UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40170 / July 6, 1998 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1050 / July 6, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9642 _____________________________ : In the Matter of :ORDER INSTITUTING PROCEEDINGS :PURSUANT TO SECTION 21C OF THE Frank J. Cooney, :SECURITIES EXCHANGE ACT OF 1934, :MAKING FINDINGS AND ORDERING Respondent. :RESPONDENT TO CEASE AND DESIST : _____________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Frank J. Cooney ("Cooney") caused violations by Novatek International, Inc. ("Novatek") of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. II. In anticipation of the institution of these administrative proceedings, Cooney has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.  201.100 et seq., and without admitting or denying the Commission's findings herein, except that he admits to the jurisdiction of the Commission over him and over the subject matter of these proceedings, Cooney consents to the issuance of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Ordering Respondent to Cease and Desist (the "Order"). III. The Commission makes the following findings:[1] RESPONDENT Frank J. Cooney, age 56, is a resident of Lake Worth, Florida. He was the president of Novatek International, Inc. from its founding in 1989 until his resignation in July 1996. OTHER RELEVANT ENTITIES Novatek International, Inc. ("Novatek") is a Colorado corporation whose principal office was located in Columbia, Maryland. Novatek purportedly markets and distributes rapid medical diagnostic test kits in South America, Latin America and the Bahamas. Novatek's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and was traded on the NASDAQ SmallCap Market System until October 14, 1996, when the NASD suspended trading in the stock. This trading suspension remains in effect. On October 28, 1996, Novatek filed a voluntary petition for protection from creditors pursuant to Chapter 11 of the Federal Bankruptcy Code. [2] Medical Products, Inc. ("MPI") was, prior to its March 5, 1996 merger with Novatek, a private Florida-based company. MPI purportedly owned a license to distribute medical diagnostic devices designed to rapidly detect certain infectious diseases such as cholera and HIV. DISCUSSION OF FACTS Cooney founded Novatek in 1989. At that time, Novatek manufactured proprietary construction materials designed to withstand hurricanes. Joseph Roberts & Co., Inc. ("Joseph Roberts"), then a Pompano Beach, Florida-based broker-dealer and investment banker, was Novatek's lead underwriter for its secondary stock offering in April 1995. Sometime in late 1995, Joseph Roberts approached Cooney and proposed that Novatek purchase MPI for $72 million in Novatek stock. To that end, on December 29, 1995, MPI, whose sole asset was a license to distribute ("Distribution License") certain medial diagnostic devices, and Novatek executed a document entitled "Plan of Merger Agreement." On April 2, 1996, Novatek filed with the Commission a Form 8- K/A,[3] signed by Cooney. This Form 8-K/A contained numerous false and misleading statements. In addition, the financial statements included in the filing were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP").[4] The Financial statements accounted for the combination between Novatek and MPI as an acquisition by Novatek. Because MPI shareholders received more Novatek stock through the transaction than Novatek's then-existing shareholders held, MPI was the acquiring company, not Novatek.[5] Thus, the combination should have been accounted for as a reverse merger with MPI as the acquirer. Further, MPI's sole asset, the Distribution License, had been recorded at an inflated value that failed to represent the true economic substance of certain related party transactions. The Form 8-K/A reported that Novatek had assets of approximately $57 million when, in fact, it had assets of only approximately $2 million. It failed to disclose that two individuals not identified in this or any previous filing were, in fact, controlling Novatek's operations. On May 20, 1996, Novatek filed with the Commission a Form 10-QSB, signed by Cooney, for the period including the merger with MPI. Novatek reported on its balance sheet for that period that it had assets valued at approximately $57 million. Further, under Item 2 of the Form 10-QSB's Management's Discussion and Analysis, Novatek stated that it had "executed a five year contract valued at $5,000,000 per year with Chile for Cholera test kits" and that Novatek had shipped HIV test devices to Mexico on May 14, 1996, pursuant to an unspecified agreement. The $5 million contract with Chile never existed and no product was ever shipped by Novatek pursuant to this, or any other agreement. Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder require issuers whose securities are registered with the Commission pursuant to Section 12 of the Exchange Act to file certain reports that accurately disclose the results of the registrant's operations. Novatek violated these provisions because, among other things, the April 2, 1996 Form 8-K/A and the May 20, 1996 Form 10-QSB contained the material misstatements described above. Cooney, Novatek's president, took insufficient steps to verify the information contained in these filings. Cooney knew or should have known that his signature on the filings on behalf of Novatek had particular significance. Cooney, nevertheless, signed the filings and caused them to be filed with the Commission. Cooney, therefore, caused Novatek's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept Respondent's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Cooney cease and desist from committing or causing violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. By the Commission Jonathan G. Katz Secretary **FOOTNOTES** [1]:The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. [2]:On June 18, 1998, the Commission filed a civil action against Novatek and others alleging violations of the antifraud, periodic reporting and other provisions of the Exchange Act. See SEC Litigation Release No. 15786 (June 18, 1998). Respondent is not a party to this action. [3]:This Form 8-K/A was filed as an amendment to the Form 8-K filed by Novatek withthe Commission on March 19, 1996. [4]:Financial statements incorporated in reports filed with the Commission which are notprepared in accordance with GAAP are presumed to be misleading. Regulation S-X,Rule 4-01(a)(1). [5]:Accounting Principles Board Opinion No. 16, Business Combinations, states atparagraph 70: "... presumptive evidence of the acquiring corporation in combinationseffected by an exchange of stock is obtained by identifying the former commonstockholder interests of a combining company which either retain or receive the largerportion of the voting rights in the combined corporation. That corporation should betreated as the acquirer unless other evidence clearly indicates that another corporationis the acquirer" (emphasis added).