**SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-QSB**

 

                (MarkOne)

                [x]  Quarterly report under Section 13or 15(d) of the Securities Exchange Act of 1934

                For the quarterly period ended March31, 2003

                [  ]  Transition report under Section13 or 15(d) of the Securities Exchange Act of 1934

                For the transition period from                             to                         

                Commission file number         0-22388                                                                                         

| **HOME SOLUTIONS OF AMERICA, INC.**                                                                                                                |
|----------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact Name of Small Business Issuer as Specified inIts Charter)                                                                                   |
|                                                                                                                                               |
|                        Delaware | 99-0273889
(State or Other Jurisdiction of      Incorporation or Organization)
(IRS Employer      Identification No.)  
11850 Jones Road, Houston, Texas 77070

 (Address of Principal Executive Offices) 
(281) 970-9859

(Issuer's Telephone Number, Including Area Code) 
(Former Name, Former Address and Former Fiscal Year,if Changed Since Last Report)

 

 

                Check whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes         X               No                       

                 

                The number of shares outstanding ofthe registrant's common stock, $.001 par value per share, as of May 7, 2003 was11,078,852 shares.

 

                TransitionalSmall Business Disclosure Format: Yes                       No         X            

****

**PART IFINANCIAL INFORMATION**

** ITEM 1.  FINANCIAL STATEMENTS**

**HOME SOLUTIONS OF AMERICA, INC.**

**CONSOLIDATED BALANCE SHEET**

(In Thousands, Except Per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

 

2003

 

 

 

 

 

 

 

 

 (Unaudited)  

 

 

 

**ASSETS**

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

 

 $           422  

 

 

 

 

Accounts receivable, net of  allowance for doubtful accounts of $92

 

           3,581  

 

 

 

 

Prepaid expenses and  supplies

 
              464  
 

 

 

 

 

 

Total current assets

 

           4,467  

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net  of accumulated depreciation of $201

 

           3,107  

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

         10,815  

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

                32  

 

 

 

 

 

 

 

 

 

 

 

 

Due from related party

 

                61  

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 
              409  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 $      18,891 

 

 

 

**LIABILITIES AND  STOCKHOLDERS' EQUITY**

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued  expenses

 

 $        2,715  

 

 

 

 

Due to related party

 

                87  

 

 

 

 

Line of credit borrowings

 

              527  

 

 

 

 

Current portion of long-term  debt

 

           2,790  

 

 

 

 

Current portion of capital  lease obligations 

 

              176  

 

 

 

 

Notes payable

 

              165

 

 

 

 

Notes payable to related  party

 
           1,000  
 

 

 

 

 

 

Total current liabilities

 

           7,460  

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, net of  current portion

 

           6,427  

 

 

 

 

Capital lease obligations,  net of current portion

 
              266  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 
         14,153  
 

 

 

 

 

 

 

 

 

 

 

 

Commitments and  contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.001 par  value, 50,000 shares authorized;

 

 

 

 

 

 

 

11,079 shares issued and  outstanding

 

                11  

 

 

 

 

Additional paid-in capital

 

         26,789  

 

 

 

 

Accumulated deficit

 
        (22,062)
 

 

 

 

 

 

Total stockholders' equity

 
           4,738  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 $      18,891 

 

 

 
                                                      
The accompanying notes are an integral part of these  unaudited financial statements.

2

**HOME SOLUTIONS OF AMERICA, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(In Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

2003

 

2002

 

 

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 
 $      3,929 
 
 $            -  
 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

         2,072  

 

               -  

 

Selling, general and  administrative expenses

 

 

 

 

         1,698  

 

            410  

 

 

 

 

 

 

 
         3,770  
 
            410  
 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 
            159  
 
           (410)
 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

                 -  

 

              31  

 

Interest expense

 

 

 

 

           (149)

 

                 -  

 

Other income

 

 

 

 

                4  

 

                 -  

 

 

Total other income (expense)

 

 

 

 
           (145)
 
              31  
 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from  continuing operations before income taxes

 

 

 

 

              14  

 

           (379)

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

 

                 -  

 

                 -  

 

 

 

 

 

 

 

 

 

 

Loss from discontinued  operations (including loss on

 

 

 

 

 

 

 

 

disposal of $104)

 

 

 

 
                 -  
 
           (247)
 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 $           14  

 

 $        (626)

 

 

 

 

 

 

 

 

 

 

Income (loss) per share from  continuing operations

 

 

 

 

 

 

 

    Basic and diluted

 

 

 

 

 $        0.00   

 

 $       (0.04)

Loss per share from  discontinued operations

 

 

 

 

 

 

 

    Basic and diluted

 

 

 

 

 $        0.00   

 

 $       (0.02)

Net income (loss) per share

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

 

 

 $        0.00   

 

 $       (0.06)

 

 

 

 

 

 

 

 

 

 

Weighted average number of  common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

       11,079 

 

       10,245 

 

 

Diluted

 

 

 

 

       12,324

 

       10,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited  financial statements.

3

**HOME SOLUTIONS OF AMERICA, INC.**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In Thousands)

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

 

2003

 

2002

CASH FLOWS FROM OPERATING  ACTIVITIES:

(Unaudited)

 

(Unaudited)

 

Net income (loss)

 $                14  

 

 $             (626)

 

Adjustments to reconcile net  income (loss) to net cash provided by (used in) 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

Depreciation and  amortization

                 126  

 

                     4  

 

 

 

Allowance for doubtful  accounts

                    (2)

 

                      -  

 

 

 

Loss on sale of PTP

                      -  

 

                 104  

 

 

 

Stock-based compensation

                   44  

 

                      -  

 

 

 

Changes in operating assets  and liabilities, net of acquisitions

 

 

 

 

 

 

 

and divestitures-

 

 

 

 

 

 

 

 

Accounts receivable

                   91  

 

                 284  

 

 

 

 

 

Costs and estimated earnings  in excess of billings on jobs in

 

 

 

 

 

 

 

 

 

progress, net

                      -  

 

                     6  

 

 

 

 

 

Prepaid expenses and  supplies

                   50  

 

                  (39)

 

 

 

 

 

Accounts payable and accrued  liabilities

                 352  

 

                (370)

 

Net cash provided by (used  in) operating activities

                 675  

 

                (637)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING  ACTIVITIES:

 

 

 

 

Principal payments received  on notes receivable

                      -  

 

                   57  

 

Cash transferred in sale of  PTP

                      -  

 

                (198)

 

Fees paid for pending  acquisitions

                (280)  

 

                     -

 

Advances to related party

                    (1)

 

                      -  

 

Purchases of property and  equipment

                  (65)

 

                (135)

 

Net cash used in investing  activities

                (346)  

 

                (276)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING  ACTIVITIES:

 

 

 

