ASIC is investigating a failed $20 million content deal at SurfStitch

Suger The Surfing Dog at Huntington Beach, California. Axelle/Bauer-Griffin/FilmMagic

A failed $20 million deal by SurfStitch, the troubled online retailer, is now the subject of an investigation by corporate watchdog, ASIC.

The surf wear company today made further comment on a bid by Crown Financial, part of the Coastalwatch group with which SurfStitch is in dispute with over the failed content and software agreement.

“The company notes that ASIC has commenced an investigation into the company’s disclosures in connection with the contested contracts,” SurfStitch said in a statement.

“The company is co-operating fully with ASIC’s inquiries.”

A short time ago, SurfStitch shares were up 8.5% to $0.19. The shares have dropped from a year high of $2.13.

Crown Financial has made a 20 cents a share takeover bid which has been rejected as inadequate by the board of directors at SurfStitch.

Part of the reason for rejection, SurfStitch said today, was that “members of the Crown Financial group of companies had commenced litigation against” SurfStitch.

Not a lot is known about this content deal which left a $20 million hole in SurfStitch’s 2016 revenue.

The deal relates to the granting of a perpetual licence to use the content of SurfStitch and its subsidiaries Garage Entertainment, Rolling Youth and MagicSeaweed.

For some reason, this deal fell over and $20.3 million of revenue had to be reversed from 2016 full year results.

Coastalwatch, a surf and weather report business, already controls 28,785,826 shares or 10.4% of SurfStitch.

SurfStitch has been rumoured to be the subject of takeover interest since founder and former CEO Justin Cameron resigned in March.

The company then said it understood Cameron was pursuing a potential acquisition in conjunction with private equity. There has been no news since.

SurfStitch has confirmed it had received a “number” of unsolicited, non-binding and indicative expressions of interest.

“None of these is at an advanced stage and there is no assurance that any will lead to a transaction,” the company said in a market update.

SurfStitch in August announced a full year loss of $155.35 million. The company is forecasting single digit sales growth for 2017 while it restructures.

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