Published On: Thu, Feb 23rd, 2017

Why Sport Endurance Inc (OTCMKTS:SENZ) Needs Financial Injection To Stay Afloat

Sport Endurance Inc (OTCMKTS:SENZ) is in a financial distress and will need to raise additional capital to stay afloat. That was an issue that the management recently addressed in the company’s January 2017 security filing for the quarter ended November 2016.

The company closed the quarter with cash and equivalent of only $964, sharply down from $10,197 in the prior quarter. Yet the company’s operating costs consumed $84,126, suggesting that it is short of cash to operate normally.

Sport Endurance generated revenue of $230 and booked $200,563 in net loss in the November quarter.

According to the security filing, the management also disclosed that Sport Endurance had a working capital deficit of $774,886 as of the end of the November quarter.

Seeking new funding and ventures

However, the management said it was seeking additional funding as well as pursuing new business opportunities that could generate more revenue and cash flow to keep the company in operations. The management offered no guarantee that such efforts would bear fruits.

However, a recent pop in the stock of Sport Endurance seem to suggest that investors are growing hopeful that the company would soon find a solution to its financial problems.

Shares of Sport Endurance rose 1.7% to close at $1.80 in the last session. Though the stock is down nearly 9% year-to-date, it is up more than 250% since 12 months ago.

Financing options

Sport Endurance’s fundraiser options include issuing debt, selling new shares or monetizing some of its assets. Of these fundraising options, the sale of assets may not move the needle for Sport Endurance. The company reported total assets of only $16,176 in the November quarter. Total assets shrank from $16,640 in the prior quarter.  As such, for a company that spends more than $84,000 in operating expenses in a quarter, even selling all the assets would not make much difference.

Debt issuance is a method that Sport Endurance has used in the past to raise funds, and it could use it again. However, the problem is that taking on more debt might leave the company with a highly leveraged balance sheet. Sport Endurance disclosed total liabilities of $791,062 at the end of its most recent quarter. The liabilities increased from $590,963 in the prior quarter.

Sport Endurance could sell new shares to raise capital. That is a low-cost way to raise funds, although the short-term impact is that it would be dilutive to existing shareholders. Sport Endurance had 77.8 million shares outstanding at the end of the November quarter.

Cost curtailment

The company also has the option to continue pruning costs so that it can save cash and stay afloat. Sport Endurance last year moved to shrink its board of directors by removing all the directors and leaving only one. Such streamlining measures can lower the company’s expenses.

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