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



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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One contract was for a series of projects in New York City, where there recently were

no building permits in place for two of the three jobs.

The other contract was for a large project in Tampa, Fla., that the

Tampa Business Journal

has been unable to locate.

In its latest filing, Home Solutions revealed that the Tampa deal is being done with a real estate development firm that is 50% owned by Brian Marshall, who heads the Fireline division and is Home Solutions' largest shareholder, owning 4.1 million shares of the company.

Just last week, Marshall told investors on the Home Solutions' earnings call that a nondisclosure agreement for the Tampa deal prevented the company from providing additional details on the project.

There continue to be question marks surrounding how much of the company's accounts receivables -- which continue to balloon each quarter -- will actually be collected. Many of these receivables relate to a now-bankrupt Florida insurance carrier that supplied insurance to two of Fireline's significant customers.

The company's cash position fell to $4.6 million at the end of the quarter, from $5.5 million in the first quarter and $8.7 million at the end of last year.

Operating cash flow was once again negative, with $13.5 million used in the quarter. The company continues to rely on debt financing to fund its operations.

Home Solutions now owes $27 million on its credit line. That means that if the company does lose its credit facility, investors are in for a nasty ride ahead.

Another source of cash for the company would be the collection of the Florida insurance receivables. Home Solutions says it expects to collect $30 million to $49 million of receivables tied to the matter, but it said such collection cannot be guaranteed.

The first $9 million of those proceeds would go to Home Solutions. The next $21.7 million of receivables would go to Marshall as part of an agreement Home Solutions signed to rid itself of a $21.7 million note payable to Marshall. Any receivables above that $30.7 million go to Home Solutions.

Of course, this agreement depends on the approval of lenders, which have yet to sign off on that agreement. Given the mountain of questions surrounding Home Solutions, investors are better off not hanging around waiting for the lender approvals.

Buying a company's stock shouldn't involve this much headache and questions concerning management's credibility.

'Bricks and Mortar' is a mock portfolio meant to generate investing ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.