Scisparc Ltd. current report, Q2 FY2023

Business Context and Reporting Period

This Form 6-K filing by SciSparc Ltd. covers the month of April 2023, with a report date of April 4, 2023. The filing details the completion of a strategic divestiture transaction on March 22, 2023, involving the sale of a 49% interest in SciSparc Nutraceuticals Inc. ("SciSparc U.S."), the subsidiary that owns and operates the Wellution brand.

Key Financial Metrics and Transaction Details

  • Total Transaction Value: Approximately $3.0 million in cash.
  • Cash Received at Closing: Approximately $2.5 million.
  • Price Adjustment: $489,330 in cash, payable in five equal installments of $97,866 starting May 2023.
  • Collateral: The Company retained 11 shares of SciSparc U.S. common stock as security for the price adjustment payments.
  • Consulting Fees: Jeffs' Brands will pay SciSparc U.S. a monthly fee of $20,000 for management services, plus a one-time signing bonus of $51,000.
  • Share Exchange: A mutual exchange of shares occurred, with SciSparc receiving 247,415 shares of Jeffs' Brands (approx. 2.97% ownership) and Jeffs' Brands receiving 360,297 shares of SciSparc (approx. 4.99% ownership).

Material Changes

The primary material change is the partial divestiture of the Wellution brand. SciSparc Ltd. sold 57 shares of SciSparc U.S. to Jeffs' Brands Holdings Inc., representing approximately 49% of the subsidiary's outstanding shares. This transaction alters the Company's asset base and introduces a new ongoing revenue stream via the consulting agreement while reducing direct operational control over the Wellution brand.

Outlook, Risks, and Contingencies

  • Payment Contingency: The release of the 11 held-back shares of SciSparc U.S. is contingent upon the full payment of the $489,330 price adjustment by Jeffs' Brands.
  • Contractual Terms: The Consulting Agreement is for an undefined period and may be terminated by either party with 30 days' advance notice, creating potential revenue volatility.
  • Regulatory Restrictions: The shares exchanged between the companies are unregistered and cannot be offered or sold in the United States without an effective registration statement or applicable exemption.

Investor Verification Checklist

  • Verify the receipt of the initial $2.5 million cash payment and the schedule for the five subsequent installments of the price adjustment.
  • Confirm the status of the 11 shares of SciSparc U.S. held as collateral and the conditions for their release.
  • Review the terms of the Consulting Agreement to assess the stability of the $20,000 monthly revenue stream.
  • Monitor the impact of the 49% ownership reduction on SciSparc's consolidated financial statements and future reporting of Wellution's performance.