UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON
D.C. 20549
  FORM
10-Q/A
 (Amendment No. 1)
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended March 31, 2008
  OR
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 Commission
File No. 0-30351
  DEEP
DOWN, INC.
 (Exact
name of registrant as specified in its charter)
  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)
  Registrant’s
telephone number, including area code: (281) 862-2201
 
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.  Yes  xNo   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
  Large accelerated
      filer    ̈
              Accelerated
      filer    ̈Non-accelerated
      filer  ̈ (Do
      not check is smaller reporting company)
              Smaller reporting
      company  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes  ̈No  x
  At
May 14, 2008, there were 115,846,019 shares of common stock
outstanding.
  
 Explanatory Note
 
 This Quarterly Report on Form 10-Q/A is filed as an
amendment to the Quarterly Report on Form 10-Q filed by Deep Down, Inc. (the
“Company”) on May 16, 2008 (the “Original 10-Q”). The Company is amending Item
4T (Controls and Procedures) to make a typographical adjustment relating to the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)).
 
 Except as presented in this Amendment and except for
Exhibits 31.1, 31.2, 32.1 and 32.2, this Form 10-Q/A does not reflect events
occurring after the filing of the Form 10-Q or modify or update those
disclosures.
 IMPORTANT
INFORMATION REGARDING THIS FORM 10-Q
 
 Unless
otherwise indicated, references to “we,” “us,” and “our” in this Quarterly
Report on Form 10-Q refer collectively to Deep Down, Inc. and its wholly-owned
subsidiaries.
 
 Deep
Down, Inc., a Nevada corporation, (“Deep Down Nevada” or “Deep Down” or the
“Company”) is the parent company to its wholly-owned subsidiaries: Deep Down,
Inc., a Delaware corporation (“Deep Down Delaware”), ElectroWave USA, Inc., a
Nevada corporation (“ElectroWave”), and Mako Technologies, LLC (“Mako”), a
Nevada limited liability company.
 
 Readers
should consider the following information as they review this Quarterly Report
on Form 10-Q:
 
 Forward-Looking
Statements
 
 The
statements contained or incorporated by reference in this Quarterly Report on
Form 10-Q that are not historical facts are “forward-looking statements” (as
such term is defined in the Private Securities Litigation Reform Act of 1995),
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  All statements other than statements of historical fact are,
or may be deemed to be, forward-looking statements.  Forward-looking
statements include any statement that may project, indicate or imply future
results, events, performance or achievements.  The forward-looking
statements contained herein are based on current expectations that involve a
number of risks and uncertainties. These statements can be identified by the use
of forward-looking terminology such as “believes,” “expect,” “may,” “will,”
“should,” “intend,” “plan,” “could,” “estimate” or “anticipate” or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties.
 
 Given the
risks and uncertainties relating to forward-looking statements, investors should
not place undue reliance on such statements.  Forward-looking
statements included in this Quarterly Report on Form 10-Q speak only as of the
date of this Quarterly Report on Form 10-Q and are not guarantees of future
performance.  Although we believe that the expectations reflected in
the forward-looking statements are reasonable, such expectations may prove to
have been incorrect.  All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by these cautionary statements.
 
 Subsequent
Events
 
 All
statements contained in this Quarterly Report on Form 10-Q, including the
forward-looking statements discussed above, are made as of May 14, 2008, unless
those statements are expressly made as of another date.  We disclaim
any responsibility for the accuracy of any information contained in this
Quarterly Report on Form 10-Q to the extent such information is affected or
impacted by events, circumstances or developments occurring after May 14, 2008
or by the passage of time after such date.  Except to the extent
required by applicable securities laws, we expressly disclaim any obligation or
undertakings to release publicly any updates or revisions to any statement or
information contained in this Quarterly Report on Form 10-Q, including the
forward-looking statements discussed above, to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement or information is based.
 
 Document
Summaries
 
 Descriptions
of documents and agreements contained in this Quarterly Report on Form 10-Q are
provided in summary form only, and such summaries are qualified in their
entirety by reference to the actual documents and agreements filed as exhibits
to our 2007 Annual Report on Form 10-KSB/A (Amendment No. 1), other periodic
reports we file with the Securities and Exchange Commission (“SEC”) or this Form
10-Q.
 
 Access
to Filings
 
 Access to
our Annual Reports on Form 10-KSB, Quarterly Reports on Forms 10-Q or Form
10-QSB and Current Reports on Form 8-K, and amendments to those reports, filed
with or furnished to the SEC pursuant to Section 13(a) of the Exchange Act, as
well as reports filed electronically pursuant to Section 16(a) of the Exchange
Act, may be obtained through our website (http://www.deepdowninc.com).  Our
website provides a hyperlink to a third-party website where these reports may be
viewed and printed at no cost as soon as reasonably practicable after we have
electronically filed such material with the SEC.  The contents of our
website are not, and shall not be deemed to be, incorporated into this
report.
 
