Shares of Home Theater Products International Inc. fell by nearly half Monday after the consumer electronics maker disclosed that its auditor has resigned, alleging "significant weaknesses" in internal controls and citing "concerns relating to management integrity."
Home Theater, a 230-employee company based in Anaheim, closed at a 52-week low of $1.75 a share, down $1.625 a share, in Nasdaq trading. Volume was heavy, with 1.55 million shares changing hands.
The company disclosed the resignation of the auditor, Jaak (Jack) Olesk of Beverly Hills, in a document that it is required to file with the Securities and Exchange Commission. His allegations were contained in a letter accompanying the filing.
But in the same filing, Home Theater countered that it believes most of Olesk's allegations are overblown or unfounded.
It stated in the filing that it "disagrees that its weaknesses in its internal control structure are significant" and "strongly disagrees there is any legitimate basis for Olesk to question management integrity."
It added, however, that any company can improve its internal controls and that it will attempt to do so.
In an interview, Home Theater Chairman Paul Safroncik said that Olesk had been the company's auditor since March, 1992, and never let on that he had found major deficiencies in management or internal controls.
"It caught us by surprise. We are dealing with it, though," Safroncik said.
Olesk, a certified public accountant, said that the company is fully aware of problems that led to his Sept. 5 resignation, but he declined to disclose details. Olesk said he would have resigned immediately if he had found similar shortcomings during the three years he reviewed the company's books.
The company has hired a new outside auditor, Oscar Sendowsky of La Habra. The company also faces an Oct. 15 deadline for filing its annual audited report with the SEC, but Safroncik said he believes the company's new auditors can meet the deadline.
Home Theater, which is also known as HTP International Inc., makes high-end home entertainment systems--combining furniture, stereo and video--marketed under an agreement with Paramount Pictures. The company earned $2.7 million, or 43 cents a share, on revenue of $36.4 million in the fiscal year ended June 30. That compares with earnings of $357,249, or 14 cents a share, on revenue of $16.8 million in the previous fiscal year.