NOTE 2 – CONTRACTS RECEIVABLE

On January 14, 2011, we entered into an agreement with one of our customers regarding the collection of an $11.0 million retainage balance on a completed contract. As consideration to extend payment, we agreed to receive $12.5 million, payable in twenty equal monthly installments beginning on June 30, 2011. Scheduled payments have been received through June 30, 2012 and the balance outstanding as of June 30, 2012 is $4.2 million, which is scheduled to be collected through January 2013.

The principal customers of the Company include major and large independent oil and gas companies and their contractors. Of our contracts receivable balance at June 30, 2012, $53.3 million, or 65.6%, is for three customers. In July 2012, one of these customers instructed us to slow down production of its deepwater project to an operational minimum, ensuring that the existing work is protected and available for a full scale resumption of work in the future. In connection with its instruction, this customer also requested a short term extension for the payment of its $21.7 million outstanding contracts receivable balance. At the time of this request, approximately $4.0 million of the outstanding balance was past due. We have entered into preliminary discussions with this customer regarding extending the terms of payment of the outstanding balance. The other $31.6 million of the contracts receivable balance from these three customers represent balances due on our two major deepwater projects. No specific reserves have been established related to any of these amounts owed as of June 30, 2012.