Nature of Business and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Nature of Business and Summary of Significant Accounting Policies [Abstract]

Nature of business and summary of significant accounting policies

1. Nature of business and summary of significant accounting policies

Unaudited Interim Financial Information

The accompanying condensed consolidated interim financial information of 57^th Street General Acquisition Corp (“57^th Street”) and Crumbs Holdings LLC and its wholly-owned subsidiaries (“Crumbs”) (together, the “Company”) as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 is unaudited and has been prepared on the same basis as the audited condensed consolidated financial statements. In the opinion of management, such unaudited financial information includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim information. Operating results for the three and six months ended June 30, 2011 and 2010 are not necessarily indicative of results that may be expected for the year ending December 31, 2011. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in 57^th Street’s Third Amended and Restated Offer to Purchase, dated April 18, 2011 (as amended and supplemented on each of April 21, 2011, April 25, 2011, April 26, 2011, April 27, 2011 and May 5, 2011), filed with the Securities and Exchange Commission (the “SEC”).

Reverse Merger

On January 9, 2011, 57th Street, 57th Street Merger Sub LLC (“Merger Sub”), Crumbs, all the members of Crumbs immediately prior to the consummation of the Merger (as described below) (individually, a “Member” or, collectively, the “Members”), and the representatives of Crumbs and the Members, entered into a Business Combination Agreement, amended on each of February 18, 2011, March 17, 2011 and April 7, 2011 (the “Business Combination Agreement”) pursuant to which 57th Street acquired Crumbs. Pursuant to the terms of the Business Combination Agreement, among other things, Merger Sub merged with and into Crumbs with Crumbs surviving as a non-wholly owned subsidiary of 57th Street (the “Merger”) in exchange for consideration in the form of cash, newly issued preferred stock of 57^th Street, and newly issued exchangeable units of Crumbs. The Merger was consummated on May 5, 2011. Management has concluded that Crumbs is the accounting acquirer based on its evaluation of the facts and circumstances of the acquisition. The entity surviving the Merger kept the Crumbs name. 57^th Street intends to change its name to Crumbs Bake Shop, Inc. in the near future.

Pursuant to the Business Combination Agreement, upon consummation of the Merger, Crumbs amended and restated its limited liability company operating agreement to replace the various classes of its existing membership interests with two new classes of membership interests:

• a new class A voting membership interests (the “New Crumbs Class A Voting Units”); and

• a new class B exchangeable membership interests (the “New Crumbs Class B Exchangeable Units”).

Upon consummation of the Merger, Crumbs issued to the Members an aggregate of 4,541,394 New Crumbs Class B Exchangeable Units, which have limited voting rights. The New Crumbs Class B Exchangeable Units are exchangeable for shares of 57^th Street’s common stock on a one for one basis (subject to certain adjustments related to organic dilution) at the request from time to time of any holder of such units pursuant to the terms of an Exchange and Support Agreement (“Exchange and Support Agreement”) between the Members, 57^th Street, and the Company. 57^th Street accordingly reserved 4,541,394 shares of its common stock for issuance to the Members upon their exchange of New Crumbs Class B Exchangeable Units.

Additionally, 57^th Street issued to the Members 454,139.4 shares of Series A Voting Preferred Stock of 57^th Street (the “Series A Voting Preferred Stock”). Holders of Series A Voting Preferred Stock have the right to vote on all matters submitted to a vote of 57^th Street’s common stockholders, voting together with the holders of common stock as a single class, each share of Series A Voting Preferred Stock held on the record date for determining stockholders initially will be entitled to 10 votes (subject to adjustment for organic dilution). Upon exchange of the New Crumbs Class B Exchangeable Units in accordance with the Exchange and Support Agreement, a proportionate amount of shares of Series A Voting Preferred Stock will be automatically redeemed and cancelled at the current ratio of 1:10, subject to the availability of lawful funds, for its par value of $0.0001 per share and become authorized but unissued preferred stock. Except in connection with the exchange of the New Crumbs Class B Exchangeable Units, the 57th Street Series A Voting Preferred Stock will not be redeemable. Except as provided in the Exchange and Support Agreement and the Business Combination Agreement, of 57th Street Series A Voting Preferred Stock will have no other conversion, preemptive or other subscription rights with respect to the 57th Street Series A Voting Preferred Stock and there are no sinking fund provisions applicable to the Series A Voting Preferred Stock.

Upon consummation of the Merger, Crumbs issued to 57^th Street 4,494,491 New Crumbs Class A Voting Units. Holders of New Crumbs Class A Voting Units possess all voting rights in Crumbs on ordinary matters. 57^th Street is the sole holder of New Crumbs Class A Voting Units. In the event Members exchange their New Crumbs Class B Exchangeable Units for the common stock of 57^th Street, 57^th Street will be issued New Crumbs Class A Voting Units equal to the number of New Crumbs Class B Exchangeable Units being exchanged pursuant to the Exchange and Support Agreement.

