And, in a move that threw fuel on the fire, after reporting second quarter earnings, Kripsy Kreme withdrew its earnings guidance for the rest of the year and 2005. Moreover, the company revised its development plans for next year and now expects to open 75 new stores systemwide, down from more than100.

JP Morgan has spoken out against Krispy Kreme's expansion strategy, primarily because of declining stores returns. In a recent report, analysts John Ivankoe and Steven Rees wrote: "Most of the crux of our argument against Krispy Kreme's growth strategy has centered on declining new unit returns." They concluded: "We believe earnings risk is still likely over the next several quarters, and do not see any near term multiple upside…"

Also in the mix the Securities and Exchange Commission's investigation. The inquiry generally concerns Krispy Kreme's franchise reacquisitions and previously announced reduction in earnings guidance.

Earlier this fall, Krispy Kreme's accounting firm PricewaterhouseCoopers LLC declined to sign off on financial statements. And, the company has experienced an upper management shakeup as well; COO John Tate resigned to join retailer Restoration Hardware, and CFO Randy Casstevens also left.

In response, Krispy Kreme has appointed two new independent directors to its Board. The addition of Michael Sutton and Lizanne Thomas brings the company's total Board membership to 11 and the number of independent directors to nine. Sutton and Thomas will head up a special committee to assist the SEC.