THERE IS A SUBSTANTIAL RISK OF FAILURE ASSOCIATED WITH MTY FRANCHISES. MTY AVERAGED AN 11% CLOSURE RATE IN FIVE YEARS WHILE CHARGING FRANCHISEES $239 MILLION IN KICKBACKS ON TOP OF REGULAR FEES. THEY CLOSED 2,594 LOCATIONS FROM 2016 THROUGH Q2, 2021. KICKBACKS CAUSE FRANCHISES TO COLLAPSE!

MTY’S BOARD MADE FALSE STATEMENTS TO INVESTORS WHILE ENGAGING IN A COVER-UP TO CONCEAL THAT IT WAS REPORTING FALSE DATA TO HIDE THAT ITS FRANCHISE NETWORK IS COLLAPSING. ITS CHAIRMAN, STANLEY MA, SOLD $43 MILLION OF STOCK WITHOUT CORRECTING THE FALSE STATEMENTS TO INVESTORS—POTENTIALLY COMMITTING INSIDER TRADING. MTY THEN INCREASED KICKBACKS BY $5.3 MILLION ON FRANCHISEES AND AUTHORIZED $3 MILLION IN ANNUAL DIVIDENDS TO STANLEY MA.

Projected US Growth

Updated September 18, 2021

The FTC has established regulations to address “material misrepresentations and nondisclosures of material facts” that cause “widespread deception in the sale of franchises” (PDF page 3). This federal law is intended to remedy deceptive practices by franchisors such as their prevalent use of “misleading representations about the success of franchise systems” including false information about the “expected growth of the system” (PDF page 9).

As a part of its effort to remedy franchisor misinformation, the FTC requires franchisors to publish projected growth data in “Table No. 5”. This table provides “prospective franchisees insight into anticipated growth within the system” (PDF page 61). The FTC also prohibits franchisors from making contradictory statements about the FDD data because those statements “would be false” or likely misleading (PDF page 89).

In January 2020, we reported numerous FTC and ethics allegations to MTY including that it omitted Table No. 5 from Cold Stone’s 2018 FDD (PDF page 106) and 2019 Franchise Disclosure Document (FDD) (PDF page 110), despite that it is required by the FTC. We also reported that the company included Table No. 5 for Rocky Mountain Chocolate Factory in both FDD’s (PDF page 411 and PDF page 434). MTY further acknowledges the importance of this information in its FDD by referring investors to this information to in part respond to the question: “Is the franchise system stable, growing, or shrinking?” (PDF page 2.) MTY was therefore aware of the required table and its importance.

MTY, CEO Eric Lefebvre, and Audit Chairman Gary O’Connor, quickly responded to our allegations by falsely telling investors the charges were “baseless” and reported by an “active employee”. They also claimed the allegations were previously “evaluated” and had been “dealt with in the past” (PDF pg. 2 and PDF pgs. 2 & 6). However, without ever admitting the allegations were true, the company attempted to cover up Lefebvre and O’Connor’s false statements in part by including Table No. 5 in its 2020 FDD just one month after we informed them of the charges. After promoting its Cold Stone franchises in prior years as “can’t-miss” and among the “most in-demand” opportunities, the 2020 table projected just nine new franchises in 2021 (PDF page 103).

On one hand, MTY withheld information from prospective franchise owners that was required by federal law and intended to inform them of the franchise network’s future growth. On the other hand, the company promoted its franchise opportunities using false statements claiming its future growth was exceptional and “unprecedented”, when it wasn’t. This appears to be exactly the type of behavior the FTC was intended to curtail. When this and many other allegations were brought to MTY’s attention, the company denied it all and then attempted to cover it up.

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Below are statements that, based on the information above, some potential investors may find false or misleading about Cold Stone’s projected future growth of its U.S. franchise network.