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.”
1. Since the IPO of Crumbs, how much has the stock dropped?
2. Explain the statement that Crumbs published in its 10-Q in one simple sentence: “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.”
3. Summarize the red flags at Crumbs that are evidence of a going concern problem.
Udland, M. (2014). Crumbs Baked Shop’s Accounts Are Not So Sweet. Business Insider, June 1 (Retrievable online at http://www.slate.com/blogs/business_insider/2014/06/01/crumbs_baked_shop_a_cupcake_and_baked_goods_maker_might_not_stay_in_business.html)