep Down, Inc. (incorporated by reference from Exhibit 3.2 to our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2007 filed on
March 31, 2008).
|
3.3
|
By
Laws of Deep Down, Inc. (incorporated by reference from Exhibit 3.3 to our
Annual Report on Form 10-KSB/A (Amendment No. 1) for the fiscal year ended
December 31, 2007 filed on May 1, 2008).
|
3.4
|
Form
of Certificate of Designation of Series D Redeemable Convertible Preferred
Stock (incorporated by reference from Exhibit 3.4 to our Annual Report on
Form 10-KSB/A (Amendment No. 1) for the fiscal year ended December 31,
2007 filed on May 1, 2008).
|
3.5
|
Form
of Certificate of Designation of Series E Redeemable Exchangeable
Preferred Stock (incorporated by reference from Exhibit 3.5 to our Annual
Report on Form 10-KSB/A (Amendment No. 1) for the fiscal year ended
December 31, 2007 filed on May 1, 2008).
|
3.6
|
Form
of Certificate of Designation of Series F Redeemable Convertible Preferred
Stock (incorporated by reference from Exhibit 3.6 to our Annual Report on
Form 10-KSB/A (Amendment No. 1) for the fiscal year ended December 31,
2007 filed on May 1, 2008).
|
3.7
|
Form
of Certificate of Designation of Series G Redeemable Exchangeable
Preferred Stock (incorporated by reference from Exhibit 3.7 to our Annual
Report on Form 10-KSB/A (Amendment No. 1) for the fiscal year ended
December 31, 2007 filed on May 1, 2008).
|
3.8
|
Amendment
to Articles of Incorporation (incorporated by reference from Exhibit A to
our Preliminary Information Statement filed on June 19, 2008 and revised
and re-filed on July 21, 2008).
|
3.9
|
Amended
and Restated Bylaws (incorporated by reference from Exhibit B to our
Preliminary Information Statement filed on June 19, 2008 and revised and
re-filed on July 21, 2008).
|
4.1
|
Common
Stock Purchase Warrant (No. 4) dated June 5, 2008 (incorporated by
reference from Exhibit 4.1 to our Form 8-K/A filed on June 9,
2008).
|
4.2
|
Stock
Option, Stock Warrant and Stock Award Plan (incorporated by reference from
Exhibit 4.10 to our Registration Statement on Form S-1, filed on July 21,
2008).
|
10.1
|
Confidential
Private Placement Memorandum dated May 16, 2008 (incorporated by reference
from Exhibit 20.1 to our Form 8-K/A filed on June 9,
2008).
|
10.2
|
Supplement
No.1 to Confidential Private Placement Memorandum dated June 2, 2008
(incorporated by reference from Exhibit 4.6 to our Registration Statement
on Form S-1, filed on July 21, 2008).
|
10.3
|
Purchase
Agreement dated as of June 2, 2008 (incorporated by reference from Exhibit
10.1 to our Form 8-K/A filed on June 9, 2008).
|
10.4
|
Dahlman
Rose Underwriting Agreement dated May 6, 2008
|
10.5
|
Stock
Purchase Agreement dated April 17, 2008, among Deep down, Inc., Flotation
Technologies, Inc. and the selling stockholders named therein
(incorporated by reference to our Report on Form 8-K, filed
with the Commission on April 21, 2008)
|
10.6
†
|
Employment
Agreement with David A. Capotosto (incorporated by reference from Exhibit
4.10 to our Registration Statement on Form S-1, filed on July 21,
2008).
|
10.7
†
|
Employment
Agreement with Bradley M. Parro (incorporated by reference from Exhibit
4.10 to our Registration Statement on Form S-1, filed on July 21,
2008).
|
10.8*
|
Amended
Lease Agreement dated May 1, 2008 between Deep Down, Inc., a Delaware
corporation, as tenant, and JUMA, L.L.C. December 31, 2007 filed on March
31, 2008).
|
31.1†
|
Certification
of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934.
|
31.2†
|
Certification
of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.
|
32.1†
|
Section
1350 Certification of the President and Chief Executive Officer of Deep
Down, Inc.
|
32.2†
|
Section
1350 Certification of the Chief Financial Officer of Deep Down Down,
Inc.
|