Can Sport Endurance Inc (OTCMKTS:SENZ) Fix Its Cash Shortage Problem?

Sport Endurance Inc (OTCMKTS:SENZ)

Sport Endurance Inc (OTCMKTS:SENZ) has a cash problem. When the company reports 4Q16 results on March 9, the quality of its balance sheet will come under sharp focus of investors for signs of what might be lying ahead for the dietary supplements company.

In its last quarterly report, Sport Endurance generated revenue of $230, and posted a net loss $200,563, wider than $18,686 net loss in year earlier. The company closed the quarter with cash and equivalents of $964, down from $10,197 in the prior quarter. Total assets shrank to $16,176 from $16,640 in the prior, while liabilities ballooned to $791,062, from $590,963.

The quarter left the company with more than 1.5 million in accumulated net losses and working capital shortfall of $774,886. With liabilities exceeding assets and Sport Endurance Inc (OTCMKTS:SENZ) facing a working capital shortage, the management sounded the alarm over the company’s ability to continue as a going concern.

Management express hope

However, the management expressed hope that options still exist to keep the company in operations, or at least, enter a deal that would maximize shareholder value. Among the options the management is pursuing is seeking business ventures that would increase the revenue that the company generates and provide cash flow to run the operations.

Additionally, the management is seeking deals that would yield cash injection to fund operations. However, the management still cautioned that there was assurance that a deal to save the company would materialize.

Debt Financing

In seeking additional capital to plug the working capital deficit and meet other operational needs, Sport Endurance Inc (OTCMKTS:SENZ) can try several options. One of the options is to issue new debt. However, the problem with seeking debt financing is that Sport Endurance’s already highly leveraged balance sheet could turn off prospective lenders or force the company to accept debt financing at a higher interest rate.

The company’s interest expense at the end of the last quarter was $183,705, rising sharply from $2,253 a year earlier.

Equity financing

If debt financing proves difficult, Sport Endurance Inc (OTCMKTS:SENZ) could sell new shares to the public or selected investors. In that cash, the company would get a financial shot in the arm without risking driving up its interest expenses. However, equity issuance also carries a problem as it would dilute value for existing shareholders. For investors with a long-term outlook, that would be a lesser concern compared to debt that would chain Sport Endurance to expensive repayments.

The other option for Sport Endurance Inc (OTCMKTS:SENZ) to cope with its cash problem is cost-cutting so that it saves money to invest in growth. In a move reminiscent of cost pruning, shareholders voted to restructure the company’s board of directors so that the board was left with only one director.

However, there is no guarantee Sport Endurance Inc (OTCMKTS:SENZ) would succeed if it pursues any or all of these survival options.

Shares of Sport Endurance Inc (OTCMKTS:SENZ) rose 1.7% to 1.80 in the last session. The stock is down 8.6% year-to-date, and it is up more than 250% over the last one year.

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.

About the author: Monica Gray has an undergraduate degree in Accounting and an MBA – earned with Honors. She has six years of experience in the financial markets and has been a securities analyst for the past two years.