Novatek chairman testifies Misrepresentations acknowledged in bankruptcy court

SEC probing alleged fraud

Latin American contracts were not complete, Smith says

November 28, 1996|By Mark Guidera | Mark Guidera,SUN STAFF

The acting chairman of Novatek International Inc., the Columbia-based company under Securities and Exchange Commission investigation for fraud, acknowledged at a bankruptcy hearing yesterday that the company misrepresented some claims about contracts it announced in Latin America.

"They [the contracts] definitely were not fully finished," as portrayed by the company in press releases, Rockie L. Smith testified in U.S. Bankruptcy Court in Baltimore.

The Latin America contract claims, for the distribution of medical test kits, helped boost Novatek's stock price 75 percent this year until the SEC and the National Association of Securities Dealers ordered trading halts in the company's stock in October.

Shortly after that, Novatek filed for Chapter 11 bankruptcy protection.

The company subsequently was delisted by the NASD.

A Sun review of several of Novatek's contract claims found that they were exaggerated and that the largest contract the company announced it had signed -- a five-year, $35 million deal with a medical research foundation and government-operated blood bank in Brazil -- had in fact not been signed by the Brazilian parties.

During the hearing yesterday before U.S. Trustee Edward Goldberg, Smith characterized the status of the Latin American deals as ranging from "near purchase agreements" to agreements to "move to a more defined course" of action and "strong letters of interest."

Smith, who was also recently named Novatek's executive vice president, testified that, despite the difficulties Novatek faces with the SEC probe and its bankruptcy filing, he is "optimistic" that the company can survive.

"There is a real need for this technology," Smith said of its medical tests.

Novatek, which has adopted the name Medical Diagnostic Products Inc., does not see the United States as a viable market because of the cost and time it takes to get Food and Drug Administration approvals, Smith said.

He said developing countries represented a strong potential.

He noted that the company's strategy depends heavily on manufacturing the test kits overseas in markets where it does have firm contracts.

Smith said the main value in the company, which lists $16,000 cash in the bank and two full-time employees, is the license it holds from Universal Healthwatch Inc. to distribute medical diagnostic test kits in Latin America and the Caribbean.

"It may be as undervalued as Microsoft's software system when it was first written," he said of the license.

Smith also disclosed that Novatek's relationship with Universal Healthwatch has soured.

Universal Healthwatch's test kits for diseases, some of which are still being developed, are the only product line on which Novatek held distribution rights, according to documents the company filed with the SEC.

Universal, which shared office space with Novatek in Columbia after it moved to Maryland from Florida this year, was founded by Vincent D. Celentano, a Florida businessman.

The Celentano Limited Partnership received 14 percent of 19 million new shares of unregistered stock Novatek created when it merged this year with another Celentano company, Medical Products Inc., according to SEC filings.

Smith said the relationship between Novatek and Universal once could be described as "sister companies."

But he said it recently has turned "adversarial" because Universal now disputes the licensing arrangement.

Pub Date: 11/28/96

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