The components of our lease expense were as follows:

As of June 30, 2019, we do not have any finance lease assets or liabilities, nor do we have any subleases.

During the second quarter, we did not have any sale/leaseback transactions.

On January 1, 2018, we adopted ASC Topic 606 (“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Revenue Recognition ASC Topic 605.

There was no significant impact on the Company’s results of operations or financial position upon the adoption of ASC 606. We did not record any adjustments to opening retained earnings as of January 1, 2018 because the Company’s revenue recognition methodologies for both fixed price contracts (over time using cost to cost as an input measure of performance) and for service contracts (over time as services are incurred)performed) do not materially change by the adoption of the new standard.

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. To determine the proper revenue recognition method for our customer contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our fixed price contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue sources of fixed price and service contracts. Sales taxes are excluded from revenues.

Three Months Ended June 30, 20182019 Compared to Three Months Ended June 30, 20172018

Six Months Ended June 30, 20182019 Compared to Six Months Ended June 30, 20172018

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)

Fixed price contracts

For fixed price contracts, we generally recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Additionally, in other fixed price contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit to deliverin connection with delivery of products or services that do not have an alternative use to the Company.

Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.

Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

We have a companywidecompany-wide standard and disciplined quarterly estimate at completion (EAC) process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. When estimates of total costs to be incurred exceed total estimates of revenue to be earned on a performance obligation related to fixed price contracts, a provision for the entire loss on the performance obligation is recognized in the period the loss is estimated.

Service Contracts

We recognize revenue for service contracts measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically, we recognize revenue as the services are provided as we have the right to invoice the customer for the services performed. Services are billed and are generally required to be paid on a monthly basis. Payment terms for services are usually 30 days from invoice receipt, but during the recent downturn in the industry, some of our customers have begun instituting new payment terms of up to 60 days from invoice receipt.

Contract balances

Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues are recorded on a percentage-of-completion basis but cannot be invoiced under the terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have not yet been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are not shown as complete until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)

Assets related to costs and estimated earnings in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings on uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year, thus complete collection of amounts related to these contracts may extend beyond one year, though such long-term contracts include contractual milestone billings as discussed above. As ofAt June 30, 2019 and December 31, 2018, we had no contracts whose term extended beyond one year.

The following table summarizes our contract assets, which are “Costs and estimated earnings in excess of billings on uncompleted contracts” and our contract liabilities, which are “Billings in excess of costs and estimated earnings on uncompleted contracts”.contracts.”

The balance in contract assets at June 30, 2018 and December 31, 2017 consisted primarily of earned but unbilled revenues related to fixed-price contracts.

The balance in contract liabilities at June 30, 2018 and December 31, 2017 consisted primarily of unearned billings related to fixed-price contracts.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential orders and also any remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be considered a contract with a customer pursuant to the requirements of ASC 606.

As ofAt June 30, 2019 and December 31, 2018, all of our fixed price contracts are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.

Many of our services contracts are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)

Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Further, in many of our service contracts we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient in ASC 606-10-55-18, which allows us to recognize revenue in the amount for which we have the right to invoice.

Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The components of property, plant and equipment, net are summarized below:

In January 2018, we financed a new Company vehicle. The financed amount was $67 and is for a term of six years with an interest rate of 0.9%, with monthly payments of $1. The financing company will hold a lien on the vehicle until all payments have been made.

On May 2, 2017,July 27, 2018, we granted 30300 shares of restricted stock to an independent director.our Chief Financial Officer (“CFO”). These shares have a fair value grant price of $1.15$0.79 per share, based on the closing price of our common stock on that day. These shares vest over three years in equal tranches on the grantanniversary date anniversary,of his appointment to the role, subject to continued service onas our Board of Directors.CFO. We are amortizing the related share-based compensation of $34.50$237 over the three-year requisite service period.

On June 24, 2019, our three independent members of the Board of Directors were each granted an option to purchase 50 share of our common stock at a price of $0.75 per share. The options will vest 25% on each of the following dates: August 31, 2019, November 30, 2019, February 29, 2020 and May 31, 2020. Once vested, the options are exercisable until June 24, 2024.

