Mix the cream cheese, butter, and egg yolk until smooth, then add the flour and baking powder. Mix until well blended and form into a disc. Wrap disc in plastic wrap and refrigerate for at least an hour (or up to 2 days).
Divide the dough in half. On a lightly floured surface, roll half the dough into a 15x9 inch rectangle. (Return remaining dough to the refrigerator). With a sharp knife or a pizza cutter, trim uneven edges from the dough and cut the rectangle into 3-inch squares. Place the squares at least ½ inch apart on parchment paper-lined sheet pans.
Heat oven to 350F.
Lightly whisk the reserved egg white and brush one dough square all over with the egg white. Using a sharp knife, cut the dough diagonally from each corner to within ½ inch of the center of the square.
Sprinkle one teaspoon colored sugar evenly over the whole square. Fold in every other point of the square to the center, forming a pinwheel, overlapping the corners at the center and pressing down gently to seal. Press an *M&M (Hope you’ve got enough!) in the center of the pinwheel, covering the points. Repeat with remaining squares.
Bake for 9 to 12 minutes, until dry and very light golden.
Repeat with reserved dough to make approximately 30 finished cookies.
Store finished cookies between wax paper layers in an airtight container. Cookies will stay crisp and tasty for about 4 days.