Crumbs Bake Shop Inc. (Nasdaq: CRMB), which has a history of losses and has been shutting stores, has closed on the second tranche of a loan from the owner of Dippin' Dots LLC. Crumbs plans to use the funds to develop a licensing program expected to increase revenue.
The cupcake store operator announced in an April 2 filing with the U.S. Securities and Exchange Commission that it closed on the $1.5 million loan, the second tranche of a term loan from Dippin' Dots owner Fischer Enterprises LLC. In January, Crumbs closed on the first tranche of the loan, which was $3.5 million. Dippin' Dots makes flash-frozen ice cream products.
New York-based Crumbs and Dippin' Dots plan to explore possible synergies, including co-branding, cross- branding and distribution. The loan, in addition to helping Crumbs develop its licensing business, will also be used for franchising initiatives, closing under-performing stores and for general working capital purposes, says Crumbs CEO Edward Slezak.
The company plans to raise more capital, Slezak says, and would consider an M&A opportunity with the right partner. "Our focus in any potential M&A transaction would ideally be with a strategic partner," Slezak says.
Crumbs sells cupcakes, cakes, cookies and other baked goods, as well as beverages, through multiple distribution channels, including retail, online, catering and wholesale. The chain was founded in 2003 on the Upper West Side of Manhattan. As of March 31, Crumbs operates 65 stores.
Crumbs will use the new loans to implement its business plan, which includes developing the licensing program and adding franchised stores. The company has upped its licensing business, which now includes single-serve coffee cups, bake mixes, hot chocolate mixes and novelty items. Crumbs is also working towards becoming a registered franchisor, and says it wants to be able to sell franchises domestically before Sept. 30.
The company has closed several stores that were not profitable. During the quarter ended Dec. 31, Crumbs closed nine stores, and the company has closed seven more stores in 2014, according to Slezak. Crumbs anticipates additional store closures.
Crumbs' accountant raised substantial doubt about the company's ability to continue as a going concern, or without the threat of liquidation, in a March 31 SEC filing. The company has a history of incurring losses and negative cash flows from operations and had an accumulated deficit of $25 million as of Dec. 31.
The bakeshop received a letter from the Nasdaq exchange on April 9 notifying it that it does not satisfy the listing requirements, which it needs to satisfy in order to continue trading. Crumbs plans to submit a plan to regain compliance.
For last week's edition of Turnaround Tuesday, see "Struggling Zogenix Files Suit in Massachusetts."
For more troubled companies see Mergers & Acquisitions Distressed Company Watch List.