Summary of Shares of Restricted Stock

For the three months ended June 30, 2019 and 2018, we recognized a total of $24 and $5 respectively, of share based compensation related to restricted stock awards. For the six months ended June 30, 20182019 and 2017,2018, we recognized a total of $10$128 and $67,$10 respectively, of share-based compensation expense related to restricted stock awards, which is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The unamortized estimated fair value of nonvestedunvested shares of restricted stock awards was $29$94 at June 30, 2019 and $222 at December 31, 2018. These costs are expected to be recognized as expense over a weighted-average period of 1.371.80 years.

Summary of Stock Options

For the three and six months ended June 30, 2019 and 2018, no share-based compensation expense related to outstanding stock option awards was recognized. The share-based compensation expense will be recognized over the vesting period and will be included in selling, general and administrative expenses in the condensed consolidated statements of operations. The estimated fair value of non-vested stock options was $66 at June 30, 2019. This cost is expected to be recognized as an expense over the period ending May 31, 2020.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts)

On March 26, 2018, the Board of Directors (the “Board”) authorized the repurchase of up to $1,000 of the Company’s outstanding common stock (the “Repurchase Program”). The Repurchase Program will bewas funded from cash on hand and cash provided by operating activities.

The timehand. During the six months ended June 30, 2019, 228 shares of our outstanding common stock were purchased under the purchases and amount of stock purchased will be determined at the discretion of management subject to market conditions, business opportunities and other appropriate factors and may include purchases through one or more broker-assisted plans and methods, including, but not limited to, open-market purchases, privately negotiated transactions and Rule 10b-18 trading plans.Repurchase Program. The Repurchase Program will expireexpired on March 31, 2019. On May 2, 2019, the Company repurchased 60 shares from Mr. Randy Warner, who resigned as a member of the Board. The shares were repurchased at the price of $0.80 per share, which was the average closing price for the ten trading days prior to the date of repurchase.

As of June 30, 2018, no stock repurchases had been made under the Repurchase Program.

Income tax expense during interim periods is based on applying the estimated annual effective income tax rate to interim period operations. The estimated annual effective income tax rate may vary from the statutory rate due to the impact of permanent items relative to our pre-tax income, as well as by any valuation allowance recorded. We employ an asset and liability approach that results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial basis and the tax basis of those assets and liabilities. A valuation allowance is established when it is more likely than not that some of the deferred tax assets will not be realized. At June 30, 20182019 and December 31, 20172018 management has recorded a full deferred tax asset valuation allowance.

Litigation

From time to time we are involved in legal proceedings arising from the normal course of business. AsWe expense or accrue legal costs as we incur them. A summary of the date of this Report, we are involved in oneour material legal proceeding. proceedings is as follows:

On August 6, 2018, GE Oil and Gas UK Ltd (“GE”) requested that the Company mediate a dispute between the parties in the ICC International Centre for ADR. The dispute involves alleged delays and defects in products manufactured by the Company for GE dating back to 2013. Mediation took place on November 28, 2018, but no resolution was reached. The original amount in dispute was $2,630, but as of GE’s latest filing with the ICC, the amount in dispute has been reduced to $2,252. The parties are in the process of filing preliminary submissions, and the arbitration is currently set for April 2020. The Company disputes GE’s allegations and intends to vigorously defend itself against these allegations. The total amount in controversy is $2,630,261.08.Atthis point in the legal process, thewe do not believe a loss to us is probable, therefore we have not recorded a liability related to this matter.

In November 2011, the Company is not probable; therefore no liability has been recordeddelivered equipment to Aker Solutions, Inc. (“Aker”), but Aker declined to pay the final invoice in the Company’s consolidated financial statements.aggregate amount of $270 alleging some warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly attempted to collect on the receivable, and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently filed a counter-claim on March 20, 2013 in the aggregate amount of $1,000, for reimbursement of insurance payments allegedly made for repairs. Trial is scheduled for November 2019. At this point in the legal process, we do not believe a loss to us is probable, therefore we have not recorded a liability related to this matter.

