This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

[video] Crumbs Sweetens Future With Credit Facility

NEW YORK (The Deal) -- A few months after warning that it needed to raise financing to fund its cash flow needs, Crumbs Bake Shop  (CRMB) has obtained a $5 million senior secured credit facility, but the nation's largest cupcake store chain isn't going to open new stores.

It will continue closing underperforming ones and is exploring a strategic relationship with a formerly bankrupt ice cream maker.

The New York-based retailer known for its oversized cupcakes, which has 69 locations in 12 states and the District of Columbia, is getting the credit facility from its nearly 15%-owner, Fischer Enterprises, which bought beaded ice cream maker Dippin' Dots out of bankruptcy in 2012 and now wants to create synergies between the two holdings, Crumbs said on Wednesday.

For Crumbs, milking its relationship with Fischer isn't a bad idea. In the company's latest financial report, filed with the Securities and Exchange Commission on Nov. 14, Crumbs warned that it needed additional capital to fund its cash flow requirements.

Besides having only $1.66 million cash on its balance sheet as of Sept. 30, Crumbs reported a $9.52 million net loss for the first nine months of 2013. It also has a $20.195 million accumulated deficit.

Crumbs disclosed in the report for the third quarter that it had used $6.575 million in cash in the nine months ending Sept. 30 to open new stores. The filing noted that "management does not anticipate opening any new stores in the near future and has begun a process of closing underperforming stores."

Crumbs, which had $24.53 million in assets and $18.01 million in liabilities as of Sept. 30, sells a variety of cupcakes, cakes, cookies, other baked goods and beverages. With Dippin' Dots, which flash freezes its ice cream, Crumbs will explore synergies such as co-branding, cross-branding and distribution, said Scott Fischer, the president of Dippin' Dots and COO of Fischer Enterprises, in an e-mailed statement on Thursday.

"It is our hope that these possible synergies will allow opportunities that could result in a win-win situation for both companies," Fischer wrote. "While no specific plans have been developed or agreements entered into, we believe the areas of operation and sales concepts for the two companies are complementary and thereby could potentially result in increased market exposure for Dippin' Dots and Crumbs."

Fischer Enterprises, which is an investment firm founded by Mark Fischer, the CEO of Oklahoma City-based Chaparral Energy, has agreed to provide Crumbs with a $5 million loan to help it "implement the new business plan that Crumbs has been developing over the last two quarters," the Crumbs statement said.

The company has received $3 million of the loan and will receive another $1.5 million by April 1.

The loan is priced at 7% and matures on July 1, 2016, according to a Crumbs spokeswoman, who added that there is a 1% lending fee.

Under the terms of the loan, Fischer Enterprises received the right to nominate up to two designees to the Crumbs board of directors, the spokeswoman said.

She asserted that the company doesn't have any plans to participate in any additional financings and isn't working with any advisers on a restructuring.

The new business plan is focused on "aggressively developing a licensing program, strategically adding franchised stores to complement Crumbs' successful company-owned stores and the ongoing initiative of closing or co-branding existing stores that are currently unprofitable," Crumbs said in the Jan. 22 statement.

The spokeswoman said that Crumbs is moving away from its structure of all company-operated stores so that it could expand more rapidly and use much less capital. The company is also looking toward international expansion, she said.

Fischer Enterprises disclosed that it had taken a 14.95% stake in Crumbs on Dec. 31.

In mid-November the investment firm purchased 317,964 of Crumbs' shares at 99 cents each and followed up with further purchases, including a 437,400-share buy on Nov. 22 for 99 cents each.

Fischer Enterprises bought Paducah, Ky.-based Dippin' Dots out of Chapter 11 for about $15 million in a sale that was approved by Judge Thomas H. Fulton of the U.S. Bankruptcy Court for the Western District of Kentucky in Paducah on May 2, 2012.

Dippin' Dots filed for Chapter 11 protection on Nov. 3, 2011, due to patent litigation and the economic downturn, according to Dippin' Dots spokeswoman, Billie Stuber.

In addition to its new $5 million loan, Crumbs has $7 million in senior convertible notes due May 10, 2018, and $3 million in senior convertible notes due June 11, 2018. The notes are priced at 6.5%, which will increase to 18% if the company defaults on the notes. The notes are convertible into the company's common stock at $1.55 per share.

Crumb's stock closed at 59 cents Thursday, down 6.3%.

Crumbs also has a $575,000 revolving line of credit with a variable interest rate, but had nothing outstanding on it as of Sept. 30.

Crumbs faces fierce competition, especially in New York, where the popular Magnolia's bakery as well as many other independent cupcake makers offer their wares, according to the Nov. 14 regulatory filing. And because it's known as a dessert-only retailer, industry watchers don't think a menu upgrade would be very easy.

Crumbs purchases all of its baked goods from five independent commercial bakeries. The first Crumbs shop was opened in March 2003 on the Upper West Side of Manhattan.

According to Dippin' Dots' Stuber, the ice cream maker has about 120 franchisees that operate about 112 franchise locations in malls, shopping centers and stores nationwide. The franchisees also operate about 388 vending machines and service almost 9,000 events. The company has one store that it operates in Kentucky and it provides its products directly to movie theaters, sports venues, theme parks and elsewhere through its national corporate accounts, Stuber noted.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CRMB $0.24 2.17%
AAPL $132.03 1.90%
FB $80.55 1.50%
GOOG $539.80 1.40%
TSLA $247.43 -0.01%

Markets

DOW 18,162.99 +121.45 0.67%
S&P 500 2,123.48 +19.28 0.92%
NASDAQ 5,106.5930 +73.8420 1.47%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs