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Cold Stone case: Where’s the expansion?

posted Nov 20, 2011, 4:07 PM by Cold Stone Facts

Last Updated: 3:25 AM, November 14, 2011

Posted: 10:39 PM, November 13, 2011

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The owner of ice cream chain Cold Stone Creamery has had to put expansion plans on ice for months after a delay in auditing its books, The Post has learned.

Kahala Corp., of Scottsdale, Ariz., which also owns Blimpie, Ranch 1 and Surf City Squeeze, has not produced 2010 audited financials and since May 1 has been prevented from selling new US stores.

The Federal Trade Commission requires franchisors to furnish the document before they can legally sell new stores to franchisees.

Michael Reagan, Kahala’s executive vice president and general counsel, confirmed the company was late in filing the statements -- a delay it blamed on its outside accountant -- but said the company was filing the completed audit today.

“Six months is a long time without a financial disclosure statement,” Reagan said. “There was an unfortunate delay and it had nothing to do with our financial condition.”

The company provided The Post with the just-completed 2010 financial statement showing the results for a subsidiary, Kahala Franchising LLC, which doesn’t include results for Cold Stone Creamery.

Kahala’s Cold Stone franchise, in particular, has come under scrutiny in the past few years after store owners complained of a flawed business model that saddled them with shrinking profit margins and soaring costs. A number of franchisees either sold their stores or filed for bankruptcy.

A source close to the situation said not having an audited disclosure statement “is extraordinarily odd for a going concern.”

Cold Stone, which operates 1,500 stores, has plans to open 16

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