Operating Leases

We lease certain offices, facilities, equipment and vehicles under non-cancellable operating and capital leases expiring at various dates through 2023.

Basic earnings per share (“EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive common stock equivalents (warrants, nonvested stock awards and stock options) outstanding during the period. Diluted EPS reflects the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock and all nonvested stock awards vest.

At

For the three and six months ended June 30, 20182019 and 2017,2018 there were no potentially dilutive securities outstanding.

that were included in the computation of diluted earnings per share because either there were no stock options outstanding or their effect would be anti-dilutive.

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 and financial condition. This information should be read in conjunction with our audited historical consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2018, and our unaudited condensed consolidated financial statements, and notes thereto, included with this Quarterly Report on Form 10-Q (“Report”) in Part I. Item 1. “Financial Statements,” and is available on the SEC’s website. Dollar amounts are in thousands, except backlog amount.

General

We are an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services, serving the worldwide offshore exploration and production industry. Our services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, buoyancy products and services, remotely operated vehicles (“ROVs”) and toolings. We support subsea engineering, installation, commissioning, and maintenance projects through specialized, highly experienced service teams and engineered technological solutions.

Industry and Executive Outlook

We believe industry demandare pleased with the increase in our revenues and operating profitability for our specialized equipment and services is in the early stages of an upward trend, driven by major oil companies and independents that are starting to reinvest in new and existing projects following several years of industry challenges. This trend is susceptible to some bumps in the road as we saw in the second quarter, when work we had expected to perform in the period was pushed into the secondfirst half of 2018, resulting2019, compared to the same period in lower revenues than expected. Despite the inevitable delays, we are seeing a variety of signs that support our optimism for the future.

In particular, customers are increasingly contacting us to help them address their maintenance needs, which consists of work that had been deferred in prior periods due to budget constraints. With a clearer and more positive outlook for the industry,2018. This is despite oil and gas operators are now moving forward with routine maintenance and upgrade projects thatcontinuing to focus on reduced project execution costs. While we expect will drive increased demand for our solutions. Additionally,do face some pricing pressure from service providers willing to offer solutions at significantly reduced prices, we believeview the improvement in operating results we are seeing from many oil industry leaders bodes well for their ability to invest in new offshore projects, which we expect will provide future opportunitiesfocus on streamlined project execution as an opportunity for us.

While cost cuttingOil and operational streamlining have been key focus points during the downturn, there has also been an upturn in industry consolidation activity, spanning companies of all sizes. Wegas operators are increasingly finding ourselveschoosing to invest in discussionssubsea tieback projects, which are projects where new developments are connected to existing infrastructure, rather than on projects with otherentirely new subsea infrastructure. Given our experience working with equipment manufactured by different companies, about finding wayswe enable our customers to work together, often leading to suggestions of consolidating our operations.evaluate different alternatives for their expansions, in some cases providing hybrid solutions using equipment from different manufacturers.

Another outcome

Our international expansion efforts continue to bear fruit. We recently announced our first contract with Shell in Trinidad and Tobago, and are involved in ongoing discussions on further opportunities in the region. We continue to pursue opportunities in West Africa, South East Asia and other emerging markets, and are encouraged by their local content requirements.

In July 2018, we announced that our Board of Directors had initiated a review of our strategic alternatives to maximize shareholder value, including a potential sale of the downturn has beenCompany. During the shift in contracting strategy byreview process, we engaged with a wide range of different parties, and received valuable feedback. As a result of the super major operators, where they are now looking to award Engineering, Procurement, Construction and Installation (“EPCI”) contracts. These EPCI contracts would be issued to the largest service providers, who would then likely subcontract to companies like ours.

Coupling the interest in our company as a consolidation candidate with the shift towards EPCI contracts,feedback we havereceived, it was determined that it iswas in our shareholders’ and the Company’s best interest for us to engage an investment bank to assist us as we evaluatereconstitute our strategic alternatives. There can be no assurance that the explorationBoard of strategic alternatives will result in any transaction or other alternative. We have not set a timetable for completion ofDirectors, conclude the process, and do not intend to comment further regarding the process unless a specific transaction or other alternative is approved by the Board of Directors, the process is concluded, or it is otherwise determined that further disclosure is appropriate or required by law.renew our focus on our core business and on improving our profitability.

