Securities Act of 1933
Release No. 8025 / October 18, 2001
Securities Exchange Act of 1934
Release No. 44951 / October 18, 2001
Accounting and Auditing Enforcement
Release No. 1469 / October 18, 2001
Administrative Proceeding
File No. 3-10623
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In the Matter of NexPub, Inc., Respondent. |
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ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative cease-and-desist proceedings be, and hereby are, instituted against NexPub, Inc., formerly known as PrintontheNet.com, Inc., (hereinafter "NexPub," "PrintontheNet," or "Respondent"), pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
II.
In anticipation of the institution of these proceedings, NexPub has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except that NexPub admits the jurisdiction of the Commission over it and over the subject matter of these proceedings, NexPub consents to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing a Cease-And-Desist Order ("Order") by the Commission.
III.
On the basis of this Order and Respondent's Offer, the Commission finds that:1
A. NexPub, formerly known as PrintontheNet.com, is a Delaware corporation based in Fort Lauderdale, Florida. NexPub's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and at all relevant times was quoted on the Over-The-Counter Bulletin Board.
B. On January 14, 2000, PrintontheNet filed a Form 8-K with the Commission announcing that it had agreed to merge with PrintAmerica Interactive, Inc. ("PrintAmerica"), a related, privately-owned company. The Form 8-K included audited and unaudited financial statements that failed to disclose that, as a result of the merger, PrintontheNet was assuming certain loan guarantees previously entered into by PrintAmerica. The primary loan underlying these guarantees, in the aggregate principal amount of approximately $7 million, was in default at the time PrintontheNet filed its Form 8-K. PrintontheNet's failure to disclose the existence of the loan guarantees and that the primary underlying loan was in default violated Generally Accepted Accounting Principles ("GAAP"), specifically Statement of Financial Accounting Standards No. 5.
C. The unaudited financial statements included in PrintontheNet's Form 8-K also materially overstated PrintAmerica's net income for the nine month period ended September 30, 1999, and materially understated PrintontheNet's and PrintAmerica's combined pro forma net loss for this period. Specifically, the unaudited financial statements for PrintAmerica stated that PrintAmerica had net income of $96,371 for the nine month period ended September 30, 1999, when, in fact, PrintAmerica had a net loss of approximately $430,000. In addition, the unaudited combined pro forma financial statements misrepresented that PrintontheNet and PrintAmerica had a combined net loss of $196,793 for the nine month period ended September 30, 1999, when the actual amount of their combined loss was approximately $811,000.
D. On January 20, 2000, PrintontheNet commenced a private placement offering of common stock that eventually raised approximately $3.04 million from investors. The offering closed on February 17, 2000. The private placement memorandum sent to prospective investors in the offering failed to disclose that PrintontheNet had assumed the PrintAmerica loan guarantees described above, and contained summary financial information that materially understated, by approximately $600,000, PrintontheNet's and PrintAmerica's combined net loss for the nine month period ended September 30, 1999. The private placement memorandum also attached as an exhibit the misleading financial statements included in the Form 8-K that PrintontheNet filed with the Commission on January 14, 2000. In addition, on January 31, 2000, PrintontheNet, by its former president, signed a guarantee on a $7.5 million bank loan to an entity related to PrintontheNet through common ownership. PrintontheNet did not disclose to investors that it had signed this additional loan guarantee until after the private placement offering had already closed.
E. By June 2000, PrintontheNet had replaced its president and chief executive officer as well as the members of its board of directors that had served during the periods in which the events, described in Sections III.B. through III.D. above, had occurred. Under this new management, on June 15, 2000, PrintontheNet filed with the Commission its Form 10-K for the year ended December 31, 1999. The Form 10-K disclosed the existence of the loan guarantees, that the underlying debt had been in default in early 2000, that PrintontheNet had entered into a settlement agreement pursuant to which the loan guarantees had been released, and that investors in the private placement offering had been given the opportunity to rescind their investments. The Form 10-K also disclosed that certain members of senior management, who PrintontheNet had determined were responsible for causing the events described in Sections III.B. through III.D. above, had resigned from their positions as officers and directors of PrintontheNet. In addition, the Form 10-K disclosed that PrintontheNet's Form 8-K filed on January 14, 2000 had misstated that PrintAmerica's net income for the nine month period ended September 30, 1999 had been approximately $96,000 when, in fact, PrintAmerica had a net loss of approximately $245,000. The Form 10-K further stated that PrintontheNet was in the process of correcting certain other misstated financial information for the nine month period ended September 30, 1999, and might in the future be required to amend the Form 8-K it filed in January 2000.
F. In November 2000, PrintontheNet filed a Form 8-K/A in which it revised certain portions of its Form 8-K filed in January 2000. The Form 8-K/A disclosed that PrintAmerica had, in fact, a $430,101 net loss for the nine month period ended September 30, 1999, which resulted in PrintAmerica and PrintontheNet having a combined pro forma net loss for this period of $811,196. In addition, the Form 8-K/A, consistent with the Form 10-K filed in June 2000, disclosed the existence of the loan guarantees, that the underlying debts had been in default in early 2000, and that the guarantees had been released pursuant to a settlement agreement with the lenders.
G. As a result of the conduct described above, PrintontheNet violated, and committed or caused violations of:
a. Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, by filing a Form 8-K with the Commission and disseminating a private placement memorandum to investors that contained false and misleading statements of material facts, and omitted to state material facts necessary to make the statements made not misleading.
b. Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder by filing with the Commission a Form 8-K that contained false and misleading information, and omitted to state material facts necessary to make the statements made not misleading.
c. Section 13(b)(2) of the Exchange Act and Rule 13b2-1 thereunder by failing to maintain books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets and failed to maintain a system of internal accounting controls sufficient to permit the preparation of financial statements in conformity with GAAP.
IV.
Based upon the foregoing, the Commission deems it appropriate to accept the Offer submitted by NexPub.
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that NexPub cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 13(a), and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 13b2-1 thereunder.
By the Commission.
Jonathan G. Katz
Secretary
Footnote
| 1 | The findings herein are made pursuant to NexPub's Offer and are not binding on any other person or entity in this or any other proceeding. |