DALLAS, Feb. 15, 2008 (PRIME NEWSWIRE) -- Home Solutions of America, Inc. (Pink Sheets:HSOA) (the "Company"), a provider of restoration, construction and interior services to commercial and residential customers, announced today that it has settled its initial claim on the Vista Royale Condominiums component of the Florida Insurance Guarantee Association ("FIGA") construction recovery claim for $35 million. After deduction for monies previously paid and payments to the Vista Homeowner's Association, the Company received approximately $14 million. The Company has two additional unresolved claims with FIGA for work completed on the Delmar Condominiums and Tropic Villa Condominiums in Florida.
The Company also announced that it has entered into a Forbearance Agreement with its lenders under its Revolving Credit Facility, Term Loan and Letter of Credit Facility. Under the Agreement, the Company paid $10.1 million in principal from the FIGA proceeds, which reduced the outstanding amounts due under the facilities to $39.9 million, in exchange for the lenders agreeing, subject to certain conditions including the absence of any subsequent default, to forego taking any action permitted under the Agreement until July 1, 2008. The Company also paid all accrued interest in an amount of $1.28 million and a fee of $100,000 to the lenders. In addition, the lenders agreed to allow the Company to keep up to $1.25 million of an anticipated federal tax refund expected during the 2008 first quarter and up to $1.75 million of a future settlement with FIGA, if any, on the Delmar property. There is no assurance that the FIGA funds will be received.
As previously reported, the Company's Audit Committee has been conducting an internal investigation with respect to certain related party transactions, revenue recognition issues, and other matters. As a result of the Audit Committee's investigation, which has not yet concluded, the Company has determined that a substantial number of its press releases in fiscal year 2006 and 2007 cannot be relied upon. In particular, the Company is aware of the following issues with respect to its press releases in 2006 and 2007:
1. Certain press releases announced construction or development
contracts between the Company's Fireline Restoration, Inc.
("Fireline") subsidiary and a party owned in whole or in part by
Brian Marshall, President of Fireline and an officer and director
of the Company, without disclosing the related-party nature of the
contracts.
2. Certain press releases announced construction or development
contracts without disclosing material contingencies that may
hinder the Company in recognizing the full value of the contracts.
3. Contract values originally stated in certain press releases by
Fireline or Home Solutions Restoration of Louisiana, Inc. have
decreased.
4. Certain press releases announced construction or development
projects that were ultimately not awarded to the Company or that
are, as of the end of 2007, no longer viable.
As a result of the foregoing:
* Fireline contracts, which represent approximately $175 million, or 51%, of the Company's previously announced backlog, are being reviewed by the Company. The review is necessary because they are "related party contracts" and furthermore may not be financially viable. Among these Fireline contracts is the previously announced $100 million Southshore Ventures project in Tampa, Florida. In addition, the Company's ability to perform under two previously announced contracts in New York representing approximately $120 million, or approximately 35%, of the Company's previously announced backlog, are being reviewed in light of substantial financing and other contingencies that could impact their viability. If such contingencies are not resolved, these contracts will be withdrawn from the backlog. A third previously announced New York project, with an estimated value of approximately $15.9 million, is in progress and expected to be completed in 2008. As of December 31, 2007, the Company's current backlog is $141 million, of which $41 million is anticipated to be executed in 2008. This backlog figure does not include revenue for the Company's operations at PW Stephens or the Interior Services segment. * Approximately $9.2 million in accounts receivable, as of June 30, 2007, were from entities either wholly or partially owned by Brian Marshall, former Vice President of the Company and President of Fireline. A portion of these receivables will be reserved as doubtful accounts while another portion of these receivables and their corresponding revenues will be reversed via the Company's restatement of its March 31, 2007 and June 30, 2007 Form 10-Q's. Accordingly, the Company will take pre-tax charges of approximately $3.4 million in the six month period ended June 30, 2007 to reflect this determination. The Company intends to pursue collection of all remaining accounts receivable pertaining to these contracts. * Further details will be provided in the Company's quarterly report for the third quarter of 2007, which the Company expects to file in the near future.
The Company further announced that Brian Marshall has resigned as Vice President of Home Solutions of America and President of Fireline (which the Company acquired in July 2006). He will continue as a member of the Board of Directors until the expiration of his term at the time of the Company's annual meeting later this year. The Company has recently terminated for cause the employment of Scott Sewell, formerly Chairman of Home Solutions Restoration of Louisiana, Inc. (which the Company acquired in October, 2006).
The Company is cooperating with an investigation by the SEC and responding to subpoenas respecting certain books and records. The Company intends to fully cooperate with this and other regulatory agency requests. The internal Audit Committee investigation is ongoing and information obtained through this process will be provided to the regulators.
The Company also announced that it has hired the firm of Alvarez & Marsal, a leading professional services firm, to assist it in considering strategic alternatives and to help it streamline operations. In this regard, the Company has already significantly reduced its infrastructure and operating expenses through work force reductions. It will reorganize its structure to include four operating regions: New York (Construction Services), Tampa (combining Interior Services and Restoration), New Orleans (Construction Services), and Huntington Beach, California (Environmental Services). The Company is also considering relocating its corporate headquarters to New Orleans.
In addition, pursuant to certain misrepresentations made by the seller, the Company has decided not to complete the acquisition of certain equipment and intellectual property of Restoration Group America, Inc. (RG). As a result of a previous consulting agreement related to RG, the Company continues to own and collect receivables in a transaction recently completed with Laurus Funds.
On November 9, 2007, the Company filed, on Form 12b-25, a Notification of Late Filing of the Quarterly Report. On November 14, 2007, the Company announced that it would further delay the filing of the quarterly report past the extended filing deadline. In addition, on December 14, 2007, the Company announced that it and its auditors had concluded that the Company's financial statements for the first two quarters of 2007 need to be restated and should no longer be relied upon. The Company is working diligently to file all required reports as soon as possible.
About Home Solutions of America, Inc.
Home Solutions of America, Inc. is a provider of restoration, construction and interior services to commercial and residential customers. Its Fireline subsidiary is involved in providing construction services, rebuilding, catastrophic storm response and contents restoration for commercial, industrial and residential properties. Based in Tampa, Fireline is certified in multiple aspects of the restoration industry, including smoke, fire, water and mold. The Company has operations in California, Texas, Florida, Alabama, Georgia, Louisiana, Mississippi and North Carolina. Home Solutions Restoration of Louisiana, Inc., which does business as Associated Contractors ("Associated"), is a Louisiana based commercial, industrial and residential contractor working in the governmental and private arenas. Associated has been one of the larger players in redeveloping public schools in the aftermath of Hurricane Katrina. Its clients include the State of Louisiana, the City of New Orleans, the Louisiana National Guard, the historic French Market and Louis Armstrong International Airport. For additional information, please visit the Company's Web site at http://www.hsoacorp.com.
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Cautionary Notice: This press release contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws. Such forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to them. The Company has no obligation to update such forward-looking statements. Actual results may vary significantly from these forward-looking statements based on a variety of factors. These risks and uncertainties include, but are not limited to, the Company's future financial performance, business prospects, ability to win new contracts, the performance under existing contracts, the timing of completion of projects, ability to secure bonding, ability to secure labor in markets where it does not have a labor force, performance of subcontractors and the ability to collect accounts receivable. In addition, there can be no assurance that the actions taken or to be taken by the Company as described herein will result in increased revenues. Other important factors are described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006 in the section entitled "Risk Factors."