Rennova Health Inc. (NASDAQ: RNVA) is searching for at least $8.6 million and the management has figured out that diluting the stock could help raise the needed funds. As such, the company is in the process of selling millions of Class A units that comprise of common stock and warrant to purchase common stock.
But Rennova Health Inc. (NASDAQ: RNVA) has not clearly stated why it is raising additional capital through the sale of shares. Nevertheless, there is no doubt that the company is in need of refinancing and the management considers equity sale a lower cost way to raise funds.
Debt burden on the balance sheet
If you look at Rennova’s balance sheet drawn at the end of the last quarter (1Q2016), what you see in it is total debt amounting to $15.7 million. The debt ballooned from $12 million in the prior quarter. During the same period, cash and short-term investments shrank to $4.9 million from more than $8.8 million in the previous quarter.
If the leveraged balance sheet is any indicator, it is safe to conclude that Rennova is raising capital to strengthen its balance sheet besides financing other activities aimed at growing revenue.
You can remember that in 1Q2016, Rennova Health Inc (NASDAQ: RNVA) reported revenue of $1.9 million, which was a huge pullback from revenue of $13.6 million in the same period last year. The company’s gross margin also declined to 70% from nearly 71%. At the end of the day the company logged EPS loss of $0.29, wider than EPS loss of $0.04 in the year-ago quarter.
Shrinking revenue and weakening margins could be driving Rennova to cash drought that is making the management think fast to seek refinancing.
What’s on offer by Tengasco, Inc. (NYSEMKT: TGC)?
In the announced securities offering, Rennova Health Inc. (NASDAQ: RNVA) said that it is selling about 19.1 million Class A units that combine one common share and one warrant that is immediately exercisable. The warrant has an exercise price of $0.45.
Although Rennova is initially aiming to raise $8.6 million in gross proceeds through the secondary offering, it has granted the underwriters the opportunity to purchase additional shares to cover overallotment in case there is strong demand for the securities.
As such, Rennova Health Inc. (NASDAQ: RNVA) could end up raising more than $8.6 million from the offering if the underwriters exercise their option. The Class A units have been priced at $0.45 apiece.