 
  TABLE
OF CONTENTS
  PART
I FINANCIAL INFORMATION
   Page
      No.Item
      1.
              Financial
      StatementsConsolidated
      Balance Sheets - March 31, 2008 (Unaudited) and December 31,
      2007
              2Unaudited
      Consolidated Statements of Operations-Three Months Ended March 31, 2008
      and 2007
              3Unaudited
      Consolidated Statements of Cash Flows-Three Months Ended March 31, 2008
      and 2007
              4Notes
      to Unaudited Consolidated Financial Statements
              5Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              12Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risks
              13Item
      4T.
              Controls
      and Procedures
              13PART
      II OTHER INFORMATIONItem
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              13Item
      5.
              Other
      Information
              14Item
      6.
              Exhibits
              14Signatures
              
              15Exhibit
      Index
              16
 
 
   PART
I. FINANCIAL INFORMATION
 ITEM
1.  FINANCIAL STATEMENTS
  DEEP
DOWN, INC.
 CONSOLIDATED
BALANCE SHEETS
 (Unaudited)
  March
      31,
                2008
              
              
              December
      31,
                2007ASSETSCash
      and equivalents
              
              $
              3,115,818
              
              
              $
              2,206,220Restricted
      cash
              
              
              562,500
              
              
              
              375,000Accounts
      receivable, net of allowance of $141,736 and $139,787
      respectively
              
              
              7,469,386
              
              
              
              7,190,466Prepaid
      expenses and other current assets
              
              
              418,984
              
              
              
              312,058Inventory
              
              
              502,253
              
              
              
              502,253Lease
      receivable, short-term
              
              
              414,000
              
              
              
              414,000Work
      in progress
              
              
              1,106,891
              
              
              
              945,612Receivable
      from Prospect, net
              
              
              -
              
              
              
              2,687,333Total
      current assets
              
              
              13,589,832
              
              
              
              14,632,942Property
      and equipment, net
              
              
              5,058,557
              
              
              
              5,172,804Other
      assets, net of accumulated amortization of $111,854 and $54,560
      respectively
              
              
              1,052,550
              
              
              
              1,109,152Lease
      receivable, long-term
              
              
              69,500
              
              
              
              173,000Intangibles,
      net
              
              
              4,284,588
              
              
              
              4,369,647Goodwill
              
              
              10,660,669
              
              
              
              10,594,144Total
      assets
              
              $
              34,715,696
              
              
              $
              36,051,689LIABILITIES
      AND STOCKHOLDERS' EQUITYAccounts
      payable and accrued liabilities
              
              $
              2,966,215
              
              
              $
              3,569,826Deferred
      revenue
              
              
              135,000
              
              
              
              188,030Payable
      to Mako shareholders
              
              
              1,243,571
              
              
              
              3,205,667Current
      portion of long-term debt
              
              
              330,399
              
              
              
              995,177Total
      current liabilities
              
              
              4,675,185
              
              
              
              7,958,700Long-term
      debt, net of accumulated discount of $1,585,088 and $1,703,258
      respectively
              
              
              11,054,959
              
              
              
              10,698,818Series
      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
              
              
              -
              
              
              
              386,411Total
      liabilities
              
              
              15,730,144
              
              
              
              19,043,929Temporary
      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
              
              
              -
              
              
              
              4,419,244Total
      temporary equity
              
              
              -
              
              
              
              4,419,244Stockholders'
      equity:Common
      stock, $0.001 par value, 490,000,000 shares authorized,
      115,846,019and
      85,976,526 shares issued and outstanding, respectively
              
              
              115,846
              
              
              
              85,977Paid-in
      capital
              
              
              21,306,461
              
              
              
              14,849,847Accumulated
      deficit
              
              
              (2,436,755
              )
              
              
              (2,347,308
              )Total
      stockholders' equity
              
              
              18,985,552
              
              
              
              12,588,516Total liabilities and stockholders' equity
              
              $
              34,715,696
              
              
              $
              36,051,689See
      accompanying notes to unaudited consolidated financial
      statements.




2
 
 DEEP
DOWN, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 Three
      Months EndedMarch
      31,2008
              
              
              2007Revenues:Contract
      revenue
              
              $
              5,337,529
              
              
              $
              1,602,281Rental
      revenue
              
              
              941,936
              
              
              
              496,113Total
      revenues
              
              
              6,279,465
              
              
              
              2,098,394Cost
      of sales
              
              
              3,876,371
              
              
              
              1,252,089Gross
      Profit
              
              
              2,403,094
              
              
              
              846,305Operating
      expenses:Selling,
      general & administrative
              
              
              1,762,247
              
              
              
              659,651Depreciation
      and amortization
              
              
              298,149
              
              
              
              64,025Total
      operating expenses
              
              
              2,060,396
              
              
              
              723,676Operating
      income
              
              
              342,698
              
              
              
              122,629Other
      income (expense):Gain
      on sale of assets
              
              
              28,355
              
              
              
              -Interest
      income
              
              
              39,164
              
              
              
              -Interest
      expense
              
              
              (769,030
              )
              
              
              (231,887
              )Total
      other expense
              
              
              (701,511
              )
              
              
              (231,887
              )Loss
      before income taxes
              
              
              (358,813
              )
              
              
              (109,258
              )Income
      tax benefit
              
              
              269,366
              
              
              
              -Net
      loss
              
              $
              (89,477
              )
              
              $
              (109,258
              )Earnings
      per share:Basic
      and diluted
              
              $
              (0.00
              )
              
              $
              (0.00
              )Weighted-average
      common shares outstanding
              
              
              87,185,242
              
              
              
              81,036,838




See accompanying notes to
unaudited consolidated financial statements. 
 3
  DEEP
DOWN, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOW
 (Unaudited)
  Three
      Months EndedMarch
      31,2008
                    
                    
                    2007Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (89,447
                    )
                    
                    $
                    (109,258
                    )Adjustments
      to reconcile net income to net cashused
      in operating activities:Amortization
      of debt discount
                    
                    
                    231,760
                    
                    
                    
                    179,587Amortization
      of deferred financing costs
                    
                    
                    56,915
                    
                    
                    
                    -Share-based
      compensation
                    
                    
                    105,162
                    
                    
                    
                    -Allowance
      for doubtful accounts
                    
                    
                    3,949
                    
                    
                    
                    -Depreciation
      and amortization
                    
                    
                    298,150
                    
                    
                    
                    64,025Gain
      on disposal of equipment
                    
                    
                    58,115
                    
                    
                    
                    -Changes
      in assets and liabilities:Accounts
      receivable
                    
                    
                    (282,869
                    )
                    
