UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of October 2023 (Report No. 4)
Commission file number: 001-38041
SCISPARC LTD.
(Translation of registrant’s name into English)
20 Raul Wallenberg Street, Tower A,
Tel Aviv 6971916 Israel
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
CONTENTS
This Report of Foreign Private Issuer on Form 6-K consists of: (i) SciSparc Ltd.’s (the “Registrant”) Unaudited Consolidated Interim Financial Statements as of June 30, 2023, which is attached hereto as Exhibit 99.1; and (ii) the Registrant’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2023, which is attached hereto as Exhibit 99.2.
This Report of Foreign Private Issuer on Form 6-K is incorporated by reference into the Registrant’s registration statements on Form F-3 (File No. 333-269839, File No. 333-266047, File No. 333-233417, File No. 333-248670 and File No. 333-255408) and on Form S-8 (File No. 333-225773) filed with the Securities and Exchange Commission to be a part thereof from the date on which this report is submitted, to the extent not superseded by documents or reports subsequently filed or furnished.
EXHIBIT INDEX
Exhibit No. | ||
99.1 |
SciSparc Ltd.’s Unaudited Consolidated Interim Financial Statements as of June 30, 2023. |
|
99.2 | SciSparc Ltd.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months Ended June 30, 2023. | |
104 | Cover Page Interactive Data File (embedded within Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SciSparc Ltd. | ||
Date: October 16, 2023 | By: | /s/ Oz Adler |
Name: | Oz Adler | |
Title: | Chief Executive Officer and Chief Financial Officer |
3
Exhibit 99.1
SCISPARC LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
UNAUDITED
INDEX
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, | December 31, | |||||||||||||
2023 | 2022 | 2022 | ||||||||||||
Unaudited | Audited | |||||||||||||
Note | USD in thousands | |||||||||||||
ASSETS | ||||||||||||||
CURRENT ASSETS: | ||||||||||||||
Cash and cash equivalents | $ | 2,081 | $ | 12,945 | $ | 3,574 | ||||||||
Restricted deposit | 44 | 40 | 60 | |||||||||||
Trade receivables | 43 | - | 77 | |||||||||||
Other accounts receivable | 815 | 699 | 131 | |||||||||||
Inventory | 660 | - | 668 | |||||||||||
3,643 | 13,684 | 4,510 | ||||||||||||
NON-CURRENT ASSETS: | ||||||||||||||
Intangible asset, net | 4 | 4,474 | - | 4,717 | ||||||||||
Investment in company account for at equity | 3 | 893 | 659 | 591 | ||||||||||
Investments in financial assets | 5 | 849 | - | 730 | ||||||||||
Property and equipment, net | 33 | 79 | 57 | |||||||||||
6,249 | 738 | 6,095 | ||||||||||||
$ | 9,892 | $ | 14,422 | $ | 10,605 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, | December 31, | |||||||||||||
2023 | 2022 | 2022 | ||||||||||||
Unaudited | Audited | |||||||||||||
Note | USD in thousands | |||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||
Trade payables | $ | 1,247 | $ | 874 | $ | 1,199 | ||||||||
Other accounts payable | 153 | 214 | 193 | |||||||||||
Warrants | 8 | 1,714 | 10,252 | 2,737 | ||||||||||
Lease liability | - | 45 | 27 | |||||||||||
3,114 | 11,385 | 4,156 | ||||||||||||
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: | 9 | |||||||||||||
Share capital and premium | 58,898 | 58,547 | 58,592 | |||||||||||
Reserve from share-based payment transactions | 5,248 | 4,980 | 5,180 | |||||||||||
Warrants | 5,190 | 5,190 | 5,190 | |||||||||||
Foreign currency translation reserve | 497 | 497 | 497 | |||||||||||
Transactions with non-controlling interests | 712 | 559 | 559 | |||||||||||
Accumulated deficit | (66,449 | ) | (66,736 | ) | (63,569 | ) | ||||||||
4,096 | 3,037 | 6,449 | ||||||||||||
Non-controlling interests | 2,682 | - | - | |||||||||||
Total equity | $ | 6,778 | $ | 3,037 | $ | 6,449 | ||||||||
Total liabilities and equity | $ | 9,892 | $ | 14,422 | $ | 10,605 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE LOSS
Six
months ended June 30, |
Year
Ended December 31, |
|||||||||||||
2023 | 2022 | 2022 | ||||||||||||
Unaudited | Audited | |||||||||||||
Note | USD in thousands, except per share amounts | |||||||||||||
Revenues | $ | 1,972 | $ | - | $ | 1,347 | ||||||||
Cost of goods sold | (1,267 | ) | - | (322 | ) | |||||||||
Gross profit | 705 | - | 1,025 | |||||||||||
Research and development expenses | 10a | 781 | 1,474 | 2,803 | ||||||||||
Sales and marketing | 397 | - | - | |||||||||||
General and administrative expenses | 11b | 2,494 | 3,339 | 6,509 | ||||||||||
Operating loss | 2,967 | 4,813 | 8,287 | |||||||||||
Company’s share of losses of companies accounted for at equity, net | 99 | 41 | 109 | |||||||||||
Finance income | (1,024 | ) | - | (7,832 | ) | |||||||||
Finance expenses | 877 | 905 | 2,014 | |||||||||||
Loss before income taxes | 2,919 | 5,759 | 2,578 | |||||||||||
Taxes on income | 13 | - | 14 | |||||||||||
Total comprehensive loss | 2,932 | 5,759 | 2,592 | |||||||||||
Attributable to: | ||||||||||||||
Equity holders of the Company | 2,880 | 5,759 | 2,592 | |||||||||||
Non-controlling interests | 52 | - | - | |||||||||||
2,932 | 5,759 | 2,592 | ||||||||||||
Basic loss per share attributable to equity holders of the Company: | ||||||||||||||
Loss from operations | 10.85 | 46.80 | 14.82 | |||||||||||
Diluted loss per share attributable to equity holders of the Company: | ||||||||||||||
Loss from operations | 10.85 | 46.80 | 14.82 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the six months ended June 30, 2023
Attributable to equity holders of the Company | ||||||||||||||||||||||||||||||||||||
Share capital and premium |
Reserve from share-based payment transactions |
Warrants | Transactions with non- controlling interests |
Foreign currency translation reserve |
Accumulated deficit |
Total | Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
USD in thousands | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2023 | $ | 58,592 | 5,180 | 5,190 | 559 | 497 | (63,569 | ) | 6,449 | - | 6,449 | |||||||||||||||||||||||||
Income (loss) | - | - | - | - | - | (2,880 | ) | (2,880 | ) | (52 | ) | (2,932 | ) | |||||||||||||||||||||||
Issue of share capital in respect of investment in affiliate | 288 | - | - | - | - | - | 288 | - | 288 | |||||||||||||||||||||||||||
Sale of minority interest in subsidiary | - | - | - | 153 | - | - | 153 | 2,734 | 2,887 | |||||||||||||||||||||||||||
Issue of shares, net of issue expenses | (45 | ) | - | - | - | - | - | (45 | ) | - | (45 | ) | ||||||||||||||||||||||||
Cost of share-based payment | 63 | 68 | - | - | - | - | 131 | - | 131 | |||||||||||||||||||||||||||
Balance at June 30, 2023 | $ | 58,898 | 5,248 | 5,190 | 712 | 497 | (66,449 | ) | 4,096 | 2,682 | 6,778 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the six months ended June 30, 2022
Attributable to equity holders of the Company | ||||||||||||||||||||||||||||||||||||
Share capital and premium |
Reserve from share-based payment transactions |
Warrants | Transactions with non- controlling interests |
Foreign currency translation reserve |
Accumulated deficit |
Total | Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
USD in thousands | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | $ | 58,541 | 4,331 | 5,190 | 559 | 497 | (60,977 | ) | 8,141 | - | 8,141 | |||||||||||||||||||||||||
Income (loss) | - | - | - | - | - | (5,759 | ) | (5,759 | ) | - | (5,759 | ) | ||||||||||||||||||||||||
Expiration of share options | 6 | (6 | ) | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
Cost of share-based payment | - | 655 | - | - | - | - | 655 | - | 655 | |||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | 58,547 | 4,980 | 5,190 | 559 | 497 | (66,736 | ) | 3,037 | - | 3,037 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the year ended December 31, 2022
Attributable to equity holders of the Company | ||||||||||||||||||||||||||||||||||||
Share capital and premium |
Reserve from share-based payment transactions |
Warrants | Transactions with non- controlling interests |
Foreign currency translation reserve |
Accumulated deficit |
Total | Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
