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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
 for the fiscal year ended December 31, 2006
 Or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
 for the transition period from  to
 Commission File Number: 001-31711
 HOME SOLUTIONS OF AMERICA, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    99-0273889(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 1500 Dragon Street, Suite B Dallas, TX 75207
(Address of principal executive offices)
 (214) 623-8446
(Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 par value
    
    NASDAQ Global Market
 Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



FORM 10-K
 December 31, 2006
 TABLE OF CONTENTS
  
 PART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    6Item 1B. Unresolved Staff Comments
    
    
    10Item 2. Properties
    
    
    10Item 3. Legal Proceedings
    
    
    11Item 4. Submission of Matters to a Vote of Security Holders
    
    
    11PART IIItem 5.
Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    11Item 6. Selected Financial Data
    
    
    13Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 8. Financial Statements and Supplementary Data
    
    
    20Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    47Item 9A. Controls and Procedures
    
    
    47Item 9B. Other Information
    
    
    56PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    56Item 11. Executive Compensation
    
    
    56Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    56Item 13. Certain Relationships, Related Transactions and Director Independence
    
    
    56Item 14. Principal Accountant Fees and Services
    
    
    57PART IVItem 15.
Exhibits and Financial Statement Schedules
    
    
    57SIGNATURES
    
    
    60SubsidiariesRule 13a-14(a)/15d-14(a) Certification of Principal Executive OfficerRule 13a-14(a)/15d-14(a) Certification of Chief Principal OfficerSection 906 Certification of Principal Executive OfficerSection 906 Certification of Principal Financial Officer
  2




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PART I
 
 ITEM 1. BUSINESS
 Overview
  Company History; Acquisitions
           3




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Business Segments
  Restoration and Construction Services
     
    
    Recovery: Our recovery services include providing initial set up services in an
impacted area (including power, lodging, and training) and then providing the drying,
dehumidification, cleanup and removal of debris from commercial and residential areas to
prepare the areas for the next stage of restoration. We provide these services on an
hourly rate to our commercial and residential clients, both as a contractor and as a
subcontractor to customers providing additional services in these markets.
    
    Fire and Water Damage Restoration: We provide trained employees to respond to fire,
water and weather-related emergencies, to inspect structural members and contents damaged
by water, to determine the likelihood or extent of mold growth and to provide immediate
cleaning, drying, moving, storage and deodorization, among other services.
    
    Construction: The Companys construction services include providing services to a
number of high growth companies and specialized building markets, including hospitality and
gaming, insurance, education and healthcare markets. We believe our success in
construction services results from our proven ability to manage and perform meaningful,
complex projects while providing accurate budgeting and strict quality control. Although
price is a key competitive factor, we believe our strong reputation, long-standing customer
relationships and significant level of repeat and referral business have enabled us to
achieve our leading position.
    
    Indoor Air Contamination: Through PWS, we provide indoor air contamination services,
including contamination from mold, asbestos and lead paint. With increased media attention
regarding the health threat of mold, fewer insurance options and property transfers at
risk, current market conditions have created significant demand for mold inspections,
certifications and remediation services. These services consist of property and system
inspections, surface and air testing, project design, microbial removal, light interior
demolition, repair and specialized cleaning work. Home inspections and testing can range
from $200 to $800 per inspection. For the typical mold-contaminated house, a remediation
project can last approximately one week and cost $10,000 or more. Customer opportunities
are developed through a regional sales force as well as through
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referrals by real estate firms, insurance adjusters, mortgage companies, attorneys and
nationally-branded retailers. The Company believes it can use its industry experience to
give efficacy to its processes and provide homeowners with quality assurance.
    
    Cleaning and Fabric Protection: Through FSS, we provide fabric protection services to
protect furniture, carpet and draperies from stains and daily wear through both
Company-owned locations and over forty licensed locations. This niche market is primarily
targeted at above-average income homeowners with an average job of approximately $400. We
also provide air duct cleaning services to remove particulate (organic and inorganic)
material, which can cause allergic reactions and is often the breeding ground for many
types of mold, from heating and air conditioning systems.
 Interior Services
  Backlog
  Competition
  Growth Strategy
   Regulatory Matters
  5




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Employees
  Corporate Information
  
 ITEM 1A. RISK FACTORS
 We have sought to identify what we believe to be the most significant risks to our business, but we
cannot predict whether or to what extent any of such risks may be realized, nor are there any
assurances that the Company has identified all possible risks that might arise. Our revenues are
derived from specialty restoration, construction and interior services products and services.
There are numerous and varied risks, known and unknown, that may prevent us from achieving our
goals. Some of these risks are set forth below.
 Unless otherwise indicated, all numbers (except per share amounts) presented under this Item 1A are
stated in thousands.
 Our limited operating history makes it difficult for us to evaluate our future business prospects
and make decisions based on those estimates of our future performance .
  Our results of operations have not been consistent, and we may not be able to maintain
profitability.
  Our business depends on the demand for restoration, construction and interior services, and if the
demand for those services decreases, our revenues could decline .
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A significant portion of our interior services business segment is dependent upon relationships
with two customers.
  We intend to engage in acquisitions as part of our growth strategy, which will consume resources
and may be unsuccessful or unprofitable.
  We expect that we will need to raise additional funds to pursue our growth strategy, and these
funds may not be available when we need them .
  We must effectively manage the growth of our operations, or our results of operations will suffer .
  We face competition from numerous sources and competition may increase, leading to a decline in
revenues.
  Our failure to comply with federal and state environmental laws and regulations could result in
fines or injunctions, which could materially impair the operation of our business .
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The failure to obtain and maintain required governmental licenses, permits and approvals could have
a substantial adverse effect on our operations .
  If the Company fails to maintain adequate insurance, our financial results could be negatively
impacted.
  We are heavily dependent on our senior management, and a loss of a member of our senior management
team could cause our stock price to suffer .
  Our inability to hire, train and retain qualified employees could cause our financial condition to
suffer.
  We
have identified 18 material weaknesses in our internal control over financial reporting
and cannot assure you that additional material weaknesses will not be identified in the future. If
our internal control over financial reporting or disclosure controls and procedures are not
effective, there may be errors in our financial statements that could require a restatement or our
filings may not be timely and investors may lose confidence in our reported financial information,
which could lead to a decline in our stock price.
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We may be unable to pay our debts when due, which could materially impact our profitability and our
stock price .
  SPECIFIC RISKS RELATED TO RESTORATION AND CONSTRUCTION SERVICES
  The need for restoration services is unpredictable and depends upon the nature and extent of
weather-related emergencies.
  If we fail to win contracts that are ultimately reimbursable by insurers and federal, state and
local governments, it may impede our ability to grow our restoration services segment.
  If insurance proceeds and federal funds are not available to our customers, then our revenues may
decline, and the demand for our restoration and construction services may decline.
  9




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RISKS RELATED TO OUR COMMON STOCK
 Our common stock could be delisted from the NASDAQ if we do not comply with the NASDAQ continued
listing standards .
  Because of our low stock price, we may become subject to penny stock regulations, which place
restrictions on the trading of our common stock.
  Effects of anti-takeover provisions could inhibit potential investors or delay or prevent a change
of control that may favor stockholders.
  
    
    discourage potential acquisition proposals;
    
    delay or prevent a change in control; and
    
    limit the price that investors might be willing to pay in the future for shares of our common stock.
  We have not paid dividends in the past, and do not anticipate paying dividends in the future .
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
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ITEM 3. LEGAL PROCEEDINGS
     
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
(All dollar and share amounts presented in Part II, except per share data, are stated in thousands)
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Prices
  Fiscal Year ended December 31, 2006:
    
    High
    
    LowQuarter ended December 31, 2006
    
    $
    6.72
    
    
    $
    4.92Quarter ended September 30, 2006
    
    
    7.27
    
    
    
    4.50Quarter ended June 30, 2006
    
    
    13.20
    
    
    
    6.17Quarter ended March 31, 2006
    
    
    7.20
    
    
    
    4.55Quarter ended December 31, 2005
    
    $
    6.70
    
    
    $
    4.36Quarter ended September 30, 2005
    
    
    5.29
    
    
    
    1.32Quarter ended June 30, 2005
    
    
    1.67
    
    
    
    1.26Quarter ended March 31, 2005
    
    
    1.69
    
    
    
    1.47
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Stockholders
  Dividends
  Penny Stock
   Sale of Unregistered Securities
    12




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Equity Compensation Plans
  Equity Compensation Plan Information
 Number of securities
    
    
    
    
    
    Number of securitiesto be issued upon
    
    Weighted average
    
    remaining availableexercise of
    
    exercise price of
    
    for future issuanceoutstanding options,
    
    outstanding options,
    
    under equityPlan Category
    
    warrants and rights
    
    warrants and rights
    
    compensation plansEquity compensation plans approved by security holders
    
    
    1,897
    
    
    $
    4.31
    
    
    
    3,341Equity compensation plans not approved by security
holders
    
    
    3,165
    
    
    $
    4.50
    
    
    
    Total
    
    
    5,062
    
    
    
    
    
    
    
    3,341
 
 ITEM 6. SELECTED FINANCIAL DATA
 Summary of Selected Financial Data (Unaudited)  (Dollars in thousands, except per share data)
 For the Years Ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Revenues
    
