Auditors Warn Home Builder About Finances : * Losses: Covington Development still hopes to correct its debt problems. The company has a net loss of $24.8 million from 1980 to 1991.

Covington Development Group Inc., the Fullerton home builder which once hoped to revolutionize the industry with a lightweight polystyrene interior wall system, has been hit with the second qualified opinion by its auditors in its 30-year history.

Covington officials acknowledge that the company’s financial problems are serious but say they are confident of working things out.

A “qualified opinion” is an accounting term that indicates there is reason to worry about the financial health of a company.

“There isn’t anything happening right now that is going to cause us to go out of business,” said Robert Vedaa, Covington’s chief financial officer.

“But we have to restructure our debt and find new construction financing. If we haven’t done that within the next year, then we’ll have real problems,” he said.

The latest qualified opinion, disclosed in the company’s annual filing with the Securities and Exchange Commission, expresses auditor Kenneth Leventhal & Co.’s doubts about Covington’s ability to survive because of its dismal financial condition.

Covington is in default on about $14 million in debt and has seen its net worth plunge to a negative $3.4 million from a positive $9.6 million a year ago.

According to its annual report, Covington lost $13 million for 1991.

The company also lost $2.1 million for 1990, and in the preceding decade posted losses for six of the 10 years. Its last profitable year was 1989 when it earned $4.2 million.

From 1980 through 1991, Covington’s net losses have totaled $24.8 million.

The company was also being sued for $3.8 million by an unsecured creditor and had said that it expects the outcome to “be unfavorable.”

But a tentative settlement was reached on Wednesday. Vedaa said he believes that the final terms “will be manageable for the company.”