Citron Warns on Hoku Scientific

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Chasing the hot story of the day seems to be popular for Hoku Scientific (NASDAQ:HOKU). This Hawaiian based firm has done at great job over the past few years in putting together partnerships and press releases, yet they have been notably short on results. In the next few days, we will see the company’s 10-K, which will document a second year of broken promises and failed business models.

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Citron Sends Formal Letter to SEC Regarding Home Solutions

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Citron Research has been publishing skeptical stock critiques for close to 7 years. In that timespan, we have never received such volumes or such vicious “hate mail” as we have from the shareholders of HSOA. To those who think their interests are served by shooting the messenger, and in pursuit of the truth, we have sent a letter to the SEC regarding our information on Home Solutions of America. Read more

Home Solutions of America- Fraud Plain and Simple

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As Home Solutions continues to violate securities law on a daily basis, Citron Research lists the 10 questions HSOA will never answer at today’s shareholders’ meeting (or any other time, for that matter).

1.  What type of work is Fireline performing in New York, considering they are not even a NY contractor?

2.  Did Fireline have to put up any money or credit to get this contract in NY?

3.  Identify the counterparties with the financial ability to pay HSOA $100 million dollars in New York and Tampa.

4. How many existing lawsuits are outstanding against Fireline?

5.  Will the company ever provide a breakdown of its receivables describing the party and the age on a line item basis?

6.  Describe the status of the $40 million in contracts with C&B that were previously announced.

7.  How many homes has American Renaissance Homes sold since they put out the announcement last year?

8.  In the recent press release Richard Holowchak of Blue Diamond says they chose Fireline because of the ability to offer them a “stable work force”.  Does Fireline have employees in New York?

9.  SG&A expenses have been off the charts lately and as of June the company is no longer obligated to pay Brian Marshall $70k per month for his airplane…will the company extend this lease with Brian Marshall?

10. When the house of cards does fall and indictments start hitting, who is everyone going to make the fall guy?

 *New to Citron 6/6/07– Home Solutions announced that Fireline was to receive $100 mil from Blue Diamond, a subsidiary of SD Contracting Group.  We have already showed the former legal problems of Richard Holowchak from Blue Diamond.. but look at this.  SD Contracting Group is registered to David Goldwasser. http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3354623&p_corpid=3356177&p_entity_name=%53%44%20%43%6F%6E%74%72%61%63%74%69%6E%67%20%47%72%6F%75%70&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

David Goldwasser was recently released from a federal penitentary last year after being sentenced to 27 months for bank fraud. http://www.bop.gov/iloc2/InmateFinderServlet?Transaction=NameSearch&needingMoreList=false&LastName=goldwasser&Middle=&FirstName=david&Race=U&Sex=U&Age=&x=0&y=0

Home Solutions must address how Goldwasser plans on giving them $100 million and what services they are providing for this $100 million.  Also, did anyone at Blue Diamond or SD get some of that S8 stock?  Here is Goldwasser’s history

http://www.mortgagefraud.org/journal/2003/6/26/mortgage-broker-pleads-guilty-to-defrauding-banks-of-almost-5m.html

It was one year ago today that Citron Research, then Stocklemon, reported on Home Solutions of America (currently NASDAQ:HSOA, at the time AMEX:HOM) misleading investors in an announcement of a contract to sell mobile housing in post-Katrina New Orleans. http://www.citronresearch.com/index.php/2006/06/06/

In reality, it was soon discovered that they had signed a deal with themselves — and insiders sold millions of dollars in stock into the buying stimulated by the bogus press release.   Shareholders should ask how many of these homes they actually sold.  Meanwhile the company has forgotten about last year’s failure to deliver, and has simply moved on to bigger and better tales of conquest.

déjà vu

Citron could use this space to discuss the deteriorating balance sheet of Home Solutions or the chronology of failed business propositions, but instead we will focus on something more pungent…..FRAUD. Yes, that is right, we feel comfortable using the “F” word this time. Home Solutions has clearly violated Rule 10b-5 — more than once.