    $
    127,220
    
    
    $
    68,135
    
    
    $
    31,121
    
    
    $
    13,996
    
    
    $
    2,559Earnings (loss) from Continuing Operations
    
    $
    16,157
    
    
    $
    8,630
    
    
    $
    2,563
    
    
    $
    (702
    )
    
    $
    (230
    )Net Earnings
    
    $
    17,898
    
    
    $
    7,185
    
    
    $
    2,563
    
    
    $
    (702
    )
    
    $
    (477
    )Stockholders Equity
    
    $
    143,939
    
    
    $
    75,605
    
    
    $
    21,282
    
    
    $
    14,751
    
    
    $
    4,680Net Earnings (loss) as a Percentage of Average
Stockholders Equity
    
    
    16.3
    %
    
    
    14.8
    %
    
    
    14.2
    %
    
    
    (7.2
    %)
    
    
    (10.1
    %)Total Assets
    
    $
    222,725
    
    
    $
    88,667
    
    
    $
    34,487
    
    
    $
    33,298
    
    
    $
    18,538Deferred Income Tax Assets
    
    $
    1,337
    
    
    $
    793
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Long-term Obligations
    
    $
    34,343
    
    
    $
    1,638
    
    
    $
    7,145
    
    
    $
    5,487
    
    
    $
    6,999Per Common ShareEarnings (loss) from Continuing Operations
Per Share  Basic
    
    $
    0.40
    
    
    $
    0.34
    
    
    $
    0.11
    
    
    $
    (0.06
    )
    
    $
    (0.02
    )Earnings (loss) from Continuing Operations
Per Share  Diluted
    
    $
    0.39
    
    
    $
    0.30
    
    
    $
    0.10
    
    
    $
    (0.06
    )
    
    $
    (0.02
    )Net Earnings (loss) Per Share  Basic
    
    $
    0.44
    
    
    $
    0.28
    
    
    $
    0.11
    
    
    $
    (0.06
    )
    
    $
    (0.05
    )Net Earnings (loss) Per Share  Diluted
    
    $
    0.43
    
    
    $
    0.25
    
    
    $
    0.10
    
    
    $
    (0.06
    )
    
    $
    (0.05
    )Cash Dividends
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average Shares OutstandingBasic
    
    
    41,039
    
    
    
    23,210
    
    
    
    16,393
    
    
    
    11,837
    
    
    
    9,709Diluted
    
    
    42,058
    
    
    
    26,315
    
    
    
    17,192
    
    
    
    11,837
    
    
    
    9,709Stock PricesHigh
    
    $
    13.20
    
    
    $
    6.70
    
    
    $
    2.10
    
    
    $
    3.45
    
    
    $
    3.10Low
    
    $
    4.50
    
    
    $
    1.26
    
    
    $
    1.15
    
    
    $
    1.52
    
    
    $
    1.15
 
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
 Use of Estimates and Critical Accounting Policies
  Allowance for Doubtful Accounts
  Impairment of Long-Lived Assets
  Goodwill
  Deferred Taxes
  Revenue Recognition
     14




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Stock-Based Compensation
  Share-Based Payment, Accounting for Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock Based Compensation
   (a)
    
    The expected volatility of our common stock price, which we determine based on
historical volatility of our common stock over the prior eighteen month period;(b)
    
    Expected dividends (which do not apply, as we do not anticipate issuing dividends);(c)
    
    Expected life of the award, which is estimated based on the historical award exercise
behavior of our employees; and(d)
    
    Expected forfeitures of awards, which is estimated based on the historical turnover of
our employees and expected turnover in the future. Prior to adoption of SFAS No. 123(R),
we recognized forfeitures under SFAS No. 123 as they occurred.
 15




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Results of Operations  Year ended December 31, 2006 compared to year ended December 31, 2005
 Net Sales
 Restoration and Construction Services
  Interior Services
  Costs of Sales
 Restoration and Construction Services
  Interior Services
  Selling, General and Administrative Expenses
 Restoration and Construction Services
  Interior Services
  Corporate
  Other Income (Expense)
  16




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Discontinued Operations
  Results of Operations  Year ended December 31, 2005 compared to year ended December 31, 2004
 Net Sales
 Restoration and Construction Services
  Interior Services
  Costs of Sales
 Restoration and Construction Services
  Interior Services
  Selling, General and Administrative Expenses
 Restoration and Construction Services
  Interior Services
  Corporate
  17




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Other Income (Expense)
  Selected Quarterly Financial Information
  Three Months EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,2005
    
    2005
    
    2005
    
    2005
    
    2006
    
    2006
    
    2006
    
    2006(in thousands, except share and per share data)Net sales
    
    $
    9,337
    
    
    $
    16,055
    
    
    $
    20,376
    
    
    $
    22,367
    
    
    $
    19,280
    
    
    $
    24,154
    
    
    $
    49,077
    
    
    $
    34,709Cost of Sales
    
    
    4,871
    
    
    
    9,490
    
    
    
    11,261
    
    
    $
    12,750
    
    
    
    9,332
    
    
    
    12,781
    
    
    
    28,058
    
    
    $
    16,551Gross profit
    
    
    4,466
    
    
    
    6,565
    
    
    
    9,115
    
    
    
    9,617
    
    
    
    9,948
    
    
    
    11,373
    
    
    
    21,019
    
    
    
    18,158Selling, general and administrative expenses
    
    
    2,927
    
    
    
    4,705
    
    
    
    5,642
    
    
    $
    3,211
    
    
    
    5,949
    
    
    
    5,471
    
    
    
    7,739
    
    
    $
    10,725Operating Income
    
    
    1,539
    
    
    
    1,860
    
    
    
    3,473
    
    
    
    6,406
    
    
    
    3,999
    
    
    
    5,902
    
    
    
    13,280
    
    
    
    7,433Other income (expense), net
    
    
    (243
    )
    
    
    (404
    )
    
    
    (573
    )
    
    $
    (2,049
    )
    
    
    14
    
    
    
    45
    
    
    
    (615
    )
    
    $
    (1,372
    )Income from continuing operations before income taxes and minority interest
    
    
    1,296
    
    
    
    1,456
    
    
    
    2,900
    
    
    
    4,357
    
    
    
    4,013
    
    
    
    5,947
    
    
    
    12,665
    
    
    
    6,061Income tax (expense) benefit
    
    
    (82
    )
    
    
    (104
    )
    
    
    (292
    )
    
    $
    32
    
    
    
    (1,413
    )
    
    
    (2,246
    )
    
    
    (4,389
    )
    
    $
    (3,754
    )Minority interest
    
    
    (193
    )
    
    
    (287
    )
    
    
    (252
    )
    
    $
    (201
    )
    
    
    (258
    )
    
    
    (208
    )
    
    
    (192
    )
    
    $
    (69
    )Income before discontinued operations
    
    
    1,021
    
    
    
    1,065
    
    
    
    2,356
    
    
    
    4,188
    
    
    
    2,342
    
    
    
    3,493
    
    
    
    8,084
    
    
    
    2,238Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,445
    )
    
    
    781
    
    
    
    975
    
    
    
    
    
    
    $
    (15
    )Net income
    
    $
    1,021
    
    
    $
    1,065
    
    
    $
    2,356
    
    
    $
    2,743
    
    
    $
    3,123
    
    
    $
    4,468
    
    
    $
    8,084
    
    
    $
    2,223Net income available to common stockholders:Basic
    
    $
    842
    
    
    $
    883
    
    
    $
    1,994
    
    
    $
    2,743
    
    
    $
    3,123
    
    
    $
    4,468
    
    
    $
    8,084
    
    
    $
    2,223Diluted
    
    $
    813
    
    
    $
    883
    
    
    $
    2,135
    
    
    $
    2,743
    
    
    $
    3,123
    
    
    $
    4,468
    
    
    $
    8,084
    
    
    $
    2,223Basic earnings per share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.17
    
    
    $
    0.07
    
    
    $
    0.09
    
    
    $
    0.19
    
    
    $
    0.05Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )
    
    
    0.02
    
    
    
    0.03
    
    
    
    
    
    
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.05Diluted earnings per share:Income from continuing operations
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.18
    
    
    $
    0.05Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.05
    )
    
    
    0.02
    
    
    
    0.02
    
    
    
    
    
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.18
    
    
    $
    0.05Weighted average number of common shares outstanding:Basic
    
    
    16,968
    
    
    
    20,929
    
    
    
    23,737
    
    
    
    31,047
    
    
    
    35,898
    
    
    
    38,295
    
    
    
    43,229
    
    
    
    46,589Diluted
    
    
    18,990
    
    
    
    22,464
    
    
    
    27,833
    
    
    
    35,713
    
    
    
    40,702
    
    
    
    40,594
    
    
    
    45,181
    
    
    
    47,504
  Liquidity and Capital Resources
      Contractual Obligations
   Payments Due by PeriodLess than
    
    
    1  3
    
    
    4  5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsCapital lease obligations
    
    $
    1,183
    
    
    $
    254
    
    
    $
    501
    
    
    $
    336
    
    
    $
    92Notes payable and lines
of credit
    
    
    50,375
    
    
    
    26,816
    
    
    
    23,442
    
    
    
    117
    
    
    
    Operating leases
    
    
    1,565
    
    
    
    848
    
    
    
    511
    
    
    
    203
    
    
    
    3Total
    
    $
    53,123
    
    
    $
    27,918
    
    
    $
    24,454
    
    
    $
    656
    
    
    $
    95
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Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Financial Information
 Report
of Independent Registered Public Accounting Firm
    
    
    21Consolidated Balance Sheets
    
    
    22Consolidated
Statements of Income
    
    
    23Consolidated Statements of Cash Flows
    
    
    24Consolidated Statements of Stockholders Equity
    
    
    26Notes to Consolidated Financial Statements
    
    
    27
 20




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board
    of Directors and Stockholders of Home Solutions of America, Inc.:
        Share-Based Payment
  Internal ControlIntegrated
    Framework
      21




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##### Table of Contents

\

Home Solutions of America, Inc.
 
