The two top executives of troubled HTP International Inc. officially stepped down Monday in the wake of a former auditor's allegations that the home entertainment furniture maker overstated its sales by $9.3 million.
Paul R. Safronchik resigned as chairman, chief executive and chief financial officer, and Jerome A. Adamo retired as president and chief operating officer.
In an unrelated action, Dennis Vasquez, who had been an inactive board member and had missed board meetings for more than six months, resigned as an outside director.
The departures of the three directors left the Anaheim company with only one board member, Irwin Zucker, the company's executive vice president. Zucker officially took over Monday as acting chief executive.
"I won't ask people to join the board until we stabilize the situation," Zucker said. He also said he will fire one or more high-level executives, but he wouldn't elaborate.
Despite the turmoil, sales of the company's speakers and home entertainment furniture with built-in speakers are "hanging in there," Zucker said.
In the last two weeks, he said, HTP has signed new contracts to supply wireless speakers and headphones to Brookstone stores for Christmas and to sell multimedia computer speakers and wireless speakers and headphones through Ingram Micro Inc., one of the nation's largest distributors of computer products.
"The basics of the business are still solid," Zucker said. "We'll recover, but it will take a lot of time and work by a lot of people."
The departures of Safronchik and Adamo had been expected but were delayed until HTP could obtain waivers on various contracts that had required the pair to be the two top officers, said Zucker, who has been the unofficial chief executive for the past month. The company received waivers from, among others, Bank of America and Viacom Inc., the parent company of Paramount Pictures studio.
The bank has sued to collect $14.4 million outstanding on the company's $15-million line of credit because the company failed to provide notification, as required by the loan agreement, of material changes, such as the resignation of its auditor.
However, Zucker said the bank has not yet served the suit on the company and is, instead, working with current management to correct the problems. HTP has not missed a payment on the line of credit, he said.
Under a licensing agreement with Viacom, HTP makes home entertainment centers with built-in speakers under the Paramount Pictures label. The product line makes up 50% to 60% of HTP's revenue, Zucker said.
HTP was rocked early last month when its outside auditor, Jaak (Jack) Olesk of Beverly Hills, resigned, citing "significant weaknesses" in HTP's internal controls and concerns about "management integrity."
Olesk dealt almost exclusively with Safronchik as HTP's financial officer, and sometimes with Adamo. He had met Zucker, the company's third-ranking officer, only once.
Safronchik challenged Olesk's reasons in a filing with the Securities and Exchange Commission, prompting Olesk to provide details. The auditor said the company booked at least $9.3 million in nonexistent sales and posted a profit of $4 million when it actually lost $5 million for its fiscal year, which ended June 30.
Olesk also withdrew his certification from three prior annual audits, forcing the company's stock to be delisted from the Nasdaq market system.
Meanwhile, the SEC has been investigating the company's actions, and shareholders have filed at least four state and federal lawsuits alleging fraud.