USD in thousands | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | $ | 58,541 | 4,331 | 5,190 | 559 | 497 | (60,977 | ) | 8,141 | - | 8,141 | |||||||||||||||||||||||||
Income (loss) | - | - | - | - | - | (2,592 | ) | (2,592 | ) | - | (2,592 | ) | ||||||||||||||||||||||||
Exercise of warrants | 3 | - | - | - | - | - | 3 | - | 3 | |||||||||||||||||||||||||||
Cost of share-based payment | 48 | 849 | - | - | - | - | 897 | - | 897 | |||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | 58,592 | 5,180 | 5,190 | 559 | 497 | (63,569 | ) | 6,449 | - | 6,449 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six
months ended June 30, |
Year
Ended December 31, |
|||||||||||
2023 | 2022 | 2022 | ||||||||||
Unaudited | Audited | |||||||||||
USD in thousands | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Loss | $ | (2,932 | ) | $ | (5,759 | ) | $ | (2,592 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Adjustments to the profit or loss items: | ||||||||||||
Depreciation and amortization | 267 | 21 | 187 | |||||||||
Cost of share-based payment | 131 | 655 | 897 | |||||||||
Finance expenses, net | (1,023 | ) | 913 | (6,585 | ) | |||||||
Group’s share of losses of company accounted for at equity, net | 98 | 41 | 109 | |||||||||
Losses from remeasurement of investment in financial assets | 855 | - | 770 | |||||||||
328 | 1,630 | (4,622 | ) | |||||||||
Working capital adjustments: | ||||||||||||
Decrease (increase) in other accounts receivable | (684 | ) | 2,205 | 3 | ||||||||
Increase (decrease) in trade payables | 48 | (324 | ) | - | ||||||||
Increase (decrease) in other accounts payable | (40 | ) | 60 | 39 | ||||||||
Decrease (increase) in trade receivables | 39 | - | (77 | ) | ||||||||
Decrease (increase) in inventory | 8 | - | (668 | ) | ||||||||
(629 | ) | 1,941 | (703 | ) | ||||||||
Net cash used in operating activities | $ | (3,233 | ) | $ | (2,188 | ) | $ | (7,917 | ) |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six
months ended June 30, |
Year
Ended December 31, |
|||||||||||
2023 | 2022 | 2022 | ||||||||||
Unaudited | Audited | |||||||||||
USD in thousands | ||||||||||||
Cash flows from investing activities: | ||||||||||||
Investment (withdrawal) in restricted bank deposits | $ | 16 | $ | (8 | ) | $ | (15 | ) | ||||
Purchase of property and equipment | - | - | (8 | ) | ||||||||
Investment in a company accounted for at equity | (400 | ) | (700 | ) | (700 | ) | ||||||
Purchase of financial assets at fair value through profit or loss | (687 | ) | - | (1,500 | ) | |||||||
Purchase of intangible asset | - | - | (4,861 | ) | ||||||||
Net cash provided by investing activities | (1,071 | ) | (708 | ) | (7,084 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issue of share capital and warrants (net of issuance expenses) (Note 8) | (50 | ) | 9,005 | 9,005 | ||||||||
Repayment of lease liability | (26 | ) | (39 | ) | (70 | ) | ||||||
Interest paid on lease liability | - | - | (8 | ) | ||||||||
Proceeds from issuance of shares to minority interests in a subsidiary | 2,887 | - | - | |||||||||
Exercise of warrants | - | - | 2,770 | |||||||||
Payment of issuance expenses related to previous period | - | - | 3 | |||||||||
Net cash provided by financing activities | 2,811 | 8,966 | 11,700 | |||||||||
Increase (decrease) in cash and cash equivalents | (1,493 | ) | 6,070 | (3,301 | ) | |||||||
Cash and cash equivalents at the beginning of the period | 3,574 | 6,875 | 6,875 | |||||||||
Cash and cash equivalents at the end of the period | 2,081 | $ | 12,945 | $ | 3,574 |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six
months ended June 30, |
Year
Ended December 31, |
|||||||||||
2023 | 2022 | 2022 | ||||||||||
Unaudited | Audited | |||||||||||
USD in thousands | ||||||||||||
(a) Significant non-cash transactions: | ||||||||||||
Mutual share exchange of ordinary shares (see note 10) | $ | 288 | $ | - | $ | - |
The accompanying notes are an integral part of the interim consolidated financial statements.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 1:- GENERAL
a. |
SciSparc Ltd. (formerly known as Therapix Biosciences Ltd.) (“SciSparc” or the “Company” or the “Group”), a pharmaceutical company, was incorporated in Israel and commenced its operations on August 23, 2004. Until March 2014, SciSparc and its subsidiaries at the time were mainly engaged in developing several innovative immunotherapy products and SciSparc’s own patents in the immunotherapy field. In August 2015, the Company decided to adopt a different business strategy and began focusing on developing a portfolio of approved drugs based on cannabinoid molecules. With this focus, the Company is currently engaged in development programs based on Δ9-tetrahydrocannabinol (“THC”) and/or non-psychoactive cannabidiol for the treatment of Tourette syndrome, Alzheimer’s disease and agitation, pain, autism spectrum disorder and Status Epilepticus. The headquarters of the Company are located in Tel Aviv, Israel.
On September 30, 2022, the Company announced the closing of the acquisition of WellutionTM, a top seller Amazon.com Marketplace account (the “Brand”), American food supplements and cosmetics brand and trademark (the “Acquisition”). In connection with the Acquisition, the Company incorporated a new wholly owned Delaware subsidiary, SciSparc Nutraceuticals Inc. (“SciSparc US”), to hold the new assets. |
The Company’s ordinary shares are listed on Nasdaq and are trading under the symbol “SPRC”.
As of June 30, 2023, the Company had three private subsidiaries, including a company incorporated under the laws of Israel: Evero Health Ltd (“Evero”); an inactive company incorporated under the laws of Israel: Brain Bright Ltd (“Brain Bright”); and a company incorporated under the laws of the State of Delaware: Scisparc US (together with Evero and Brain Bright, the “Subsidiaries”).
On August 18, 2023, the Company convened a general meeting of its shareholders, whereby the shareholders approved, inter alia, a reverse split of the Company’s share capital up to a ratio of 30:1 (the “Reverse Split”). Following the implementation of the reverse split, the Company’s authorized share capital will not be adjusted under the Company’s articles of association, as currently in effect (the “Articles”), which as of the date hereof consists of 75,000,000 Ordinary Shares, no par value.
On September 14, 2023, the Company’s Board resolved that the final ratio for the Reverse Split will be 26:1, which became effective on September 28, 2023.
Consequently, all share numbers, share prices, and exercise prices have been retroactively adjusted in these interim consolidated financial statements for all periods presented. |
b. | These interim consolidated financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2022, and accompanying notes, that were approved on April 27, 2023, and signed on May 1, 2023 (the “2022 Annual Consolidated Financial Statements”). |
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 1:- GENERAL (cont.)
c. |
The Company incurred a net loss of $2,932 and had negative cash flows from operating activities of $3,233 for the six month period ended June 30, 2023. As of June 30, 2023, the Company had an accumulated deficit of $66,449 as a result of recurring operating losses. At June 30, 2023, the Company’s cash and cash equivalents position is not sufficient to fund the Company’s planned operations for at least a year beyond the date of the filing date of the consolidated financial statements.. The Company’s pharmaceuticals operations are dependent on its ability to raise additional funds from existing and/or new investors. This dependency will continue until the Group will be able to completely finance its operations by generating revenue from its pharmaceutical products. These abovementioned factors raise substantial doubt about the Group’s ability to continue as a going concern.
The Company intends to finance operating costs over the next twelve months through a combination of actions that may include existing cash on hand, reducing operating expenses and issuing equity and/or debt securities.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.
