Holes In The Doughnut Business; Krispy Kreme offers a case study in pitfalls to avoid when running a fast-growing company.(MANAGING FOR SUCCESS)

Byline: BRIAN DEAGON

Krispy Kreme Doughnuts was the hottest thing going when Chief Executive Scott Livengood brought the company public in April 2000.

At a time when tech stocks were tanking, Krispy Kreme offered investors something good to chew on. Sugar and flour replaced chips and software. Krispy Kreme's stock surged 76% on its first day of trading. Newly opened Krispy Kreme stores would rack up $500,000 per shop in sales the first week of doing business. Hundreds of people would line up for grand openings before the sun rose.

The people now lining up at Krispy Kreme are lawyers, creditors and federal regulators.

Shareholder lawsuits have piled up, the Securities and Exchange Commission is investigating its accounting practices and the company is working hard to keep creditors at bay.

Krispy Kreme is in deep dough-dough. And it may get deeper still: The company tossed its initial financial reports for 2004 into the trash bin. It also warned investors not to rely on reports for fiscal 2001, '02 and '03.

The Krispy Kreme experience is now a teaching tool at universities, an example to students of the pitfalls of running a franchise operation. The one-time darling of Wall Street became an orphan as analysts and investors abandoned the company.

"I've not …