 Consolidated Balance Sheets
  December 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash
    
    $
    8,713
    
    
    $
    8,225Accounts receivable, net
    
    
    58,106
    
    
    
    20,585Current portion of notes receivable
    
    
    703
    
    
    
    361Inventories
    
    
    4,000
    
    
    
    1,026Current assets of discontinued operations held for sale
    
    
    
    
    
    
    767Prepaid expenses and other current assets
    
    
    4,654
    
    
    
    1,041Costs in excess of billings
    
    
    6,292
    
    
    
    Deferred tax asset
    
    
    1,337
    
    
    
    Assets held for sale
    
    
    
    
    
    
    840Total current assets
    
    
    83,805
    
    
    
    32,845Property and equipment, net
    
    
    6,129
    
    
    
    2,466Intangibles, net
    
    
    8,732
    
    
    
    9,501Goodwill
    
    
    122,500
    
    
    
    41,882Notes receivable, net of current portion
    
    
    750
    
    
    
    525Non-current assets of discontinued operations held for sale
    
    
    
    
    
    
    391Deferred tax asset
    
    
    
    
    
    
    793Other assets
    
    
    809
    
    
    
    264$
    222,725
    
    
    $
    88,667Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    15,608
    
    
    $
    6,267Billings in excess of costs
    
    
    688
    
    
    
    Current portion of debt
    
    
    26,816
    
    
    
    3,382Current portion of capital lease obligations
    
    
    254
    
    
    
    76Current liabilities of discontinued operations held for sale
    
    
    
    
    
    
    1,216Total current liabilities
    
    
    43,366
    
    
    
    10,941Long-term liabilities:Debt, net of current portion
    
    
    10,448
    
    
    
    1,363Non-current liabilities of discontinued operations held for sale
    
    
    
    
    
    
    158Line of credit
    
    
    13,111Capital lease obligations, net of current portion
    
    
    929
    
    
    
    117Amounts due to seller
    
    
    9,855
    
    
    
    Deferred tax
liabilities
    
    
    890
    
    
    
    Total liabilities
    
    
    78,599
    
    
    
    12,579Minority interest
    
    
    237
    
    
    
    483Commitments and ContingenciesStockholders equity:Common stock, $0.001 par value, 100,000 shares authorized; 47,297 and
35,510 shares issued and outstanding, respectively
    
    
    47
    
    
    
    36Additional paid-in capital
    
    
    140,497
    
    
    
    90,122Retained earnings (accumulated deficit)
    
    
    3,345
    
    
    
    (14,553
    )Total stockholders equity
    
    
    143,889
    
    
    
    75,605$
    222,725
    
    
    $
    88,667
 See Notes to Consolidated Financial Statements.
 22




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##### Table of Contents



Home Solutions of America, Inc.
 
 Consolidated Statements of Income
  For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Net sales
    
    $
    127,220
    
    
    $
    68,135
    
    
    $
    31,121Costs and expensesCost of sales
    
    
    66,722
    
    
    
    38,372
    
    
    
    16,718Selling, general and administrative expenses
    
    
    29,884
    
    
    
    16,485
    
    
    
    10,35696,606
    
    
    
    54,857
    
    
    
    27,074Operating income
    
    
    30,614
    
    
    
    13,278
    
    
    
    4,047Other
income (expense), net:Gain
(loss) on sale of assets
    
    
    17
    
    
    
    (76
    )
    
    
    (17
    )Interest income
    
    
    268
    
    
    
    61
    
    
    
    38Interest expense
    
    
    (2,345
    )
    
    
    (3,351
    )
    
    
    (930
    )Other income, net
    
    
    132
    
    
    
    97
    
    
    
    224Total other
expense, net
    
    
    (1,928
    )
    
    
    (3,269
    )
    
    
    (685
    )Income from continuing operations before income taxes and
minority interest
    
    
    28,686
    
    
    
    10,009
    
    
    
    3,362Income taxes
    
    
    11,802
    
    
    
    446
    
    
    
    219Minority interest
    
    
    727
    
    
    
    933
    
    
    
    580Income before discontinued operations
    
    
    16,157
    
    
    
    8,630
    
    
    
    2,563Income (loss) from discontinued operations, net of taxes
    
    
    1,741
    
    
    
    (1,445
    )
    
    
    Net income
    
    $
    17,898
    
    
    $
    7,185
    
    
    $
    2,563Net income available to common shareholders:Basic
    
    $
    17,898
    
    
    $
    6,461
    
    
    $
    1,764Diluted
    
    $
    17,898
    
    
    $
    6,461
    
    
    $
    1,764Basic earnings per share:Income from continuing operations
    
    $
    0.40
    
    
    $
    0.34
    
    
    $
    0.11Income (loss) from discontinued operations, net of taxes
    
    
    0.04
    
    
    
    (0.06
    )
    
    
    $
    0.44
    
    
    $
    0.28
    
    
    $
    0.11Diluted earnings per share:Income from continuing operations
    
    $
    0.39
    
    
    $
    0.30
    
    
    $
    0.10Income (loss) from discontinued operations, net of taxes
    
    
    0.04
    
    
    
    (0.05
    )
    
    
    $
    0.43
    
    
    $
    0.25
    
    
    $
    0.10Weighted average number of common shares outstanding:Basic
    
    
    41,039
    
    
    
    23,210
    
    
    
    16,393Diluted
    
    
    42,058
    
    
    
    26,315
    
    
    
    17,192
 See Notes to Consolidated Financial Statements.
 23




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##### Table of Contents



Home Solutions of America, Inc.
 
 Consolidated Statements of Cash Flows
  For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet income
    
    $
    17,898
    
    
    $
    7,185
    
    
    $
    2,563Adjustments-Depreciation and amortization
    
    
    1,646
    
    
    
    3,403
    
    
    
    1,102Minority interest in income of consolidated subsidiary
    
    
    727
    
    
    
    933
    
    
    
    580Provision for doubtful accounts
    
    
    2,823
    
    
    
    495
    
    
    
    44Gain on sale of assets
    
    
    (17
    )
    
    
    76
    
    
    
    17Stock-based compensation
    
    
    1,433
    
    
    
    952
    
    
    
    113Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (129
    )Gain on sale of discontinued operations
    
    
    (3,177
    )
    
    
    
    
    
    
    Changes in assets and liabilities, net of acquisitions and divestitures:Accounts receivable
    
    
    (15,883
    )
    
    
    (13,710
    )
    
    
    (989
    )Prepaid expenses and other current assets
    
    
    (2,425
    )
    
    
    (490
    )
    
    
    (382
    )Costs in excess of billings, net
    
    
    (5,177
    )
    
    
    
    
    
    
    Inventories
    
    
    (729
    )
    
    
    304
    
    
    
    Other assets
    
    
    (470
    )
    
    
    (102
    )
    
    
    135Deferred taxes
    
    
    (544
    )
    
    
    (2,475
    )
    
    
    Deferred tax
liability
    
    
    890
    
    
    
    
    
    
    
    Accounts payable and accrued expenses
    
    
    (9,504
    )
    
    
    (852
    )
    
    
    (344
    )Due to a related party
    
    
    
    
    
    
    (395
    )
    
    
    24Net cash provided by (used in) operating activities
    
    
    (12,509
    )
    
    
    (4,676
    )
    
    
    2,734Cash Flows from Investing ActivitiesProceeds from sale of property and equipment
    
    
    
    

   
    
    
    
    
    
    45Cash advanced under note receivable
    
    
    (703
    )
    
    
    
    
    
    
    Payments received on notes receivable
    
    
    1,525
    
    
    
    431
    
    
    
    165Costs incurred in acquisitions, net of cash acquired
    
    
    (974
    )
    
    
    
    
    
    
    (96
    )Purchase of Southern Exposure, including acquisition costs
    
    
    
    
    
    
    
    
    
    
    (4,951
    )Cash acquired in FERS acquisition, net of acquisition costs
    
    
   
    
    
    
    612
    
    
    
    Purchase of Cornerstone, including acquisition costs
    
    
    
    
    
    
    (2,171
    )
    
    
    Purchases of property and equipment
    
    
    (356
    )
    
    
    (253
    )
    
    
    (256
    )Purchase of Fireline
    
    
    (11,500
    )
    
    
    
    
    
    
    Purchase of
Marble Man, Inc.
    