The interim consolidated financial statements for the period ended June 30, 2023, do not include any adjustments to the carrying amounts and classifications of assets and liabilities that might result should the Group be unable to continue as a going concern. |
d. | The interim consolidated financial statements of the Company for the six-month period ended on June 30, 2023, were approved for issuance on October 2, 2023 (the “Approval Date”). In connection with the preparation of the interim consolidated financial statements and in accordance with authoritative guidance for subsequent events, the Company evaluated subsequent events after the consolidated statements of financial position date of June 30, 2023, through September 27, 2023, the date on which the unaudited interim consolidated financial statements were available to be issued. |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”. The significant accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the 2022 Annual Consolidated Financial Statements. Accordingly, these condensed consolidated financial statements should be read in conjunction with the 2022 Annual Consolidated Financial Statements. The results for any interim period are not necessarily indicative of results for any future period.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position and results of operations for the interim periods presented. The results for the six month period ended June 30, 2023, are not necessarily indicative of the results for the year ending December 31, 2023, or for any future period.
As of June 30, 2023, there have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2022 Annual Consolidated Financial Statements.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 3:- INVESTMENT IN ASSOCIATE
On March 10, 2022, the Company entered into a Founders and Investment Agreement with Dr. Alon Silberman, or the MitoCareX Agreement. Pursuant to the MitoCareX Agreement, the Company invested an initial amount of $700, and agreed to invest over the next two years, an additional $1,000, subject to the achievement of certain pre-determined milestones as agreed upon in the MitoCareX Agreement, for up to a 50.01% ownership in MitoCareX Bio Ltd. (“MitoCareX”). MitoCareX is focused on the discovery and development of potential drugs for cancers and other life-threatening conditions. The MitoCareX Agreement also contains customary representations, warranties, covenants, and indemnification provisions. On March 31, 2022, the closing conditions were met, and the Company paid the initial investment amount of $700 to MitoCareX. As of December 31, 2022, the Company owns 31.48% of the outstanding shares of MitoCareX.
On February 17, 2023, MitoCareX achieved its first milestone pursuant to the MitoCareX Agreement. The first milestone refers to the establishment of MitoCareX’s cloud-based computing infrastructure that is expected to allow its future expansion into machine learning system. The system is harnessed to investigating mitochondrial carriers that are crucial for cell viability. As a result of MitoCareX meeting this milestone, the Company will invest an additional $400 in MitoCareX and increase its share ownership in MitoCareX Bio from 31.48% to 41.92%.
The table below summarizes the fair value of the investment in MitoCareX:
Balance at January 1, 2022 | $ | - | ||
Investment date March 31, 2022 | 700 | |||
Equity losses from investment in MitoCareX | (109 | ) | ||
Balance at December 31, 2022 | 591 | |||
Investment date March 31, 2023 | 400 | |||
Equity losses from investment in MitoCareX | (98 | ) | ||
Balance at June 30, 2023 | $ | 893 |
During the six months ended June 30, 2023, and 2022, the Company recorded equity losses from the investment in MitoCareX in the amount of $98 and $41, respectively.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 4:- INTANGIBLE ASSET
On September 30, 2022, the Company announced the closing of the Acquisition. In connection with the Acquisition, the Company incorporated a new wholly owned Delaware subsidiary, SciSparc US, to hold the new assets. The definitive agreement for the acquisition of the Brand was entered into with Merhavit M.R.M Holding and Management Ltd (“M.R.M”).
At the closing, the Company paid a base cash payment of $4,540 and in 12 months following the closing agreed to pay an additional deferred cash payment equal to a multiple of 3 times the amount by which the Brand’s EBITDA exceeds $1,120 during the 12-month period following the closing of the Acquisition. The Company paid an additional $321 as purchase costs.
In addition, the Company issued to M.R.M $15,000 worth of warrants to purchase ordinary shares of the Company at an exercise price of $7.00 per share (with a cashless exercise mechanism) and with an exercise period of five years from the closing of the Acquisition (the “September 2022 Warrants”). The September 2022 Warrants will become exercisable upon the earlier of (i) an achievement of $100,000 of gross sales by the Brand in the aggregate or (ii) if the price of our Ordinary Shares closes at $10.00 or above.
The Company reviewed the transaction and deemed it to be the purchase of assets for accounting purposes under generally accepted accounting principles and not as a business combination. The Company reviewed the guidance under IFRS 3 for the transaction and determined that the fair value of the gross assets acquired was concentrated in a single identifiable asset, a brand. Accordingly, the Company treated the transaction as an asset acquisition. On the closing date of the Acquisition, the Company fully recognized the acquisition amount total of $4,861 as an intangible asset, to be amortized over a period of 10 years.
The table below summarizes the fair value of the intangible asset:
Balance at January 1, 2022 | $ | - | ||
Purchase date September 30, 2022 | 4,861 | |||
Depreciation of intangible asset | (144 | ) | ||
Balance at December 31, 2022 | 4,717 | |||
Depreciation of intangible asset | (243 | ) | ||
Balance at June 30, 2023 | $ | 4,474 |
During the year ended December 31, 2022, the Company recognized depreciation expenses in respect to intangible asset in the amount of $144.
The estimated fair values of the tangible and intangible assets in respect of the Acquisition of the Wellution™ brand are provisional and are based on information that was available as of the Acquisition date to estimate the fair value of these amounts. The Group’s management believes the information provides a reasonable basis for estimating the fair values of these amounts but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair value that appear are subject to change. The Group expects to finalize the tangible and intangible assets valuation and complete the Acquisition accounting as soon as practicable but no later than the measurement period.
During the six months ended June 30, 2023, and 2022, the Company recorded depreciation expenses with respect to intangible asset in the amount of $243 and $ nil, respectively.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 5:- INVESTMENT IN FINANCIAL ASSETS
On June 25, 2023, the Company entered into a Share Purchase Agreement (the “Agreement”) with AutoMax Motors Ltd. (“AutoMax”), an Israeli company traded on the Tel Aviv Stock Exchange (“TASE”) and the leading parallel importer and distributor of vehicles in Israel, pursuant to which, at the closing and upon the terms and conditions set forth in the Agreement, the Company will invest NIS 2,500,000 in cash, in exchange for ordinary shares, NIS 0.05 par value, of AutoMax (the “AutoMax Shares”) based on a price per share of NIS 0.5. As of June 30, 2023, the listed share price of AutoMax on the TASE was NIS 0.41, and the Company has recorded a loss in its statements of comprehensive loss of $133 on its investment.
NOTE 6:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. |
Mr. Oz Adler, the Company’s Chief Executive Officer and Chief Financial Officer, is the chairman of the board of directors of Jeffs’ Brands Ltd. (“Jeffs’ Brands”) (see Note 11).
|
|
b. |
On March 7, 2022, the Company entered into the Cooperation Agreement with Clearmind Medicine Inc. (“Clearmind”), a company in which Dr. Adi Zuloff-Shani, the Company’s Chief Technologies Officer, Mr. Weiss, the Company’s President, and Mr. Adler, the Company’s Chief Executive Officer and Chief Financial Officer, serve as officers and directors.
During the year ended December 31, 2022, the Company recognized expenses in respect of the Cooperation Agreement with Clearmind in the amount of $208, and the balance owed to Clearmind as of December 31, 2022, was $55.
