Sunshine Heart Inc. (NASDAQ: SSH) is in need of more funding and it has looked around and determined that a path that would dilute its stock is the best solution. Now the company is selling thousands of its Series B preferred shares that will convert into millions of common shares. The announcement of the equity fundraiser didn’t go down well with existing Sunshine shareholders who could be seen scrambling for the exit door in the last session.
What is happening here?
It is simple. Sunshine Heart Inc. (NASDAQ:SSH) is selling some 3,468 shares of its Series B preferred shares that are convertible to common shares to an investor who has not been revealed. That tells you that the transaction is a private placement.
What of the outcome? The equity offering is expected to generate $3.5 million for Sunshine.
The impact on the common stock of Sunshine Heart Inc. (NASDAQ:SSH)
First, the private placement provides a path for the investor to convert the Series B shares into common stock at a discount to the stock’s prevailing price. The Series B shares will convert to common shares at a price of just $0.94. That means that the investor will get hold of 3.7 million common shares in Sunshine once the preferred stock is converted.
Then the offering also grants the investor the opportunity to grab up to additional 3.7 million common shares in Sunshine through exercising of a warrant to purchase common stock. The warrant is also exercisable at a discount price of $0.94.
The private placement is set to close on July 26.
Putting the money to use
According to Sunshine Heart Inc. (NASDAQ:SSH), the reason it is undertaking the equity fundraiser is so that it can boost its working capital. There is need for more cash in the company especially after it recently took a new path of drug development. The management explained that the shift in drug strategy was informed by the realization that the new path offers a better shot at bringing a product to market at a lower cost and within a shorter period of time.