                    
                    (181,220
                    )Prepaid
      expenses and other current assets
                    
                    
                    (107,239
                    )
                    
                    
                    15,111Finished
      goods
                    
                    
                    -
                    
                    
                    
                    (355,568
                    )Construction
      in progress
                    
                    
                    (161,279
                    )
                    
                    
                    64,170Accounts
      payable and accrued liabilities
                    
                    
                    (603,631
                    )
                    
                    
                    395,236Deferred
      revenue
                    
                    
                    (53,030
                    )
                    
                    
                    72,000Net
      cash provided by (used in) operating activities
                    
                    
                    (543,444
                    )
                    
                    
                    144,083Cash
      flows from investing activities:Cash
      paid for final acquisition costs
                    
                    
                    (66,525
                    )
                    
                    
                    -Cash
      paid for third party debt
                    
                    
                    -
                    
                    
                    
                    (366,134
                    )Cash
      received from sale of ElectroWave receivables
                    
                    
                    -
                    
                    
                    
                    261,068Purchases
      of equipment
                    
                    
                    (156,958
                    )
                    
                    
                    (290,373
                    )Restricted
      cash
                    
                    
                    (187,500
                    )
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (410,983
                    )
                    
                    
                    (395,439
                    )Cash
      flows from financing activities:Payment
      for cancellation of common stock
                    
                    
                    -
                    
                    
                    
                    (250,000
                    )Redemption
      of preferred stock
                    
                    
                    -
                    
                    
                    
                    (250,000
                    )Proceeds
      from sale of common stock, net of expenses
                    
                    
                    -
                    
                    
                    
                    950,000Proceeds
      from sales-type lease
                    
                    
                    103,500
                    
                    
                    
                    -Proceeds
      from Prospect Capital
                    
                    
                    2,687,333
                    
                    
                    
                    -Payments
      of long-term debt
                    
                    
                    (926,808
                    )
                    
                    
                    (113,129
                    )Net
      cash provided by financing activities
                    
                    
                    1,864,025
                    
                    
                    
                    336,871Change
      in cash and equivalents
                    
                    
                    909,598
                    
                    
                    
                    85,515Cash
      and equivalents, beginning of period
                    
                    
                    2,206,220
                    
                    
                    
                    12,462Cash
      and equivalents, end of period
                    
                    $
                    3,115,818
                    
                    
                    $
                    97,977Supplemental
      schedule of noncash investingand
      financing activities:Fixed
      assets purchased with capital lease
                    
                    $
                    -
                    
                    
                    $
                    525,000Exchange
      of preferred stock
                    
                    $
                    4,419,244
                    
                    
                    $
                    3,366,778Redemption
      of preferred stock for debt
                    
                    $
                    500,000
                    
                    
                    $
                    -Common
      Shares issued as restricted stock
                    
                    $
                    1,200
                    
                    
                    $
                    -Stock
      issued for payment of shareholder debt
                    
                    $
                    1,962,078
                    
                    
                    $
                    -Supplemental
      Disclosures:Cash
      paid for interest
                    
                    $
                    480,356
                    
                    
                    $
                    52,301Cash
      paid for taxes
                    
                    $
                    275,000
                    
                    
                    $
                    -See
      accompanying notes to unaudited consolidated financial
      statements.
 4
 
 DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature
of Business
 
 Deep
Down, Inc., a Nevada corporation, (“Deep Down Nevada” or “Deep Down” or the
“Company”) is the parent company to its wholly-owned subsidiaries: Deep Down,
Inc., a Delaware corporation (“Deep Down Delaware”), ElectroWave USA, Inc., a
Nevada corporation (“ElectroWave”), and Mako Technologies, LLC (“Mako”), a
Nevada limited liability company.
  Deep Down
Delaware provides installation management, engineering services, support
services and storage management services for the subsea controls, umbilicals and
offshore pipeline industries. Deep Down Delaware also fabricates component
parts for subsea distribution systems and assemblies.
 
 ElectroWave
offers products and services in the fields of electronic monitoring and control
systems for the energy, military, and commercial business sectors.
 
 Mako
serves the growing offshore petroleum and marine industries with technical
support services, and products vital to offshore petroleum production, through
rentals of its remotely operated vehicles (“ROV”) , topside and subsea
equipment, and diving support systems used in diving operations, maintenance and
repair operations, offshore construction, and environmental/marine
surveys.
  Basis
of Presentation
 
 The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X relating to smaller reporting companies.  Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles (“GAAP”) for complete financial statements.  In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.  Operating results for the three-month period ended March
31, 2008 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2008.
 
 The
balance sheet at December 31, 2007 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements.
 
 For
further information, refer to the consolidated financial statements and
footnotes thereto included in our Annual Report on Form 10-KSB/A (Amendment No.
1) for the year ended December 31, 2007 filed on May 1, 2008.
 
 Principles
of Consolidation
 
 The
unaudited consolidated financial statements include the accounts of Deep Down’s
wholly-owned subsidiaries after the elimination of significant intercompany
accounts and transactions.
  NOTE
2: ACCOUNTS RECEIVABLE
 
 Accounts
receivable includes an allowance for uncollectible accounts of $141,736 and
$139,787 as of March 31, 2008 and December 31, 2007, respectively. Bad debt
expense totaled $3,949 and $1,852 for the three months ended March 31, 2008
and March 31, 2007, respectively.
  5
  DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE
3: PROPERTY AND EQUIPMENT
 
 Property
and equipment include the following:
  March
      31, 2008
                
                
                December
      31, 2007Building
                
                $
                231,055
                
                
                $
                195,305Furniture
      and fixtures
                
                
                63,777
                
                
                
                63,777Vehicles
      and trailers
                
                
                112,162
                
                
                
                112,162Leasehold
      improvements
                
                
                113,614
                
                
                
                75,149Equipment
                
                
                2,021,054
                
                
                
                2,004,167Rental
      Equipment
                
                
                3,144,560
                
                
                
                3,144,559Total
                
                
                5,686,222
                
                
                
                5,595,118Less:
      Accumulated depreciation
                
                
                (627,665
                )
                
                
                (422,314
                )Property
      and equipment, net
                
                $
                5,058,557
                
                
                $
                5,172,804
 
 Depreciation
expense for the three months ended March 31, 2008 and March 31, 2007 was
approximately $213,090 and $64,025,respectively.
 