In the meantime, we continue to work with our committed employees and supportive supplier base to provide unique solutions for our customers, while maximizing our shareholders’ value, aided in no small part by our continued strong balance sheet. With a committed backlog of about $15$10 million, a strong balance sheet, and the dedication of our employees, we remain confident in our ability to continue being a provider of choice for our customers, as we continue to view the future as being exceedingly brightseek to maximize value for the company.our shareholders.

Results of Operations

Three Months Ended June 30, 20182019 Compared to Three Months EndedJune30, 20172018

Revenues. Revenues for the three months ended June 30, 20182019 were $4,104$5,269 compared to revenues of $5,379$4,104 for the three months ended June 30, 2017.2018. The $1,275,$1,165, or 2428 percent, decreaseincrease was primarily the result of fewermore projects in process induring the three months ended June 30, 2019, compared to the three months ended June 30, 2018.

Gross profit. Gross profit for the three months ended June 30, 20182019 was $1,651,$1,965, or 4037 percent of revenues, compared to $2,663,$1,651, or 5040 percent of revenues, for the three months ended June 30, 2017.2018. The $1,012 decrease$314, or 20%, increase in gross profit or 10 percent decrease in gross profit percentage, respectively, was due primarily to lowerincreased revenues induring the three months ended June 30, 2018,2019, compared to a larger proportion of higher-margin service projects in the three months ended June 30, 2017, which resulted2018. However, despite the increased gross profit, there was a decrease in above average margins.gross profit percentage due to a higher proportion of service projects in the 2018 period, compared to the 2019 period.

Selling, general and administrative expenses.Selling, general and administrative (“SG&A”) expenses were $2,007, or 38 percent of revenues, for the three months ended June 30, 2019 compared to $1,745, or 43 percent of revenues, for the three months ended June 30, 2018 compared to $2,223, or 41 percent of revenues, for the three months ended June 30, 2017.2018. The $478 decrease in 2018 resulted primarily from a $313 decrease in SG&A labor as a result of personnel reductions, and a $77 decrease in legal and professional fees, as well as the impact of other cost cutting measures. The increase in SG&A expense as a percent of revenues was due primarily to lowerhigher revenues during the three months ended June 30, 20182019 as compared to the three months ended June 30, 2017.2018. The $262 increase in SG&A was primarily due to the $194 increase in legal expenses related to current litigation matters and increased SG&A labor for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018.

Modified EBITDA. Our management evaluates our performance based on a non-GAAPnon-US GAAP measure which consists of earnings (net income or loss) available to common shareholders before net interest income, income taxes, non-cash share-based compensation expense, non-cash impairments, depreciation and amortization, other non-cash items and one-time charges (“Modified EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with US GAAP. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Modified EBITDA calculation, however, are derived from amounts included in the accompanying unaudited condensed consolidated statements of operations.

We believe Modified EBITDA is useful to investors in evaluating our operating performance because it is widely used to measure a company’s operating performance, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired. It helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest); asset base (primarily depreciation and amortization); and actions that do not affect liquidity (share-based compensation expense from our operating results;results); and it helps investors identify items that are within our operational control. Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.

The following is a reconciliation of net (loss) income to Modified EBITDA for the three months ended June 30, 2019 and 2018:

The $111 increase in Modified EBITDA was due primarily to the increase in revenues and the resulting increase in gross profit during the three months ended June 30, 2019 as compared to the three months ended June 30, 2018.

Six Months Ended June 30, 2019 Compared to Six Months EndedJune30, 2018

Revenues. Revenues for the six months ended June 30, 2019 were $11,568 compared to revenues of $7,810 for the six months ended June 30, 2018. The $3,758, or 48 percent, increase was primarily the result of more projects in process during the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

Gross profit. Gross profit for the six months ended June 30, 2019 was $4,222, or 36 percent of revenues, compared to $2,785, or 36 percent of revenues, for the six months ended June 30, 2018. The $1,437, or 52%, increase in gross profit was primarily due to increased revenues due to a larger number of projects during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.

