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Never Say Never: SpendSmart's Bieber Card to Bounce?

Adam Rust's picture

Posted June 12, 2013

SpendSmart, the prepaid company that dropped millions of dollars on Justin Bieber to serve as a pitch man, may not be around much longer.

SpendSmart is bleeding cash.

Accountants tend to be about as rash as oak trees, but in looking over

the financials of SpendSmart, they spoke loudly. SpendSmart describes their take:

"There exists substantial doubt about our ability to continue as a going concern for twelve months after the date of these financial statements."

In March, the company released their accounting firm, BDO Seidman, from its contract.

Let's go over their financials. In the last quarter, SpendSmart brought in about $300,000 in revenue from fees charged to consumers of their prepaid cards. That was a bit of an uptick for the company, as their revenues in the three months prior to that were about $250,000. Clearly, that Bieber money is paying off!

But then let's look at expenses. In the last six months, operating expenses were $16.17 million.

SpendSmart is spending a lot.

$4.55 million of that expense came from marketing, of which payments to Bieber were $3.75 million.

By the way, Justin Bieber is from the same town as Guy Lombardo. Just wanted to clear that up for you.

So, to the point about the money: where's the rest?

But Baby Oh Baby Ohhhh! It turns out that the money is great for executives at SpendSmart. In the last six months, the company has handed out $7.7 million in "stock-based compensation." They also paid their staff wages of $880,060.

Bieber got two million warrants himself and an up to an additional two million shares if there are more than 250,000 active Justin Bieber cards at the end of his fourteen month term with the company.

Unfortunately, the party might not last forever. the company is down to $2.45 million in cash. If losses continue at the same pace as during last quarter, then SpendSmart has another 41 days. The company appears to have a plan to stave off the end. The company hints that they may raise additional capital through the sale of common stock and warrants.

Never say never.