Krispy Kreme


late Wednesday said it was delaying its third-quarter regulatory filing in the midst of an investigation by the

Securities and Exchange Commission

into the way it accounted for the repurchasing of franchises.

Early Thursday, the company said a law firm it hired to investigate the matter found no intentional misconduct by the company and its employees concerning an accounting error in an acquisition in fiscal 2004. Also, it proposed adjustments to its financials that would reduce net income for fiscal 2004 by 2.7%, with reductions of 1.9%, 2.1% and 6% in the second, third and fourth quarters, respectively.

Shares were recently adding 90 cents, or 9%, to $10.93 in premarket trading.

The proposed adjustments would treat a part of the disproportionate purchase prices paid to a former operating manager of a Michigan franchise and a former operating manager of a northern California franchise as compensation expense. Each of the managers worked for Krispy Kreme for a short time.

However, if it is determined that all of the disproportionate amounts of these purchase prices should be considered compensation expense, then Krispy Kreme's net income would be reduced by 7.6% for fiscal 2004 and by 23% for the fiscal 2004 fourth quarter, the company said.