Selling, general and administrative expenses.Selling, general and administrative (“SG&A”) expenses were $4,001, or 35 percent of revenues, for the six months ended June 30, 2019 compared to $3,662 or 47 percent of revenues, for the six months ended June 30, 2018. The decrease in SG&A expense as a percent of revenues was due to higher revenues during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018. The $339 increase in SG&A expense was primarily due to a $256 increase in legal expenses related to current litigation matters and increased SG&A labor for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.

Modified EBITDA. Our management evaluates our performance based on a non-US GAAP measure which consists of earnings (net income or loss) available to common shareholders before net interest income, income taxes, non-cash share-based compensation expense, non-cash impairments, depreciation and amortization, other non-cash items and one-time charges (“Modified EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with US GAAP. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Modified EBITDA calculation, however, are derived from amounts included in the accompanying unaudited condensed consolidated statements of operations.

We believe Modified EBITDA is useful to investors in evaluating our operating performance because it is widely used to measure a company’s operating performance, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired. It helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest); asset base (primarily depreciation and amortization); and actions that do not affect liquidity (share-based compensation expense from our operating results); and it helps investors identify items that are within our operational control. Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.

The following is a reconciliation of net income (loss) to Modified EBITDA (EBITDA loss) for the threesix months ended June 30, 20182019 and 2017:2018:

Modified EBITDA was $153 for the three months ended June 30, 2018 compared to Modified EBITDA of $890 for the three months ended June 30, 2017. The $737 decrease$1,179 increase in Modified EBITDA was due primarily to the decrease in net income, which was driven by the previously discussed decreased revenues, an increase in gain on sale of assets,revenues and decreasesthe resulting increase in depreciation and amortization, and share-based compensation costsgross profit during the three months ended June 30, 2018.

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Revenues. Revenues for the six months ended June 30, 2018 were $7,810 compared to revenues of $10,987 for the six months ended June 30, 2017. The $3,177, or 29 percent, decrease was primarily the result of fewer projects in process in 2018.

Gross profit. Gross profit for the six months ended June 30, 2018 was $2,785, or 36 percent of revenues, compared to $5,307, or 48 percent of revenues, for the six months ended June 30, 2017. The $2,522 decrease in gross profit, or 12 percent decrease in gross profit percentage, respectively, was due to lower revenues in the three months ended June 30, 2018, compared to a larger proportion of higher-margin service projects in the six months ended June 30, 2017, which resulted in above average margins.

Selling, general and administrative expenses.SG&A expenses were $3,662, or 47 percent of revenues, for the six months ended June 30, 2018 compared to $4,732, or 43 percent of revenues, for the six months ended June 30, 2017. The $1,070 decrease in 2018 resulted primarily from a $575 decrease in SG&A labor, as a result of personnel reductions, and a $212 decrease in legal and professional fees, as well as the impact of other cost cutting measures. The percent of revenues increase was due to lower revenues during the first six months of 20182019 as compared to the first six months of 2017.

Modified EBITDA. As noted above, our management evaluates our performance based on Modified EBITDA. This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance with GAAP. The amounts included in the Modified EBITDA calculation, however, are derived from amounts included in the accompanying condensed consolidated statements of operations.

The following is a reconciliation of net (loss) income to Modified EBITDA for the six months ended June 30, 2018 and 2017:

Modified EBITDA loss was $(271) for the six months ended June 30, 2018 compared to Modified EBITDA of $1,369 for the six months ended June 30, 2017. The $1,640 decrease in Modified EBITDA was due primarily to the decrease in net income, which was driven by the previously discussed decreased revenues, an increase in gain on sale of assets, and decreases in depreciation and amortization, and share-based compensation costs during the six months ended June 30, 2018.

Liquidity and Capital Resources

During the six months ended June 30, 20182019 and June 30, 2017,2018, we primarily financed our operating and capital needs through cash on handhand.