 NOTE
4: LONG-TERM DEBT
 
 The
following table summarizes long-term debt:
  March
      31, 2008
                
                
                December
      31, 2007Secured
      credit agreement with Prospect Capital Corporationquarterly
      principal payments of $250,000 beginningSeptember
      30, 2008; monthly interest payments,interest
      fixed at 15.5%; balance due August 2011;secured
      by all assets
                
                $
                12,000,000
                
                
                $
                12,000,000Debt
      discount, net of amortization of $254,101 and $135,931
      respectively
                
                
                (1,585,088
                )
                
                
                (1,703,258
                )Note
      payable to a bank, payable in monthlyinstallments
      bearing interest at 8.25% per annum,maturing
      June 10, 2008, cross-collateralizedby
      Mako assets, paid January 2008.
                
                
                -
                
                
                
                289,665Note
      payable to a bank, payable in monthlyinstallments
      bearing interest at 7.85% per annum,maturing
      September 28, 2010, collateralized by Makolife
      insurance policy and equipment, paid January 2008.
                
                
                -
                
                
                
                320,027Revolving
      line-of-credit of $500,000 from a bank,matured
      October 13, 2007 or on demand, interest rate isat
      a variable rate resulting in a rate of 8.30% as ofSeptember
      30, 2007, collateralized by Mako equipment,paid
      January 2008.
                
                
                -
                
                
                
                151,705Note
      payable to a bank payable in monthlyinstallments
      bearing interest at 7.85% per annum,maturing
      January 25, 2011, collateralized by Makoequipment
      and life insurance policy, paid January 2008
                
                
                -
                
                
                
                154,647Total
      secured credit agreement and bank debt
                
                
                10,414,912
                
                
                
                11,212,7866%
      Subordinated Debenture beginning March 31, 2008; annual
                
                
                
                -interest
      payments, interest fixed at 6%; matures March 31, 2011
                
                
                500,000
                
                
                
                -Capital
      lease of equipment, monthly lease payments,interest
      imputed at 11.2%
                
                
                470,446
                
                
                
                481,209Total
      long-term debt
                
                
                11,385,358
                
                
                
                11,693,995Current
      portion of long-term debt
                
                
                (330,399
                )
                
                
                (995,177
                )Long-term
      debt, net of current portion
                
                $
                11,054,959
                
                
                $
                10,698,818
  6
  DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Secured
Credit Agreement
  On
December 21, 2007, Deep Down entered into an amendment to our Credit
Agreement (the “Amendment”) to provide the funding for the cash portion of the
purchase of Mako. The total commitment available under the Amendment was
increased from $6.5 million to $13.0 million. Quarterly principal payments
increased to $250,000 beginning September 30, 2008, with the remaining balance
outstanding due August 6, 2011.  Interest paid through March 31, 2008
was $480,356. Under the
Credit Agreement, we are required to meet certain covenants and
restrictions. We must also maintain a debt service reserve account of
$750,000.  As of March 31, 2008, $562,500 is separately classified as
“Restricted cash” on the accompanying balance sheet. At March 31, 2008,
Deep Down is notin
compliance with certain financial covenants or the requirement to have life
insurance on the CEO in the amount of $3,000,000.  Deep Down has
obtained waivers from the lender for all the covenants that are not in
compliance.
  In
connection with the second advance under the Credit Agreement on January 4,
2008, Deep Down capitalized an additional $261,941 in deferred financing
costs.  Of this amount, $216,000 was paid in cash to various third
parties related to the financing, and the remainder of $45,946 represents the
Black Scholes valuation of warrants issued to one of these third party
vendors.  The warrant was granted to purchase up to 118,812 shares of
common stock at an exercise price of $1.01 per share.  The warrant has
a five-year term and is immediately exercisable.  The fair value of
the warrant was estimated to be $45,946 based on the Black Scholes pricing
model.  The assumptions used in the model included (1) expected
volatility of 61.3%, (2) expected term of 2.5 years, (3) discount rate of 3.2%
and (4) zero expected dividends.   Provisions in the warrant
agreement allow for a cashless exercise provision, not to exceed 2% of
outstanding common stock at the time of exercise.
  The
following table summarizes interest expense for the three months ended March 31,
2008 and March 31, 2007:
  Three
      Months EndedMarch
      31,2008
                
                
                2007Interest
      Expense
                
                $
                480,356
                
                
                $
                52,300Accretion
                
                
                113,589
                
                
                
                179,587Amortization
      of debt discount
                
                
                118,171
                
                
                
                -Amortization
      of deferred financing
                
                
                56,914
                
                
                
                -$
                769,030
                
                
                $
                231,887
  Exchange
of Remaining Series E Redeemable Exchangeable Preferred Stock to 6%
Subordinated Debenture
 
 On March
31, 2008, 500 shares of the Series E Redeemable Exchangeable Preferred Stock
(“Series E”) were exchanged into a 6% Subordinated Debenture in an
outstanding principal amount of $500,000 (the “Debenture”).  The
Debenture has a fixed interest rate of 6% interest per annum to be paid annually
on March 31st through maturity on March 31, 2011. The Series E had a face
value and liquidation preference of $1,000 per share, no dividend preference,
and were exchangeable at the holder’s option into 6% Subordinated Debenture due
three years from the date of the exchange. These shares carried voting rights
equal to 690 votes per share. The Series E Preferred Stock was valued based on
the discounted value of expected future cash flows (using a discount rate of
20%).  At inception, Deep Down evaluated the Series E and has
classified as debt instruments from the date of issuance since the Series E are
exchangeable at the option of the holder thereof into Debenture.  The
difference between the face value of the Series E and the discounted book value
recorded on the balance sheet, or original issue discount, was recorded
as non-cash interest expense for the duration of the term.  Upon
exchange into the $500,000 subordinated debenture Deep Down recorded $113,589 in
interest expense for the accretion up to face value.
 
