425: SciSparc Ltd. Files Financial Information Regarding Merger with AutoMax Motors Ltd.

SciSparc Ltd. is filing financial statements related to its merger agreement with AutoMax Motors Ltd., detailing the terms, conditions, and pro forma financial information.

Summary

• SciSparc Ltd. has filed financial information related to its merger with AutoMax Motors Ltd.
• The merger agreement, dated April 10, 2024, involves SciSparc Merger Sub Ltd. merging with AutoMax, with AutoMax surviving as a wholly-owned subsidiary of SciSparc.
• Each outstanding share of AutoMax will be converted into the right to receive ordinary shares of SciSparc.
• The filing includes audited financial statements of AutoMax Motors Ltd. for the years ended December 31, 2023 and 2022, and unaudited pro forma condensed combined financial information.
• The pro forma information does not necessarily reflect future results of operations, financial position, or cash flows.
• SciSparc will file a registration statement and a proxy statement with the SEC regarding the proposed transaction.
• The document also mentions potential risks and uncertainties related to the business environment, including currency exchange rates, inflation, interest rates, and the Iron Swords War.
• The company estimates that its financial strength, together with its financial sources and taking the actions detailed above, will allow it to continue to finance its activities and meet its obligations in the foreseeable future.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the merger with SciSparc is a positive development, the financial results for 2023 show a decline in profitability and the presence of risks and uncertainties related to the business environment and legal proceedings temper the overall outlook.

Positives

• The merger with SciSparc is expected to strengthen AutoMax's liquidity and equity.
• The company is taking steps to change the mix of imported and sold vehicles according to customer demand, which is expected to increase inventory turnover.
• The company has flexibility regarding financing advances to suppliers and discount policies to customers.
• The company is expanding and diversifying its sources of supply of vehicles, including brands manufactured in China.
• The company received a state-guaranteed loan from a banking corporation in the amount of NIS 16 million.
• The company is entitled to receive compensation from the state in the amount of approximately NIS 2.07 million for October 2023 and approximately NIS 5.9 million for November-December 2023.

Negatives

• AutoMax experienced a loss before taxes on income of 17,017 thousand ILS in 2023, compared to a profit of 671 thousand ILS in 2022.
• The company's gross profit decreased to approximately ILS 37.8 million in 2023, compared to approximately ILS 60.7 million in 2022.
• The Iron Swords War caused a decrease in the company's revenues during the reported period.
• The company's branches in Ashkelon and Petah Tikva are closed due to the lack of a protected space and personnel.
• The company reduced about 10% of the workforce within the Group and about 30% of the Groups employees were placed on layoff.

Risks

• The company is exposed to depreciation in the exchange rate of the shekel against foreign currencies.
• The increase in inflation and interest rates has a negative effect on the company's sales rate and profitability.
• Changes in the judicial system in Israel may impact the robustness of the market and economy.
• The Iron Swords War and potential expansion of its scope may have a negative impact on the automotive industry and the company's activities.
• Attacks on vessels in the Red Sea region have caused delays in delivery dates and an increase in logistics and transportation prices.
• An indictment was filed against Global Automax, Haim Levy Trade In and position holders for forgery, fraud, smuggling and money laundering offenses.

Future Outlook

The company estimates that its financial strength, together with its financial sources and taking the actions detailed above, will allow it to continue to finance its activities and meet its obligations in the foreseeable future. The company is looking at expanding and diversifying the sources of supply of vehicles imported by it, including brands manufactured in China that have gained demand in the Israeli car market. In the Companys estimation, the realization of this move will have a positive effect on its revenues.

Management Comments

• The Company estimates that its financial stability, along with its financial sources and taking the actions detailed above (including those covered in Note 1d above), will allow it to continue to finance its activities and meet its obligations in the foreseeable future.

Industry Context

The announcement reflects a trend of consolidation and strategic partnerships in the automotive industry, particularly among companies seeking to expand their market presence and diversify their offerings. The merger with SciSparc could provide AutoMax with access to additional capital and resources to support its growth initiatives.

Comparison to Industry Standards

• Assessing AutoMax's performance against industry standards requires comparing its financial metrics (revenue, gross profit, loss before taxes) with those of similar-sized automotive companies in Israel and globally.
• Comparable companies in the automotive import and distribution sector include Union Motors Ltd. and Lex Motors Ltd. in Israel.
• Global benchmarks can be derived from companies like Penske Automotive Group and AutoNation in the United States, which operate in similar segments.
• AutoMax's gross profit margin and net profit margin can be compared to these companies to assess its operational efficiency and profitability.
• Inventory turnover and debt-to-equity ratios can also be benchmarked to evaluate AutoMax's asset management and financial leverage.
• Given the limited information, a detailed comparison is challenging, but the analysis should focus on key performance indicators relevant to the automotive import and distribution business.

Legal Proceedings

• An investigation was initiated against a subsidiary, Haim Levy Trade In Ltd., one of the Company’s controlling shareholders, and against Company position holders suspecting them of fraud, forgery and money laundering.
• On August 25, 2021, a notice of indictment was received against Global Automax, Haim Levy Trade In and position holders.
• On September 29, 2022, a lawsuit was filed with the District Court in Tel Aviv and an application for its approval as a class action against Global Automax Ltd., Union Motors Ltd., Lex Motors Ltd., Toyota Motor Corporation, and Denso Corporation.

Related Party Transactions

• Approximately 47% of the leased property rights are held by an affiliated party of one of the Company’s Directors, who is also a controlling shareholder of the Company.
• The additional shareholder at Dalhom Automax undertook to indemnify the Company due to the guarantee the latter gave with respect to Dalhom Automax undertakings to banking corporations for the credit limits they submitted to it at a sum of half (50%) of the expenses the Company expended in connection with the exercise of any of the guarantees by any of the banking corporations, and it also undertook to pay to the Company every month a sum of 25,000 NIS plus VAT, as long as the shareholder is not a guarantor towards the banking corporations in accordance with their requirements.

Stakeholder Impact

• Shareholders: The merger with SciSparc could potentially increase shareholder value, but the financial performance of AutoMax and the risks associated with the business environment could impact returns.
• Employees: The company reduced about 10% of the workforce within the Group and about 30% of the Groups employees were placed on layoff.
• Customers: The company is taking steps to change the mix of imported and sold vehicles according to customer demand, which is expected to increase inventory turnover.
• Suppliers: The company has flexibility regarding financing advances to suppliers and discount policies to customers.

Next Steps

• SciSparc will file a registration statement and a proxy statement with the SEC regarding the proposed transaction.
• The company will continue to negotiate a merger with a company that was incorporated in Israel and whose securities are traded on NASDAQ.

Key Dates

Keywords

Merger, AutoMax Motors, SciSparc, Financial Statements, Automotive Industry, Israel, Acquisition, Pro Forma, Vehicles, Import