    
    (545
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (12,553
    )
    
    
    (1,381
    )
    
    
    (5,093
    )Cash Flows from Financing ActivitiesProceeds from notes payable, net of cash issuance costs
    
    
    14,201
    
    
    
    8,579
    
    
    
    3,778Proceeds from notes payable to related party, net of payments
    
    
    
    
    
    
    (750
    )
    
    
    (250
    )Principal payments on debt and capital leases
    
    
    (9,057
    )
    
    
    (24,581
    )
    
    
    (4,754
    )Proceeds from private placement of common stock, net of costs
    
    
    
    
    
    
    24,547
    
    
    
    Proceeds from preferred stock, net of cash issuance costs
    
    
    
    
    
    
    
    
    
    
    2,878Proceeds
from line of credit, net of repayments
    
    
    3,878
    
    
    
    
    
    
    
    (519
    )Excess tax benefit from options exercises
    
    
    9,121
    
    
    
    
    
    
    
    Proceeds from exercise of warrants and options
    
    
    8,135
    
    
    
    6,050
    
    
    
    3Distributions to minority stockholder
    
    
    (973
    )
    
    
    (691
    )
    
    
    (377
    )Proceeds received from disgorgement of profits
    
    
    245
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    25,550
    
    
    
    13,154
    
    
    
    759Net increase (decrease) in cash
    
    
    488
    
    
    
    7,097
    
    
    
    (1,600
    )Cash at
beginning of year
    
    
    8,225
    
    
    
    1,128
    
    
    
    2,728Cash at end
of year
    
    $
    8,713
    
    
    $
    8,225
    
    
    $
    1,128
 See Notes to Consolidated Financial Statements.
 24




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##### Table of Contents



Home Solutions of America, Inc.
Consolidated Statements of Cash Flows
 For
the Years Ended December 31,2006
    
    2005
    
    2004Cash paid for:Interest
    
    $
    1,693
    
    
    $
    1,177
    
    
    $
    534Income taxes
    
    $
    3,983
    
    
    $
    2,418
    
    
    $
    180Supplemental schedule of non-cash investing and financing activities:Issuance of stock for conversion of debt and accrued interest
    
    $
    903
    
    
    $
    3,850
    
    
    $
    150Fixed assets acquired through debt and capital lease obligations
    
    $
    1,438
    
    
    $
    137
    
    
    $
    68Conversion of preferred stock to common stock
    
    $
    
    
    
    $
    2
    
    
    $
    Preferred dividend accrual
    
    $
    
    
    
    $
    137
    
    
    $
    159Fair value of warrants issued for debt private placement
    
    $
    
    
    
    $
    1,294
    
    
    $
    250Reduction of notes payable for settlement of obligations
    
    $
    
    
    
    $
    
    
    
    $
    189Issuance of stock for acquisitions
    
    $
    30,293
    
    
    $
    4,236
    
    
    $
    Issuance of notes payable for acquisition
    
    $
    22,395
    
    
    $
    12,600
    
    
    $
    Issuance of stock for supply agreement
    
    $
    
    
    
    $
    1,350
    
    
    $
    Amortization of preferred stock issuance costs and beneficial
conversion as preferred stock dividends
    
    $
    
    
    
    $
    587
    
    
    $
    640Fair value
of warrants issued in acquisitions
    
    $
    
    
    
    $
    4,719
    
    
    $
    595Issuance of notes payable secured by note receivable
    
    $
    
    
    
    $
    
    
    
    $
    1,482Fair value of warrants issued in connection with preferred stock and
beneficial conversion feature of preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    1,358Shares and options/warrants issued for prepaid consulting
    
    $
    108
    
    
    $
    
    
    
    $
    158Increase in goodwill due to adjustments to net assets acquired
    
    $
    347
    
    
    $
    
    
    
    $
    73Inventory received for reduction of note receivable from
Cornerstone
    
    $
    2,125
    
    
    $
    
    
    
    $
    Issuance of common stock for preferred dividends
    
    $
    
    
    
    $
    209
    
    
    $
    75Increase in goodwill due to deferred tax liability
    
    $
    
    
    
    $
    1,682
    
    
    $
    Reclassification of assets held for sale to property and equipment
    
    $
    840
    
    
    $
    
    
    
    $
    Issuance of common stock for accrued expenses
    
    $
    256
    
    
    $
    
    
    
    $
    Amounts due
to seller in acquisition
    
    $
    9,855
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 25




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##### Table of Contents



Home Solutions of America, Inc.
 
 Consolidated Statements of Stockholders Equity
 in thousands
 (AccumulatedAdditional
    
    Deficit)
    
    TotalPreferred Shares
    
    Common Shares
    
    Paid-in
    
    Refined
    
    StockholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    EquityBalance, January 1, 2004
    
    
    
    
    
    $
    
    
    
    
    14,164
    
    
    $
    14
    
    
    $
    37,515
    
    
    $
    (22,778
    )
    
    $
    14,751Issuance of shares for services
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    158Issuance of shares in lieu of dividends
payable
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Issuance of shares for exercise of warrants
    
    
    
    
    
    
    
    
    
    
    293
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    3Issuance of shares for officer bonus
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    113Issuance of shares for SE acquisition
    
    
    
    
    
    
    
    
    
    
    1,757
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    Issuance of shares for conversion of debt
    
    
    
    
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Issuance of preferred stock, net of cash
issuance costs
    
    
    0.120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,878
    
    
    
    
    
    
    
    2,878Estimated value of beneficial conversion
feature from issuance of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    155Issuance of shares for conversion of Series A
preferred stock
    
    
    (0.012
    )
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortize preferred stock issue and beneficial
conversion cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    (640
    )
    
    
    Preferred stock dividends payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159
    )
    
    
    (159
    )Estimated fair market value of warrants
granted for proposed acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595
    
    
    
    
    
    
    
    595Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,563
    
    
    
    2,563Balance, December 31, 2004
    
    
    0.108
    
    
    $
    
    
    
    
    16,860
    
    
    $
    17
    
    
    $
    42,279
    
    
    $
    (21,014
    )
    
    $
    21,282Issuance of shares for services
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    68Issuance of shares in lieu of dividends
payable
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    209Compensation expense related to variable
stock option pricing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    952
    
    
    
    
    
    
    
    952Estimated fair value of warrants earned by
seller of FERS assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,719
    
    
    
    
    
    
    
    4,719Issuance of shares for exercise of warrants
and options
    
    
    
    
    
    
    
    
    
    
    5,346
    
    
    
    5
    
    
    
    6,045
    
    
    
    
    
    
    
    6,050Issuance of shares for supply agreement
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1
    
    
    
    1,349
    
    
    
    
    
    
    
    1,350Estimated fair value of warrants issued for
debt private placement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,294
    
    
    
    
    
    
    
    1,294Issuance of shares for Cornerstone
acquisition
    
    
    
    
    
    
    
    
    
    
    2,821
    
    
    
    3
    
    
    
    3,805
    
    
    
    
    
    
    
    3,808Issuance of shares for conversion of debt and
interest payable
    
    
    
    
    
    
    
    
    
    
    2,225
    
    
    
    2
    
    
    
    3,848
    
    
    
    
    
    
    
    3,850Amortization of preferred stock issue and
beneficial conversion cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    587
    
    
    
    (587
    )
    
    
    Issuance of shares for FERS acquisition
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    1
    
    
    
    427
    
    
    
    
    
    
    
    428Preferred stock dividends payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137
    )
    
    
    (137
    )Issuance of shares for conversion of Series A
preferred stock
    
    
    (0.068
    )
    
    
    
    
    
    
    1,360
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    Issuance of shares for conversion of Series B
preferred stock
    
    
    (0.040
    )
    
    
    
    
    
    
    667
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    Issuance of
shares for private placement, net
of costs
    
    
    
    
    
    
    
    
    
    
    4,850
    
    
    
    5
    
    
    
    24,542
    
    
    
    
    
    
    
    24,547Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,185
    
    
    
    7,185Balance, December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    35,510
    
    
    $
    36
    
    
    $
    90,122
    
    
    $
    (14,553
    )
    
    $
    75,605Issuance of shares for services
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    109Issuance of shares for conversion of debt and
interest payable
    
    
    
    
    
    
    
    
    
    
    480
    
    
    
    1
    
    
    
    902
    
    
    
    
    
    
    
    903Disgorgement of profits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    245Issuance of shares for Fireline acquisition
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    4
    
    
    
    22,144
    
    
    
    
    
    
    
    22,148Issuance of shares for Associated acquisition
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    1
    
    
    
    8,144
    
    
    
    
    
    
    
    8,145Excess tax benefit on exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,121
    
    
    
    
    
    
    
    9,121Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    840Issuance of shares for exercise of warrants
and options
    
    
    
    
    
    
    
    
    
    
    5,567
    
    
    
    5
    
    
    
    8,130
    
    
    
    
    
    
    
    8,135Issuance of
shares for Board of Directors
stock
grants
    
    
    
    
    
    
    
    
    
    
    215
    
    
    
    
    
    
    
    740
    
    
    
    
    
    
    
    740Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,898
    
    
    
    17,898Balance, December 31, 2006
    
    
    
    
    
    $
    
    
    
    
    47,297
    
    
    $
    47
    
    
    $
    140,497
    
    
    $
    3,345
    
    
    $
    143,889
 See Notes to Consolidated Financial Statements.
 26




---



##### Table of Contents



Home Solutions of America, Inc.
 