On November 17, 2022, the Company invested $1,500 thousand in Clearmind in connection with its initial public offering on the Nasdaq Capital Market, in exchange for 230,769 common shares of Clearmind, representing 9.33% of the outstanding share capital of Clearmind.
|
|
c. | Mr. Amitai Weiss, our chairman of the board of directors, is the chairman of the board of directors of AutoMax (see Note 5). |
NOTE 7:- FINANCIAL INSTRUMENTS
Classification of financial assets and financial liabilities:
The financial assets and financial liabilities in the consolidated statements of financial position are classified by groups of financial instruments pursuant to IFRS 9, “Financial Instruments”:
June 30, | December 31, | |||||||||||||
2023 | 2022 | 2022 | ||||||||||||
Unaudited | Audited | |||||||||||||
Note | USD in thousands | |||||||||||||
Financial assets: | ||||||||||||||
Cash and cash equivalents | $ | 2,081 | $ | 12,945 | $ | 3,574 | ||||||||
Trade receivables | 43 | - | 60 | |||||||||||
Government authorities | 100 | 77 | 45 | |||||||||||
Other receivables | 715 | 622 | 86 | |||||||||||
Investments in financial assets | 849 | - | 730 | |||||||||||
$ | 3,778 | $ | 13,644 | $ | 4,495 | |||||||||
Financial liabilities: | ||||||||||||||
Credit from others | $ | - | $ | - | $ | 102 | ||||||||
Warrants liability | 1,714 | 10,252 | 2,737 | |||||||||||
Lease liability | - | 45 | 27 | |||||||||||
Total financial and lease liabilities | $ | 1,714 | $ | 10,297 | $ | 2,866 |
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 8:- WARRANTS
On June 1, 2022, the Company completed a private offering with an investor for gross proceeds of $10,210 (the “June 2022 Private Placement”), providing for the issuance of an aggregate of 136,388 units and pre-funded units, as follows: (a) 12,884 units at a price of $74.88 per unit, each consisting of (i) one ordinary share of the Company, and (ii) two warrants each to purchase one ordinary share (the “June 2022 Warrants”), and (b) 123,504 pre-funded units at a price of $73.294 per unit, each consisting of (i) one pre-funded warrant to purchase one ordinary share and (ii) two June 2022 Warrants.
The June 2022 Warrants have an exercise price of $68.38 per ordinary share. The June 2022 Warrants were exercisable upon issuance and will expire seven years from the date of issuance.
General Overview of Valuation Approaches used in the Valuation:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Economic methodology:
The June 2022 Warrants’ fair value was calculated using the Black–Scholes option pricing model, which takes into account the parameters as disclosed below for each period valuated, in which a valuation was performed at (i) the issuance date, and (ii) each reporting date with the following assumptions:
December 31, 2022 |
June
30, 2023 |
|||||||
Dividend yield (%) | 0 | 0 | ||||||
Expected volatility (%) | 72 | 72 | ||||||
Risk-free interest rate (%) | 3.97 | 3.97 | ||||||
Underlying share price ($) | 19.656 | 14.274 | ||||||
Exercise price ($) | 68.38 | 68.38 | ||||||
Warrants fair value ($) | 2,396 | 1,373 |
The June 2022 Warrants are classified as current warrant liability in the Company’s balance sheet, as they are exercisable at any given time.
During the six months ended June 30, 2023, and 2022, the Company recorded finance income from the change in fair value of the June 2022 Warrants in the amount of $1,023 and $nil, respectively.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 9:- EQUITY
Reverse Share Splits
On August 18, 2023, the Company convened a general meeting of its shareholders, whereby the shareholders approved, inter alia, a reverse split of the Company’s share capital up to a ratio of 30:1. Following the implementation of the Reverse Split, the Company’s authorized share capital will not be adjusted under the Company’s Articles, which as of the date hereof consists of 75,000,000 Ordinary Shares, no par value.
On September 14, 2023, the Company’s Board resolved that the final ratio for the Reverse Split will be 26:1, which became effective on September 28, 2023.
a. | Composition of share capital as of June 30, 2023, June 30, 2022, and December 31, 2022: |
June 30, 2023 | December 31, 2022 | June 30, 2022 | ||||||||||||||||||||||
Authorized | Issued
and outstanding |
Authorized | Issued
and outstanding |
Authorized | Issued
and outstanding |
|||||||||||||||||||
Number of shares | ||||||||||||||||||||||||
Ordinary Shares of no par value each | 75,000,000 | 282,782 | 75,000,000 | 261,494 | 25,714,286 | 135,644 |
b. | Changes in share capital: |
Issued and outstanding share capital:
Number
of ordinary shares |
||||
Balance at January 1, 2023 | 261,494 | |||
Issuance of share capital – in respect of investment in affiliate (Note 6e) | 13,858 | |||
Shares issued to consultants (Note 6e) | 7,134 | |||
Issuance of share capital – in respect of shelf prospectus (Note 6e) | 296 | |||
Balance at June 30, 2023 | 282,782 |
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 9:- EQUITY (cont.)
c. | Rights attached to shares: |
Voting rights at shareholders meetings, right to dividends, rights upon liquidation of the Company and right to nominate the directors in the Company.
d. | Capital management in the Company: |
The Company’s capital management objectives are to preserve the Company’s ability to ensure business continuity thereby creating a return for the shareholders, investors and other interested parties. The Company is not under any minimal equity requirements nor is it required to attain a certain level of capital return.
e. | Additional issuance of ordinary shares: |
On August 2, 2022, the Company issued a consultant 923 ordinary shares in respect of services rendered.
On November 1, 2022, the Company issued a consultant 1,423 ordinary shares in respect of services rendered.
On March 22, 2023, the Company issued 13,858 ordinary shares in respect of the stock purchase agreement entered into by and among Jeffs’ Brands and Jeffs’ Brands Holdings Inc. (“NewCo”) (see also note 8a)
On May 31, 2023, the Company issued 7,134 ordinary shares to consultants in respect of services rendered.
f. | March 2021 Financing Round |
On March 4, 2021, the Company completed a private offering with several accredited and institutional investors for gross proceeds of $8,150, providing for the issuance of an aggregate of 44,331 units, as follows: (a) 35,242 units at a price of $183,82 per unit, consisting of (i) one ordinary share of the Company, and (ii) a Series A Warrant to purchase an equal number of units purchased (the “2021 Series A Warrants”) and a Series B Warrant (the “2021 Series B Warrants” and, collectively with the 2021 Series A Warrants, the March 2021 Warrants) to purchase half the number of units, and (b) 9,089 pre-funded units at a price of $183.794 per unit, consisting of (i) one pre-funded warrant to purchase one ordinary share and (ii) one 2021 Series A Warrant and one 2021 Series B Warrant.
The Series A Warrants have an exercise price of $183.82 per ordinary share and the Series B Warrants have an exercise price of $275.60 per ordinary share). Both were exercisable upon issuance and will expire five years from the date of issuance.
The March 2021 Warrants are classified as issued warrants in the Company’s equity.
During the year ended December 31, 2021, the Company issued 4,929 ordinary shares in respect of the exercise of 385 2021 Series A Warrants and the exercise of 4,544 of pre-funded warrants.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 9:- EQUITY (cont.)
During the year ended December 31, 2022, the Company issued 3,846 ordinary shares in respect of the exercise of 3,846 pre-funded warrants. During the six months ended June 30, 2023, there were no exercises of 2021 Series A Warrants.
g. | June 2022 Financing Round (see also note 8) |
On June 1, 2022, the Company completed the June 2022 Private Placement with an investor for gross proceeds of $10,210, providing for the issuance of an aggregate of 136,388 units and pre-funded units, as follows: (a) 12,884 units at a price of $74.88 per unit, each consisting of (i) one ordinary share of the Company, and (ii) two warrants each to purchase one ordinary share (the “June 2022 Warrants”), and (b) 123,504 pre-funded units at a price of $73.294 per unit, each consisting of (i) one pre-funded warrant to purchase one ordinary share and (ii) two June 2022 Warrants.
The June 2022 Warrants have an exercise price of $68.38 per ordinary share. The June 2022 Warrants were exercisable upon issuance and will expire seven years from the date of issuance.
The June 2022 Warrants are classified as current warrant liability in the Company’s balance sheet, as they are exercisable at any given time.
During the year ended December 31, 2022, the Company issued 123,504 ordinary shares in respect of the exercise of 123,504 pre-funded warrants. During the six months ended June 30, 2023, there were no exercises of June 2022 Warrants.
