Beware of NewAge – Review

On August 30, NewAge filed for Chapter 11 bankruptcy.

Noni by NewAge and Ariix, two MLM subsidiaries, are impacted by the petition.

According to information from NewAge’s bankruptcy petition, the business has $149 million in debt and $310 million in assets.

The breakdown of NewAge’s debt is as follows:

$1 million for NewAge

18 million dollars from NewAge Holdings

34 million dollars — Noni by NewAge

Ariix: 235 million dollars

TCI Biotech, the company that makes NewAge’s products, looks to be their biggest unsecured creditor. With $2.5 million in debt, TCI BioTech LLC is NewAge’s largest creditor.

Notable debts include $270,623 payable to MaVie and $1.6 million owed to Zennoa LLC. Before NewAge’s takeover, Ariix absorbed both businesses.

In April, Lawrence Perkins was named Chief Restructuring Officer of NewAge and its associated businesses.

Perkins’ declaration, which was filed on August 31st, sheds light on NewAge’s bankruptcy.

The Debtors have recently suffered several difficulties that together have forced them to file the Chapter 11 Cases.

The worldwide COVID-19 epidemic, supply chain concerns, uncertainties surrounding company operations in China, difficulties completely integrating various brands, management changes, and costs associated with an investigation and defense of a suspected FCPA violation are some of the hurdles.

When a US-based MLM firm bribes a foreign authority, the FCPA often comes into play. In return for authorization to defraud the local populace, this is done.

The MLM firm is shielded from domestic regulators and law enforcement by paying bribes to local politicians and officials.

Over the years, I’ve heard of three FCPA MLM-related cases:

Avon paid a $135 million fine in 2014; Nu Skin paid a $765,688 fine in 2016 (and also settled a class action lawsuit for $47 million); Herbalife paid a $122 million fine in 2020, and two former executives were charged with criminal violations in July 2022.

These FCPA corruption prosecutions were all based on MLM firms paying off Chinese authorities.

according to Perkins’ statement;

More than 400,000 Brand Partners were selling goods on the Petition Date in more than 50 nations, especially in North America, Japan, China, and Europe.

The NewAge Enterprise employs about 830 people worldwide. In the United States, there are around 170 workers.

The Sales Affiliate manufactures its goods in China that are then sold in the same nation.

The DOJ and/or SEC conduct investigations into FCPA charges. You presumably already know where this is headed, but specifics of the continuing investigation into NewAge’s potential FCPA infractions are being kept under wraps.

The corporation is overrun by MLM firms that pay off Chinese authorities. China gradually replaces other sources of income as the one that keeps the business afloat.

When Chinese authorities cut off the supply or US authorities open an FCPA inquiry, things quickly get worse for the corporation unless it is also making a sizable amount of money abroad.

Before its final collapse in early 2020, Avon suffered. Herbalife and Nu Skin are still operating in China.

Ariix’s increasing $236 million debt stands out like a sore thumb about NewAge’s commercial activities in China.

Through a partner in China, NewAge

Tahitian Noni Beverages Chia Co Ltd., NewAge Worldwide Hong Kong Limited, NewAge (China) Biological Technology CO Ltd., NewAge (Shanghai) Biological Technology CO Ltd., Ariix Hong Kong Holdings Limited, Ariix Hong Kong Services Ltd., Ariix CIS Limited, Ariix Hong Kong Ltd., and Ariix China Ltd.

Ariix is the subject of NewAge’s FCPA probe, which is not surprising.

based on Perkins’ assertion;

The global COVID-19 pandemic, supply chain issues, uncertainty surrounding business operations in China, difficulties integrating new brands fully, management changes, and costs associated with an investigation and defense of a potential FCPA violation involving Ariix are just a few of the difficulties.

Another factor that has hurt (NewAge’s) operations is a stringent regulatory climate in China, where 20% of the company’s revenue is generated.

As an illustration, the Chinese government launched an examination of direct selling and healthy product enterprises in China in 2019.

The government sent orders to direct selling firms like the Debtors, who engage in this review, not to have sizable distributor meetings.

China has also stopped reviewing and approving permits for direct sales.

The NewAge Enterprise has also seen significant turnover, including the departure of the initial CEO and subsequent legal and regulatory proceedings involving actions taken while he was in that position.

Brent Willis (right) unexpectedly left NewAge on January 10, 2022, earlier this year.

At the time of his departure and ever since no official explanation has been offered.

I’m not sure if Willis’ behavior is connected, but Perkins also mentions the frequent changes in NewAge CFOs during “the previous three years.”

Returning to the FCPA, the situation becomes much murkier. Before NewAge purchased Ariix in 2020, it has likely participated in FCPA offenses involving China.

After it bought Ariix, (NewAge) launched an independent assessment of its worldwide business operations, including hiring external attorneys, accountants, and other advisers.

Following the identification of possible FCPA breaches, a voluntary self-disclosure was made to the US Department of Justice and the US Securities Exchange Commission in August 2021.

Reporting is ongoing as of the petition date, and no fines or penalties have been levied against (NewAge).

However, (NewAge) has expended considerable costs in conducting its research and collaborating with governmental bodies.

The other intriguing detail from Perkins’ affidavit is that NewAge contacted 18 possible purchasers through a hired third party.

Due to problems such as, but not limited to, failure to agree on non-disclosure agreement conditions, priming lien concerns, liquidity-driven scheduling restrictions, and inability to put up an executable plan, additional discussions and involvements with these parties did not emerge.

Nevertheless, a few of these parties have indicated that they would be interested in taking part in any prospective sale of the Chapter 11 Cases.

In any case, it seems that NewAge’s Chapter 11 reorganization plan is a complete sell-off.

To maintain the value of the assets in this case, the Debtors seek to sell nearly all of them at an early stage.

The Debtors intend to put out a chapter 11 plan soon after selling nearly all of the assets to transfer the revenues to the proper parties.

A publicly traded corporation is NewAge. In January 2019, NBEV shares reached a high of $7.11. They are now selling for 12 cents.

Additional motions asking the following are included with NewAge’s original Chapter 11 filing:

permission to pay $320,000 in taxes due before the bankruptcy filing, permission to pay $532,000 to “around 320 workers,” protection from utility providers shutting off access to the business, preservation of NewAge’s bank accounts, authorization to sell off the property;

On September 1st, the majority of the motions NewAge submitted were approved.

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