During the six months ended June 30, 2019 we used $621 to fund our operating and cash wefinancing activities. We used $397 in our operating activities, primarily due to a $495 decrease in account payable, and an increase of $760 in accounts receivable offset by our net income. We also used $224 in financing activities, primarily for repurchases of our outstanding stock. We generated $1,580 from operations. However,our investing activities, primarily due to receipt of $510 in January 2018, we financedrepayments on a new company vehicle. The financed amount was $67note receivable, and is for a termmaturity of six years with an interest rateour $1,035 certificate of 0.9%, with monthly payments of $1. The financing company will hold a lien on the vehicle until all payments have been made.deposit.

During the six months ended June 30, 2018, our trade accounts receivable increased by $632,$842, impacting our cash position which declined by $1,516. This increase in trade accounts receivable reflected efforts by some of our larger customers to lengthen vendor payment terms, a situation we expect to be resolved in the coming months.terms. The decline in cash was also a result of a $667 decrease in our accounts payable and accrued liabilities.

Through a combination of our current working capital of $6,549, cash expected to be generated from operations, potential opportunistic sales of non-coreproperty, plant and equipment in the future and reductionsreduction in our administrative costs and capital investments budget, we believe we will have adequate liquidity to meet our future operating requirements. However, in light of the decline in our working capital, we are

We also actively engagedcontinue to engage in discussions with different financial institutions, within the intention of establishing a line ofevent that we would need credit facilities to further supplement our operating requirements. There can be no assurance that we could obtain credit facilities, if needed.

To the extent our then current and forecasted liquidity allows, we will continue to repurchase our common stock. See “Share Repurchase Program” below for additional information. 

Inflation and Seasonality

We do not believe that our operations are significantly impacted by inflation. Our business is not significantly seasonal in nature.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates used in our financial statements relate to revenue recognition where we use percentage-of-completion accountingmeasure progress towards completion on cost-to-cost basis on our large fixed-price contracts, the allowance for doubtful accounts, and the valuation allowance for deferred income tax assets. These estimates require judgments, which we base on historical experience and on various other assumptions, as well as specific circumstances. Estimates may change as new events occur, additional information becomes available or operating environments change.

Refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 20172018 for a discussion of our critical accounting policies and estimates.

Recently Issued Accounting Standards

Except as set forth in Note 1 to our unaudited condensed consolidated financial statements, management has not yet determined whether recently issued accounting standards, which are not yet effective, will have a material impact on our condensed consolidated financial statements upon adoption.

Share Repurchase Program

On March 26, 2018, the Board of Directors (the “Board”) authorized the repurchase of up to $1,000 of the Company’s outstanding common stock (the “Repurchase Program”). The Repurchase Program will bewas funded from cash on hand and cash provided by operating activities.

The timehand. During the three months ended March 31, 2019, 228 shares of our outstanding common stock were purchased under the purchases and amount of stock purchased will be determined at the discretion of management subject to market conditions, business opportunities and other appropriate factors and may include purchases through one or more broker-assisted plans and methods, including, but not limited to, open-market purchases, privately negotiated transactions and Rule 10b5-1 trading plans.Repurchase Program. The Repurchase Program will expireexpired on March 31, 2019.

As of June 30, 2018, no stock repurchases had been made under On May 2, 2019, the Repurchase Program.

Recent Events

On July 31, 2018, we announced that our Board of Directors had initiatedCompany repurchased 60 shares from Mr. Randy Warner, who resigned as a review of our strategic alternatives to maximize shareholder value, including a potential salemember of the Company. We have engagedBoard. The shares were repurchased at the GulfStar Group, LLC as financial advisor and Gray, Reed & McGraw, LLP as legal advisorprice of $0.80 per share, which was the average closing price for the ten trading days prior to assist in the process.

There can be no assurance that the explorationdate of strategic alternatives will result in any transaction or other alternative. We have not set a timetable for completion of the process, and we do not intend to comment further regarding the process unless a specific transaction or other alternative is approved by the Board of Directors, the process is concluded, or it is otherwise determined that further disclosure is appropriate or required by law.repurchase.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.    The Company’s disclosure controls and procedures are designed to ensure that such information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures are designed to provide such reasonable assurance.