 During
the quarter ended March 31, 2008 and in accordance with the terms of the
purchase of Mako, Deep Down paid $916,044 of notes payable.
 
 
 7
 DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
5: BUSINESS COMBINATIONS
 
 Purchase
of Mako Technologies, Inc.
  Effective
December 1, 2007, Deep Down purchased 100% of the common stock of Mako
Technologies, Inc. Pursuant to the agreement and plan of merger, two
installments were paid to the Mako shareholders.  The first
installment of $2,916,667 in cash and 6,574,074 restricted shares of common
stock of Deep Down, valued at $0.76 per share, was paid on January 4,
2008.  The second installment of 2,802,969 restricted shares of common
stock of Deep Down valued at $0.70 was issued on March 28, 2008. The final
cash payment of $1,243,571 which was paid on April 11, 2008, is reflected
as “Payable to Mako shareholders” on the accompanying balance
sheets.
  The
following unaudited pro-forma combined condensed financial statements are based
on the historical financial statements of Mako and Deep Down after giving effect
to the acquisition of Mako.  The unaudited pro-forma condensed
combined statements of operations for the three months ended March 31, 2007 is
presented as if the acquisition had taken place on January 1, 2007 by combining
the historical results of Mako and Deep Down.
 
 The
unaudited pro-forma results were as follows:
 
 Deep
      Down, Inc.Unaudited
      Pro forma Statements of OperationsHistorical
                
                
                HistoricalDeep
      Down
                
                
                Mako
                
                
                
                
                
                Pro-FormaQuarter
      Ended
                
                
                Quarter
      Ended
                
                
                
                
                
                Quarter
      EndedMarch
      31,
                
                
                March
      31,
                
                
                Pro-Forma
                
                
                March
      31,2007
                
                
                2007
                
                
                Adjustments
                
                
                2007Revenues
                
                $
                2,098,394
                
                
                $
                849,929
                
                
                $
                -
                
                
                $
                2,948,323Cost
      of sales
                
                
                1,252,089
                
                
                
                561,116
                
                
                
                
                
                
                
                1,813,205Gross
      profit
                
                
                846,305
                
                
                
                288,813
                
                
                
                -
                
                
                
                1,135,118Operating
      expenses
                
                
                723,676
                
                
                
                406,933
                
                
                
                93,039
                
                (a)
                
                1,223,648Total
      other income (expense)
                
                
                (231,887
                )
                
                
                (17,974
                )
                
                
                (266,123
                )
                (b)
                
                (515,984
                )Net
      loss
                
                $
                (109,258
                )
                
                $
                (136,094
                )
                
                $
                (359,162
                )
                
                $
                (604,514
                )Earnings
      per share:Basic
      and diluted
                
                $
                -
                
                
                
                
                
                
                
                
                
                
                $
                (0.01
                )Weighted-average
      common shares outstanding
                
                
                85,976,526
                
                
                
                
                
                
                
                
                
                (c)
                
                95,353,569
 
 (a)
Amortization of the intangible assets at a rate of $28,353 per month for three
months; plus $7,980 adjustment to historical depreciation expense to adjust to
purchase accounting asset values.
 
 (b)
Represents cash interest plus amortization of deferred financing costs and debt
discounts.  Interest is payable at 15.5% on the outstanding principal,
and the related fees are amortized using the effective interest method over the
four-year life of the loan.
 
 (c) A
total of 9,377,043 shares were issued for the total transaction. These pro forma
amounts give effect as if shares were issued January 1, 2007
  NOTE
6: PREFERRED STOCK
 
 Series
D Redeemable Convertible Preferred Stock as Temporary Equity
 
 On March
28, 2008, the remaining outstanding 5,000 shares of Series D redeemable
convertible preferred stock (“Series D”) were converted into 25,866,518
restricted shares of common stock.  The Series D had a face value and
liquidation preference of $1,000 per share, no dividend preference, and were
convertible into shares of common stock determined by dividing the face amount
by a conversion price of $0.1933.  These shares carried voting rights equal
to one vote for every share of common stock into which the preferred stock is
convertible.  These shares were redeemable at their face value on an
annual basis within 120 days after each calendar year-end beginning with the
year ending December 31, 2007 based on an amount equal to 15.625% of annual net
income.  In the event that a holder declined redemption, such amounts
would have been reallocated to the other preferred stock holders that had
elected to redeem.
 