The aggregate amount of cash consideration paid by 57^th Street pursuant to the Business Combination Agreement was $22,086,060.

Nature of Business

The Company specializes in the sale of comfort-oriented and elegant baked goods, with more than 150 varieties of goods baked fresh daily, but is specifically known for its line of gourmet cupcakes. Other items sold include beverages and logoed merchandise. Sales are primarily conducted through retail locations in New York, California, Illinois, Connecticut, New Jersey, Virginia and Washington D.C., while a small percentage of baked goods sales stem from wholesale distribution and catering sales to several metropolitan area vendors. The Company also commenced its e-commerce business in early 2009 enabling nationwide cupcake sales.

Crumbs Holdings LLC was the sole member of 50 limited liability companies, all operating under the trade name “Crumbs Bake Shop,” as of June 30, 2011. A new limited liability company is formed for each retail location and business, and as of June 30, 2011, 35 retail locations, the wholesale business, e-commerce and catering business were in operation.

Basis of Presentation

The condensed consolidated interim financial statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The accompanying condensed consolidated interim financial statements include the accounts of 57^th Street General Acquisition Corp., Crumbs Holdings LLC, and all of Crumbs Holdings LLC’s wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Restricted Cash

As of June 30, 2011 and 2010, Crumbs had $575,000 and $30,000, respectively, of cash restricted from withdrawal and held by banks as certificates of deposit securing letters of credit (See Note 4). The letters of credit are required as security deposits for certain of the Crumbs’s non-cancellable retail store operating leases.

Income Taxes

The Company complies with FASB ASC 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Company recording a tax liability that reduces ending stockholders equity. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2011 and 2010. However, the Company’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.

The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of and for the three and six months ended June 30, 2011 and 2010.

The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states. Generally, the Company is subject to income tax examinations by major taxing authorities since inception.

The Company may be subject to potential examination by U.S. federal or U.S. states authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal and U.S. state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Tax Receivable Agreement

Crumbs intends to make an election under Section 754 of the Internal Revenue Code (the “Code”) effective for each taxable year in which an exchange of New Crumbs Class B Exchangeable Units for shares of the Company’s common stock as described above occurs, which may result in an adjustment to the tax basis of the assets of Crumbs at the time of an exchange of New Crumbs Class B Exchangeable Units. As a result of both the initial purchase of New Crumbs Class B Exchangeable Units from the Members in connection with the Merger and these subsequent exchanges, 57^th Street will become entitled to a proportionate share of the existing tax basis of the assets of Crumbs. In addition, the purchase of New Crumbs Class B Exchangeable Units and subsequent exchanges are expected to result in increases in the tax basis of the assets of Crumbs that otherwise would not have been available. Both this proportionate share and these increases in tax basis may reduce the amount of tax that 57^th Street would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

57^th Street entered into a tax receivable agreement with Crumbs that will provide for the payment by 57^th Street to the Members an amount equal to 50% of the amount of the benefits, if any, that the Company is deemed to realize as a result of (i) the existing tax basis in the intangible assets of Crumbs on the date of the Merger, (ii) these increases in tax basis and (iii) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are obligations of 57^th Street and not of Crumbs. For purposes of the tax receivable agreement, the benefit deemed realized by 57^th Street will be computed by comparing the actual income tax liability of 57^th Street (calculated with certain assumptions) to the amount of such taxes that 57^th Street would have been required to pay had there been no increase to the tax basis of the assets of Crumbs as a result of the purchase or exchanges, had there been no tax benefit from the tax basis in the intangible assets of Crumbs on the date of the Merger and had 57th Street not entered into the tax receivable agreement. The term of the tax receivable agreement will continue until all such tax benefits have been utilized or expired, unless 57^th Street exercises its right to terminate the tax receivable agreement for an amount based on the agreed payments remaining to be made under the agreement or 57^th Street breaches any of its material obligations under the tax receivable agreement, in which case all obligations will generally be accelerated and due as if 57^th Street had exercised its right to terminate the agreement.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash in banks, certificates of deposit, and accounts receivable. The carrying amounts for cash and cash equivalents and accounts receivable approximate fair value due to the short term nature of the instruments.

Net loss per common share

The Company complies with accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. At June 30, 2011, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted loss per common share is the same as basic loss per common share for the period.

Recently issued accounting standards

The Company does not believe that the adoption of any new recently issued accounting standards will have a material impact on its financial position and results of operations.

Reclassifications

Certain reclassifications have been made to the prior year financial statements in order for them to be in conformity with the current year presentation. Such reclassifications have no effect on reported net income.