Rule 10b-5 — Employment of Manipulative and Deceptive Devices:  It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,           

To employ any device, scheme, or artifice to defraud,
To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,                 

Shares of Home Solutions have risen close to 40% in the past few weeks on a series of press releases that headline two different “$100 million” deals for HSOA subsidiary Fireline Restoration.           

Lets look at the past two weeks for Fireline Restoration.  For the purposes of discussion, we will have to suspend disbelief — overlooking the obvious point that that Fireline has no track record as developers of new construction — their history is in provisioning restoration and disaster services.

5/17/2007- Home Solutions issues an S-8 registering 2.4 million shares at $5.64   

5/18/2007- Home Solutions releases “Home Solutions of America Subsidiary Awarded Contracts Valued at Over $100 Million” http://biz.yahoo.com/bw/070518/20070518005359.html?.v=1

In this release we read that Fireline has entered an contract with Blue Diamond Construction of net amount to Fireline in excess of $100 million. The release goes on to quote Rick Holowchak heaping praise on Fireline. HOLD ON! Citron did a thorough exam of the credit history and current workload of Blue Diamond and its “parent company” SD Contracting Group and we could find neither a D&B profile on this company nor any work history.  All we found is a phone # for Blue Diamond as (718) 218-8655.  But look what we did find out about the Rick Holowchak: He was charged by the New York Attorney General for not paying day laborers. 

http://www.oag.state.ny.us/press/2002/jun/jun12b_02.html  And this is the guy who is supposed to pay $100 million to Fireline Restoration!  We have called Home Solutions repeatedly — and no one has been able to provide the address or details of the project.  We find it amazing that the company would announce the largest contract in its history — by far — yet not give an address or hold a conference call to discuss it.  It is the opinion of Citron that these contracts are fictional and do not exist…plain and simple. 

5/31/2007 – Home Solutions of America Subsidiary Awarded Contract Valued at Approximately $100 Million http://biz.yahoo.com/bw/070531/20070531005640.html?.v=1

In this press release we read that Fireline is supposed to be building a “600,000 plus square foot retail center and corporate office site located in Hillsborough County, Florida. The project is being developed by a Tampa Bay-based real estate development firm.” Another unnamed project with an unnamed firm.  To give an idea of the impact of a 600K square foot project in Tampa, that is the size of the Tampa Convention Center.  Citron was only able to find one project even close that that scope in the entire county.  Here it is: http://www.burton-katzman.com/Default.aspx?tabid=89&ItemId=41
We spoke to Ed Dunne, director of Construction for Burton Katzman.  He has never heard of Fireline and definitely has not entered into a $100 million dollar contract.  If we are referencing the wrong project, the company should step forward and give more clarity.

We note that before they were acquired by HSOA, Fireline’s trailing 6 month revenue was a mere $18 million and Fireline only had $252,000 in cash.   Home Solutions does not have a workforce in New York and they have no track record with large scale new constuction.  More importantly, with its current balance sheet, it does not have and could not afford the insurance or bonding required by such projects.

Stop the Presses !

Fueling this stock runup was a string of press coverage by Reuters, Associated Press, Market Watch, theStreet.com and others following these eye-popping announcements.  We invite those agencies to exercise journalistic discipline and attempt to confirm independently the existence of these contracts.

Do not expect the only analyst who covers this stock, David Yuschak, at Sanders Morris Harris, to give any color on this situation. We emailed him and have yet to receive a response. Ironically, in HSOA’s last 10-K we note the reference to Sanders Morris Harris in the disclosure regarding the class action suit consequent to last year’s press release fiasco:

 “On March 12, 2007, the lead plaintiffs filed a consolidated amended complaint asserting claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 against the same defendants as in the original complaints as well as against several additional defendants, including a member of the Company’s board of directors and Sanders Morris Harris.”

A Reasonable Offer

If Home Solutions will publish verifiable details about both of those contracts and allow the investing public to independently validate their credibility, Citron will issue a full apology and update the story immediately. We do not expect this to happen though. Rather the company will book an even larger receivable of dubious collectibility on contracts that do not exist…unless of course the SEC gets to them first. 

Cautious Investing To All.