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From Red-Hot Bonanza to Cautionary Business Tale

Just five or six years ago, people were talking about a donut as a symbol of the New South! Not the gleaming skyline of Atlanta, Georgia, or laboratories in North Carolina's Research Triangle. A donut: that puffy breakfast pastry with a hole in the middle.

Specifically, a Krispy Kreme donut, because this delicacy, often served hot from fryers throughout the American Southeast, was spreading like wildfire around the world. In 2000, the company took its stock public, and people rushed to buy the initial offering at $21 a share. By 2004, the price had more than doubled, the company was reporting almost $100 million in annual profit, and the number of Krispy Kreme shops had tripled to 400, as far away as South Korea.

Forbes magazine called Krispy Kremes the Stradivarius of doughnuts. The New York Times newspaper wrote that Krispy Kremes are to donuts what angels are to people. Customers drove frantically around town, hoping to catch the moment that a Krispy Kreme neon window sign would flash on. The sign read "hot," meaning donuts were fresh and piping hot.

That sign still pops on at Krispy Kreme outlets, but the brand is nowhere near as hot as it once was. A low-carbohydrate diet craze in 2004 ate into sales. Then federal regulators launched an investigation into alleged padding of sales figures. Before long, the stock price wasn't $40. It was $6. This year it has wavered around $10 or $11 a share. Analysts wrote that Krispy Kreme killed the product's mystique by putting the donuts too many places, too fast.

So these are difficult times at the 70-year-old company that makes those glazed, molten Krispy Kremes that still roll -- hot and sticky and nearly irresistibly -- off the assembly line.