 Deep Down
evaluated the Series D preferred stock for liability or equity presentation
and determined that the Series D preferred stock were more
appropriately classified as “Temporary equity” on the accompanying balance
sheets due to the conditional redemption feature.
  8
 
 DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
  
 NOTE
7:  STOCK OPTIONS AND WARRANTS
 
 Stock
Options and Warrants
 
 Deep Down
has a stock based compensation plan - the 2003 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan (the “Plan”). The
exercise price of the options, as well as the vesting period, is established by
Deep Down’s board of directors. The options granted under the Plan have vesting
periods that range from immediate vesting to vesting over five years, and the
contract terms of the options granted are up to ten years. Under the Plan the
total number of options permitted is 15% of issued and outstanding common
shares. During the three months ended March 31, 2008, Deep Down granted
3,250,000 options and cancelled 625,000 options under the
Plan.
  The total stock
based compensation expense for the three months ended March 31, 2008 and March
31, 2007, was $105,162 and -0-, respectively.The unamortized
portion of the estimated fair value of these stock options is $ 1,203,721
at March 31, 2008. Based on the shares of common stock outstanding at March
31, 2008, there are 9,252,000 options available for grant under the Plan as of
that date.
  During
the three months ended March 31, 2008, Deep Down granted 1,200,000 shares of
restricted common stock to certain officers and employees of Deep Down. These
restricted shares vest over a period of two years. Deep Down determined the fair
market value on the date of grant to be $504,000 and is recognizing the expense
ratably over the vesting period.
  Summary
of Stock Options
 Options
      Underlying
                  Shares
                
                
                Weighted-
      Average
                  Exercise
                  Price
                
                
                Weighted-
      Average Remaining Contractual
                  Term
      (in
                  years)
                
                
                Aggregate
      Intrinsic Value (In-The-
                  Money)
                  Options)Outstanding
      at December 31, 2007
                
                
                5,500,000
                
                
                $
                0.58Grants
                
                
                3,250,000
                
                
                
                1.44Cancellations
                
                
                (625,000
                )
                
                
                0.76Outstanding
      at March 31, 2008
                
                
                8,125,000
                
                
                $
                0.91
                
                
                
                3.5
                
                
                $
                816,500Exercisable
      at March 31, 2008
                
                
                625,000
                
                
                $
                0.76
                
                
                
                4.0
                
                
                $
                72,500
  The
following table summarizes outstanding options and their respective
exercise prices at March 31, 2008:
  Exercise
                  Price
                
                Options
                  Underlying
                  Shares$
                0.30
      - 0.49
                
                
                175,000$
                0.50
      - 0.69
                
                
                4,175,000$
                0.70
      - 0.99
                
                
                425,000$
                1.00
      - 1.29
                
                
                350,000$
                1.30
      - 1.50
                
                
                3,000,0008,125,000
  The fair
value of each stock option grant is estimated on the date of the grant using the
Black-Scholes model and is based on the following key assumptions for the year
ended December 31, 2007:
 
 Dividend
      yield
                
                0%Risk
      free interest rate
                
                2.64%
      - 5.00%Expected term
      of options
                
                3 -
      4 yearsExpected
      volatility
                
                53%
      - 61%
 
 Related
to the financing of Secured Credit Agreement Amendment and second advance in
January 2008, Deep Down issued warrants to purchase up to 118,812 shares of
common stock at an exercise price of $1.01 per share to a third
party.  The warrant has a five-year term and is immediately
exercisable. The assumptions used in the Black Scholes model included (1)
expected volatility of 61.3%, (2) expected term of 2.5 years, (3) discount rate
of 3.18% and (4) zero expected dividends.
 9
   DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   
  Options
      Underlying
                  Shares
                
                
                Weighted-
      Average
                  Exercise
                  Price
                
                
                Weighted-
      Average Remaining Contractual
                  Term
      (in
                  years)
                
                
                Aggregate
      Intrinsic Value (In-The-
                  Money)
                  Options)Outstanding
      at December 31, 2007
                
                
                5,399,397
                
                
                $
                0.53Outstanding
      at March 31, 2008
                
                
                5,399,397
                
                
                
                0.53
                
                
                
                4.5
                
                
                $
                892,905Exercisable
      at March 31, 2008
                
                
                118,812
                
                
                $
                1.01
                
                
                
                4.8
                
                
                $
                -
  During
the three months ended March 31, 2008, 1,200,000 shares of restricted common
stock were granted to certain employees and officers of Deep
Down.
  The
following table summarizes outstanding warrants and their respective exercise
prices at March 31, 2008:
 Exercise
                  Price
                
                Options
                  Underlying
                  Shares$
                0.51
                
                4,960,5850.75
                
                320,000$
                1.01
                
                118,8125,399,397
  NOTE
8: COMMITMENTS AND CONTINGENCIES
 
 Litigation
 
 We are
from time to time involved in legal proceedings arising in the normal course of
business. As of the date of this Quarterly Report on Form 10-Q, there are no
pending or threatened material legal proceedings.
   NOTE
9:  RELATED PARTY TRANSACTIONS
  We paid
approximately $82,000 to JUMA, a corporation owned by Ron Smith and Mary
Budrunas for costs associated with the preparation of the additional land
recently purchased by JUMA for our operations. The costs were associated with
permitting, land clearing, other closing costs and
preparation.
  10
  DEEP
DOWN, INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 10:   RECENT
ACCOUNTING PRONOUNCMENTS
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No.
157”). SFAS No. 157 establishes a framework for measuring fair value under
generally accepted accounting procedures and expands disclosures on fair value
measurements. This statement applies under previously established valuation
pronouncements and does not require the changing of any fair value measurements,
though it may cause some valuation procedures to change. Under SFAS No. 157,
fair value is established by the price that would be received to sell the item
or the amount to be paid to transfer the liability of the asset as opposed to
the price to be paid for the asset or received to transfer the liability.
Further, it defines fair value as a market specific valuation as opposed to an
entity specific valuation, though the statement does recognize that there may be
instances when the low amount of market activity for a particular item or
liability may challenge an entity’s ability to establish a market amount. In the
instances that the item is restricted, this pronouncement states that the owner
of the asset or liability should take into consideration what affects the
restriction would have if viewed from the perspective of the buyer or assumer of
the liability. This statement is effective for all assets valued in financial
statements for fiscal years beginning after November 15, 2007. Deep Down is
currently evaluating the impact of SFAS No. 157 on its financial position and
result of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”), which provides companies with
an option to report selected financial assets and liabilities at fair
value.  SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year beginning after November 15, 2007 with early adoption
allowed.  Deep Down has not yet determined the impact, if any, that
adopting this standard might have on its financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS No. 141(R)”) and No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”).
SFAS No. 141(R) and SFAS No. 160 are products of a joint project between the
FASB and the International Accounting Standards Board.  The revised
standards continue the movement toward the greater use of fair values in
financial reporting. SFAS No. 141(R) will significantly change how business
acquisitions are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. These changes include the expensing
of acquisition related costs and restructuring costs when incurred, the
recognition of all assets, liabilities and non-controlling interests at fair
value during a step-acquisition, and the recognition of contingent consideration
as of the acquisition date if it is more likely than not to be
incurred.  SFAS No. 160 will change the accounting and reporting for
minority interests, which will be re-characterized as non-controlling interests
and classified as a component of equity.  SFAS No. 141(R) and SFAS No.
160 are effective for both public and private companies for fiscal years
beginning on or after December 15, 2008 (January 1, 2009 for companies with
calendar year-ends). SFAS No. 141(R) will be applied prospectively. SFAS No. 160
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of SFAS No. 160 shall be
applied prospectively. Early adoption is prohibited for both
standards.  Deep Down is currently evaluating the effects of these
pronouncements on its financial position and results of
operations.
 