 

Net repayments on line of  credit

                    (1)

 

                      -  

 

Proceeds from notes payable  to related party

                 250

 

                     -

 

Proceeds from notes payable

                 250

 

                      -  

 

Principal payments on notes  payable

                 (85)

 

                     -

 

Principal payments on  long-term debt and capital leases

                (586)

 

                (283)

 

Net cash used in financing  activities

                (172)

 

                (283)

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN  CASH

                  157

 

             (1,196)

 

 

 

 

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD
                 265  
 
              2,210  
 

 

 

 

 

 

 

 

 

 

 

CASH AT END OF PERIOD

 $             422  

 

 $           1,014  

Supplemental disclosures of  cash flow information

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

 $                77

 

 $                  7  

 

 

Income taxes

 $                   -  

 

 $                   -  

 

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of  non-cash investing and financing activities:

 

 

 

 

Fixed assets acquired  through capital lease obligations

 $                15  

 

 $                   -  

 

Fixed assets acquired  through notes payable

 $              100  

 

 $                   -  

 

Common stock returned as  settlement

 $                   -  

 

 $           2,628  
               
The accompanying notes are an integral part of these  unaudited financial statements.

4

**HOME SOLUTIONS OF AMERICA, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSMARCH 31, 2003(Dollars and Shares in Thousands,Except Per Share Data)**

**  NOTE 1 -         BASISOF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Company Descriptionand Nature of Operations**

HomeSolutions of America, Inc. ("we," "us," "Home Solutions," or the "Company") isa Delaware corporation that was incorporated in 1998.  Our growth strategy isto become a leading provider of specialty residential services that protect thehomeowner's single largest investment - their home. We seek a dominant marketposition through the acquisition of strategic, specialized, profitable andwell-managed residential service companies and through the above averageinternal growth of these operations.  Home Solutions will provide services suchas cleaning and fabric protection, fire and water damage restoration, and theremediation of indoor air contaminants.

InNovember 2002, Home Solutions acquired PW Stephens, Inc. ("PWS"), a $15,000revenue provider of residential and light commercial indoor air remediationservices, for $13,402, consisting of cash, the exchange of certain assets,seller notes,  commissions and other costs.  These operations are includedin our first quarter financial results.  Also, the Company has announcedletters of intent to acquire three residential service providers located inTexas.  

Theaccompanying unaudited, interim consolidated financial statements have beenprepared by the Company in accordance with accounting principles generallyaccepted in the United States of America and Regulation S-B, as promulgated bythe Securities and Exchange Commission. Certain information and footnotedisclosures normally included in audited financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted. Accordingly, these interimconsolidated financial statements should be read in conjunction with theCompany's consolidated financial statements and related notes as contained inthe Company's annual report on Form 10-KSB for the year ended December 31,2002. In the opinion of management, the interim consolidated financialstatements reflect all adjustments, including normal recurring adjustments,necessary for fair presentation of the interim periods presented. The resultsof operations for the three months ended March 31, 2003 are not necessarilyindicative of results of operations to be expected for the full year.

**Principles of Consolidation**

Theaccompanying consolidated financial statements include the accounts of HomeSolutions of America, Inc. and its wholly owned subsidiaries. All significantintercompany transactions and balances have been eliminated in consolidation.

**Use of Estimates**

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of the contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. Significant estimates made by management include,among others, the realizability of accounts receivable, property and equipmentand goodwill, and valuation of deferred tax assets.  Actual results coulddiffer from these estimates. 

**Goodwill**

Goodwillrepresents the excess of acquisition cost over the net assets acquired in abusiness combination and is not amortized in accordance with Statement ofFinancial Accounting Standards ("SFAS") No. 142, "*Goodwill and OtherIntangible Assets"*.  Management reviews, on an annual basis, the carryingvalue of goodwill in order to determine whether impairment has occurred.Impairment is based on several factors including the Company's projection offuture undiscounted operating cash flows. If an impairment of the carryingvalue were to be indicated by this review, the Company would adjust thecarrying value of goodwill to its estimated fair value. 

**Long-Lived Assets**

TheCompany's management assesses the recoverability of its long-lived assets bydetermining whether the depreciation and amortization of long-lived assets overtheir remaining lives can be recovered through projected undiscounted futurecash flows.  The amount of long-lived asset impairment, if any, is measuredbased on fair value and is charged to operations in the period in which long-livedasset impairment is determined by management.  At March 31, 2003, the Company'smanagement believes there is no impairment of its long-lived assets.  There canbe no assurance, however, that market conditions will not change or demand forthe Company's products and services will continue, which could result inimpairment of long-lived assets in the future.

** Revenue Recognition**

Sincethe purchase of PWS, revenue is recognized at the time the contract and relatedservices are performed.

Priorto that time, the Company reported revenues from fixed priced contracts usingthe percentage of completion method for financial reporting purposes.  Underthe percentage of completion method, revenues with respect to individualcontracts were recognized in the proportion that costs incurred to date bore tototal estimated costs.  Revenue and cost estimates were subject to revisionduring the terms of the contracts, and any required adjustments were made inthe periods in which the revisions become known.  Provision was made, whereapplicable, for the entire amount of future estimated losses on contracts inprogress when such losses were determined.  General and administrative costswere not allocated to contract costs and were charged to expense as incurred.

5

**HOME SOLUTIONS OF AMERICA, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSMARCH 31, 2003**

**(Dollars and Shares in Thousands,Except Per Share Data)**

**NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES, continued**

TheCompany recognized revenues from time and materials contracts and consultingservices as those services were performed.  Advance payments made under thesecontracts were recorded as deferred revenue and recognized when the relatedservices were performed.

** Stock-Based Compensation**

TheCompany uses the intrinsic value method of accounting for stock-basedcompensation to employees in accordance with Accounting Principles BoardOpinion ("APB") No. 25, as amended, *"Accounting for StockIssued to Employees."*   The Company accounts for non-employeestock-based compensation under SFAS No. 123, *"Accounting forStock-Based Compensation."* At March 31, 2003, the Company has twostock-based employee compensation plans, which are described more fully in Note4.  During the three months ended March 31, 2003 and 2002, no compensationexpense was recognized in the accompanying consolidated statements ofoperations for options issued to employees pursuant to APB 25.  No otherstock-based employee compensation cost is reflected in the 2003 and 2002consolidated statements of operations, as all options granted in the threemonths ended March 31, 2003 and 2002 under those plans had either exerciseprices equal to or greater than the market value of the underlying common stockon the date of grant or the vesting period starts after the three months endedMarch 31, 2003 and 2002.  The following table illustrates the effect on netloss and loss per share if the Company had applied the fair value recognitionprovisions of SFAS No. 123 to stock-based employee compensation:

 
         
Three Months Ended March 31,         
2003   
2002

Net  income (loss) as reported

 

$

14 

$

(626)

Add: 

 

 

 

 

 

     Total  stock-based employee compensation expense under
   
 

 

 

 

       APB 25
   
 

-

 

-

Deduct:

 

 

 

 

 

     Total  stock-based employee compensation expense under fair
   
 

 

 

 

       value based method for all awards, net of related tax effects
   
 

 (67)

 

    -

 

 

 

 

 

 

Pro  forma net loss
   
$

 (53)

$

 (626)

 
   
 

 

 

 

Basic  and diluted loss per share - as reported
   
$

    0.00 

$ 

 (0.06)

 
   
 

 

 

 

Basic  and diluted loss per share - pro forma
   
$

(0.00)

$

(0.06)

 

 

 

 

 

 

**Comprehensive Income**

Duringthe periods presented, the Company had no items of comprehensive income and,therefore, has not presented a statement of comprehensive income. 