 Notes to Consolidated Financial Statements
  NOTE 1  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Company Description and Nature of Operations
   Restoration and Construction Services
     
    
    Recovery: Our recovery services include providing initial set up services in an
impacted area (including power, lodging, and training) and then providing the drying,
dehumidification, cleanup and removal of debris from commercial and residential areas to
prepare the areas for the next stage of restoration. We provide these services on an
hourly rate to our commercial and residential clients, both as a contractor and as a
subcontractor to customers providing additional services in these markets.
    
    Fire and Water Damage Restoration: We provide trained employees to respond to fire,
water and weather-related emergencies, to inspect structural members and contents damaged
by water, to determine the likelihood or extent of mold growth and to provide immediate
cleaning, drying, moving, storage and deodorization, among other services.
 27




---



##### Table of Contents




    
    Construction: The Companys construction services include providing services to a
number of high growth companies and specialized building markets, including hospitality and
gaming, insurance, education and healthcare markets. We believe our success in
construction services results from our proven ability to manage and perform meaningful,
complex projects while providing accurate budgeting and strict quality control. Although
price is a key competitive factor, we believe our strong reputation, long-standing customer
relationships and significant level of repeat and referral business have enabled us to
achieve our leading position.
    
    Indoor Air Contamination: Through PWS, we provide indoor air contamination services,
including contamination from mold, asbestos and lead paint. With increased media attention
regarding the health threat of mold, fewer insurance options and property transfers at
risk, current market conditions have created significant demand for mold inspections,
certifications and remediation services. These services consist of property and system
inspections, surface and air testing, project design, microbial removal, light interior
demolition, repair and specialized cleaning work. Home inspections and testing can range
from $200 to $800 per inspection. For the typical mold-contaminated house, a remediation
project can last approximately one week and cost $10,000 or more. Customer opportunities
are developed through a regional sales force as well as through referrals by real estate
firms, insurance adjusters, mortgage companies, attorneys and nationally-branded retailers.
The Company believes it can use its industry experience to give efficacy to its processes
and provide homeowners with quality assurance.
    
    Cleaning and Fabric Protection: Through FSS, we provide fabric protection services to
protect furniture, carpet and draperies from stains and daily wear through both
Company-owned locations and over forty licensed locations. This niche market is primarily
targeted at above-average income homeowners with an average job of approximately $400. We
also provide air duct cleaning services to remove particulate (organic and inorganic)
material, which can cause allergic reactions and is often the breeding ground for many
types of mold, from heating and air conditioning systems.
 Interior Services
 
 Principles of Consolidation
  Fair Value of Financial Instruments
  Use of Estimates
  28




---



##### Table of Contents



Concentration of Credit Risk
     Property and Equipment
  Long-Lived Assets
  Inventories
  Intangibles
  Estimated UsefulBalance
    
    
    Life (Years)Trade name
    
    $
    4,540
    
    
    
    15Customer list
    
    
    4,100
    
    
    
    15Supply agreement
    
    
    1,350
    
    
    
    20Non compete
    
    
    441
    
    
    
    610,431Accumulated amortization
    
    
    (1,699
    )$
    8,732
 29




---



##### Table of Contents



2007
    
    $
    7252008
    
    
    7252009
    
    
    7252010
    
    
    7252011
    
    
    725
 Goodwill
 Goodwill and Other Intangible Assets.
  Balance as of December 31, 2004
    
    $
    19,853Goodwill acquired during the year ended December 31, 2005
    
    
    22,029Balance as of December 31, 2005
    
    
    41,882Goodwill acquired during the year ended December 31, 2006
    
    
    80,271Goodwill adjustment related to the FERS net assets acquired
    
    
    347Balance as of December 31, 2006
    
    $
    122,500
 Revenue Recognition
 Revenue Recognition in Financial Statements
     30




---



##### Table of Contents



Costs in Excess of Billings
  Costs incurred on uncompleted contracts
    
    $
    28,641Estimated earnings
    
    
    13,70742,348Billings to date
    
    
    (36,744
    )$
    5,604Costs in excess of billings
    
    $
    6,292Billings in excess of costs
    
    
    (688
    )$
    5,604
 Stock-Based Compensation
 Accounting for Stock Issued to
Employees Accounting for Stock Based
Compensation
 Share-Based Payment
  31




---



##### Table of Contents



For the Year EndedDecember 31, 2006SFAS 123R
    
    
    APB 25Income from continuing operations
before income
taxes and minority interest
    
    $
    28,686
    
    
    $
    26,418Net income
    
    $
    17,898
    
    
    $
    16,537Basic income per share
    
    $
    0.44
    
    
    $
    0.40Diluted income per share
    
    $
    0.43
    
    
    $
    0.39
  For the Year Ended December 31,2005
    
    
    2004Net income, as reported
    
    $
    7,185
    
    
    $
    2,563Add: Share-based employee compensation expense included
in net income, net of related tax effects, as reported
    
    
    581
    
    
    
    Deduct: Share-based employee compensation expense
determined under the fair value method, net of related tax
tax effects  pro forma
    
    
    (1,546
    )
    
    
    (970
    )Net income  pro forma
    
    $
    6,220
    
    
    $
    1,593Net income per common share, as reportedBasic
    
    $
    0.28
    
    
    $
    0.11Diluted
    
    $
    0.25
    
    
    $
    0.10Net income per common share, proformaBasic
    
    $
    0.24
    
    
    $
    0.10Diluted
    
    $
    0.21
    
    
    $
    0.09
 Stock Plans
  32




---



##### Table of Contents



December 31, 2006Shares Reserved
    
    
    Awards Availablefor Grant
    
    
    for Grant1998 Stock Plan
    
    
    3,500
    
    
    
    3932001 Stock Plan
    
    
    6,500
    
    
    
    2,94810,000
    
    
    
    3,341
  , Implementation
of FASB 123R
 For the Year Ended December 31,2006
    
    2005
    
    2004Expected term (in years)
    
    
    6.5
    
    
    
    5
    
    
    
    3Expected volatility
    
    
    77
    %
    
    
    65
    %
    
    
    57
    %Risk-free interest rate
    
    
    4.6
    %
    
    
    3.5
    %
    
    
    1.6
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
  Weighted-AverageRemaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueOutstanding
at December 31, 2003
    
    
    2,500
    
    
    
    1.59Granted
    
    
    2,025
    
    
    
    1.69Cancelled/forfeited
    
    
    (68
    )
    
    
    1.05Exercised
    
    
    Outstanding
at December 31, 2004
    
    
    4,457
    
    
    
    1.64Granted
    
    
    1,079
    
    
    
    2.88Cancelled/forfeited
    
    
    (5
    )
    
    
    1.50Exercised
    
    
    (800
    )
    
    
    1.16Outstanding at December 31, 2005
    
    
    4,731
    
    
    $
    0.86Granted
    
    
    1,120
    
    
    
    4.76Cancelled/forfeited
    
    
    (75
    )
    
    
    1.25Exercised
    
    
    (3,879
    )
    
    
    1.62
    
    
    
    
    
    
    $
    33,623Outstanding at December 31, 2006
    
    
    1,897
    
    
    $
    4.31
    
    
    
    7.0
    
    
    $
    3,152Options vested and expected to vest
    
    
    1,882
    
    
    $
    4.31
    
    
    
    7.0
    
    
    $
    3,148Options exercisable at end of period
    
    
    1,131
    
    
    $
    3.20
    
    
    
    5.2
    
    
    $
    3,034
  33




---



##### Table of Contents



Summary of Restricted Stock Awards
   Weighted-AverageNumber
    
    
    Grant Dateof Shares
    
    
    Fair ValueNonvested at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    363
    
    
    
    5.66Vested
    
    
    (160
    )
    
    
    4.73Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2006
    
    
    203
    
    
    $
    6.40
  Issuance
of Stock for Non-Cash Consideration
  Income Taxes
 Accounting for Income
Taxes.
 Comprehensive Income
  Per Share Data
  34




---



##### Table of Contents



For the Year Ended December 31, 2006Numerator
    
    
    Denominator
    
    
    Per Share(Income)
    
    
    (Shares)
    
    
    AmountBasic EPS:Net income
    
    $
    17,898Income available to common stockholders
    
    
    17,898
    
    
    
    41,039
    
    
    $
    0.44Effect of dilutive securities:Options and warrants
    
    
    
    
    
    
    1,019Diluted EPS:Income available to common stockholders
    
    $
    17,898
    
    
    
    42,058
    
    
    $
    0.43
 For the Year Ended December 31, 2005Numerator
    
    
    Denominator
    
    
    Per Share(Income)
    
    
    (Shares)
    
    
    AmountBasic EPS:Net income
    
    $
    7,185Less: convertible preferred stock dividends
    
    
    (137
    )Less: amortization of convertible preferred stock
issuance costs and beneficial conversion feature
    
    
    (587
    )Income available to common stockholders
    
    
    6,461
    
    
    
    23,210
    
    
    $
    0.28Effect of dilutive securities:Options and warrants
    
    
    
    
    
    
    3,105Diluted EPS:Income available to common stockholders
    
    $
    6,461
    
    
    
    26,315
    
    
    $
    0.25
 For the Year Ended December 31, 2004Numerator
    
    
    Denominator
    
    
    Per Share(Income)
    
    
    (Shares)
    
    
    AmountBasic EPS:Net income
    
    $
    2,563Less: convertible preferred stock dividends
    
    
    (159
    )Less: amortization of convertible preferred stock
issuance costs and beneficial conversion feature
    
    
    (640
    )Income available to common stockholders
    
    
    1,764
    
    
    