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 10:- ADDITIONAL INFORMATION TO THE ITEMS OF PROFIT OR LOSS
Six
months ended June 30, |
Year
Ended December 31, |
|||||||||||
2023 | 2022 | 2022 | ||||||||||
Unaudited | Audited | |||||||||||
USD in thousands | ||||||||||||
a. Research and development expenses: | ||||||||||||
Wages and related expenses | $ | 202 | $ | 243 | $ | 436 | ||||||
Share-based payment | 23 | 224 | 264 | |||||||||
Clinical studies | 145 | 106 | 369 | |||||||||
Regulatory, professional and other expenses | 366 | 373 | 750 | |||||||||
Research and preclinical studies | 45 | 410 | 703 | |||||||||
Chemistry and formulations | - | 118 | 281 | |||||||||
781 | 1,474 | 2,803 | ||||||||||
b. General and administrative expenses: | ||||||||||||
Wages and related expenses | 217 | 245 | 437 | |||||||||
Share-based payment | 45 | 431 | 633 | |||||||||
Professional and directors’ fees | 1,366 | 1,292 | 2,499 | |||||||||
Business development expenses | 38 | 2 | 161 | |||||||||
Office maintenance, rent and other expenses | 48 | 63 | 224 | |||||||||
Investor relations and business expenses | 310 | 1,193 | 1,486 | |||||||||
Wellution operating expenses | 366 | - | 907 | |||||||||
Regulatory expenses | 104 | 113 | 162 | |||||||||
$ | 2,494 | $ | 3,339 | 6,509 |
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 11:- SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
a. |
On February 23, 2023, the Company entered into an agreement with Jeffs’ Brands and NewCo, a newly-formed wholly owned subsidiary of Jeffs’ Brands, pursuant to which, at the closing and upon the terms and conditions set forth in the Agreement, NewCo Inc. acquired from the Company a number of shares of stock equal to approximately a 49% interest in the Company’s wholly owned subsidiary, SciSparc US which owns WellutionTM , for $2,500 in cash, and additional deferred cash payments of approximately $489,330 accounting for price adjustments related to inventory and working capital, which is to be paid in five equal monthly installments beginning in May 2023 (the “Price Adjustment”). As collateral for the payment in full of the Price Adjustment, SciSparc held back such number of shares of common stock of SciSparc US, equal to the outstanding due amount of the Price Adjustment (the “Holdback Shares”). Following the closing of the transaction on March 22, 2023, which included an equity conversion of financing amounts previously provided to SciSparc US. by the Company for working capital, and the release of the Holdback Shares upon the payment in full of the Price Adjustment the Company will hold approximately 51% of the share capital of SciSparc US.
Pursuant to the agreement, at the closing of the transaction, Jeffs’ Brands and SciSparc US. entered into a consulting agreement, pursuant to which Jeffs’ Brands will provide management services to SciSparc US for the WellutionTM brand for a monthly fee of $20 and Jeffs’ Brands will receive a one-time signing bonus in the amount of $51. The consulting agreement is for an undefined period of time and may be terminated by either party with 30 days advance notice.
In addition, in connection with the closing of the transaction, the Company and Jeffs’ Brands, engaged in a mutual share exchange in the amount of $288,238 of ordinary shares from each of the Company and Jeffs’ Brands. The number of shares in the share exchange was calculated based on the average closing price of the relevant company’s shares for 30 consecutive trading days ending on the third trading day immediately prior to the closing. Accordingly, the Company acquired 247,415 ordinary shares of Jeffs’ Brands and Jeffs’ Brands acquired 13,858 ordinary shares of the Company having an aggregate value of $288,238, which was adjusted from $300,000 according to the 4.99% ownership limit included in the definitive agreements. |
|
b. |
On May 2, 2023, Capital Point Ltd. (“Capital Point”) filed with the Tel Aviv-Jaffa District Court (the “Court”) a suit against the Company, case number 2050-05-23 (the “Suit”). The Suit names the Company as the sole defendant and includes allegations of breaches of contract by the Company under the Israeli Contracts Law, 1973, unjust enrichment under the Israeli Unjust Enrichment Law, 1979 and breaches of the Company under the Israeli Torts Ordinance, 1968.
|
|
The Suit challenges a certain warrant issued by the Company to Capital Point (the “Capital Point Warrant”) to purchase $340,000 of ordinary shares of the Company (the “Warrant Shares”). The Capital Point Warrant was exercisable for 12 months from May 15, 2021, to May 15, 2022 and was issued in connection with the joint venture transaction, entered on May 15, 2020, by and between the Company, Capital Point and Evero Health Ltd., a majority owned subsidiary of the Company, as further described in the Company’s Report on Form 6-K, filed on May 19, 2020. The Suit claims that the Company unlawfully refused to accept the Capital Point Warrant exercise notice as of November 4, 2021 and accordingly the Company did not issue to Capital Point the Warrant Shares.
The Suit claims damages in the amount of NIS 10,000,000 (approximately $2.75 million), which accounts for, as of the date of the filing of the Suit, the agreed compensation according to Section 2(d)(i) of the Capital Point Warrant, an injunction order for the Company to issue the Warrant Shares to Capital Point, return of any unlawful profits received by the Company and punitive damages.
As of the Approval Date, the Company cannot predict the likelihood of success of the Suit. |
SCISPARC LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except per share and per unit amounts)
NOTE 12:- EVENTS AFTER THE REPORTING PERIOD
a.
|
On August 1, 2023, the Company issued a consultant 807 ordinary shares in respect of services rendered.
|
|
b.
|
On August 14, 2023, the Company closed an underwritten public offering (the “Public Offering”) of 212,500 ordinary shares, at a purchase price of $5.20 per ordinary share and pre-funded warrants to purchase up to 37,500 ordinary shares at a purchase price of $5.174 per pre-funded warrant, for aggregate gross proceeds of approximately $1.3 million, pursuant to an underwriting agreement between the Company and Aegis Capital Corp (“Aegis”), the underwriter in the Public Offering, dated August 10, 2023. Pursuant to the terms of the underwriting agreement, the Company also granted the underwriter a 45-day option to purchase up to an additional 37,500 ordinary shares solely to cover over-allotments, if any, at the share price of the Public Offering less underwriting discounts and commissions.
The pre-funded warrants were exercisable immediately upon issuance and have an exercise price of $0.026 per share. Following the offering and as of the Approval Date, the Company issued 25,000 ordinary shares in respect of the exercise of 25,000 pre-funded warrants.
|
|
c. |
On August 18, 2023, the Company convened a general meeting of its shareholders, whereby the shareholders approved, inter alia, a reverse split of the Company’s share capital up to a ratio of 30:1. Following the implementation of the Reverse Split, the Company’s authorized share capital will not be adjusted under the Company’s Articles, which as of the date hereof consists of 75,000,000 Ordinary Shares, no par value.
On September 14, 2023, the Company’s Board resolved that the final ratio for the Reverse Split will be 26:1, which became effective on September 28, 2023.
|
|
d. |
On October 11, 2023, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a Securities Purchase Agreement (the “Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with an institutional investor (the “Purchaser”) for aggregate gross proceeds of approximately $5 million (representing a 30% original issue discount to the aggregate purchase price of approximately $7.18 million), before deducting fees to the placement agent and other expenses payable by the Company in connection with the Private Placement. The Company intends to use the net proceeds from the Private Placement for general corporate purposes, including working capital. Aegis, acted as the exclusive placement agent for the Private Placement.
As part of the Private Placement, the Company issued units (the “Units”), at a purchase price of $3.72 per Unit, consisting of 1,930,108 pre-funded ordinary share purchase warrants (the “Pre-Funded Warrant”) to purchase up to 1,930,108 ordinary shares of the Company, no par value per share (the “Ordinary Shares”), and an additional accompanying Pre-Funded Warrant to purchase up to 1,930,108 Ordinary Shares. The Pre-Funded Warrants are immediately exercisable upon issuance and have a term of five years from issuance at an exercise price of $0.001 per Ordinary Share.
|
22
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read in conjunction with our interim consolidated financial statements and the notes to such financial statements, which are included in this Report on Form 6-K. In addition, this information should also be read in conjunction with the information contained in our Annual Report on Form 20-F for the year ended December 31, 2022, or the Annual Report, including the consolidated annual financial statements as of December 31, 2022, and their accompanying notes included therein, filed with the Securities and Exchange Commission, or the SEC, on May 1, 2023.
Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “SciSparc”, “the Company” and “our Company” refer to SciSparc Ltd. and its wholly-owned subsidiaries. References to “Ordinary Shares, and “warrants” refer to the ordinary shares, and warrants, respectively, of SciSparc.