**Per Share Data**

Basicearnings per share ("BEPS") is computed by dividing income (loss)available to common stockholders by the weighted average number of outstandingcommon shares during the period of computation. Diluted earnings per share("DEPS") gives effect to all dilutive potential common sharesoutstanding during the period of computation.   The computation of DEPS doesnot assume conversion, exercise or contingent exercise of securities that wouldhave an antidilutive effect on earnings. As of March 31, 2003 and 2002, the Companyhad the following potentially dilutive securities that would affect loss pershare if they were to be dilutive: 
         2003   2002
 

Options
   
446
   
12

 

Warrants
   
  799
   
-

 

 
   
 
   
 

 

 
   
1,245
   
   12
                  
**BusinessSegments**

The Company currently operates in one segment, indoorair contaminate abatement services forresidential and commercial properties.

6

**HOME SOLUTIONS OF AMERICA, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSMARCH 31, 2003(Dollars and Shares in Thousands,Except Per Share Data)**

 

**NOTE2 - ACQUISITIONS AND DISPOSITIONS**

OnFebruary 22, 2002, the Company sold all of its shares of its former wholly-ownedsubsidiary, Point To Point Network Services, Inc. ("PTP"), to Point to Pointof Louisiana, Inc., a Louisiana corporation (the "Buyer"). The saleprice was $1,000, which the Buyer paid by issuing a Secured Promissory Note(the "Note") to the Company.  The Note had interest at 6.5% per annum, andrequired a payment of accrued interest on February 22, 2003, and a payment ofaccrued interest and $100 of principal on February 22, 2004, and all remainingprincipal and interest accrued thereon on February 22, 2005. The Note wassecured by the stock sold, pursuant to a Stock Pledge Agreement dated February22, 2002.  The Note was assigned to the former stockholder of PWS in connectionwith the acquisition of PWS on November 1, 2002.  PTP had revenues of $253 andincurred a loss from operations of $143 during the first quarter of 2002.  Theloss on sale of PTP is comprised of the following:

Current assets

$

811 

Property and equipment

 

476 

Goodwill

 

837 

Current liabilities

 

(1,066)

Long-term liabilities

 
(12)
 

 

 

Net book value of net assets  sold

 

1,046 

Legal and other transaction  costs

 

58 

Sale price

 
(1,000)
 

 

 

 

$
(104)
Priorto the sale of PTP, the Company entered into a settlement agreement with aformer employee and stockholder of PTP.  The agreement required the formerstockholder to transfer 1,800 of the 2,000 shares of the Company's common stockissued in the acquisition of PTP back to the Company.  As a result, the Companyreduced previously recorded goodwill related to PTP by $2,628, the value of theshares on the date of acquisition.

Letters of Intent

Fiber Seal Systems L.P. In March 2003, the Company entered into a letter ofintent to acquire Fiber Seal Systems L.P., a company that provides fabricprotection services, for the following consideration: (i) approximately $520financed through a seller note, (ii) 300 shares of the Company's common stock,and (iii) an option to purchase up to 250 shares of the Company's common stock,subject to Fiber Seal Systems achieving certain revenue targets. 

Horizon Cleaning, Inc.  In March 2003, the Company entered into a letter ofintent to acquire all of the outstanding stock of Horizon Cleaning, Inc., acompany that provides specialty residential cleaning and remediation services,for approximately $2,416, consisting of 953 shares of common stock of theCompany and a $224 seller note.

Central Texas Residential Services, Inc.  In March 2003, the Company entered into a letter ofintent to acquire all of the outstanding stock of Central Texas ResidentialServices, Inc., a company that provides specialty residential cleaning andremediation services, for approximately $2,000 consisting of 850 shares ofcommon stock of the Company.

During the three months ended March 31, 2003, theCompany paid fees of $280,000 related to these potential acquisitions that werecapitalized in other assets in the accompanying consolidated balance sheet. All three of these acquisitions are expected to close in the second quarter of2003; however, each transaction is subject to the satisfactory completion ofour due diligence review, and the successful negotiation and execution ofdefinitive purchase and/or loan agreements, which will contain numerousconditions to closing. There can be no assurance that we will be able toconsummate these transactions.

Wewill continue to actively pursue the acquisition of companies that providespecialty residential services as we proceed with our growth strategy. Ourability to acquire such businesses will be dependent upon, among other factors,our ability to obtain outside financing and/or issue shares of the Company'scommon stock as a portion of the purchase price.

 7

**HOME SOLUTIONS OF AMERICA, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSMARCH 31, 2003(Dollars and Shares in Thousands,Except Per Share Data)**

** **

**NOTE 3 -         SHORT-TERM AND LONG-TERM DEBT**

Short-TermDebt

In thethree months ended March 31, 2003, the Company borrowed a total of $500, ofwhich $250 was from an affiliate of a stockholder of the Company and $250 fromtwo unrelated entities, to fund general working capital.  Of this amount, $85has been repaid to the unrelated entity.  The remaining balance of $250 from arelated party is due May 31, 2003 and $165 to unrelated entities is due June30, 2003.  These notes bear interest at rates between 8% and 18%.

TheCompany has a $750 note payable to a related party, dated October 29, 2002,secured by a deed of trust, which bears interest of 12% per annum, payablemonthly and the balance due on October 29, 2003.

The Company is currently negotiating a new creditfacility to re-finance its existing indebtedness of $1,370 (line of creditborrowings of $527 and term loan of $843) at a financial institution whichexpired January 28, 2003 and to re-finance a portion of its seller notes whichwere due March 31, 2003 and April 1, 2003 (see below).

Long-TermDebt

Long-term debt consists ofthe following as of March 31, 2003:

Note  payable to seller, interest at 6%, principal due in one payment including  interest of $37 on March 31, 2003, secured by substantially all the assets of  the Company.  The Company is currently in the process of renegotiating the  terms of this note to extend the maturity date.