    16,393
    
    
    $
    0.11Effect of dilutive securities:Options and warrants
    
    
    
    
    
    
    799Diluted EPS:Income available to common stockholders
    
    $
    1,764
    
    
    
    17,192
    
    
    $
    0.10
 Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109
 35




---



##### Table of Contents



Fair Value Measurements
 NOTE 2
 PROPERTY AND EQUIPMENT
  2006
    
    

2005:Machinery
and equipment
    
    $
    3,781
    
    
    $
    1,577Automobile
and truck
    
    
    2,521
    
    
    
    1,386Land and
building
    
    
    900
    
    
    
    Computer
equipment
    
    
    398
    
    
    
    120Office
equipment, furniture and leasehold improvements
    
    
    961
    
    
    
    348Total
    
    
    8,561
    
    
    
    3,431Less:
accumulated depreciation and amortization
    
    
    (2,432
    )
    
    
    (965
    )Property and
equipment, net
    
    $
    6,129
    
    
    $
    2,466
  NOTE 3  ACQUISITIONS AND DISPOSALS
 Associated Contractors, LLC Acquisition
    36




---



##### Table of Contents



Estimated value of common stock issued to seller
    
    $
    8,145Amounts due
to seller
    
    
    9,855Estimated legal, accounting and financing costs
    
    
    62$
    18,062
  Current assets
    
    
    7,149Property and equipment
    
    
    17Current liabilities
    
    
    (10,776
    )Estimated fair value of tangible net liabilities acquired
    
    
    (3,610
    )Goodwill
    
    
    21,672$
    18,062
  Fireline Restoration, Inc.
   Cash paid to the seller in July 2006
    
    $
    11,500Note payable to seller (see Note 5  Debt)
    
    
    21,650Estimated value of common stock issued to seller
    
    
    22,148Estimated legal, accounting and other costs
    
    
    2,211$
    57,509
  Current assets
    
    
    25,104Property and equipment
    
    
    1,578Other assets
    
    
    75Current liabilities
    
    
    (25,992
    )Long-term liabilities
    
    
    (443
    )Estimated fair value of tangible net assets acquired
    
    
    322Goodwill
    
    
    57,186$
    57,508
   2006
    
    2005(unaudited)
    
    (unaudited)Revenues
    
    $
    141,902
    
    
    $
    120,979Net Income
    
    
    13,446
    
    
    
    8,677Shares outstanding:Basic
    
    
    45,076
    
    
    
    29,210Diluted
    
    
    46,095
    
    
    
    32,315Basic earnings per share
    
    
    0.30
    
    
    
    0.30Diluted earnings per share
    
    
    0.29
    
    
    
    0.25
 37




---



##### Table of Contents



Cornerstone Building and Remodeling Division
   Accounting for the Impairment of Disposal of Long Lived Assets
  December 31,2006
    
    
    2005Results of discontinued operations:Net sales
    
    $
    514
    
    
    $
    4,213Loss before income taxes
    
    
    (478
    )
    
    
    (2,190
    )Gain on sale of discontinued operations:Sales price
    
    
    3,500
    
    
    
    Net assets sold
    
    
    (323
    )
    
    
    Gain on sale
    
    
    3,177
    
    
    
    Income (loss) from discontinued operations
before income taxes
    
    
    2,699
    
    
    
    (2,190
    )Income taxes
    
    
    (958
    )
    
    
    745Income (loss) from discontinued operations
    
    $
    1,741
    
    
    $
    (1,445
    )
 Other Acquisitions
  NOTE 4  NOTES RECEIVABLE
   38




---



##### Table of Contents



NOTE 5  DEBT
         39




---



##### Table of Contents



Lines of CreditRevolving credit note payable to bank, interest of prime less
..25% and matures on November, 2009. At December 31, 2006 the
interest rate was 8.00%.
    
    $
    13,111Notes PayableNote payable to bank, interest of prime less .25%. Interest and
principal payable quarterly beginning January 1, 2007. The note
payable matures November 2009. At December 31, 2006 the interest
rate was 8%. In January 2007 the Company paid $1,649 in
principal and accrued interest payable on the note.
    
    $
    15,000Note payable, non-interest bearing, payable in $5 monthly
installments until paid in full to the seller of Fiber Seal
Systems of Los Angeles (FSSLA).
    
    
    160Note payable
to Brian Marshall, interest at prime (8.25% at
December 31, 2006) until November 17, 2006 and if the maturity
date extends to January 31, 2007 the interest rate will be 12%.
Accrued interest on the outstanding principal balance is due
monthly. The seller agrees to pay the Company interest on
certain accounts receivable beginning January 31, 2007 and if the
accounts receivable are uncollected as of June 30, 2007, the
seller will pay the Company the outstanding balance. As of
November 1, 2006, the note is subordinated to the Companys new
credit facility. As of March 16, 2007 the note payable is
outstanding and the certain accounts receivable are uncollected. The
Company is negotiating with Mr. Marshall to extend the maturity
date.
    
    
    21,650Notes and leases payable to various financial institutions,
collateralized by various equipment and automobiles, bearing
interest at various annual interest rates ranging from prime plus
0.75% to 13.21% principal and interest payable in monthly
installments ranging from $0.4 to $1 through March 2011.
    
    
    307Term loans with various financial institutions with interest at
various annual interest rates ranging from 7.5% to 9.25%, payable
in monthly installments ranging from $.5 to $2, due through
September 2009, secured by accounts receivable and equipment.
    
    
    147Total notes payable
    
    
    37,264Less current portion of notes payable
    
    
    (26,816
    )Non-current portion of notes payable
    
    $
    10,448
  Year
ending, December 31,2007
    
    $
    26,8162008
    
    
    5,1752009
    
    
    18,2672010
    
    
    812011
    
    
    36Total
    
    
    50,375Debt consisted of the following at December 31, 2005:Note payable to SE seller, interest at 2% in excess of one-month
LIBOR rate (adjusted on the first day of each calendar quarter beginning January 1, 2004, totaling 6.39% at
December 31, 2005), principal and interest payments due quarterly beginning July 1, 2004. The payments shall
be greater of (i) the amount of principal and interest that would be payable under a 10-year amortization or (ii) 60% of
free cash flow (as defined) of the calendar quarter that precedes the payment date by two calendar quarters, commencing with
the calendar quarter ended March 31, 2004, which shall be measured against the calculation set forth above for the payment
date of July 1, 2004. The note is secured by a security interest in all the assets and stock of Southern Exposure Unlimited
of Florida, Inc. and SE Tops of Florida, Inc. and a first lien on 50% of the stock of SouthernStone Cabinets, Inc. and is subordinated
to the Laurus Notes.
    
    $
    2,159Revolving credit note payable to bank, interest at the higher of the prime
rate or the federal funds rate plus 0.5% of 1%, interest only payments paid monthly, paid January 2006, guaranteed by the Company and
collaterized by the assets of the Company. At December 31, 2005 the interest rate was 7.25%.
    
    
    1,321Convertible minimum borrowing note payable to Laurus Master Fund, Ltd., interest at
prime plus 2.5%, but not less than 6.5% (totaling 9.50% at December 31, 2005) interest due in monthly installments with principal paid
January 2006, secured by all the assets of the Company. The Convertible Note can be converted into shares of common stock at a fixed
conversion price of $1.88 per share. The note contains certain financial and non-financial covenants, with which the Company is in
compliance at December 31, 2005.
    
    
    895Acstar Judgment payable, secured by note receivable, non-interest bearing, payable
$15 weekly until paid in full, implicit interest rate of 6.5%.
    
    
    129Notes
payable to financial institution, bearing interest at 5.375%, principal and
interest payable in monthly installments of $15 through January 26, 2006, secured by a first lien position in the assets of SouthernStone
Cabinets, Inc. and guaranteed by the former owners of SE paid January 2006. The note was paid in January 2006.
    
    
    15Note payable to various financial institutions, collateralized by various equipment
and automobiles, bearing interest at various annual interest rates ranging from prime plus 0.75% to 7.66%, principal and interest payable
in monthly installments ranging from $0.4 to $1.7 through March 28, 2009.
    