We report financial information under International Financial Reporting Standards, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
References to “U.S. dollars,” “USD” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented herein are translated using the rate of NIS 3.70 to $1.00, the exchange rate reported by the Bank of Israel on June 30, 2023.
On August 18, 2023, we convened a general meeting of our shareholders, whereby the shareholders approved, inter alia, a reverse split of our share capital up to a ratio of 30:1. On September 14, 2023, our Board resolved that the final ratio for the reverse split of our share capital would be 26:1, which became effective on September 28, 2023 (the “Reverse Split”). Unless the context expressly indicates otherwise, all references to share and per share amounts referred to herein reflect the amounts after giving effect to the Reverse Split.
Forward-Looking Statements
The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified. These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
● | our ability to raise capital through the issuance of additional securities; |
● | our ability to advance the development our product candidates, including the anticipated starting and ending dates of our anticipated clinical trials; |
● | our assessment of the potential of our product candidates to treat certain indications; |
● | our ability to successfully receive approvals from the U.S. Food and Drug Administration, or other regulatory bodies, including approval to conduct clinical trials, the scope of those trials and the prospects for regulatory approval of, or other regulatory action with respect to our product candidates, including the regulatory pathway to be designated to our product candidates; |
● | the regulatory environment and changes in the health policies and regimes in the countries in which we operate, including the impact of any changes in regulation and legislation that could affect the pharmaceutical industry; |
● | our ability to commercialize our existing product candidates and future sales of our existing product candidates or any other future potential product candidates; |
● | our ability to meet our expectations regarding the commercial supply of our product candidates; | |
● | our ability to integrate successfully our e-Commerce business of the WellutionTM brand, which focuses on the sale of hemp-based products on the Amazon.com marketplace, held by our majority subsidiary owned, SciSparc Nutraceuticals Inc; | |
our ability to pursue a restructuring plan and list NewCo (as defined below) on a leading stock exchange; |
● | the overall global economic environment; |
● | the impact of competition and new technologies; |
● | general market, political and economic conditions in the countries in which we operate; |
● | projected capital expenditures and liquidity; |
● | the impact of competition and new technologies; |
● | changes in our strategy, including our Restructuring Plan (as defined below); |
● | litigation; |
● | our ongoing ability to remain eligible to list our ordinary shares on Nasdaq; and |
● | those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects,” of the Annual Report as well other factors in the Annual Report. |
These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in the Annual Report. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Report of Foreign Private Issuer on Form 6-K.
Overview
We are a specialty clinical-stage pharmaceutical company. Our focus is creating and enhancing a portfolio of technologies and assets based on cannabinoid therapies. With this focus, we are currently engaged in the development of the following pharmaceutical compositions comprising N-acylethanolamines and cannabinoids, such as Palmitoylethanolamide (PEA) and/or Δ9-tetrahydrocannabinol (THC) and/or non-psychoactive cannabidiol (CBD) and/or other cannabinoid receptor agonists: SCI-110 for the treatment of Tourette syndrome, or TS and Alzheimer’s disease and agitation; SCI-160 for the treatment of pain; and SCI-210 for the treatment of Autism Spectrum Disorder, or ASD, and Status Epilepticus, or SE. We also have a majority-owned subsidiary whose business focuses on the sale of hemp-based products on the Amazon.com marketplace.
SCI-110 is a combination therapy candidate based on two components: (1) THC, which is the major cannabinoid molecule in the cannabis plant, and (2) CannAmide™, a proprietary PEA formulation. PEA is an endogenous fatty acid amide that belongs to the class of nuclear factor agonists, which are molecules that regulate the expression of genes. We believe that the combination of THC and PEA may induce a synergistic effect, which has strong potential to treat TS and Alzheimer’s disease and agitation.
SCI-160 is a novel pharmaceutical preparation containing a CB2 receptor agonist for the treatment of pain. This innovative CB2 receptor agonist was synthesized by Raphael Mechoulam, Ph.D., Professor of Medicinal Chemistry at the Hebrew University, a member of the SciSparc Scientific Advisory Board.
Pursuant to the positive results obtained in the phase IIa TS study conducted at Yale School of Medicine, we are developing a regulatory dossier to be submitted to the U.S. Food and Drug Administration, German Federal Institute for Drugs and Medical Devices and the Israeli Ministry Of Health for our SCI-110 program for TS. In February 2021, we announced an agreement with The Israeli Medical Center for Alzheimer’s, to conduct a phase IIa clinical trial to evaluate the potential safety, tolerability and efficacy of SCI-110 in patients with Alzheimer’s disease and agitation using our proprietary cannabinoid-based technology. Sporadic observation in healthy or sick individuals indicated that cannabis products and in particular THC have calming and anti-anxiety effects. Based on our pre-clinical and clinical experience using SCI-110 we believe that this treatment may potentially be found to be more safe and efficacious than THC alone. In addition, we announced in November 2022 positive interim results from our Phase IIa clinical study in Alzheimer’s Disease Patients with Agitation, At the interim analysis, the study met its primary endpoints of safety, including non-treatment related adverse events and drop out patients from the study; specifically, SCI-110 did not cause delirium, oversedation, hypotension or falls even in the highest dose tested (12.5MG Dronabinol+400mg PEA). In addition, SCI-110 treatment was also found to reduce agitation - 75% of patients did not need to use additional medication to control agitation and 75% of patients experienced increased appetite. Similarly, following positive results in a pre-clinical study that consisted of in vitro tests which showed synergy between CBD and PEA, we announced in December 2019 progression of SCI-210 into a clinical stage, and our plans to initiate a randomized, double blind placebo controlled study to evaluate the potential efficacy, safety and tolerability of SCI-210 in treating patients with ASD. In addition, in March 2021, we announced an agreement with The Sheba Fund for Health Services and Research at Chaim Sheba Medical Center, to examine the potential role of SCI-210 on status epilepticus. In December 2022, we announced positive study results from our pre-clinical study in SE indicating differences in mortality rate as well as seizure rates over time in comparison to CBD monotherapy in two different doses and in an untreated control group. In the low-CBD group, a higher mortality rate (although not significant) was found and therefore it is reasonable to believe that no significant impact on neuronal protection was achieved. In the high-CBD group, greater, although not significant, levels of neuronal protection were found together with a decreased mortality rate when compared to the control groups. The level of neuronal protection in the SCI-210 treatment was significantly higher compared to the control group and no mortality was found in this group.
Recent Developments
On September 14, 2022, we entered into a definitive agreement, or the Wellution Acquisition Agreement, to acquire Wellution™, or the Brand, a top-seller account on Amazon.com marketplace, or Amazon, for a base cash consideration of $4.59 million and certain additional deferred payments, based on the Brand’s EBITDA in the 12 month period following the closing, which was on September 30, 2022. In connection with the Wellution Acquisition Agreement, we established a new wholly owned subsidiary, SciSparc Nutraceuticals Inc., or SciSparc Nutraceuticals, to hold the new assets. The Brand sells hemp-based products, including hemp gummies, hemp oil capsules, hemp gel, hemp cream, detox pills, height pills, antibacterial creams, and anti-aging creams, among other beauty and hair treatment products that are all manufactured in the United States.
On February 23, 2023, we entered into a stock purchase agreement, or the Wellution Sales Agreement, with Jeffs’ Brands Ltd., or Jeffs Brands, and Jeffs’ Brands Holdings Inc., a newly-formed wholly owned subsidiary, or Jeffs’ Brands Holdings, of Jeffs’ Brands, which closed on March 22, 2023. Pursuant to the Wellution Sales Agreement, Jeffs’ Brands Holdings acquired from us a number of shares of stock equal to approximately a 49% interest in our wholly owned subsidiary, SciSparc Nutraceuticals which owns WellutionTM, for $2.5 million in cash, and additional deferred cash payments of approximately $489,330 accounting for price adjustments related to inventory and working capital, which is to be paid in five equal monthly installments beginning in May 2023, or the Price Adjustment. As collateral for the payment in full of the Price Adjustment, we held back such number of shares of common stock of SciSparc Nutraceuticals, equal to the outstanding due amount of the Price Adjustment, or the Holdback Shares. Following the closing of the transaction on March 22, 2023, which included an equity conversion of financing amounts previously provided by us to SciSparc Nutraceuticals for working capital, and the release of the Holdback Shares upon the payment in full of the Price Adjustment, the Company will hold approximately 51% of the share capital of SciSparc Nutraceuticals .In addition, in connection with the closing of the transaction, we and Jeffs’ Brands engaged in a mutual share exchange in the amount of $288,238 of ordinary shares from each of us and Jeffs’ Brands. The number of shares in the share exchange was calculated based on the average closing price of the relevant company’s shares for 30 consecutive trading days ending on the third trading day immediately prior to the closing. Accordingly, we acquired 247,415 ordinary shares of Jeffs’ Brands and Jeffs’ Brands acquired 13,858 ordinary shares of us having an aggregate value of $288,238, which was adjusted from $300,000 according to the 4.99% ownership limit included in the definitive agreements, or the Share Exchange. As part of the Wellution Sales Agreement, Jeffs Brands and SciSparc Nutraceuticals entered into a consulting agreement, pursuant to which Jeffs’ Brands will provide management services to SciSparc Nutraceuticals for the WellutionTM brand for a monthly fee of $20,000 and Jeffs’ Brands received a one-time signing bonus in the amount of $51,000. The consulting agreement is for an undefined period of time and may be terminated by either party with 30 days advance notice.
On January 25, 2023, we announced that our board of directors resolved to pursue a restructuring plan, or the Restructuring Plan, which involves transferring our pharmaceutical activities to a new wholly-owned subsidiary, or NewCo. As part of the Restructuring Plan, we intend to examine the possibility of listing NewCo on a leading stock exchange, while maintaining our controlling interest in NewCo such that we will continue to control our current business activities. We also intend to explore other potential new opportunities, activities and investments in a variety of sectors. Any restructuring and possible listing of NewCo on a stock exchange may be subject to, among other things, market conditions, tax or other business analyses, regulatory approvals, receipt of any necessary consents, final approvals from our board of directors and satisfaction of any closing conditions to effectuate such corporate restructuring and listing of NewCo. There can be no assurance regarding the ultimate timing of the intended Restructuring Plan and listing of NewCo or that they will be completed at all.
On June 25, 2023 we entered into a share purchase agreement, or the AutoMax SPA, with AutoMax Motors Ltd., or AutoMax, an Israeli company traded on the Tel Aviv Stock Exchange and the leading parallel importer and distributor of vehicles in Israel, pursuant to which, at the closing and upon the terms and conditions set forth in the AutoMax SPA, we invested NIS 2,500,000 in cash, in exchange for ordinary shares of AutoMax based on a price per share of NIS 0.5. Following the closing, we hold approximately 5.6% of the issued and outstanding share capital of AutoMax.
On August 18, 2023, we convened a general meeting of our shareholders, whereby the shareholders approved, among other things, a reverse split of our share capital up to a ratio of 30:1 with the primary intent of increasing the price of our ordinary shares in order to meet minimum bid price requirement of Nasdaq. On September 14, 2023, our Board resolved that the final ratio for the Reverse Split would be 26:1, which became effective on September 28, 2023.
On October 11, 2023, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a Securities Purchase Agreement (the “Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with an institutional investor (the “Purchaser”) for aggregate gross proceeds of approximately $5 million (representing a 30% original issue discount to the aggregate purchase price of approximately $7.18 million), before deducting fees to the placement agent and other expenses payable by the Company in connection with the Private Placement. The Company intends to use the net proceeds from the Private Placement for general corporate purposes, including working capital. Aegis Capital Corp. (“Aegis”), acted as the exclusive placement agent for the Private Placement. As part of the Private Placement, the Company issued units (the “Units”), at a purchase price of $3.72 per Unit, consisting of 1,930,108 pre-funded ordinary share purchase warrants (the “Pre-Funded Warrant”) to purchase up to 1,930,108 ordinary shares of the Company, no par value per share (the “Ordinary Shares”), and an additional accompanying Pre-Funded Warrant to purchase up to 1,930,108 Ordinary Shares. The Pre-Funded Warrants are immediately exercisable upon issuance and have a term of five years from issuance at an exercise price of $0.001 per Ordinary Share.
Operating Results
During the year ended December 31, 2022, we began generating revenues through our subsidiary SciSparc Nutraceuticals, which owns the Wellution™ brand. Total revenues recognized in the six months ended June 30, 2023, amounted to $1,972 thousand.
To date, we have not generated revenue from our drug development segment from the sale of any pharmaceutical product candidates, and we do not expect to generate significant revenue in this business within the next year at least. As of June 30, 2023, we had an accumulated deficit of approximately $66 million. Our operating activities are described below under “Operating Expenses.”
Revenues
During the six months ended June 30, 2023, we generated revenues in the amount of $1,972 thousand, compared to $0 revenue recorded during the six months ended June 30, 2022. Revenue in the six months ended June 30, 2023, was primarily attributable to our subsidiary SciSparc Nutraceuticals, which owns the Wellution™ brand.
Cost of goods sold
The cost of goods sold comprises mainly purchases of Wellution™ brand products, Amazon transaction fees, storage and transportation costs to the Company’s warehouse. The cost of goods sold in the six months ended June 30, 2023 amounted to $1,267 thousand, compared to $0 cost of goods recorded during the six months ended June 30, 2022.
Operating Expenses (in thousands of dollars)
Our current operating expenses consist of two components – research and development expenses, and general and administrative expenses, including sales and marketing expenses through our subsidiary SciSparc Nutraceuticals, which owns the Wellution™ brand.
Research and Development Expenses
Our research and development expenses consist primarily of salaries and related personnel expenses, regulatory and other expenses and clinical studies expenses.
The following table discloses the breakdown of research and development expenses:
Six month period ended June 30, |
||||||||
2023 | 2022 | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands of USD) | ||||||||
Wages and related expenses | 202 | 243 | ||||||
Share-based payments | 23 | 224 | ||||||
Clinical studies | 145 | 106 | ||||||
Research and preclinical studies | 45 | 410 | ||||||
Chemistry and formulations | - | 118 | ||||||
Regulatory and other expenses | 366 | 373 | ||||||
Total | 781 | 1,474 |
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, share-based compensation expense, professional service fees for accounting, legal, bookkeeping, facilities and other general and administrative expenses.
The following table discloses the breakdown of general and administrative expenses:
Six month period ended June 30, |
||||||||
2023 | 2022 | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands of USD) | ||||||||
Wages and related expenses | 217 | 245 | ||||||
Share-based payment | 45 | 431 | ||||||
Professional and directors fees | 1,366 | 1,292 | ||||||
Investor relations and business expenses | 310 | 1,193 | ||||||
Office maintenance, rent and other expenses | 48 | 63 | ||||||
Regulatory expenses | 104 | 113 | ||||||
Wellution operating expenses | 366 | - | ||||||
Business development | 38 | 2 | ||||||
Total | 2,494 | 3,339 |
Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022
Research and Development Expenses, net
Our research and development expenses for the six months ended June 30, 2023, amounted to $781 thousand, representing a decrease of $693 thousand, or 47%, compared to $1,474 thousand for the six months ended June 30, 2022. The decrease was primarily attributable to a decrease of $201 thousand in share-based expenses, a decrease of $365 thousand in research and preclinical studies, and a decrease of $118 thousand in chemistry and formulations expenses.
General and Administrative Expenses
Our general and administrative expenses totaled $2,494 thousand for the six months ended June 30, 2023, a decrease of $845 thousand, or 25%, compared to $3,339 thousand for the six months ended June 30, 2022. The decrease was primarily attributable to a decrease of $883 thousand in investor relations and business expenses, and a decrease of $386 thousand in share-based expenses, offset in part by an increase of $366 thousand in operating expenses of the Wellution™ brand consisting primarily of advertising expenses, promotional rebates, and other fees charged by Amazon.
Sales and marketing
The sales and marketing expenses comprises mainly of advertising and promotional rebates on Amazon. The sales and marketing expenses in the six months ended June 30, 2023 amounted to $397 thousand, compared to $0 sales and marketing expenses recorded during the six months ended June 30, 2022. This increase was primarily attributable to our subsidiary SciSparc Nutraceuticals, which owns the Wellution™ brand, and its sales and marketing expenses.
Operating Loss
As a result of the foregoing, our operating loss for the six months ended June 30, 2023, was $2,967 thousand, compared to an operating loss of $3,339 thousand for the six months ended June 30, 2022, a decrease of $372 thousand, or 13%.
Finance Expense and Income
Finance expenses and income consist of revaluation of debt instruments presented at fair value, related issuance expenses of debt instruments and bank fees.
We recognized finance income, net for the six months ended June 30, 2023, of $147 thousand, representing a change of $1,052 thousand compared to finance expenses of $905 thousand for the six months ended June 30, 2022. The increase was primarily due to a change in the fair value of the warrants we issued in June 2022, offset by impairment of financial assets. Changes in the fair value of the June 2022 warrants are mainly due – and correlate – to the changes in the market price of the Company’s shares.
Total Comprehensive Loss
Our total comprehensive loss for the six months ended June 30, 2023, was $2.93 million, representing a decrease of $2.83 million, or 49%, compared to $5.76 million for the six months ended June 30, 2022.
Liquidity and Capital Resources
Overview
As of June 30, 2023, we had $2,125,000 in cash, including short term restricted deposits.
The table below presents our cash flows:
Six months ended June 30, |
||||||||
2023 | 2022 | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands of USD) | ||||||||
Net cash used in operating activities | (3,201 | ) | (2,188 | ) | ||||
Net cash used in investing activities | (1,071 | ) | (708 | ) | ||||
Net cash provided by financing activities | 2,779 | 8,966 |
Operating Activities
Net cash used in operating activities was $3,233 thousand for the six months ended June 30, 2023, compared with net cash used in operating activities of $2,188 thousand for the six months ended June 30, 2022. The increase is primarily due to decreases in adjustments to the profit or loss item of finance expenses relating to the change in fair value of warrants of $1,023 thousand, offset in part by losses from remeasurement of investment in financial assets of $855 thousand, and in adjustments to the working capital item of change in other accounts receivable of $684 thousand.
Investing Activities
Net cash used in investing activities was $1,071 thousand for the six months ended June 30, 2023, compared with $708 thousand cash used in investing activities for the six months ended June 30, 2022. Net cash used in investing activities was due to our investment in MitoCare X Bio Ltd. in the amount of $400 thousand, and our investment in financial assets of $687 thousand.
Financing Activities
Net cash provided by financing activities of $2,811 thousand in the six months ended June 30, 2023, primarily from the sale of a minority interest in a subsidiary pursuant to the Wellution Sales Agreement in the amount of $2,886 thousand, offset by issuance expenses in respect of a shelf prospectus in the amount of $50 thousand and by repayment of lease liability in the amount of $26 thousand. Net cash provided by financing activities of $8.97 million in the six months ended June 30, 2022, consisted mainly of $9.0 million of net proceeds from the issuance of share capital and warrants, offset by repayment of lease liability in the amount of $39 thousand.
Wellution Sales Agreement
On February 23, 2023, we entered into the Wellution Sales Agreement with Jeffs’ Brands Holdings and Jeffs’ Brands, pursuant to which, at the closing, which occurred on March 28, 2023, Jeffs’ Holdings acquired from us a number of shares of common stock of SciSparc Nutraceuticals equal to approximately a 49% interest in our wholly owned subsidiary, SciSparc Nutraceuticals, which owns the WellutionTM brand, for a consideration of $2.5 million in cash, and an additional deferred cash payment of approximately $489 thousand.
In connection with the closing, we and Jeffs’ Brands undertook a mutual share exchange in the amount of approximately $288 thousand of ordinary shares from each of us and Jeffs’ Brands. The number of shares in the share exchange was calculated based on the average closing price of the relevant company’s shares for 30 consecutive trading days ending on the third trading day immediately prior to the closing. Accordingly, we acquired 247,415 ordinary shares of Jeffs’ Brands and Jeffs’ Brands acquired 13,858 ordinary shares from us having an aggregate value of $288 thousand.
Following the closing of the transaction, which included an equity conversion of the financing amounts of approximately $700 thousand previously provided by the Company to SciSparc Nutraceuticals for working capital, into shares of common stock at the price per share of the Wellution Sales Agreement and the release of the Holdback Shares, we will hold approximately 51% of SciSparc Nutraceuticals.
AutoMax SPA
On June 25, 2023, we entered into the AutoMax SPA with AutoMax, pursuant to which, at the closing and upon the terms and conditions set forth in the AutoMax SPA, we invested NIS 2,500 thousand in cash, in exchange for ordinary shares of AutoMax based on a price per share of NIS 0.5. Following the closing, we hold approximately 5.6% of the issued and outstanding share capital of AutoMax.
Underwritten Public Offering
On August 14, 2023, we closed an underwritten public offering, or the Public Offering, of 212,500 ordinary shares, at a purchase price of $5.20 per ordinary share and pre-funded warrants to purchase up to 37,500 ordinary shares at a purchase price of $5.174 per pre-funded warrant, for aggregate gross proceeds of approximately $1.3 million, pursuant to an underwriting agreement between us and Aegis, or the Underwriter, on August 10, 2023. Pursuant to the terms of the Underwriting Agreement, we also granted the Underwriter a 45-day option to purchase up to an additional 37,500 ordinary shares solely to cover over-allotments, if any, at the Public Offering share price less underwriting discounts and commissions.
The pre-funded warrants were exercisable immediately upon issuance and have an exercise price of $0.026 per share. Following the Public Offering and as of September 27, 2023, the Company issued 25,000 ordinary shares in respect of the exercise of 25,000 pre-funded warrants.
Current Outlook
We have financed our operations to date primarily through proceeds from sales of our ordinary shares and American Depositary Shares, or ADSs, as well as exercises of warrants and options to purchase ordinary shares or ADSs, as the case may be. We have incurred losses and generated negative cash flows from operations since August 2004. Since August 2004, we have not generated any revenue from the sale of our pharmaceutical product candidates and we do not expect to generate revenues from sale of our pharmaceutical product candidates in the next few years.
As of June 30, 2023, our cash, including short-term bank deposits, were $2,125 thousand.
We believe that our existing cash resources will not be sufficient to finance our operating activities in the foreseeable future, and we expect that we will require substantial additional capital to complete the development of, and to commercialize, our product candidates. If we do seek to raise additional capital, there can be no guarantee or assurance that we will be successful in raising such additional capital or that the term of such capital raise will be on terms favorable to us.
In September 2022, we purchased Wellution™, a business and brand which sells hemp-based products on the Amazon.com marketplace.
On January 25, 2023, we announced that our board of directors resolved to pursue a Restructuring Plan which involves transferring our pharmaceutical activities to NewCo. As part of the Restructuring Plan, we intend to examine the possibility of listing NewCo on a leading stock exchange, while maintaining our controlling interest in NewCo such that we will continue to control our current business activities. We also intend to explore other potential new opportunities, activities and investments in a variety of sectors.
Any restructuring and possible listing of NewCo on a stock exchange may be subject to, among other things, market conditions, tax or other business analyses, regulatory approvals, receipt of any necessary consents, final approvals from our board of directors and satisfaction of any closing conditions to effectuate such corporate restructuring and listing of NewCo. There can be no assurance regarding the ultimate timing of the intended restructuring and listing of NewCo or that they will be completed at all.
In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional financing sooner than planned. Our efforts to commercialize our proprietary PEA oral tablets CannAmide™ may not lead to any revenue or revenue at the level at which we are expecting. Our future capital requirements will depend on many factors, including:
● | the progress and costs of our research and development activities; | |
● | the costs of manufacturing our product candidates; | |
● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; | |
● | the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and | |
● | the magnitude of our general and administrative expenses. |
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt and/or equity financings. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. This raises substantial doubts about our ability to continue as a going concern. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our product candidates.
Research and development, patents and licenses, etc.
A comprehensive discussion of our research and development, patents and licenses, etc., is included in “Item 5. Operating and Financial Review and Prospects - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
Critical Accounting Policies
The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, obligations and expenses during the reporting periods. A comprehensive discussion of our critical accounting policies is included in “Item 5. Operating and Financial Review and Prospects - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
9