 NOTE
11:  SUBSEQUENT EVENTS
 
 Stock
Purchase Agreement with Flotation Technologies, Inc.
 
 On April
17, 2008, we announced the execution of a Stock Purchase Agreement to purchase
all of the outstanding capital stock of Flotation Technologies,
Inc.  The total purchase price for the acquisition is expected to be
approximately $23.3 million.  Our closing of the purchase remains
subject to several conditions, including our obtaining financing for the payment
of the purchase price.
  11
  ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 The
following discussion and analysis provides information that management believes
is relevant for an assessment and understanding of our results of
operations.   This information should be read in conjunction with
our audited historical consolidated financial statements which are included in
our Form 10-KSB/A (Amendment No. 1) for the fiscal year ended December 31, 2007
filed with the Securities and Exchange Commission (“SEC”) on May 1, 2008
and our unaudited condensed consolidated financial statements and notes thereto
included with this Quarterly Report on Form 10-Q in Part I, Item 1.
  Results
of operations
  Three
months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007
 
 Revenue.  Revenue
generated in the three months ended March 31, 2008 was $6,279,465 compared to
$2,098,394 for the three months ended March 31, 2007, an increase of $4,181,071
or 199%.  Increased activity from Deep Down's offshore
subsea business, including service activity related to installation of
recoveries of subsea equipment, the delivery of launch and recovery systems,
loose tube steel flying leads, winch system refurbishments, and an active heave
compensated in-line winch system accounted
for $4,293,820 of this revenue, an increase of $2,195,426, or 105% over the same
prior year period.  The Mako and ElectroWave acquisitions accounted
for $1,985,645 of this revenue, an increase of 94% over the same prior year
period.
 
 GrossProfit.Gross margin for the three
months ended March 31, 2008 was $2,403,094 compared to $846,305 in the same
prior year period, an increase of $1,556,789 or 184%. Gross margin as a
percentage of revenue was 38% in the current period as compared to 40% in the
prior period.
 
 Selling, General and Administrative
Expenses.SG&A
for the three months ended March 31, 2008 was $1,762,247 compared to $659,651
for the same prior-year period.   The increase was primarily due
to costs related to our acquisitions of Mako and
Electrowave.  However, SG&A as a percent of net revenue was lower
for the three months ended March 31, 2008 at approximately 28% compared to 31%
for the same prior period.
 
 Interest Expense.Interest
expense for the three months ended March 31, 2008 was $769,030 compared to
$231,887 for the same prior year period.  This increase is the result
of the interest of debt related to the Credit Agreement in the three months
ended March 31, 2008 which did not exist for the same prior
period  (See below “Capital Resources and Liquidity”).
  Net loss. Net loss for the
three months ended March 31, 2008 was $89,447, compared to a net loss of
$109,258 for the same prior year period.
  EBITDA.EBITDA is
a non-GAAP financial measure. Deep Down defines EBITDA as net income plus
interest expense, income taxes, depreciation, amortization and other non-cash,
non-operating expense. Deep Down uses EBITDA as an unaudited supplemental
financial measure to assess (1) the financial performance of its assets without
regard to financing methods, capital structures, taxes or historical cost basis;
(2) its liquidity and operating performance over time in relation to other
companies that own similar assets and that the Company believes calculate EBITDA
in a similar manner; and (3) the ability of Deep Down assets to generate cash
sufficient for Deep Down to pay potential interest costs. Deep Down also
understands that such data are used by investors to assess the Company's
performance. However, the term EBITDA is not defined under generally accepted
accounting principles, and EBITDA is not a measure of operating income,
operating performance or liquidity presented in accordance with generally
accepted accounting principles. When assessing Deep Down’s operating performance
or liquidity, investors and others should not consider this data in isolation or
as a substitute for net income, cash flow from operating activities, or other
cash flow data calculated in accordance with generally accepted accounting
principles. Excluding the one-time gain and non-cash interest and stock based
compensation charges, earnings before depreciation, interest, amortization,
taxes and other non-cash charges (“EBITDA”) for the three months ended March 31,
2008 was $749,958 compared to $186,654, an increase of $563,304, or 302% over
the same prior year period.
 
