The Company generated revenue of $2,098,394 for the three months ended March 31, 2007, with cost of sales of $1,252,089 for a gross profit of $846,305, or 40.3%.
Product and service innovations and capabilities continued during the first quarter of 2007 as illustrated by the following highlights:
-- The use of nine new Rapid Deployment Cartridges ("RDC") increased productivity for the installation of Steel Flying Leads ("SFLs") and greatly improved the ability to carry more SFLs on the deck of an installation vessel, saving valuable vessel time and reducing the number of trips to and from the dock. Deep Down can carry up to 18 SFLs within a very small footprint on the deck of a marine vessel with these RDCs. -- The new Electrical Hydraulic Loose Tube SFLs for the Gomez project have been successfully installed. This new product innovation greatly extends the typical range for delivering electronic capabilities in SFLs up to 10,000 feet and reduces the need for infield umbilicals in certain applications. -- The successful installation of umbilical bend stiffeners ("BS") on Independence HUB has established a new standard in the BS latcher design for ultra-high bending moment applications in water depths of 8,000 feet and deeper. -- The successful support of one of the Company's significant customers in the provision of fast-paced seismic equipment reinforces our ability to forge positive alliances with companies that have similar product lines. -- Deep Down's offshore remediation team was successful in unclogging an umbilical line for a customer with an immediate need. -- Fabrication of a subsea multiphase flow meter running tool, which is undergoing System Integration Testing ("SIT") and about to be shipped offshore. -- Several varieties of Subsea Hold-back clamps were delivered to an installation contractor to support their deep water efforts. -- Recovery of an Acoustic Doppler Current Profiler ("ADCP") system with our equipment for the Thunder Horse project.
The company reported sales, general, and administrative expenses of $659,651, including approximately $161,700 of expenses related to SEC reporting requirements, plus accounting fees for a three-year audit and a general analysis of the Company's historical books and records; $232,290 of payroll and employee costs for the building of company infrastructure and to support future growth; and other general expenses for rent, insurance and office costs.
The Company paid interest expenses totaling $52,300 related to its bank loans, capital leases and fees for factoring of accounts receivable. Also reported were noncash interest expense related to the accretion of the Series E and G Preferred stock totaling $179,587, which includes the immediate accretion of approximately $72,000 to accrete to face value the 250 shares of Preferred Series E stock that were redeemed during the quarter ended March 31, 2007.
The Company reported a net loss of $109,258 and earnings before interest, depreciation, amortization and taxes ("EBITDA") of $186,654. After adjusting for noncash interest expense of $179,587 associated with the E and G Preferred Stock and accounting expenses of $161,700 associated with meeting SEC reporting requirements for the first time as a public company, net income adjusted for these items would have been $232,029. Earnings before interest, depreciation, amortization and taxes ("EBITDA"), also adjusted for these items would have been $348,354.
"I am pleased to announce our financial results. The first quarter is typically our slowest quarter. Deep Down's results of operations continue to reflect strong growth," commented Ron Smith, Deep Down's chief executive officer. "We continue to build a solid foundation to stimulate organic growth and support planned industry consolidation opportunities."
Resignation of Chief Financial Officer
John Siedhoff announced today he has tendered his resignation as chief financial officer, after fulfilling his two-year commitment to assist in the turnaround of the Company since 2005. Siedhoff joined Deep Down's management team during a period of time when the Company was experiencing financial difficulties.
During the past 24 months, Siedhoff played a key role in helping the Company improve its operations and profitability. Through the implementation of financial planning and restructuring objectives, Deep Down has grown significantly with revenue increasing approximately 137% from $3.7 million in 2004 to $8.8 million in 2006. Other notable achievements during Siedhoff's tenure include Deep Down's reverse merger with MediQuip Holdings to become a publicly traded company in December 2006 and its recent acquisition of the assets of ElectroWave USA, Inc. in April 2007. ElectroWave reported revenues of $3.2 million in 2006 and is expected to make a strong contribution to the Company's operations.
"I would like to thank John Siedhoff for the development and implementation of a comprehensive financial strategy for Deep Down over the past two years. He brought new banking relationships to the Company and effectuated a comprehensive growth plan. I wish him well with his new endeavors," commented Ron Smith, Deep Down's CEO. "Robert E. Chamberlain, Jr., Deep Down's Chairman, will act as Chief Financial Officer until the position is filled by a suitable candidate."
Deep Down specializes in the provision of innovative solutions, installation management, engineering services, support services, custom fabrication and storage management services for the offshore subsea control, umbilical, and pipeline industries. The company fabricates component parts of subsea distribution systems and assemblies that specialize in the development of subsea fields and tie backs. These items include umbilicals, flow lines, distribution systems, pipeline terminations, controls, winches, and launch and retrieval systems, among others. Deep Down provides these services from the initial field conception phase, through manufacturing, site integration testing, installation, topside connections, and the final commissioning of a project. The Company's ElectroWave subsidiary offers products and services in the fields of electronic monitoring and control systems for the energy, military, and commercial business sectors. ElectroWave designs, manufactures, installs, and commissions integrated PLC and SCADA based instrumentation and control systems, including ballast control and monitoring, drilling instrumentation, vessel management systems, marine advisory systems, machinery plant control and monitoring systems, and closed circuit television systems.
The Company's strategy is to consolidate service providers to the offshore industry, as well as designers and manufacturers of subsea, surface, and offshore rig equipment used by major, independent, and foreign national oil and gas companies in deep-water exploration and production of oil and gas throughout the world.
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