Home Theater Sued Over Loans of $15 Million

Bank of America said Wednesday that it has filed a lawsuit seeking repayment of about $15 million in loans to troubled Home Theater Products International Inc., which is under investigation by regulators for allegedly overstating profits and revenue.

The bank filed its lawsuit Tuesday in Los Angeles Superior Court. Home Theater, the Anaheim-based maker of stereo and television component systems, had a $10-million line of credit from the bank, which was later extended to about $15 million.

“We’re still evaluating the situation with them,” said B of A spokeswoman Lisa Lewis in San Francisco.

Home Theater attorney Harry Stahl said he has not seen the B of A lawsuit, so he wouldn’t comment on it. But he added that as far as he knows, the company has not missed any of its loan payments to the bank.

The lawsuit came as shareholders formed a committee to find out more about the company, stung by allegations from its former auditor that it reported millions of dollars in profits when it actually had millions in losses.

On Monday, Nasdaq suspended trading of stock in Home Theater. The next day, Securities and Exchange Commission investigators contacted former outside auditor Jaak (Jack) Olesk to inquire about his allegations of irregularities at the company.

The company confirmed in an SEC filing last week that Olesk had quit Sept. 5 because of what he considered management deficiencies and weaknesses in internal controls. Chairman Paul R. Safronchik denied that there were management shortcomings and said executives were reviewing internal controls.

Last Friday, Olesk elaborated on his allegations, saying he resigned after discovering that the company had created phony accounts receivable--padding its earnings by saying it was owed money from customers who either didn’t exist or could show they owed nothing. As a result, the auditor said, Home Theater showed 1994 earnings of $4 million when it actually lost $5 million, and reported revenue of $41 million when it should have been $32 million.

The shareholders’ committee was formed with the help of Brookstreet Securities, a Irvine-based brokerage chain, and will be chaired by broker Alex Montano. The committee will gather as much information as possible about the alleged problems at the Anaheim-based company, said the group’s attorney, Lynne Bolduc.

Brookstreet President Stan Brooks said he helped set up the committee at the request of Home Theater shareholders, some of whom are customers of the firm. He said he hopes that a complete audit will allow the company “to get a clean slate and move on.”

Home Theater lawyer Stahl said the company is aware of the formation of the stockholders committee and plans to cooperate fully. Home Theater has about 10 million shares of stock outstanding. Chairman Safronchik and President Jerome Adamo have equal shares totaling 27%.

Home Theater has hired an outside accountant and brought in consultants in crisis management, Stahl said.

“They are taking the steps they need to take in order to make sure the company is viable and will continue,” Stahl said. “The company takes [the allegations] very seriously and is looking into it. But until there is hard evidence, there is no reason for the company to take any other position” than to stand by its earlier statements that its financial releases are accurate.