 

 

$ 1,500
   
 

Note  payable to seller, net of discount of $148, zero coupon, imputed interest at  5%, principal and interest due in equal monthly installments of $24 through  October 2007, secured by substantially all the assets of the Company.

 

1,186
   
 

Note  payable to seller, net of discount of $24, interest starting June 1, 2003 at  one-month LIBOR (1.31% at March 31, 2003) plus 1%, principal payments of $250  due quarterly plus interest beginning November 1, 2003, with final payment of  $200 plus unpaid interest on November 1, 2008, secured by substantially all  of the assets of the Company.

 

 

5,176
   
 

Note  payable to a financial institution, bearing interest at prime (4.25% at March  31, 2003) plus 0.75%, monthly principal payments of $18 plus interest,  maturing on January 28, 2007.  The Company expects to replace the note  payable through additional financing from another institution.  The Company  must maintain certain financial and non-financial covenants.  This note is  guaranteed by the former stockholder of PWS.

 

 

843
   
 

Note  payable to seller, interest at 2.25%, principal payments due as accounts  receivable securing the note are collected, remaining amount (if any) due  April 1, 2003. The Company is currently in the process of renegotiating the  terms of this note to extend the maturity date.

 

317
   
 

Note  payable to various financial institutions, collateralized by various  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 $0.70 to $1.7 through March 28, 2009.

 

        195
   
9,217

 

Less  current portion

   (2,790)
         
Total

$  6,427

 

                                                                                                                                                                                                           

8

**HOME SOLUTIONS OF AMERICA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2003**

**(Dollars and Shares in Thousands, Except PerShare Data)**

 

**NOTE 4 - EQUITY**

**Common Stock**

During the three months ended March 31, 2003, the Company didnot issue any shares of common stock.

**Stock Options**

The Company's Board of Directors approved the2001 Stock Plan (the "2001 Plan") on April 2, 2001. The 2001 Plan provides forawards of incentive stock options, non-qualified stock options, and restrictedstock purchase rights. The Company has reserved 2,000 shares of common stockunder the 2001 Plan. The exercise price of the awards shall be determined by thePlan administrator at the date of grant, but shall not be less than the fairmarket value of the stock on the date of grant for employees, or 85 percent ofthe fair market value for non-employees. The exercise period shall be no morethan 10 years and the awards will vest over a period of time determinable by theBoard of Directors.  The number of options under the 2001 Plan availablefor grant at March 31, 2003 was 610.  At the Company's 2003 annualstockholders' meeting, which will be held on May 20, 2003, the Company'sstockholders will be asked to approve an amendment to the 2001 Plan that wouldincrease the options available for grant under the 2001 Plan by 1,000,000.

The Company's Board of Directors approved the1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan covers two types ofoptions: incentive stock options and non-qualified stock options. The aggregatenumber of shares that may be issued pursuant to the 1998 Plan may not exceed1,000 shares. The exercise price for the options shall be determined by the Planadministrator at the date of grant, but shall not be less than the fair marketvalue of the stock at the date of grant. The option period can be no more than10 years and the options will vest over a period of time determinable by theBoard of Directors.  The number of options under the 1998 Plan availablefor grant at March 31, 2003 was 117.   At the Company's 2003 annualstockholders' meeting, which will be held on May 20, 2003, the Company'sstockholders will be asked to approve an amendment to the 1998 Plan that wouldincrease the options available for grant under the 1998 Plan by 1,000,000.

During the three months ended March 31, 2003, the Companyissued options to purchase 250 shares of the Company's common stock at $2.10(fair value on the date of grant) to its officer under the 1998 Plan, vestingover a three-year period.  The Company also amended the officer's 170options to fully vest all options in the event that the officer is terminatedprior to the expiration of his employment agreement. 

**Warrants**

From time to time, the Company issues warrantspursuant to various consulting and third party agreements.

During the three months ended March 31,2003,the Company cancelled 125 warrants to purchase shares of the Company's commonstock at $1.50 per share.

**NOTE 5 - LITIGATION, COMMITMENTS AND CONTINGENCIES**

The nature and scope of the Company's businessoperations bring it into regular contact with the general public, a variety ofbusinesses and government agencies. These activities inherently subject theCompany to potential litigation, which are defended in the normal course ofbusiness. At March 31, 2003, there were various claims and disputes incidentalto the business. The Company believes that the disposition of all such claimsand disputes, individually or in the aggregate, should not have a materialadverse affect upon the Company's financial position, results of operations orcash flows. As of March 31, 2003, the Company has not been named as aresponsible party for any environmental issues under the Federal Superfund Law.

An adversary proceeding was commenced on orabout February 9, 2001 by American Eco Corporation ("Plaintiff" or "AEC"),which, at the time, was a debtor-in-possession under Chapter 11 of the UnitedStates Bankruptcy Code. The proceeding seeks the recovery of certain allegedtransfers and recovery of fees against the Company based on theories of breachof contract, promissory estoppel, quantum meruit and pursuant to Sections 542,544, 548 and 550 of the Bankruptcy Code. The proceeding seeks a recovery inexcess of $1,300 and other equitable relief. The Company has filed its answer,which, in part, denies all liability. An Order Scheduling Pre-Trial Proceedingswas signed on October 31, 2001. A trial date has not yet been set.  TheCompany is vigorously defending this suit.  At this time, the Companycannot predict the likelihood of an unfavorable outcome.  

On or about August 1, 2002, National UnionFire Insurance commenced an adversary proceeding against us entitled *NationalUnion Fire Ins. Co. v. QHI Stephens Contractors, Inc., EIF Holdings, Inc., P.W.Stephens Contracts, Inc., P.W. Stephens Contractors, Inc. (CA), P.W. StephensServices, Inc., P.W. Stephens Residential, Inc., American Temporary Sanitation,Inc.* in the United States District Court for the Northern District ofCalifornia.  The lawsuit does not list the specific amount of damages beingsought.  The lawsuit derives from a guarantee that EIF Holdings, Inc., apredecessor of the Company, allegedly made in 1997 for the benefit of awholly-owned subsidiary of American Eco, when at the time EIF Holdings was a72%-owned subsidiary of American Eco.  The Company is vigorously defendingthe validity and enforceability of the guarantee that forms the basis for thelawsuit, which is currently in the discovery phase The Company cannot predictthe range of potential loss that may occur related to this proceeding.

On or about October 3, 2002, in the Superior Criminal Court ofLos Angeles County, California a misdemeanor claim was filed against the Companyand two employees alleging that certain events violated state and localregulations.  The Company is vigorously defending this suit.  At thistime, the Company cannot predict the likelihood of an unfavorable outcome norestimate the amount or range of potential loss, if any.

9

**HOME SOLUTIONS OF AMERICA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2003(Dollars and Shares in Thousands, Except Per Share Data)**

 

**NOTE 5 - LITIGATION, COMMITMENTS AND CONTINGENCIES(continued)**

Pursuant to an indemnification agreementbetween the Company and Spruce MacIntyre Holding Corp.("Spruce"), the Companyrecently settled claims brought by CIT Group/Equipment Financing, Inc. andAckstar Insurance Company, both filed in the United States District Court forthe Eastern District of Missouri.  The CIT settlement agreement requiresSpruce to make certain payments to the plaintiffs which Spruce has made throughthe filing date of this Form 10-QSB.  In the event that Spruce fails tomake the remaining settlement payments, the plaintiffs could seek satisfactionof their $713 consent judgment against the Company, in which case the Companywould have to seek indemnification from Spruce.

The Company has accrued $225 in theaccompanying consolidated financial statements related to the above proceedings. Based on management's analysis, the Company believes that this amount will besufficient to cover any potential losses that may occur.

**NOTE 6 - SUBSEQUENT EVENTS**

On April 7, 2003, Willard "Kim" Kimbrelljoined the board of directors of the Company and was awarded 100 stock optionsvesting over three years.

**ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION**

**Overview**

**               **Home Solutions of America, Inc. ("we," "us," "HomeSolutions," or the "Company") is a Delaware corporation that was incorporated in1998.  Our growth strategy, developed in 2002, is to become a leadingprovider of specialty residential services that protect the homeowner's singlelargest investment - their home. We seek a dominant market position through theacquisition of strategic, specialized, profitable and well-managed residentialservice companies and through the above average internal growth of theseoperations.  Home Solutions will provide services such as cleaning andfabric protection, fire and water damage restoration, and the remediation ofindoor air contaminants.

**Growth Strategy**

               Home Solutions seeks to acquire companies or internally generate projects thatwill focus on providing specialty residential services to homeowners. Effective November 1, 2002, we closed our first acquisition as part of thisstrategy, acquiring PW Stephens, Inc. ("PWS"), a $15 million revenue provider ofindoor air contaminate removal services for homeowners in California.  Weexpect to continue our aggressive growth strategy with additional acquisitions. The following is a list of the targeted services that we are pursuing:

***Cleaning andFabric Protection:***We will provide fabricprotection services to protect furniture, carpet and draperies from stains anddaily wear and tear.  This niche market is primarily targeted atabove-average income homeowners with an average ticket of approximately $400 ormore.  We will provide our customers with an annual fabric protectionservice agreement that will allow them to have on-site spill clean up during thelife of the agreement.  In addition, using well-tested methods of cleaningcarpet, we will offer maintenance and emergency response services to ourcustomer base to repair carpet damaged by common stains, pet dander, bacteriaand dust.  This procedure will extend the life of the homeowners' carpetsand make the carpet look its finest.  Furthermore, air duct cleaning isanother under-developed market the Company will approach.  Particulate(organic and inorganic) material within a home's heating and air conditioningsystems and the transferair ducts can cause allergic reactions and generallyindicate poor air quality.  Furthermore, the conditions of these systems,high moisture content and heat are often the breeding ground for many types ofmold.  It is expected that a portion of our cleaning operations willgenerate additional opportunities across our other business segments.

***Indoor AirContamination:*** Indoor air contamination, includingcontamination from mold, asbestos and lead paint, is a growing concern for thehomeowner. With increased media attention regarding the health threat of mold,fewer insurance options, and property transfers at risk, current marketconditions have created significant demand for mold inspections, certificationsand remediation services.  These services consist of property and systeminspections, surface and air testing, project design, microbial removal, lightinterior demolition, repair and specialized cleaning work.  Homeinspections and testing can range from $300 to several thousand dollars. Customer opportunities are developed through a regional sales force as well asthrough referrals by real estate firms, insurance adjusters, mortgage companies,attorneys and nationally branded retailers.  Althoughgovernment-promulgated regulation is currently under review, industry practiceand general awareness is building momentum. The Company believes it can use itsindustry experience to give efficacy to its processes and provide homeownerswith quality assurance.  Furthermore, we plan to provide annual andquarterly monitoring services, in which technicians will regularly inspect, testand certify the air quality of our clients' homes.  It is expected that aportion of our indoor air contamination operations will generate additionalopportunities across our other business segments. 

***Fire and WaterDamage Restoration:***As part of Home Solutions'specialty residential services strategy, we will provide highly trainedtechnicians to respond to fire, water and weather-related emergencies to inspectstructural members and contents damaged by water, to determine the likelihood orextent of mold growth, and to provide immediate cleaning, drying, moving,storage, and deodorization, among other services.  As most cases of moldare associated with excess moisture, we believe that response to this type ofevent-related damage will provide significant additional revenue opportunities. The cost and time requirements of these projects can vary dramatically fromcase-to-case.  It is expected that a portion of our fire/water damagerestoration operations will generate additional opportunities across our otherbusiness segments.

10

 

*Use of Estimates and Critical Accounting Policies*

               In preparing our consolidated financial statements, we make estimates,assumptions and judgments that can have a significant effect on our revenues,income (loss) from operations, and net income (loss), as well as on the value ofcertain assets on our balance sheet.  We believe that there are severalaccounting policies that are critical to an understanding of our historical andfuture performance as these policies affect the reported amounts of revenues,expenses, and significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affectingour financial statements, areas that are particularly significant includerevenue recognition, stock-based compensation, and goodwill.  In addition,please refer to Note 1 to the accompanying financial statements for furtherdiscussion of our accounting policies.

*Revenue Recognition*

               Revenue is recognized at the time the contract and related services areperformed.

*Stock-Based Compensation*

              The Company uses the intrinsicvalue method of accounting for stock-based compensation to employees inaccordance with Accounting Principles Board Opinion ("APB") No. 25, as amended,*"Accounting for Stock Issued to Employees."*   The Companyaccounts for non-employee stock-based compensation under Statement of FinancialAccounting Standards ("SFAS") No. 123, *"Accounting for Stock-BasedCompensation."* At March 31, 2003, the Company had two stock-based employeecompensation plans, which are described more fully in Note 4 of the accompanyingconsolidated financial statements.  The Company accounts for those plansunder the recognition and measurement principles of APB 25, and relatedinterpretations.  The Company has applied the disclosure provisions in SFASNo. 148 in its consolidated financial statements and the accompanying notes. The Company does not anticipate adopting the fair value based method ofaccounting for stock-based compensation.

*Goodwill*

               Goodwill represents the excess of acquisition cost over the net assets acquiredin a business combination. Management reviews, on an annual basis, the carryingvalue of goodwill in order to determine whether an impairment has occurred.Impairment is based on several factors including the Company's projection offuture undiscounted operating cash flows. If an impairment of the carrying valuewere to be indicated by this review, the Company would adjust the carrying valueof goodwill to its estimated fair value.

* *

**Results of Operations (Dollars In Thousands)**           **Comparison of Three Months ended March 31, 2003 Resultsof Operations to Three Months ended March 31, 2002**

*Revenue*

               The revenue of $3,929 for the three months ended March 31, 2003 is comprised ofrevenue from PWS. For the three months ended March 31, 2002, the Company had norevenue during this period other than revenue earned by PTP, the Company'sformer wholly-owned subsidiary that was divested in February 2002, which revenueis included in the "Income (loss) from discontinued operations" line item on theconsolidated statements of operations.

*Costs of Sales*

               Costs of sales were $2,072 for the three months ended March 31, 2003.  Forthe three months ended March 31, 2002, the Company had no cost of sales duringthis period other than from the Company's divested subsidiary PTP, which isincluded in the "Income (loss) from discontinued operations" line item on theconsolidated statements of operations.

*Selling, General and Administrative Expenses:*

               Selling, general and administrative expenses were $1,698 for the three monthsended March 31, 2003 compared to $410 for the three months ended March 31, 2002. This represents an increase of $1,288 over 2002.  This increase is due tothe addition of PWS' administrative costs together with Home Solutions'administrative costs.

*Other Income (Expenses):*

                 Interest income decreased from $31 in 2002 to $0 in 2003.  This isprimarily a result of lower cash balances during the first quarter of 2003. Interest expense was $149 in 2003 compared to $0 in 2002.  This is largelydue to the debt incurred with the acquisition of PWS and interest on the line ofcredit and long-term debt at PWS.  Other income was $4 in 2003 compared to$0 in 2002.

**Liquidity and Capital Resources**

               The Company's existing capital resources as of March 31, 2003, consisted of cashand accounts receivable totaling $4,003, compared to cash and notes receivableof $3,359 as of March 31, 2002. The Company believes that the financingarrangements the Company currently has in place are sufficient throughout thenext twelve months to finance its working capital needs.  Implementation ofthe Company's strategic plan of acquiring niche residential services companieswill require additional capital, however. 

The Company has acredit agreement with a financial institution.  The credit agreementincludes an $843 term loan, a revolving line of credit and an equipment line ofcredit.  The credit agreement is guaranteed by the former stockholder ofPWS, secured by substantially all PWS assets and contains a provision thatrequires PWS to maintain certain financial covenants.  The revolving lineof credit expired on January 28, 2003.  The Company is currentlynegotiating with other financial institutions to refinance this line, theequipment line and the $843 term loan.  The balance on the revolving lineof credit was $499 at March 31, 2003.

 

11

 

               The equipment line of credit bears interest at the prime rate plus 1.00% perannum, payable monthly.  The terms of the agreement provide for borrowingsup to $200.  The equipment line of credit expired on January 31, 2003, atwhich time all outstanding amounts will be repaid over 36 equal monthlyinstallments including principal and interest through February 28, 2006. The balance at March 31, 2003 was $27.

               During the three months ended March 31, 2003, the Company generated net cashfrom operating activities of $675, including a net income of $14.  

               The Company's investing activities used net cash of $346, primarily due to thepurchase of property and equipment and payment of fees for pending acquisitions.

               The Company's financing activities used net cash of $172, primarily due toprincipal payments made on long-term debt and capital leases.

**RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENT INCLUDED INTHIS FORM 10-QSB**

               This Form 10-QSB contains certain forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, which are intended to be covered bythe safe harbors created thereby. These statements include the plans andobjectives of management for future operations, including plans and objectivesrelating to the Company's residential services acquisition strategy andavailability of capital to fund such strategy. The forward-looking statementsincluded herein are based on current expectations that involve numerous risksand uncertainties. Assumptions relating to the foregoing involve judgments withrespect to, among other things, future economic, competitive and marketconditions, regulatory framework, and future business decisions, all of whichare difficult or impossible to predict accurately and many of which are beyondthe control of the Company. We refer you to the section entitled "Trends, Risksand Uncertainties" in Item 6 of Part II of our annual report on Form 10-KSB forthe year ended December 31, 2002, for a list of specific factors that couldcause actual results to differ materially from those indicated by ourforward-looking statements made herein and presented elsewhere by management.Although the Company believes that the assumptions underlying theforward-looking statements are reasonable, any of the assumptions could beinaccurate and, therefore, there can be no assurance that the forward-lookingstatements included in this Form 10-QSB will prove to be accurate. In light ofthe significant uncertainties inherent in the forward-looking statementsincluded herein, the inclusion of such information should not be regarded as arepresentation by the Company or any other person that the objectives and plansof the Company will be achieved. Furthermore, we do not undertake any obligationto update forward-looking statements made herein.

**ITEM 3. CONTROLS AND PROCEDURES.**

Within the 90-dayperiod prior to the filing of this report, an evaluation was carried out underthe supervision and with the participation of the Company's management,including our Chief Executive Officer and our Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-14(c) and 15d-14(c) under the SecuritiesExchange Act of 1934).  Based upon that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that the design and operationof these disclosure controls and procedures were effective.  No significantchanges were made in our internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of their evaluation.

**PART II**

**OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS.**

** **

The nature and scopeof our business operations bring us into regular contact with the generalpublic, a variety of businesses and government agencies.  These activitiesinherently subject us to potential litigation, which we defend in the normalcourse of business. At March 31, 2003, there were various claims and disputesincidental to the business.  The Company believes that the disposition ofall such claims and disputes, individually or in the aggregate, should not havea material adverse affect upon our financial position, results of operations orcash flows.  As of March 31, 2003, the Company has not been named as aresponsible party for any environmental issues under the Federal Superfund Law.

** **

**ITEM 2.  CHANGES IN SECURITIES.**

The Company issued thefollowing shares of its common stock without registration under the SecuritiesAct of 1933, as amended (the "Securities Act"):

1.              OnDecember 23, 2002, the Company issued 20,161 shares of common stock, atapproximately $3.10 per share, as payment under a consulting agreement;

2.            On December 27, 2002, the Company issued 235,294 shares of common stock, atapproximately $2.55 per share, as payment under a consulting agreement.

 

12

 

The above issuanceswere unregistered, as the Company was relying on the exemptions fromregistration contained in Section 4(2) of the Securities Act, and Regulation Dpromulgated thereunder, on the basis that such transactions did not involvepublic offerings of securities.

**ITEM 5. OTHER INFORMATION.**

Effective January 15,2003, Mark W. White, a businessman and former governor of Texas (and the fatherof R. Andrew White, our president and chief executive officer), and Michael S.Chadwick, an investment banker with Sanders Morris Harris, joined our Board ofDirectors.  Upon becoming directors, Messrs. White and Chadwick eachreceived 100,000 options to purchase common stock of the Company at an exerciseprice of $1.65 per share, vested over a three-year period. 

In March 2003, R.Andrew White, our chief financial officer, was promoted to chief executiveofficer and president of the Company.  We have entered into a three-yearexecutive employment agreement with Mr. White, which provides an annual salaryof $165,000.  We also granted Mr. White 250,000 options to purchase HomeSolutions common stock at $2.10 per share, subject to vesting over a three-yearperiod, and amended Mr. White's options agreements for 150,000 and 20,000options, respectively, to fully vest all options in the event that Mr. White isterminated prior to the expiration of his employment agreement.  Frank J.Fradella, our former chief executive officer and president, will remain Chairmanof the Board and oversee our acquisition program.  Our Board of Directorsvested the remaining portions of Mr. Fradella's 250,000 stock options and500,000 stock purchase rights, respectively, in consideration of Mr. Fradella'spast contributions and expected future contributions to the Company.

In March 2003, theCompany and the former shareholder of PWS conducted negotiations whereby certainof the Company's promissory notes issued to the former shareholder of PWS wouldbe restructured and certain collateral would be provided as security for therestructured notes.  Such discussions have not been finalized, and therecan be no assurance that definitive agreements will result from suchdiscussions.

The Company's 2003annual stockholders' meeting will be held at the Company's offices at 9:00 a.m.on May 20, 2003.  Details of the items to be voted upon at the meeting areset forth in the Company's proxy statement, which was filed with the SEC andmailed to all stockholders on April 29, 2003.

**ITEM 6.               EXHIBITS AND REPORTS ON FORM 8-K.**

** **

(a)            *Exhibits*
2.1
Stock Purchase and Note Assignment      Agreement, dated as of September 29, 2000, between Spruce MacIntyre      Holding Corp., P.W. Stephens Environmental, Inc., P.W. Stephens      Contractors, Inc., P.W. Stephens Services, Inc., P.W. Stephens Northwest,      Inc. and U.S. Industrial Services, Inc. (filed as Exhibit 2.1 to the      Company's Current Report on Form 8-K filed on February 20, 2001, and      incorporated herein by reference).2.2
Reorganization Agreement and Plan of      Merger, effective as of June 29, 2001, by and among U S Industrial      Services, Inc., a Delaware corporation, Point To Point Network Services,      Inc., a Massachusetts corporation, and W. Michael Sullivan (filed as      Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 19,      2001, and incorporated herein by reference).2.3
Agreement for Sale of Shares, dated as      of February 22, 2002, between Nextgen Communications Corporation, a      Delaware corporation, and Point to Point of Louisiana, Inc., a Louisiana      corporation (filed as Exhibit 2.1 to the Company's Current Report on Form      8-K filed on March 19, 2002, and incorporated herein by reference).2.4
First Amendment to Agreement for Sale of      Shares, executed to be effective as of February 22, 2002, by and between      Nextgen Communications Corporation and Point to Point of Louisiana, Inc.      (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K filed on      March 19, 2002, and incorporated herein by reference).2.5 
Secured Promissory Note, dated February      22, 2002, issued by Point to Point of Louisiana to Nextgen Communications      Corporation. (filed as Exhibit 2.3 to the Company's Current Report on Form      8-K filed on March 19, 2002, and incorporated herein by reference).2.6
First Amendment to Secured Promissory      Note, executed to be effective as of February 22, 2002, by and between      Point to Point of Louisiana, Inc. and Nextgen Communications Corporation      (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K filed on      March 19, 2002, and incorporated herein by reference).
13

 

 
2.7 
Stock Pledge Agreement, executed to be      effective as of February 22, 2002, by and between Point to Point of      Louisiana, Inc. and Nextgen Communications Corporation (filed as Exhibit      2.5 to the Company's Current Report on Form 8-K filed on March 19, 2002,      and incorporated herein by reference).2.8
 Settlement Agreement and Mutual Release      of Claims, executed to be effective as of February 20, 2002, by and among      Point To Point Network Services, Inc., Nextgen Communications Corporation,      and W. Michael Sullivan (filed as Exhibit 2.6 to the Company's Current      Report on Form 8-K filed on March 19, 2002, and incorporated herein by      reference).2.9
Repurchase Option Agreement, executed to      be effective as of February 20, 2002, by and between Nextgen      Communications Corporation and W. Michael Sullivan (filed as Exhibit 2.7      to the Company's Current Report on Form 8-K filed on March 19, 2002, and      incorporated herein by reference).2.10
Stock Purchase Agreement dated November      1, 2002, by and between Nextgen Communications Corporation and Jane C.      Barber (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K      filed on January 17, 2003, and incorporated herein by reference).2.11
Promissory Note dated November 1, 2002,      in the original principal amount of $1,500,000, issued by Nextgen      Communications Corporation to Jane C. Barber (filed as Exhibit 2.2 to the      Company's Current Report on Form 8-K filed on January 17, 2003, and      incorporated herein by reference).2.12
Promissory Note dated November 1, 2002,      in the original principal amount of $1,000,000, issued by Nextgen      Communications Corporation to Jane C. Barber (filed as Exhibit 2.3 to the      Company's Current Report on Form 8-K filed on January 17, 2003, and      incorporated herein by reference).2.13
Promissory Note dated November 1, 2002,      in the original principal amount of $1,444,100, issued by Nextgen      Communications Corporation to Jane C. Barber (filed as Exhibit 2.4 to the      Company's Current Report on Form 8-K filed on January 17, 2003, and      incorporated herein by reference).2.14
Secured Promissory Note dated November      1, 2002, in the original principal amount of $5,200,000, issued by Nextgen      Communications Corporation to Jane C. Barber (filed as Exhibit 2.5 to the      Company's Current Report on Form 8-K filed on January 17, 2003, and      incorporated herein by reference).2.15
Assignment of Promissory Notes, dated      November 1, 2002, by and between Nextgen Communications Corporation and      Jane C. Barber (filed as Exhibit 2.6 to the Company's Current Report on      Form 8-K filed on January 17, 2003, and incorporated herein by reference).2.16
Warrant Purchase Agreement, dated      November 15, 2002 by and between Nextgen Communications Corporation and      Jane C. Barber. (filed as Exhibit 2.16 to the Company's Annual Report on      Form 10-KSB for the year ended December 31, 2002, and incorporated herein      by reference).3.1
Certificate of Incorporation of the      Company, as restated on July 31, 2001 (filed as Exhibit A to the Company's      Information Statement on Schedule 14C filed on July 9, 2001, and      incorporated herein by reference).3.2
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 on December 23, 2002 (filed as Exhibit A to the Company's      Information Statement on Schedule 14C filed on December 22, 2002, and      incorporated herein by reference).3.3
Bylaws of the Company, as amended on      April 2, 2001 (filed as Exhibit 3.2 to the Company's Quarterly Report on      Form 10-QSB for the quarter ended June 30, 2001, and incorporated herein      by reference).10.1 *
1998 Stock Option Plan (filed as Exhibit      4.1 to the Company's Annual Report on Form 10-KSB for the year ended      September 30, 1998, and incorporated herein by reference).10.2
Promissory Notes in principal amounts of      $3,490,000 and $1,000,000, respectively, issued to ATNAM Enterprises, Inc.      by Kenny Industrial Services, L.L.C. (filed as Exhibit 10.3 to the      Company's Quarterly Report on Form 10-QSB for the quarter ended March 31,      2001, and incorporated herein by reference).10.3 *
2001 Stock Plan (filed as Exhibit B to      the Company's Information Statement on Schedule 14C filed on July 9, 2001,      and incorporated herein by reference).10.4 
Note Modification Agreement dated April      30, 2001, by and between Spruce MacIntyre Holding Corp. and U S Industrial      Services, Inc. (filed as Exhibit 10.6 to the Company's Quarterly Report on      Form 10-QSB for the quarter ended June 30, 2001, and incorporated herein      by reference).10.5 *
Employment Agreement by and between      Frank J. Fradella and U S Industrial Services, Inc., dated April 2, 2001.      (filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-QSB      for the quarter ended June 30, 2001, and incorporated herein by      reference).10.6 *
Registration Rights Agreement by and      between Frank J. Fradella and U S Industrial Services, Inc., dated April      2, 2001. (filed as Exhibit 10.8 to the Company's Quarterly Report on Form      10-QSB for the quarter ended June 30, 2001, and incorporated herein by      reference).10.7 *
Stock Option Agreement executed December      27, 2001, to be effective as of October 3, 2000, by and between Frank J.      Fradella and Nextgen Communications Corporation (filed as Exhibit 2 to      Amendment No. 3 to Schedule 13D of Frank J. Fradella filed on January 3,      2002, and incorporated herein by reference).10.8*
Stock Option Agreement by and between R.      Andrew White and Nextgen Communications Corporation, dated February 1,      2002 (filed as Exhibit 10.8 to the Company's Quarterly Report on Form      10-QSB for the quarter ended March 31, 2002, and incorporated herein by      reference).10.9*
Employment Agreement by and between R.      Andrew White and Nextgen Communications Corporation, dated March 1, 2002      (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-QSB      for the quarter ended March 31, 2002, and incorporated herein by      reference).10.10*
First Amendment to Stock Option      Agreement by and between R. Andrew White and Nextgen Communications      Corporation, dated September 2, 2002 (filed as Exhibit 10.10 to the      Company's Quarterly Report on Form 10-QSB for the quarter ended September      30, 2002, and incorporated herein by reference).
14

