SCIE: $400K More Financing

SCIE:  $400K More Financing

Brian Marckx, CFA

In an 8-K filing yesterday (2/23/12) SpectraScience, Inc. (SCIE.PK) announced that they sold $400k (gross) more 5% OID convertibles.  As a reminder, on January 31st the company announced the sale of $600k principal amount of 5% OID convertibles, due July 2012.  The bonds are convertible at $0.0573 per share.  Buyers of the bonds also received five-year warrants to buy up to 50% of the number of shares issuable upon conversion of the bonds at $0.0745 per share.  Along with being issued at a 5% discount, the bonds pay annual interest of 20% upon any voluntary conversion to equity and at maturity - SpectraScience has the option of paying interest in cash or stock.
 
Terms of the most recent bond sale are identical to the initial OID sale (and also include warrants - terms of which are also identical).  The new bonds mature August 2012.  

As of their most recent reporting period (9/30/2011) SpectraScience had $1.38 million in cash and equivalents.  Cash used in operations was $1.04 million and $2.23 million through the three and nine months ending 9/30/2011.  At this burn rate, the company had enough cash to operate for approximately 4 months.  We, however, anticipate the cash burn rate to continue to increase in the near-term as SpectraScience ramps up production, manufacturing and other activities related to the European launch.

This new short-term financing over the last couple of months (~$1MM in net proceeds) gives the company only a minimal amount of additional breathing room before they will need to raise additional cash.  On their November 2011 business update call the company noted that they were evaluating financing options and that their plan may involve a short-term bridge-type financing (i.e. - loan) for ~ $1MM - $1.5MM within the next few months (which they've accomplished with the sale of these OID's), followed by an additional $4.5MM - $5MM  - which management hopes to have in place by mid-2012 and would potentially come from the sale of equity or debt.  

We cover SpectraScience with an Outperform rating and a $0.40/share price target.  

To view a free copy of our most recent research report on SCIE or subscribe to our daily morning email alert, visit Brian Marckx's coverage page at http://scr.zacks.com/.

 

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