COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jan. 31, 2013

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Other payable to Zurich

On July 12, 2012, the Company executed the Zurich Agreement with Zurich. Under the terms of the Zurich Agreement, as of July 31, 2012, Zurich advanced the Company $793,927 for the payment of labor and labor-related benefits to assist in completing the project contract with the Owner or Cooper Project. The Cooper Project is a $16.0 million project completed by the Company’s Trenton Operations. Zurich and its affiliate F&D, as surety, have issued certain performance and payment bonds on behalf of the Owner in regard to the Company’s work on this project. The Company was to repay Zurich the financial advances pursuant to the following repayment schedule: (1) $397,000 on or about August 3, 2012; and (2) the balance of $396,927 on or about September 7, 2012. As a condition precedent to the financial advance, the Company executed two letters which are held by Zurich: (1) a letter to the Owner voluntarily terminating its contract for reason of the Company’s default and assigning the contract to Zurich, and (2) a letter of direction to the Owner. The letters may be forwarded to the Owner in an Event of Default. An Event of Default under the Zurich Agreement includes: (a) the Company’s failure to make repayments to Zurich in accordance with the repayment schedule; (b) Zurich, at the Company’s request, advances more than $888,000; (c) Zurich pays any of the Company’s vendors, subcontractors, suppliers or material men pursuant to Zurich’s obligations under its payment bond or any other reason; or (d) the Company uses any of the funds advanced by Zurich for any reason other than the payment of labor and labor benefits incurred in regard to the Cooper Project. The Company is in default under the Zurich Agreement as it has not repaid Zurich the $793,927. As a result, a letter of direction was sent to the Owner, requesting that all current and future amounts to be paid on the contract be assigned and paid to Zurich directly.

The Company is contingently liable to Zurich and its affiliate F&D under the Indemnity Agreement. Zurich and F&D, as surety, have issued certain performance and payment bonds on behalf of owners or customers regarding the Company’s work on various projects under the Indemnity Agreement. The Company agrees to indemnify the surety for any payments made on contracts of suretyship, guaranty or indemnity. As of January 31, 2013, $4,369,765 of accounts receivable, and $5,863,459 of accounts payable have been approved by the Company and assigned to Zurich and F&D under the Indemnity Agreement, and reclassified from consolidated accounts receivable and accounts payable, respectively, resulting in a net amount owed to Zurich and F&D under the Indemnity Agreement of $1,493,694. Including the $793,927 owed under the Zurich Agreement, the net Other Payable owed to Zurich is $2,287,621 as of January 31, 2013.

On November 12, 2012, the Company received a demand notice from Zurich for $3,298,751, regarding unpaid amounts due under the Zurich Agreement and in regard to claims asserted against Zurich under the Indemnity Agreement as described above, without consideration of any offsets for assigned accounts receivable paid or to be paid. On November 15, 2012, a payment of $2,758,588 was made by the Owner in partial payment of outstanding accounts receivable amounts due. The Company is currently in discussions with Zurich in regards to a forbearance agreement related to the demand notice.

To date, a total of $3,703,651 of assigned accounts receivable have been paid by the Company’s customers to Zurich, which includes the November 15, 2012 payment of $2,758,588 described above. To date, a total of $5,822,881 of assigned accounts payable has been paid by Zurich to the Company’s vendors. The expected remaining accounts payable recorded at January 31, 2013 yet to be assigned to Zurich under the Indemnity Agreement is approximately $222,000, and future accounts receivable and retention receivable yet to be assigned to Zurich is approximately $813,000, which the Company expects will reduce the net Other Payable by $591,000, resulting in a final net Other Payable due Zurich of approximately $1,697,000. In addition, the Company has submitted a revised claim and request for equitable adjustment to the Owner in the amount of $2,421,425 for significant delays, disruptions and construction changes that were beyond its control and required the Company to perform additional work. The Company is currently in negotiations with the Owner in regards to settling this claim, and if it is successful in settling this claim, the Company expects to use the proceeds from the claim to repay Zurich the estimated remaining balance due.

There can be no assurance that the Company will be successful in settling with the Owner for all or a portion of the submitted claim, and there can be no assurance that the Company and Zurich will come to any agreement regarding repayment, future forbearance terms, or waiver or modification of terms under the Zurich Agreement and Indemnity Agreement, which would have a serious adverse effect on the Company’s business, operations and future prospects.