MTY's Dividends Are Paid by Franchisees

Updated April 8, 2021

For more than a decade, Cold Stone’s franchisees complained their stores were not profitable. These complaints were given validity when the federal government issued a report finding that Cold Stone had one of the highest SBA loan failure rates in franchising. This was caused in part by the company’s kickback scheme. Franchises closed, owners file for bankruptcy, homes were foreclosed, etc. Based on Cold Stone’s 2020 FDD and other information, the franchise network suffered negative growth dating back to 2007.

Recently, Cold Stone has successfully avoided media coverage of its kickback scheme and held negative press to smaller publications, announcements of store closures and other issues of local interest. The company is therefore poised to sell new franchises claiming low food cost, profitable franchisees and claim that its franchise network is growing fast, even if it may not be true. This may lead some potential franchise investors to believe that Cold Stone’s troubles and kickback scheme are in the past.

However, Cold Stone has closed 500 U.S. locations since 2007. More recently, the company’s 2018 – 2020 FDD’s disclosed 271 of the company’s U.S. franchisees left the company in just a three-year period: 84 franchisees or 9.2% of the company’s franchisees during the 2018 FDD term (PDF page106); 97 franchisees or 10.5% of the company’s franchisees during the 2019 FDD term (PDF page 110); and 90 franchisees or 10% of the company’s franchisees during the 2020 FDD term (PDF page 104). This exodus predates COVID-19.

Below are statements that, based on the information above, some potential investors may find false or misleading as to the effects of Cold Stone’s kickback scheme.

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