Business Context and Reporting Period
This Form 6-K filing by SciSparc Ltd. covers the month of September 2022. The Company, a foreign private issuer based in Tel Aviv, Israel, reported the completion of a strategic acquisition and a new patent collaboration during this period.
Key Financial Metrics and Transaction Details
The filing focuses on the acquisition of Wellution, an Amazon Marketplace brand for food supplements and cosmetics. The total transaction value is approximately $20 million, structured as follows:
- Base Cash Payment: $4.59 million paid upon closing on September 30, 2022.
- Deferred Cash Payment: Payable within 12 months, calculated as three times the amount by which the Brand's Seller Discretionary Earnings (SDE) exceeds $1.12 million.
- Equity Consideration: $15 million worth of warrants issued to the seller.
- Warrant Terms: Exercise price of $7.00 per share with a cashless exercise mechanism; five-year exercise period.
- Warrant Vesting Milestones: Exercisable upon the Brand reaching $100 million in aggregate sales OR if SciSparc's share price closes at $10.00 or above.
The filing does not provide specific revenue, profit, cash flow, or debt figures for SciSparc Ltd. for the period, as the report details a specific transaction rather than full financial statements.
Material Changes and Agreements
On September 30, 2022, SciSparc closed the acquisition of Wellution through a wholly-owned subsidiary, SciSparc Nutraceuticals Inc. Material components of the deal include:
- Management Agreement: SciSparc will manage fulfillment, manufacturing, inventory, advertising, and logistics for Amazon, with a requirement to maintain a pre-determined profit level. Services are provided by a company where SciSparc's CEO and Chairman serve as directors.
- Distribution Agreement: A 12-month agreement for offline marketing and commercialization in the U.S. with a minimum initial order of $100,000.
- Expansion Option: SciSparc received an option to expand the Brand into additional territories, such as Europe.
Outlook, Risks, and Unusual Items
Collaboration Update: On September 22, 2022, the Company announced a collaboration with Clearmind Medicine Inc. that yielded a third patent application for treating obesity and metabolic syndromes.
Risks and Contingencies:
- Warrant Registration: The $15 million in warrants have not been registered under the Securities Act of 1933 and cannot be sold in the U.S. absent registration or an applicable exemption.
- Performance Contingency: Future cash payments are contingent on the acquired Brand's SDE performance.
- Related Party Transaction: The management services for the acquired brand are provided by an entity where SciSparc's top executives serve as directors.
Investor Verification Checklist
- Verify the specific definition of "SDE" in the Asset Purchase Agreement to understand the potential deferred cash payment liability.
- Review the related party agreement regarding the management services provided by the entity directed by SciSparc's CEO and Chairman.
- Confirm the status of the warrant registration and any potential dilution if the $10.00 share price milestone is reached.
- Assess the progress of the Wellution brand sales toward the $100 million aggregate sales milestone required to exercise the warrants.
- Examine the details of the third patent application with Clearmind Medicine Inc. for potential future revenue streams.