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Krispy Kreme franchisee files for bankruptcy

FULLERTON Calif. Great Circle Family Foods LLC., a 12-unit Krispy Kreme Doughnuts franchisee that at one point was the system’s largest operator, filed for Chapter 11 bankruptcy protection on Wednesday.

The company, which had a storied and at times turbulent history with its Winston-Salem, N.C.-based franchisor, Krispy Kreme Doughnuts Inc., will continue to operate its Southern California units as it seeks a restructuring, according to court documents. Great Circle’s largest secured creditor is General Electric Capital Business Asset Funding Corp., which holds a claim of about $7.5 million. Total liabilities were logged at between $1 million and $100 million. The company said its sales this year should total about $17 million.

Great Circle also operates Coffee Bean & Tea Leaf franchises in certain of its Krispy Kreme stores.

In 1998, Great Circle signed an area development agreement with Krispy Kreme to develop as many as 42 stores in the Southern California market. By 2004, the franchisee had opened 31 retail locations, a commissary and a wholesale operation serving 800 clients, court documents stated. Sales reached $64 million in 2004. In May 2004, however, Krispy Kreme logged its first per-share earnings miss, the company’s management was accused of managing earnings and overstating sales, numerous franchisees filed for bankruptcy and the once high-flying company started to report plunging sales, profits and stock value.

At that time Great Circle also suffered and was forced to sell many of its stores. By 2006, it operated only nine units. The franchisee also began to vocalize its disappointment with its franchisor, starting a website called “Protectors of the Krispy Kreme Brand.” Krispy Kreme at one point revoked Great Circle’s franchisee license because Great Circle had failed to make branding and equipment payments. The issue was resolved and Great Circle resumed payments and continued to operate Krispy Kreme stores.

Krispy Kreme’s demise led to numerous shareholder and franchisee lawsuits, a new management team was put in place and an outside restructuring officer helped the company restructure. In 2005 and 2006, the company closed numerous stores and halted new franchise agreements. This year, it filed a new Uniform Franchise Offering Circular, submitted up-to-date financial statement with federal regulators and settled its lawsuits.

The company, which now operates or franchises about 400 locations globally, still is suffering financially. For its latest full year ended in January, corporate revenues decreased 15.1 percent to $461.2 million. Systemwide sales decreased 11.9 percent compared to the year earlier. The company’s net loss, however, improved to $42.2 million in fiscal 2007, compared with a net loss of $135.8 million in fiscal 2006.

According to a statement on the “Protectors of the Krispy Kreme Brand,” Great Circle said, “More work has to be done during the next few months, but [the company] is performing well. Transactions are more than 6 percent ahead, year over year, and same store sales are up 2.7 percent.”

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