After wellness brand Fiji Kava (ASX: FIJ) announced its exclusive distribution agreement to expand into China, The Market Herald (ASX: TMH) promoted the big news. But upon Fiji Kava’s share price doubling, the ASX promptly suspended FIJ shares from trading to investigate the announcement and sponsored article.
It turns out, Fiji Kava’s celebration was premature, seeing as the Company is yet to receive shareholder approval for the performance rights (bonus shares) to be issued. If that wasn’t enough, it falsified (a “mistake” as per the Company) the financials associated with this deal in the paid advertisement. Fiji Kava mentioned a total contract value of $30 million without a reliable basis for calculation, prompting the stock exchange to demand the Company issue a clarification before its shares could resume trading.
The Company retracted its statements, clarifying that the sales performance milestone of $15 million in sales with a minimum of $9 million in China represents the minimum sales milestone for RooLife to meet to trigger the maximum performance milestone payment under the Agreement. The total value of the agreement will depend on RooLife’s ability to market and sell Fiji Kava’s products. There are no guaranteed sales in the agreement.
Fiji Kava also retracted its reference to a total contract value of $30 million. This figure referred to the aggregated minimum performance criteria, i.e. $11 million, required to maintain exclusivity in the agreement with CJ Patel, the distributor of its Taki Mai product. This also includes the minimum performance criteria required to maintain exclusivity in agreement with IMCD, i.e. $4.42 million, and the minimum sales to achieve the maximum performance milestone of $15 million with RooLife Group.
After ASX called out the discrepancies in its ad, FijiKava admitted that it messed up. It has no reasonable basis for making a total contract value calculation and has advised investors not to rely on that total value calculation when making investment decisions.
It added that RooLife will start working towards its milestones from May 1, 2023. Its Australian arm will manage the Fijikava.com website which will be the sole online channel, and RooLife will not be entitled to meet a performance milestone more than once.
The agreement with RooLife includes payment of management fees that, according to the Company, are not materially different from the current cost of maintaining Fijikava.com and amount to $10k per month. In addition, FijiKava will contribute to digital marketing and advertising costs in Australia and China, as per current business practices. The initial budget for marketing contributions is $120k, and this will be spent via Google, Meta and other online advertising channels.
The Market Herald—which recently re-focused its business to concentrate on advertising and classified—has had a wild six months with the unceremonious removal of its Managing Director, its departure from news media (its main business model) and axing its Germany operations and various underperforming publications. However, its spirit to attract chaos has remained intact, adding FijiKava to its list of hiccups.
Perhaps both Fiji Kava and TMH could use one of those calming beverage shots.
Though Fiji Kava is questioned by the ASX, there was no wrongdoing by RooLife.
Alinda is a Business Reporter for The Sentiment
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