Helionetics, Facing Fiscal Squeeze, Is in Default on $4.5-Million Loan

Helionetics Inc. said Thursday that it has received a default notice on a $4.5-million loan from one of its principal creditors, the latest in a series of blows to rock the small Irvine defense contractor.

The announcement came less than 30 days after Helionetics revealed that overdue interest payments on another $11.5-million loan totaled more than $550,000, and that the company expected to report a loss of about $19 million for 1985 when it files its annual statement on April 15.

President Michael Mann, who spent the day discussing the company’s financial problems with trade creditors, said late Thursday that despite the difficulties, a bankruptcy filing is remote. “Certainly, it’s always a prospect,” Mann said. “But it’s unlikely.”

Nevertheless, Mann conceded that if any of the creditors began to press for immediate repayment, Helionetics would be forced to consider a bankruptcy filing because sustained losses have virtually depleted its cash.

Mann said Helionetics’ trade creditors, who are owed a total of about $2 million, agreed Thursday to accept an indefinite moratorium on debt repayment and established an informal creditors’ committee to oversee the company’s operations. In addition, he said the company is talking to the Bank of America, which is owed $11.5 million plus interest, about a new debt-repayment schedule.

Furthermore, Mann said the company intends to fight any attempt by Downey Savings & Loan Assn. to attach the company’s assets in order to collect the $4.5 million, plus nearly $28,000 in interest, that fell due Monday. The loan from Downey was made to the company’s employee stock option plan, an account established to buy company stock on behalf of its workers.

Thursday’s announcement is the latest installment in Helionetics’ topsy-turvy existence. Over the last six years, the company has been subjected to board-room bickering, revolving-door management and Wall Street worries about its roller-coaster operations and its principal shareholder, controversial investor Bernard Katz.

In a lengthly interview last month, Mann blamed the company’s current woes on an ill-timed and ill-advised acquisition binge that began in late 1983 under previous Chairman Charles Missler.

Pointing out that all five of the companies Missler had acquired lost money, Mann said he has axed three of the firms since assuming the presidency in late December, 1984, following Missler’s resignation.

Among the operations dropped were a dredge maker in Canada, an alternative energy research company and an oil exploration equipment maker. Helionetics’ core businesses have traditionally been electro-optical systems, including lasers, and large-scale power regulators, mostly for the military.

“The company was too small to undertake a diversification like that,” Mann said. “Our core businesses have been successful, but the peripheral businesses drained our resources.”

In response, Missler said only that “the track record of the management of the company speaks for itself.”

According to Mann, the acquisition program forced Helionetics to borrow heavily to finance the purchases. He said that when the acquired companies--many of which were purchased while they were in bankruptcy proceedings--failed to perform up to expectations, Helionetics was left with insufficient resources to cover the large debt payments.

Mann is not alone in criticizing the acquisition program. In a research report last September, Value Line analyst Jerry Melin said the “buying spree is indicative of Helionetics’ biggest problem: defining exactly what businesses the company wants to be in.”

The stock-buying plan, initiated in May, 1984, under Missler’s direction, was originally conceived as a way to let employees own a part of the company and share in its appreciating value. The theory called for the plan to borrow $5 million to buy company stock--it purchased about 480,000 shares at $10.63 each--and repay the loan by selling just a fraction of the stock at an increased value.

However, Mann said that while interest and a portion of the loan principal were repaid with stock sale proceeds, the stock’s value has plummeted so dramatically in recent months that the plan’s shares are no longer able to cover the loan. Helionetics’ stock closed Thursday at $2.63 a share, off 37.5 cents for the day.

Mann said his rebuilding strategy, which began 15 months ago, calls for Helionetics to return to its core operations and to try to find non-military customers for its laser and power-stabilizing products. However, he acknowledged that the strategy has been costly.

Mann said that all but $1.5 million of the $14-million loss expected for the fourth quarter is due to write-downs and write-offs of assets being axed under his streamlining program. Further, he said the cuts have reduced revenues. For the first nine months of 1985, the company had sales of $15.5 million, compared with $17.4 million in the same period of 1984.

In addition, Mann said that continuing debt obligations have so strapped the company that it has little cash to cover any attempt to expand its ongoing business operations, which include a backlog of more than $40 million in orders.

Mann said his strategy calls for the company to fend off creditors for the time being with a debt-restructuring plan while it meets its current orders. If the company becomes profitable under that plan, Mann said he would attempt to sell additional stock to generate more cash.

But the first priority is to satisfy the creditors. “We’re trying to convince the lenders that the company is viable and that, if we properly restructure, we have a business worth saving,” Mann said. “It all hinges on that.”