    
    226Total
    
    
    4,745Less current portion
    
    
    (3,382
    )Non-current portion
    
    $
    1,363
 NOTE 6  LEASES
 Operating Leases
  Capital Leases
  40




---



##### Table of Contents



Capital Leases
    
    
    Operating Leases
    
    
    TotalYears Ending December 31:2007
    
    $
    345
    
    
    $
    848
    
    
    $
    1,1932008
    
    
    340
    
    
    
    364
    
    
    
    7042009
    
    
    275
    
    
    
    147
    
    
    
    4222010
    
    
    197
    
    
    
    117
    
    
    
    3142011
    
    
    181
    
    
    
    86
    
    
    
    267Thereafter
    
    
    96
    
    
    
    3
    
    
    
    99Total lease payments
    
    
    1,434
    
    
    $
    1,565
    
    
    $
    2,999Less: amount representing interest
    
    
    (251
    )Present value of future minimum lease payments
    
    
    1,183Less current portion
    
    
    (254
    )$
    929
  Automobiles and trucks
    
    $
    467Equipment
    
    
    998Total
    
    
    1,465Less: accumulated depreciation
    
    
    (248
    )$
    1,217
 NOTE 7  EQUITY
 Preferred Stock
    41




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##### Table of Contents



Common Stock
  
    
    3,651 shares of common stock for $6,256 in connection with the exercise of options;
 
    
    8 shares of common stock in connection with the cashless exercise of stock options;
 
    
    58 shares of common stock in connection with the cashless exercise of warrants;
 
    
    25 shares of common stock valued at $108 in connection with consulting services to the Company:
 
    
    480 shares of common stock in connection with the conversion
of $903 of convertible debt and accrued interest payable;
 
    
    1,850 shares of common stock for $1,879 in connection with the exercise of warrants;
 
 
 
    42




---



##### Table of Contents



Warrants
           Weighted AverageNumber of
    
    
    Exercise PriceWarrants
    
    
    Per ShareOutstanding, January 1, 2004
    
    
    1,922
    
    
    $
    1.10Granted
    
    
    6,048
    
    
    
    1.86Exercised
    
    
    (293
    )
    
    
    0.01Cancelled or Expired
    
    
    (2,296
    )
    
    
    1.76Outstanding and exercisable, December 31, 2004
    
    
    5,381
    
    
    $
    1.74Granted
    
    
    3,082
    
    
    
    1.96Exercised
    
    
    (5,323
    )
    
    
    1.45Cancelled or Expired
    
    
    
    
    
    
    Outstanding and exercisable, December 31, 2005
    
    
    3,140
    
    
    $
    2.49Granted
    
    
    2,000
    
    
    
    0.01Exercised
    
    
    (1,975
    )
    
    
    1.30Cancelled or Expired
    
    
    
    
    
    
    Outstanding, December 31, 2006
    
    
    3,165
    
    
    $
    1.66Exercisable, December 31, 2006
    
    
    1,165
    
    
    $
    4.51Weighted average fair value of warrants granted:2004
    
    $
    1.762005
    
    $
    3.012006
    
    $
    5.42
 43




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##### Table of Contents



Warrants Outstanding and ExercisableWeighted AverageRange of
    
    
    
    
    
    Remaining
    
    Weighted AverageExercise Prices
    
    Number
    
    Contractual Life
    
    Exercise Price$0.01
    
    
    2,000
    (1)
    
    2.8 years
    
    $
    0.01$2.00 - $2.90
    
    
    325
    
    
    2.2 years
    
    $
    2.07$5.50
    
    
    840
    
    
    3.9 years
    
    $
    5.50
  NOTE 8  COMMITMENTS AND CONTINGENCIES
 Litigation
     Indemnities and Guarantees
  44




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##### Table of Contents



Employment Agreements
  Consulting Agreements
  NOTE 9  SEGMENT REPORTING
  For the Year Ended December 31,2006
    
    
    2005
    
    
    2004Net sales:Restoration and Construction Services
    
    $
    88,754
    
    
    $
    37,142
    
    
    $
    16,566Interior Services
    
    
    38,466
    
    
    
    30,993
    
    
    
    14,555Total segment net sales
    
    $
    127,220
    
    
    $
    68,135
    
    
    $
    31,121Operating income:Restoration and Construction Services
    
    $
    32,282
    
    
    $
    11,861
    
    
    $
    2,532Interior Services
    
    
    5,593
    
    
    
    5,883
    
    
    
    3,634Corporate
    
    
    (7,261
    )
    
    
    (4,466
    )
    
    
    (2,119
    )Total segment operating income
    
    $
    30,614
    
    
    $
    13,278
    
    
    $
    4,047Depreciation and amortization included in operating income:Restoration and Construction Services
    
    $
    860
    
    
    $
    519
    
    
    $
    513Interior Services
    
    
    732
    
    
    
    582
    
    
    
    89Corporate
    
    
    170
    
    
    
    130
    
    
    
    237Total segment depreciation and amortization
    
    $
    1,762
    
    
    $
    1,231
    
    
    $
    839Identifiable assets:Restoration and Construction Services
    
    $
    176,098
    
    
    $
    47,290
    
    
    $
    17,509Interior Services
    
    
    37,867
    
    
    
    34,372
    
    
    
    13,083Corporate
    
    
    8,760
    
    
    
    7,005
    
    
    
    3,083Total segment identifiable assets
    
    $
    222,725
    
    
    $
    88,667
    
    
    $
    33,675
  45




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##### Table of Contents



NOTE 10  RELATED PARTY TRANSACTIONS
            NOTE 11  INCOME TAXES
  2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    2,009
    
    
    $
    2,152
    
    
    $
    39State
    
    
    2,016
    
    
    
    769
    
    
    
    1804,025
    
    
    
    2,921
    
    
    
    219Deferred:Federal
    
    
    7,712
    
    
    
    (2,453
    )
    
    
    State
    
    
    65
    
    
    
    (22
    )
    
    
    7,777
    
    
    
    (2,475
    )
    
    
    $
    11,802
    
    
    $
    446
    
    
    $
    219
 46




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Federal income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State and local income tax rate, net of
Federal effect
    
    
    6.0
    %
    
    
    5.0
    %
    
    
    5.0
    %Decrease in valuation allowance and other
    
    
    1.1
    %
    
    
    (34.5
    )%
    
    
    (31.1
    )%Effective income tax rate
    
    
    41.1
    %
    
    
    4.5
    %
    
    
    7.9
    %
  2006
    
    
    2005
    
    
    2004Deferred tax assets:Loss carryforwards
    
    $
    2,552
    
    
    $
    2,748
    
    
    $
    3,379Reserves and accruals
    
    
    1,337
    
    
    
    (100
    )
    
    
    31Depreciation and amortization
    
    
    (3,442
    )
    
    
    (1,855
    )
    
    
    (165
    )Less: valuation allowance
    
    
    
    
    
    
    
    
    
    
    (3,245
    )Net deferred tax assets
    
    $
    447
    
    
    $
    793
    
    
    $
    
   NOTE 12  SUBSEQUENT EVENTS (Unaudited)
   
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures
      
 47




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





















Changes in internal controls




48



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Internal Control  Integrated
Framework Internal Control 
Integrated Framework












49




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##### Table of Contents



















Frank Fradella
    
    Jeffery MattichChief Executive Officer
    
    Senior Vice President and Chief Financial Officer


50



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated
Framework
     Entity Level-Control Environment
   51




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Corporate Office
    Cornerstone
   52




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53




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##### Table of Contents



Home
Solutions Restoration of Florida
  Home
Solutions Restoration of Louisiana
  PW Stephens
   54




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##### Table of Contents



Southern Exposure
     Internal ControlIntegrated Framework Internal ControlIntegrated Framework
 Share-Based Payment
  
 55




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Item
    
    Caption in the 2007 Proxy Statement10
    
    Election of Directors and Related Matters10
    
    Other Matters  Section 16(a) Beneficial Ownership Reporting Compliance11
    
    Executive Compensation12
    
    Stock Ownership12
    
    Executive Compensation  Equity Compensation Plan13
    
    Certain Transactions14
    
    Appointment of Independent Auditors
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  56




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
        INDEX TO EXHIBITS
 2.1
    
    Stock Purchase Agreement among Fireline Restoration, Inc., Brian Marshall and Home Solutions
of America, Inc. dated July 31, 2006 (effective July 1, 2006); (filed with the SEC on August
4, 2006 as Exhibit 2.1 to the Companys Current Report on Form 8-K and incorporated herein by
reference).2.2
    
    Agreement and Plan of Merger among Home Solutions of America, Inc., Home Solutions
Restoration of Louisiana, Inc., Associated Contractors II, LLC, Stephen Scott Sewell, William
Aaron Bennett, William E. Edwards, William J. Bennett and BNOB Construction Services, LLC,
dated as of October 26, 2006 (filed with the SEC on November 1, 2006 as Exhibit 2.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference).3(i).1
    
    Certificate of Incorporation of the Company, as restated on July 31, 2001 (filed with the
SEC on July 9, 2001 as Exhibit A to the Companys Information Statement on Schedule 14C and
incorporated herein by reference).3(i).2
    
    Certificate of Amendment to the Certificate of Incorporation of Nextgen Communications
Corporation, changing the corporations name to Home Solutions of America, Inc., as filed
with the Secretary of State of Delaware on December 23, 2002 (filed with the SEC on December
22, 2002 as Exhibit A to the Companys Information Statement on Schedule 14C and incorporated
herein by reference).3(i).3
    
    Certificate of Amendment to the Restated Certificate of Incorporation of Home Solutions of
America, Inc. as filed with the Delaware Secretary of State on June 16, 2006 (filed with the
SEC on July 14, 2006 as Exhibit 3.3 to the Companys Registration Statement on Form 8-A and
incorporated herein by reference).3(ii).4
    
    Amended and Restated Bylaws of the Company, as amended on April 4, 2006 (filed with the SEC
on May 15, 2006 as Exhibit 3.3 to the Companys Quarterly Report on Form 10-Q and incorporated
herein by reference).4.1
    
    Warrant Certificate issued by Home Solutions of America, Inc. to Stephen Scott Sewell,
William Aaron Bennett, William E. Edwards, William J. Bennett and BNOB Construction Services,
LLC, dated as of October 26, 2006 (filed with the SEC on November 1, 2006 as Exhibit 4.1 to
the Companys Current Report on Form 8-K and incorporated herein by reference).10.1
    