The Company’s management, with the participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2018,2019, as required by Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the principal executive and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2018.2019.

Management’s Report on Internal Control Over Financial Reporting.   The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Although the internal controls over financial reporting were not audited, the Company’s management, including the principal executive and principal financial officer, assessed the effectiveness of internal controls over financial reporting as of June 30, 2018,2019, based on criteria issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled“Internal Control-Integrated Framework.”Upon evaluation, the Company’s management has concluded that the Company’s internal controls over financial reporting were effective as of June 30, 2018.2019.

Changes in Internal Control Over Financial Reporting.   The Company’s management, with the participation of the principal executive and principal financial officer, have concluded there were no changes in internal control over financial reporting during the fiscal quarter ended June 30, 2018.2019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except controls and procedures associated with the adoption of the Financial Accounting Standards Board Topic 842, Leases.

PART II. – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we aremay be involved in legal proceedings arising fromin the normal course of business. AsWe expense or accrue legal costs as we incur them. A summary of the date of this Report, we are involved in oneour material legal proceeding. proceedings is as follows:

On August 6, 2018, GE Oil and Gas UK Ltd (“GE”) requested that the Company mediate a dispute between the parties in the ICC International Centre for ADR. The dispute involves alleged delays and defects in products manufactured by the Company for GE dating back to 2013. Mediation took place on November 28, 2018, but no resolution was reached. The original amount in dispute was $2,630,000, but as of GE’s latest filing with the ICC, the amount in dispute has been reduced to $2,252,000. The parties are in the process of filing preliminary submissions, and the arbitration date is currently set for April 2020. The Company disputes GE’s allegations and intends to vigorously defend itself against these allegations. The total amount in controversy is $2,630,261.08. At this point in the legal process, thewe do not believe a loss to us is probable, therefore we have not recorded a liability related to this matter.

In November 2011, the Company is not probable; therefore no liability has been recordeddelivered equipment to Aker Solutions, Inc. (“Aker”), but Aker declined to pay the final invoice in the Company’s consolidated financial statements.aggregate amount of $270,000 alleging some warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly attempted to collect on the receivable, and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently filed a counter-claim on March 20, 2013 in the aggregate amount of $1,000,000, for reimbursement of insurance payments allegedly made for repairs. Trial is scheduled for November 2019. At this point in the legal process, we do not believe a loss to us is probable, therefore we have not recorded a liability related to this matter.

ITEM 1A. RISK FACTORS

We recently announced a process to explore and evaluate strategic alternatives to maximize stockholder value, which may result in the use of a significant amount of our management resources or significant costs, and we may not be able to achieve any particular outcome or to fully realize the potential benefit of such alternatives.

In July 2018, we announced that theour Board of Directors is conducting(the “Board”) had initiated a process to explore and evaluate strategic alternatives to maximize stockholder value. During the review process, it was determined that it was in the company’s best interest to reconstitute the Board, and renew our focus on our core business and on improving our profitability.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 26, 2018, the Board authorized the repurchase of up to $1,000,000 of the Company’s outstanding common stock (the “Repurchase Program”). The Repurchase Program was funded from cash on hand. The Repurchase Program expired on March 31, 2019.

During the quarter ended June 30, 2019, we repurchased 60,000 shares of our common stock from Mr. Randy Warner, who resigned as a member of the Board, has not made any decisions related to any strategic alternatives at this time. No assurances can be made with regarda price of $0.80 per share.

During the quarter ended June 30, 2019, we repurchased 60,000 shares of our common stock from Mr. Randy Warner, who resigned as a member of the Board. The shares were repurchased at the price of $0.80 per share, which was the average closing price for the ten trading days prior to the timeline for completiondate of the strategic review, or whether the review will result in any particular outcome. This process may divert the attention of management and cause us to incur various expenses, whether or not any particular outcome is achieved.  This process could also negatively impact our relationships with our customers and employees.repurchase.

ITEM 6. EXHIBITS

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

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.

INDEX TO EXHIBITS

* Filed or furnished herewith.