The restatements of the donut maker's financialstatements are expected to reduce net income forfiscal 2004 by between approximately $3.8 million and$4.9 million (between 6.6% and 8.6%). Net income wasfirst reported at $56.8 million. On December 28, 2004,the board of directors determined that adjustmentstotaling between $6.2 million and $8.1 million shouldbe made to reduce pre-tax income for fiscal 2004.

Moreover, Krispy Kreme says that further investigationinto its financial reporting could require morerestatements. For example, the company currently isreviewing its accounting practices for leases anddepreciation of related assets to determine whether ornot those practices fully comply with generallyaccepted accounting principles.

Krispy Kreme, which currently operates 440 stores(comprised of 402 factory stores and 38 satellites) in45 U.S. states, Australia, Canada, Mexico and theUnited Kingdom, says that the accounting evaluationhas caused delays in reporting fiscal 2005. Itsfailure to deliver to its lenders the company'sfinancial statements for the quarter ended October 31,2004 on or before January 14, 2005 constitutes anevent of default under the Company's $150 millioncredit facility.