Crumbs Bake Shop's Accounts Are Not So Sweet

Analyzing the top news stories across the web
June 1 2014 2:53 PM

Crumbs Bake Shop's Accounts Are Not So Sweet

Was2892746
All sugar, no substance—financial or nutritional

Stan Honda/AFP/Getty Images

This post originally appeared on Business Insider. 

It's getting hot in Crumbs' kitchen. 

Advertisement

In Crumbs Bake Shop's most recent Form 10-Q filed with the SEC, the company disclosed that its auditors, Rothstein Kass, "expressed substantial doubt about our ability to continue as a going concern."

A company is considered a "going concern" when it has sufficient resources to continue operations. When a company is no longer a going concern, it's out of business. 

Since Crumbs went public in 2011 as part of a $66 million reverse merger with 57th Street General Acquisition Corp., it's been mostly bad news for the company. Last year, we chronicled the problems facing the gourmet cupcake business here, here and here

In short, charging a premium price for a product that can easily be made at home is a big ask for a successful business. According to Crumbs' website, a 6-pack of its signature cupcakes goes for $27. A quick Amazon search turns up results for a 12-pack of Duncan Hines cupcake mix that goes for $19.99. And while Duncan Hines cupcake batter is not the premium product Crumbs sells, the 144 cupcakes yielded for less than the price of 6 Crumbs cupcakes is an enormous disparity. 

At the time of the company's IPO, it had 34 locations, and in its first earnings report as a public company, the company reaffirmed its commitment to open 200 stores by the end of this year. As of March 31, Crumbs had 65 shops opened. By the time it filed its 10-Q with the SEC on May 15, that number was down to 58. 

Crumbs investors have been experiencing pain almost since the time of the stock's debut. By the end of 2011, shares were near $4 after trading as high as $14 that summer. Today, Crumbs shares are at around $0.35.

But Crumb's present problem is not just that its auditor doesn't think the company will make, but that the company itself sees a number of obstacles to continuing operations.  

From its 10-Q (emphasis theirs):

"We need additional capital to fund future cash flow requirements, and we may not be able to obtain such funds on acceptable terms. Raising additional funds by issuing securities or through lending or licensing arrangements may cause dilution to [Crumbs'] existing security holders, restrict our operations or require us to relinquish proprietary rights. Management believes that our cash flow requirements will likely consume our existing capital resources and cash from anticipated sales unless we are able to raise additional funds prior to June 30, 2014."

Crumbs' filing contains plenty of additional ominous language.

And while much of the language describes the company's troubles in somewhat detached legalese, any prospective investor that wants to take a long shot on Crumbs right now should be able to read through the lines and discern that it does not get much worse for a company.

Myles Udland is a reporter for Business Insider.

TODAY IN SLATE

Politics

Don’t Worry, Obama Isn’t Sending U.S. Troops to Fight ISIS

But the next president might. 

The Extraordinary Amicus Brief That Attempts to Explain the Wu-Tang Clan to the Supreme Court Justices

Amazon Is Officially a Gadget Company. Here Are Its Six New Devices.

The Human Need to Find Connections in Everything

It’s the source of creativity and delusions. It can harm us more than it helps us.

How Much Should You Loathe NFL Commissioner Roger Goodell?

Here are the facts.

Altered State

The Plight of the Pre-Legalization Marijuana Offender

What should happen to weed users and dealers busted before the stuff was legal?

Surprise! The Women Hired to Fix the NFL Think the NFL Is Just Great.

You Shouldn’t Spank Anyone but Your Consensual Sex Partner

Moneybox
Sept. 17 2014 5:10 PM The Most Awkward Scenario in Which a Man Can Hold a Door for a Woman
  News & Politics
Altered State
Sept. 17 2014 11:51 PM The Plight of the Pre-Legalization Marijuana Offender What should happen to weed users and dealers busted before the stuff was legal?
  Business
Business Insider
Sept. 17 2014 1:36 PM Nate Silver Versus Princeton Professor: Who Has the Right Models?
  Life
Outward
Sept. 17 2014 6:53 PM LGBTQ Luminaries Honored With MacArthur “Genius” Fellowships
  Double X
The XX Factor
Sept. 17 2014 6:14 PM Today in Gender Gaps: Biking
  Slate Plus
Slate Fare
Sept. 17 2014 9:37 AM Is Slate Too Liberal?  A members-only open thread.
  Arts
Brow Beat
Sept. 17 2014 8:25 PM A New Song and Music Video From Angel Olsen, Indie’s Next Big Thing
  Technology
Future Tense
Sept. 17 2014 9:00 PM Amazon Is Now a Gadget Company
  Health & Science
Medical Examiner
Sept. 17 2014 11:48 PM Spanking Is Great for Sex Which is why it’s grotesque for parenting.
  Sports
Sports Nut
Sept. 17 2014 3:51 PM NFL Jerk Watch: Roger Goodell How much should you loathe the pro football commissioner?