Deep Down, Inc.

In each relevant period, the net income used in the basic and dilutive EPS calculations is the same. The following table reconciles the weighted-average basic number of common shares outstanding and the weighted-average diluted number of common shares outstanding for the purpose of calculating basic and diluted EPS.

In March 2020, the energy industry encountered a significant economic disruption caused by the COVID-19 pandemic, which continues to have an impact globally. The Company acknowledges that the low oil price environment caused by the pandemic, when coupled with restricted travel to mitigate against the spread of COVID-19, triggered exploration and production companies to either significantly reduce, delay, or cancel their operating and capital spending programs. This decline in offshore drilling and production activity resulted in lower contract volumes or delays in significant contracts, which negatively impacted our earnings and cash flows. Our earnings and cash flows could also be negatively impacted by delays in payments by significant customers or delays in completion of our contracts for any reason.

Oil and gas operators, equipment providers, and services companies had to quickly adapt to overcome the challenges presented by these unprecedented times. Deep Down was no exception. Our primary focus throughout 2020 was to control our costs and our cash flows, which remains a priority moving forward. By improving our cost structure, we were able to generate a profit in the both the fourth quarter of 2020 and first quarter of 2021 despite the economic environment continuing to recover at a slow pace.

In addition to the increased ability to travel for projects, we have also seen a progressive increase in bidding activity and execution of contract awards as operators mobilize to complete previously delayed projects. In addition, the Company received an order for the rental of one of our two carousels that are suitable for large umbilical or cable projects. Certain aspects of this project have not been performed before, which further solidifies our reputation as a service provider of choice for unique offshore installation projects. We envision that the successful execution of this project will provide further opportunities to utilize our carousels in the future.

Selling, general and administrative expenses. Selling, general and administrative (“SG&A”) expenses were $1,535, or 39 percent of revenues, for the three months ended March 31, 2021 compared to $1,693, or 47 percent of revenues, for the three months ended March 31, 2020. The $158, or 9 percent, decrease in SG&A was primarily due to workforce reductions and limiting overhead spending and research and development efforts to only critical items in response to a renewed focus on the Company’s core business.