 
10.11*
Restricted Stock Purchase Agreement by      and between Frank J. Fradella and US Industrial Services, Inc. dated April      2, 2001 (filed as Exhibit 10.11 to the Company's Annual Report on Form      10-KSB for the year ended December 31, 2002, and incorporated herein by      reference).  10.12*
Employment Agreement by and between P.W.      Stephens, Inc., a California corporation, and Scott Johnson, effective      September 1, 2001 (filed as Exhibit 10.12 to the Company's Annual Report      on Form 10-KSB for the year ended December 31, 2002, and incorporated      herein by reference). 10.13
Form of Registration Rights Agreement      between Nextgen Communications Corporation and each of four accredited      investors, dated November 19, 2002 (filed as Exhibit 10.13 to the      Company's Annual Report on Form 10-KSB for the year ended December 31,      2002, and incorporated herein by reference). 10.14
Form of Warrant Purchase Agreement      between Nextgen Communications Corporation and each of four accredited      investors, dated November 19, 2002 (filed as Exhibit 10.14 to the      Company's Annual Report on Form 10-KSB for the year ended December 31,      2002, and incorporated herein by reference). 10.15*
Executive Employment Agreement by and      between R. Andrew White and Home Solutions of America, Inc., dated March      15, 2003.+10.16*
First Amendment to Stock Option      Agreement by and between R. Andrew White and Home Solutions of America,      Inc., dated March 15, 2003.+10.17*
Second Amendment to Stock Option      Agreement by and between R. Andrew White and Home Solutions of America,      Inc., dated March 15, 2003.+10.18*
Consulting Agreement by and between      Frank J. Fradella and Home Solutions of America, Inc., dated March 15,      2003.+10.19*
First Amendment to Restricted Stock      Purchase Agreement by and between Frank J. Fradella and Home Solutions of      America, Inc., dated March 15, 2003.+10.20*
First Amendment to Stock Option      Agreement by and between Frank J. Fradella and Home Solutions of America,      Inc., dated March 15, 2003.+
   99.1      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002.+

* Denotes a managementcontract or compensatory plan or arrangement.                + Filed herewith.

(b)               *Reports on Form 8-K*

On January 7, 2003,the Company filed a Current Report on Form 8-K, for an event that occurred onDecember 31, 2002, to report  a change in independent accounting firms.

On January 17, 2003,the Company filed a Current Report on Form 8-K, for an event that occurred onDecember 27, 2002, to report the closing of the acquisition of P.W. Stephens,Inc.

On February 14, 2003,the Company filed a Current Report on Form 8-K/A, amending the Current Report onForm 8-K that was filed on January 17, 2003, to include the required financialstatements of P.W. Stephens, Inc.

15

SIGNATURES

               In accordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

               

                       HOME SOLUTIONS OF AMERICA, INC.

** **

** **

Dated: May 15, 2003                                                                 By:                  /s/ R. ANDREW WHITE                                                                                                                                                              R. Andrew White                                                                                                                           President, Chief Executive Officer,                                                                                                                            and Chief Financial Officer (Interim)

** **

16

**CERTIFICATIONS**

I, R. Andrew White,certify that:

1. I have reviewedthis quarterly report on Form 10-QSB of Home Solutions of America, Inc.;

2. Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

3. Based on myknowledge, the financial statements, and other financial information included inthis quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

4. The registrant'sother certifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and have:

a) Designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b) Evaluated theeffectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and

c) Presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5. The registrant'sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant's auditors and the audit committee of registrant'sboard of directors (or persons performing the equivalent functions):

a) All significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant's ability to record, process, summarize andreport financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and

b) Any fraud, whetheror not material, that involves management of other employees who have asignificant role in the registrant's internal controls; and

6. The registrant'sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

                                                       /s/ R. ANDREW WHITE                                                                                         R. Andrew White                                                        ChiefExecutive Officer and Chief Financial Officer                                                       Date: May 15, 2003

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