    Form of Restricted Stock Purchase Agreement between Home Solutions of America, Inc. and its
Directors (filed with the SEC on November 14, 2006 as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q and incorporated herein by reference).
 57




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##### Table of Contents



10.2
    
    Board Compensation Plan (filed with the SEC on November 14, 2006 as Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 and
incorporated herein by reference).10.3
    
    Promissory Note issued by Home Solutions of America, Inc. to Brian Marshall in the principal
amount of $21,650,000, dated as of July 1, 2006 (the effective date) (filed with the SEC on
August 4, 2006 as Exhibit 10.01 to the Companys Current Report on Form 8-K and incorporated
herein by reference).10.4
    
    Employment Agreement among Home Solutions of America, Inc., Fireline Restoration, Inc. and
Brian Marshall dated as of July 1, 2006 (the effective date) (filed with the SEC on August 4,
2006 as Exhibit 10.02 to the Companys Current Report on Form 8-K and incorporated herein by
reference).10.5
    
    Amended and Restated Employment Agreement between Home Solutions of America, Inc. and Frank
J. Fradella dated September 8, 2006) (filed with the SEC on September 14, 2006 as Exhibit 10.1
to the Companys Current Report on Form 8-K and incorporated herein by reference).10.6
    
    Amended and Restated Employment Agreement between Home Solutions of America, Inc. and Rick J.
OBrien dated September 8, 2006 ) (filed with the SEC on September 14, 2006 as Exhibit 10.2 to
the Companys Current Report on Form 8-K and incorporated herein by reference).10.7
    
    Amended and Restated Employment Agreement between Home Solutions of America, Inc. and Jeffrey
M. Mattich dated September 8, 2006 ) (filed with the SEC on September 14, 2006 as Exhibit 10.3
to the Companys Current Report on Form 8-K and incorporated herein by reference).10.8
    
    Executive Employment Agreement by and among Home Solutions Restoration of Louisiana, Inc.,
Home Solutions of America, Inc. and Stephen Scott Sewell, dated as of October 26, 2006 (filed
with the SEC on November 1, 2006 as Exhibit 10.1 to the Companys Current Report on Form 8-K
and incorporated herein by reference).10.9
    
    Credit Agreement among Home Solutions of America, Inc., Texas Capital Bank, National
Association, Amegy Bank, N.A., Bank of Oklahoma, NA, and Compass Bank, dated as of November 1,
2006 (filed with the SEC on November 7, 2006 as Exhibit 10.1 to the Companys Current Report
on Form 8-K and incorporated herein by reference).10.10
    
    Promissory Note Revolving Credit Commitment issued by Home Solutions of America, Inc., to
the order of Texas Capital Bank, National Association in the principal amount of
$22,500,000.00 dated November 1, 2006 (filed with the SEC on November 7, 2006 as Exhibit 10.2
to the Companys Current Report on Form 8-K and incorporated herein by reference)..10.11
    
    Promissory Note Revolving Credit Commitment issued by Home Solutions of America, Inc., to
the order of Amegy Bank, N.A. in the principal amount of $11,250,000.00 dated November 1,
2006. (filed with the SEC on November 7, 2006 as Exhibit 10.3 to the Companys Current Report
on Form 8-K and incorporated herein by reference).10.12
    
    Promissory Note Revolving Credit Commitment issued by Home Solutions of America, Inc., to
the order of Bank of Oklahoma, NA in the principal amount of $3,748,500.00 dated November 1,
2006 (filed with the SEC on November 7, 2006 as Exhibit 10.4 to the Companys Current Report
on Form 8-K and incorporated herein by reference).10.13
    
    Promissory Note Revolving Credit Commitment issued by Home Solutions of America, Inc., to
the order of Compass Bank in the principal amount of $7,501,500.00 dated November 1, 2006
(filed with the SEC on November 7, 2006 as Exhibit 10.5 to the Companys Current Report on
Form 8-K and incorporated herein by reference).10.14
    
    Promissory Note Term Loan Commitment issued by Home Solutions of America, Inc., to the order
of Texas Capital Bank, National Association in the principal amount of $7,500,000.00 dated
November 1, 2006 (filed with the SEC on November 7, 2006 as Exhibit 10.6 to the Companys
Current Report on Form 8-K and incorporated herein by reference).10.15
    
    Promissory Note Term Loan Commitment issued by Home Solutions of America, Inc., to the order
of Amegy Bank, N. A. in the principal amount of $3,750,000.00 dated November 1, 2006 (filed
with the SEC on November 7, 2006 as Exhibit 10.7 to the Companys Current Report on Form 8-K
and incorporated herein by reference).10.16
    
    Promissory Note Term Loan Commitment issued by Home Solutions of America, Inc., to the order
of Bank of Oklahoma, NA in the principal amount of $1,251,500.00 dated November 1, 2006 (filed
with the SEC on November 7, 2006 as Exhibit 10.8 to the Companys Current Report on Form 8-K
and incorporated herein by reference).
 58




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##### Table of Contents



10.17
    
    Promissory Note Term Loan Commitment issued by Home Solutions of America, Inc., to the order
of Compass Bank in the principal amount of $2,498,500.00 dated November 1, 2006 (filed with
the SEC on November 7, 2006 as Exhibit 10.9 to the Companys Current Report on Form 8-K and
incorporated herein by reference).10.18
    
    Pledge and Security Agreement among Home Solutions of America, Inc., Cornerstone Marble &
Granite, Inc., Fiber-Seal Systems, L.P., Fireline Restoration, Inc., Home Solutions
Restoration of Louisiana, Inc., P.W. Stephens, Inc., Southern Exposure Unlimited of Florida,
Inc., S.E. Tops of Florida, Inc., FSS Holding Corp. and Southern Exposure Holdings, Inc. for
the benefit of Texas Capital Bank, National Association, dated November 1, 2006 (filed with
the SEC on November 7, 2006 as Exhibit 10.10 to the Companys Current Report on Form 8-K and
incorporated herein by reference).10.19
    
    Guaranty Agreement among Cornerstone Marble & Granite, Inc., Fiber-Seal Systems, L.P., Home
Solutions Restoration of Louisiana, Inc., P.W. Stephens, Inc., Southern Exposure Unlimited of
Florida, Inc., S.E. Tops of Florida, Inc., FSS Holding Corp., Southern Exposure Holdings, Inc.
and Fireline Restoration, Inc., for the benefit of Texas Capital Bank, National Association,
dated November 1, 2006 (filed with the SEC on November 7, 2006 as Exhibit 10.11 to the
Companys Current Report on Form 8-K and incorporated herein by reference).10.20
    
    Restricted Stock Purchase Agreement between Home Solutions of America, Inc. and Brian
Marshall dated December 12, 2006 (filed with the SEC on December 18, 2006 as Exhibit 10.1 to
the Companys Current Report on Form 8-K and incorporated herein by reference).10.21
    
    Restricted Stock Purchase Agreement between Home Solutions of America, Inc. and Scott
Sewell dated December 12, 2006 (filed with the SEC on December 18, 2006 as Exhibit 10.2 to the
Companys Current Report on Form 8-K and incorporated herein by reference).10.22
    
    Separation Agreement and Release between Home Solutions of America, Inc. and Rick J.
OBrien, dated March 2, 2007 (filed with the SEC on March 5, 2007 as Exhibit 10.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference).14.1
    
    First Amended and Restated Code of Ethics (filed with the SEC on December 18, 2006 as Exhibit
10.3 to the Companys Current Report on Form 8-K and incorporated herein by reference).21.1
    
    Subsidiaries of the registrant. +31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. +31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Principal Officer. +32.1
    
    Section 1350 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2
    
    Section 1350 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +
 
 +
    
    Filed herewith. 59




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##### Table of Contents



SIGNATURES
  HOME SOLUTIONS OF AMERICA, INC.March 16, 2007
    
    By:
    
    /s/ Frank J. FradellaFrank J. FradellaChairman and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/  Frank J. Fradella
Frank J. Fradella
    
    Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
    
    March 16, 2007

/s/  Jeffrey M. Mattich
Jeffrey M. Mattich
    
    Chief
Financial Officer
(Principal Financial and Accounting
Officer)
    
    March 16, 2007/s/  Michael S. Chadwick
Michael S. Chadwick
    
    Director
    
    March 16, 2007/s/  Willard W. Kimbrell
Willard W. Kimbrell
    
    Director
    
    March 16, 2007/s/  Brian Marshall
Brian Marshall
    
    Director
and Senior Vice President
    
    March 16, 2007/s/  Patrick A. McGeeney
Patrick A. McGeeney
    
    Director
    
    March 16, 2007/s/  Charles P. McCusker, Jr.
Charles P. McCusker, Jr.
    
    Director
    
    March 16, 2007/s/  Stephen S. Sewell
Stephen S. Sewell
    
    Director
    
    March 16, 2007
 60




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##### Table of Contents



HOME
    SOLUTIONS OF AMERICA, INC.
    SCHEDULE II  VALUATION AND QUALIFYING
    ACCOUNTS
    FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
    (in thousands)
  Balance at






Charged to





Balance atBeginning





Costs and





End ofof Year





Expenses


Deductions


YearAllowance for doubtful accounts:Year ended December 31, 2004

$
72





$
44


$
11


$
105Year ended December 31, 2005


105











495




530




70Year ended December 31, 2006


70






2,823



273



2,693  61