Nicholas Yulico
Editor's note: "Bricks and Mortar" is a series of columns written by real estate reporter Nicholas Yulico meant to help TheStreet.com readers generate real estate and gaming-related stock ideas.
The situation is getting worse at Home Solutions of America(HSOA Quote - Cramer on HSOA - Stock Picks). The small-cap construction firm's shares were tumbling 11% Thursday after the company filed a delayed quarterly report that contains numerous ugly details. Among the issues raised were potential liquidity problems, new related-party transactions and an informal inquiry by the Securities and Exchange Commission. For my Bricks and Mortar mock portfolio, I've flagged the stock as overvalued since April, when it traded near $5. The shares recently were down 52 cents to $4.18, and they earlier hit an intraday 52-week low of $4.03. I originally flagged the stock because I felt Home Solutions' future earnings growth potential was cloudy, since the company was transitioning from a business model that relied on high-margin hurricane cleanup work to lower-margin construction management work. That thesis remains intact. The latest developments, however, point to larger management credibility issues and worries of a cash crunch at the company. Home Solutions said in its filing that it has likely violated covenants of its credit facility, since the lenders have yet to give approval for its plans to resolve a note payable related to its purchase of the disaster-recovery firm Fireline Restoration last year. If the covenants have been violated, lenders may call the loan into default and foreclose on the assets of the company, Home Solutions said in its filing. The banks that supplied the credit line did not return calls seeking comment. Home Solutions also admitted it has faced informal inquiries from the SEC and Nasdaq that are related to certain public disclosures in recent months. Although the specific disclosures weren't mentioned, they likely involve the two "record" $100 million contracts that Home Solutions issued press releases on in recent months. Home Solutions has given barely any details on the two contracts, which are a huge piece of the company's future growth prospects.
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