 Capital
Resources and Liquidity
 
 Financing
for our operations consists primarily of cash flows attributable to our
operations. We believe that the liquidity we derive from our leasing
arrangements, our Credit Agreement and cash flows attributable to our operations
is more than sufficient to fund our capital expenditures, debt maturities and
other business needs. We continue to evaluate acquisitions and joint ventures in
the ordinary course of business. When opportunities for business acquisitions
meet our standards, we believe we will have access to capital sources necessary
to take advantage of those opportunities.
  Cash
Flow from Operations
 
 As of
March 31, 2008, our cash and cash equivalents were $3,115,818 plus restricted
cash of $562,500.  Cash and cash equivalents were $2,206,220 plus
restricted cash of $375,000 as of December 31, 2007.  Management
believes that the Company has adequate capital resources when combined with its
cash position and cash flow from operations to meet current operating
requirements.
  On April
11, 2008, the shareholders of Mako received the final cash installment of
$1,243,571 under the terms of the securities redemption and shareholder payable
agreement.
 
 For the
three months ended March 31, 2008, cash used in operating activities was
$543,444 as compared to cash provided by operating activities for the same prior
year period of 2007 of $144,083. Our working capital balances vary due to
delivery terms and payments on key contracts, work in progress, and outstanding
receivables and payables.
 
 12
 For the
three months ended March 31, 2008, cash used in investing activities was
$410,983 as compared to $395,439 for the same prior year
period.  Investing outflows were due to equipment purchases of
$156,958, acquisition costs of $66,525 and restricted cash of
$187,500.
 
 For the
three months ended March 31, 2008, cash provided by financing
activities was $1,864,025 compared to cash provided by financing activities for
the same prior year period of $336,871.  Increased financing outflows
were primarily due to long-term debt payments of $926,808 related to the Mako
acquisition.
 
 Capital
Resources and Requirements
 
 We
generate our liquidity and capital resources primarily through operations and,
when needed, through available capital markets. At March 31, 2008, long-term
debt was $11,385,358, of which $330,399 was the current portion. Long-term debt,
net of current portion, included bank loans of $10,834,513 (includes $750,000
restricted cash), capital leases of $470,446 and the Debenture of $500,000 (See
Note 6 “Preferred Stock”).
  Critical
Accounting Policies
 
 For a
discussion of our critical accounting matters, please refer to Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operation,” in our 2007 Annual Report on Form 10-KSB/A (Amendment No.1) filed on
May 1, 2008.
 
 Inflation
and Seasonality
 
 We do not
believe that our operations are significantly impacted by
inflation.  Our business is not seasonal in nature.
  ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS.
  As a
smaller reporting company, we are not required to provide the information
required by this Item.
  ITEM
4T. CONTROLS AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our
principal executive officer and principal financial officer concluded that, as
of the end of the period covered in this report, our disclosure controls and
procedures were effective to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the required time periods
and is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
 
 Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected.
 Internal
Control Over Financial Reporting.
 
 There
were no changes in Deep Down’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act)
that occurred during the quarterly period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably likely to materially
affect, Deep Down’s internal control over financial reporting.
 
 PART
II – OTHER INFORMATION
  ITEM
2. UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS
  Series
E exchanged for a Debenture
 
 The
remaining and outstanding 500 shares of the Series E were acquired by an
unrelated third party, in February 2008 from a former director of Deep
Down.  The Series E were exchanged into a Debenture as described in
Note 6 of the financial statements.
 
 13
  Series
D converted into common stock of Deep Down
 
 In
January and March 2008, the President and CEO, and his wife, a Vice President,
Corporate Secretary and Director, and a Deep Down employee converted all 5,000
of the Series D shares to 25,866,518 restricted shares of Deep Down’s common
stock, as described in Note 6 of the financial statements.  These
shares of restricted common stock are exempt from registration requirements
provided by Section 4(2) of the Securities Act and/or Regulation D promulgated
thereunder.
 Restricted
common stock of Deep Down Nevada issued to Mako shareholders
 
 The
common stock of Deep Down Nevada issued to the Mako shareholders are restricted
as described in Note 5 of the financial statements.  These shares of
restricted common stock are exempt from registration requirements provided by
Section 4(2) of the Securities Act and/or Regulation D promulgated
thereunder.
 
 ITEM
5. OTHER INFORMATION.
 
 On April
30, 2008, the Board of Directors amended the Bylaws.  The board of
directors or a committee appointed by the board of directors shall act as
nominating committee for selecting the management nominees for election as
directors. The nominating committee shall deliver written nominations to the
secretary at least twenty days prior to the date of the annual meeting. Provided
such committee makes such nominations, no nominations for directors except those
made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by stockholders are made in writing and delivered to
the secretary in accordance with the provisions of the Articles of
Incorporation.
 
 ITEM
6. EXHIBITS
 
 Exhibits
required to be attached by Item 601 of Regulation S-K are listed in the Index of
Exhibits of this Quarterly Report on Form 10-Q, which is incorporated herein by
reference.
 
 Exhibit Number
              
              Description of Exhibit2.1
              
              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. 1) 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).4.1†
              
              6%
      Subordinated Debenture of Deep Down, Inc. dated 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,
      Inc.
 
 _________________
  † Filed
or furnished herewith
 
 14
  
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 DEEP
      DOWN, INC.(Registrant)
  Signature
              
              Title
              
              Date/s/
      RONALD E. SMITH
              
              President,
      CEO and Director
              
              July
      21 , 2008Ronald
      E. Smith
              
              (Principal
      Executive Officer)/s/
      EUGENE L. BUTLER
              
              Chief
      Financial Officer
              
              July
      21 , 2008Eugene
      L. Butler
              
              (Principal
      Financial Officer)
  15
  EXHIBIT
INDEX
 
 Exhibit Number
              
              Description of Exhibit2.1
              
              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. 1) 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).4.1†
              
              6%
      Subordinated Debenture of Deep Down, Inc. dated 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.
  † Filed
or furnished herewith
  16